Friday, December 11, 2020

Insurance Agency Mass Consolidation Continues


Is the time right to sell your insurance agency, or expand it through acquisition?

COVID-19 caused people to re-evaluate their risk, and that’s had huge ramifications for independent insurance brokers. Market conditions have kept demand high and commission fed premiums growing.

This perfect economic storm has triggered unprecedented levels of industry consolidation and has left some scrambling for safe harbor by joining larger groups. 

Even before the pandemic hysteria, both property and casualty, and employee benefits, insurance brokerage agencies were prime acquisition targets for a multitude of different buyers. Why? We attribute this to 4 major factors contributing to the interest:

A steadily growing industry

Regular premium increases mean more revenue, thus increasing profit through commissions. 

Predictable recurring revenue

The holy grail for institutional investors. Revenue from renewed policies happens routinely without the customer acquisition costs associated with a new client. 


With so much uncertainly nationally and globally, investors are looking for the perceived “safer” investment in businesses that people need, not want. Plus, consumer confidence is historically low, so households are cutting out luxury items and tightening the budget. They want to protect what they have, which only feeds the industry. 

Boomers aging out

Born between 1946 and 1964, they are in the retirement window of 56-74 years old. Starting an insurance agency was a popular career path back for this generation, so some buyers are focusing on this niche alone. 

Added pressure for small brokerages 

We are seeing higher than normal M&A activity partly because of the lucrative offers brokers are getting and also fueled by the realization that it is going to increasingly become more difficult to compete being a small brokerage in terms of competing for talent and other costs of doing business. 

Selling the firm isn’t the only option either. Some are pursuing a “scale through acquisition” strategy themselves as a way to gain economies of scale. 

2019-2020 has shown some interesting industry trends we are keeping our eye on. It should provide some insight into what strategic moves to make in the coming new year. 

Transaction volume at an all-time high

According to a leading firm in the space, the total number of deals in the insurance brokerage hit an all-time high in 2019 with 649 total transactions, up from 643 in 2018. We think this trend will continue as the customer mix of brokers experiences the most significant change since the 2008 great recession. With so many businesses faltering, and up to 40 million Americans losing their jobs, it will inevitably create winners and losers in the commercial, personal, and home insurance space.  

Private Equity Interest

Private equity groups have a renewed love affair with agencies. In 2019, PE groups represented nearly 66% of all buyers last year. They are still expected to remain active through 2020 and are paying better than average multiples for quality businesses. 

What’s Next

We recommend clients have both a plan A and a plan B. There is still uncertainty in the market, and if anxiety gets too high, it can paralyze consumers which brings business to a stop. While the insurance industry is insulated from such downturns, it’s not immune either. We expect tine industry consolidation to continue. Prudent agency owners should have an idea of what their business is worth BEFORE they engage in conversation with an interested buyer. 

Talk to an advisory firm that has experience putting together merger and acquisition deals. Ask for an opinion of value that will help you understand if you still want to work in the business, or take the proceeds and enjoy retirement. 


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