A friend of mine offered to sell me his book of business. In about 12 months, he built a M book with over 3000 clients mainly P&C pers lines. To say the least, it will be a problem book that will require lots of work. IE. invalid discounts offered, low limits, bad service, underinsured homes, etc. Service is my strong point and do believe that i can salvage about 50-80% of the business. He is offering it to me at very low risk…Here are the details. 10K down (owner financed for 36 mo 0% interest). I pay him 50% of the renewal commisions every mo for 36 mo with no minimum guarantee on his part and the most i would have to pay is 190K, whichever occurs first. Also, I have to take over his lease which is approx 1K/mo for 5 years. He has non competes from him and his producers. I am too inexperienced to make this decision on my own. Please give me any advice and your thoughts. Thanks.
I Am Buying an Insurance Agency. Need Advice ASAP!?
Sun, Jul 26, 2009
Ask HFiQ, Auto Insurance, Health Insurance, Home Insurance, Life Insurance, Small Business Insurance
One Response to “I Am Buying an Insurance Agency. Need Advice ASAP!?”
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July 26th, 2009 at 2:32 am
I know a number of established agents in my area that activly pursue agencies for sale and would pay double what your paying..for a good book.
The fact that your friend is dealing with you and not selling for a better price speaks volumes. If no one want to purchase a book, there is probably a reason why. If there are sub-agents in his office why are they not buying? The terms are reasonable.
Do some furthur research: Any agency undergoing change is going to experience some run-off of existing business. To estimate how much will run off I’d do analysis by first breaking down the book of business:
Personal lines vs. commercial lines and access to both.
Preferred market vs. standard or high risk and again access.
Any life& health, group life, disability: what kind with who and how stable
Consider what types of business you want to write and see how competitive you are in those markets.
Other factors to consider:
Loss histories
Profitability
Retention
After crunching numbers, an analysis of current agency management would be in order.
Since you’re stepping in to replace existing agents, how are you going to do?
Are you replacing the most popular guy in town or an agent who’s been semi-retired for the past 5 years?
Is the book looked after or has it been neglected? High maintenance or on auto-pilot?
Are the principal or sub-agents moving to positions where they will compete against you?
Are you able to fill the shoes or are the shoes too small and you can do better?
Is the agency what your looking to build or are you using the appointments to grow in a different direction?
Any agency undergoing change is going to experience some run-off of existing business. Is current management working with you or against you to keep your business walking out the door? Are CSRs and other key personnel staying? What is their incentive to stay? What is the cost to keep them? Are you on the hook for their health plan, pension, 401K, profit sharing?
Since you’re so inexperience, why not work for the agency for a time before purchasing? Six months as a producer would give you time to work in the agency and see first hand how good or bad things are; and teach you to run an agency. Good luck.