Insurance Agent Forum

[silverstar]

I'm looking to purchase a small insurance agency with a book of business that includes med supp, life, annuities, long term care. My question is.....how do you measure the value or worth of an agency? What is a fair value for that book of business?

[SportsNut]

Hmmmm. Not a cut and dried answer. When you say "small", it really depends somewhat on how small is small...? If small means that its renewal and residual income is small, and the client base by number is small, then the value is very slight. If small means that residual value is enough to pay your overhead and then some, plus some cross selling opportunities from the book of biz, then the value is greater.

The benchmark that is many times used with P&C agencies is 1.5 times income. I would avoid any such number especially when valuing a health book of biz for older clientele. I would look at this more like the sale of an accting firm, or other biz where retention of clients is key to its value. As example, you might pay 40-50% of the current and future income, but amortized over the next 3 yrs. This would include the comms of cross selling opptys, so if the book of biz if good and solid and you can retain the biz, the current owner benefits from future sales as well. If shaky then you aren't paying for something that won't be around next year and beyond.

I am merely giving you opinion here and not an absolute method to run with... but is how I would look at any such oppty, FWIW.

Here is some info about a site that appraises agencies.

[djs]

If it's just the policy business, start at 2x annual commissions and adjust for various factors from there.

Factors to think about:
- Keep the phone number that the previous agent used.
- Have a reserve for policy cancellations. State how this will work upfront.
- What, besides the policies, do you get? Is there a good office space lease, assistants, furniture, etc? I assume not in this case.
- Are there any restrictions on the current business? Probably a bigger issue when dealing with P&C.

Small books tend to get the lower end of the range. Older, stable policies tend to get the upper end of the range.

Something to think about though, why would anyone sell a life/health book of business? You can sit back and collect residuals with very little work, doesn't cost much to keep the license in place and e&o. P&C is a different beast.

Knowing why they are selling will help determine the price.

All the above is some VERY generic guidelines. It's really all about how it benefits you. If you can't cross-sell / upsell the book, its worth a lot less to you.

Dan