Buying an Insurance Agency? Ask these 6 Questions First!

The insurance industry has seen steady growth in recent years due to new legislation, macroeconomic growth, and an increase in disposable income levels. In fact, from 2014 to 2019, the $167 billion industry saw 2.4 percent growth. If you’ve been thinking about buying an insurance agency, it’s time to do it! Continue reading to determine whether the insurance industry is for you, and what you need to ask sellers.

6 Must-Ask Questions When Buying an Insurance Agency

Ask these questions to determine whether or not an insurance agency is a wise investment.

1. How much does the average insurance agency make?

From types of insurance sold and the number of clients to location and more, countless factors impact the amount an insurance agency makes. If the portfolio of insurance the agency sells is well-diversified, there’s more opportunity for you to make a profit. Be sure to inquire about the agency’s book of business during the due diligence process to get an idea of the agency’s cash flow.

2. What makes this insurance agency stand apart?

Between independent agencies and big-time insurance providers like Allstate, Progressive, and State Farm, the insurance industry is highly saturated. It is more important now than ever before to stand out from other providers. When looking at existing insurance agencies for sale, consider how agencies of interest compare to competitors.

Ways an insurance agency might set itself apart from others include:

• Providing clients with easy-to-use technology for quotes, account management, and payment;
• Being transparent about pricing;
• Having a convenient office location;
• Creating a personalized, professional-looking website;
• Getting involved in community events and outreach; or
• Sending out monthly newsletters or print pieces.

Do you know how the existing insurance company is doing compared to competitors under current ownership? Be sure to look into this during the due diligence process.

3. Why is the existing owner selling this insurance agency?

Typical reasons for an owner to sell an insurance agency include retirement, new opportunities, illness, financial troubles, or family obligations. If, at any point, an existing agency owner indicates that he or she is selling due to poor performance and economic hardships, take it as a warning that the business may not be doing well. Although new ownership and management could turn the agency’s performance around, you must do some more digging into the independent insurance agency.

Must-Ask Financial Questions About the Insurance Agency

Ask the existing insurance agency owner these questions to determine what’s included in the sale and how much the agency is worth.

4. Does the sale include the agency’s real estate?

If the insurance agency in question has office space, you’ll need to determine whether the agency owner is leasing the space or owns the office. If he or she has ownership, ask whether or not they plan to sell it with the agency, and for leased spaces, confirm that the lease is transferable if you were to purchase the agency.

5. Will the sale include the book of business?

One of the most critical questions to ask when buying an insurance agency is whether or not the sale includes the books of business. If the deal provides the book of business, you’ll want to assess how much it’s worth as this will help you determine the value of the company and how much initial sales work is needed post-sale.

6. How much is the agency worth?

You can calculate an insurance agency’s worth multiple ways. Be sure to ask the existing business owner how he or she arrived at the asking price. If a professional valuation service or business broker did not conduct a valuation, you’d likely have more bargaining power.

To ensure you receive the best deal on the existing insurance agency, it’s best to hire a professional business broker. A business broker can help you find your ideal insurance agency, negotiate with the seller, and ultimately close the deal.

To begin the exciting process of buying an insurance business, contact your local Sunbelt Business Brokers office. Our brokers are professional, trustworthy, and eager to help you find your dream business.