You remember the days of you, a phone, and a desktop in a tiny office. The long days of calling carriers and hearing “no” after “no.” Waking up early and going to bed late, building a business based on hard work, professionalism, and care. And now it’s time to step away. Years of hard work and a lifetime of memories are invested in your agency. How do you pass it on?
Making Your Insurance Agency Perpetuation Choice
Agency succession can essentially take one of two paths: internal or external perpetuation. Internally, you can pass on ownership to key employees, friends or family members through sale or inheritance. Externally, you can sell to another agency or merge with another firm.
As often happens with such important decisions, both methods have their benefits and drawbacks. Let’s explore the positives and negatives of each.
Internal Agency Perpetuation
Internal perpetuation means “keeping it in the family,” whether that is your blood relatives, friends, or trusted employees. Passing on your agency to someone you know has its benefits such as:
Provides cultural continuity
Allows owner to stay involved
Ensures experienced, trusted party is taking over
Gives customers and carriers a familiar face
Yet, there is a risk involved when passing on your agency to someone internally. Stats show that less than 40% of family businesses survive to the next generation and even less to the third. Most internal perpetuation fails due to finances. In many instances, the buyer cannot afford the buy-out, and you end up losing cash in the long run. You can avoid these financial issues by:
Establishing deferred compensation for you, the owner, or producers
Offering stock redemption as a form of deferred payment, or
Gifting the agency, requiring no payment
External Agency Perpetuation
Perpetuating externally means selecting an outside party to take over your agency. This could be another independent agency or a larger firm, but either way, it means you’re giving over control to someone who has no incentive to keep you involved. The benefits to external perpetuation include:
Larger cash benefits
Separation from involvement
Potential for more robust infrastructure
Still need more information? Access our full list of perpetuation resources here
However, external perpetuation also has its drawbacks. Selling to an outside party can cause stress for employees and a potential loss of company culture. Similarly, the transition may be difficult for customers. To combat this, you can stipulate certain employees stay on in influential positions or outline a “gradual release” of ownership. But, such conditions may negatively affect sales price.
The Bottom Line: Protecting Your Agency’s Value
No matter which way you go, it’s important to think about the value of your agency before making a decision. Whether it’s stock options or your book of business, buyers need to know its worth.
One of the best tools to keep track of overall agency value is your management system. Management software with integrated accounting and customizable reports, like SIS’s Partner XE agency management system, make tracking and reporting your agency’s value easy.
To find out more about how SIS and Partner XE can help you track and grow your business, contact us at [email protected].
Chances are you have at least once received a gift and your first thought was: “Thanks?”. That question mark means you either don’t know what you’ll do with the gift or you didn’t want it in the first place. Both are not great reactions. Unfortunately, this is how some people feel when it comes to insurance agency perpetuation.
Something as large and meaningful as your independent insurance agency shouldn’t be received with hesitation! Whether you’re turning over ownership to a blood relative or a member of your larger agency family, it’s important to have both the giver and receiver on the same page. To avoid an uncertain or unwelcomed transition, both need to be prepared for perpetuation.
The SIS Agency Perpetuation survey showed 60% of respondents chose a family member as a successor. See the full results here.
Tips for the Giver: Wrapping Up Your Agency
Start planning now: There is no “too early” in planning your agency perpetuation. Some suggest starting as early as your mid-30s. No matter what age you are, it’s a good idea to put thought into how your agency will transition now.
Get a plan in writing: Focus first on defining milestones and a final end date. You should also consider incentives for employees to stay past the transition, client care plan, successor mentorship, and your ultimate goals for perpetuation.
Keep your plan fresh: Perpetuation is a big deal, and can’t be completed in one shot. Review your succession plan annually and update as needed. Include your successor in these reviews if you can.
Track and integrate agency progress: Part of your annual review of your plan should include analyzing agency data. Keep track of how you’re doing through reports generated by your agency management system.
Get your accountant involved: There are multiple tax implications involved in agency perpetuation. Depending on how and to whom you pass on your agency, you may have to pay more taxes or get a break. Get your accountant involved right away to ensure you’re ready.
Tips for the Receiver: Respecting Past Practices and Making the Agency Your Own
Be a part of the plan: Be part of perpetuation planning as early as possible. Let the owner take the lead, but don’t be shy about inserting your ideas. It’s important to be upfront about expectations.
Decide on owner involvement: One big item to plan ahead is how much the giver will be involved after the transition. Be clear about what you want, yet keep an open ear to what the giver intends. It’s best to negotiate these items, along with anything involving cost and compensation, with a third-party, preferably a lawyer.
Practice patience: Be patient and practice compassion as you take ownership. The independent insurance business is relational, meaning there are a lot of emotional attachments to the agency itself. There can be some strong feelings that come with change.
Embrace innovation…slowly: Transition is the perfect time to try something new. But, don’t change everything at once. Come up with one or two areas to start with right away. Move to others as time goes on, giving staff and customers time to adjust.
Consult with staff: To help ease transition, consult with members of your agency before implementing anything new. Ask for input on how to implement the changes you have in mind and be clear about why you feel they’re important. Ask for their opinions on what other improvements can be made. Focus on building trust and gaining employee buy-in: you’ll need both before making any new moves.
Leveraging Your Consistent Resource: Your Agency Management System
One thing that will be there on both sides of your transition is your agency management system. This is a great tool for setting up your agency to transition. And, it will create a sense of stability for your staff as ownership is transferred.
At SIS, we’ve helped multiple agencies work through a variety of transitions. Whether it’s moving from a legacy system to our all-in-one, web-based Partner XE management system, transitioning staff roles within the system, or providing all-staff training for a fresh start, we’re here to help.
To find out more about SIS, the services we provide, and our leading agency management system, Partner XE, visit us at sispartnerplatform.com.
There are many things we put off in life: dentist appointments, paying our taxes, that last nagging home improvement project. Whatever they are, these delayed tasks tend to be more of a hassle simply because we put them off.
Now is the time to cross it off!
We hear from our partner agencies that they are resisting perpetuation planning because they don’t know where to start. That’s why we’ve put time and effort into creating resources on this topic. Below are just some of the many tools at your disposal to help plan your agency’s transition.
One of the most important aspects of perpetuation planning is organizing agency records. The best tool for keeping those records in order is the hub of your agency data: your management system.
Start now by organizing agency data the way you want with personalized workflows and custom reporting, both of which are offered through Partner XE. These simple enhancements make it easy for you and you staff to enter and track data, setting you up for a successful transition.
Check out more Partner XE capabilities here. We’re always available to help your agency serve better, work more efficiently, and reach your goals. Get in touch with us today to schedule a demo and find out more on the Partner XE system.
SIS recently conducted a perpetuation survey to investigate the process and practices of buying and selling agencies. The results of this survey provided insights on independent insurance agency perpetuation, including:
Preparing for and looking to the future is an important part of insurance agency management. But, the future may be here faster than you think. Recent estimates predict property and casualty agencies will need to fill nearly 400,000 positions by 2020. Independent insurance agencies face a particularly high need as the average principle is close to 60 years old.
How can you ensure your agency will continue to grow as members of your staff reach retirement?
One way to prepare is adding Millennials (those aged 18-35 according to the Pew Research Center) to your staff now, while experienced staff members are still around.
The insurance industry – like others today – is understaffed. In late 2021, an insurance labor market study showed that 53% of agencies planned to “aggressively hire” within 12 months to fill vacancies. The same study also showed that it’s becoming increasingly difficult to fill open positions. As an owner, your insurance agency management relies on knowledgeable staff, but it can be challenging to fill positions in today’s market.
With hiring season just around the corner, your agency needs to focus on how to recruit new talent for your team. Past tactics may no longer work on a younger, more tech-driven workforce. It’s time to expand your outreach, position insurance differently, and look for diverse qualities to keep your agency growing.
Mike Maranda has been in the insurance business for over 40 years. He’s guided his agency through many seasons, but his recent journey to find the right agency management system for his team was one of the most painful.
After many years with a system they loved, Quality Insurance Service was forced to make a change when one of the big-name providers acquired their original system. Mike and his business partner decided to pick one of the big-name systems to avoid needing to make a change again anytime soon.
Yet, after selecting one of the dominant providers, they were frustrated to move through a cumbersome system with unresponsive service. After four years, they’d had enough and started searching for a new system, eventually joining the Partner Platform community.
As the insurance industry grows more competitive, the particulars of your specific insurance agency management will make your business stand out. Those particulars could be location proximity, ease of doing business, or even something as simple as how your website looks. Though price still matters, changes in cost can only go so far.
The true test of what makes your agency the best choice is the overall customer experience. Seemingly small touches that make each interaction easier, more personable, and leave each customer with a positive feeling have a real impact. Today it’s about more than the best price and the latest tech; it’s how you use these tools to empower, differentiate, and create the best experience in your agency.
