Transitioning ownership of your insurance agency isn’t a decision you make lightly. It’s the culmination of decades of work, relationships, and strategic planning. Yet many agency owners struggle with the fundamental question: When is the right time?
The answer isn’t simple, but understanding the key factors can help you make an informed decision that protects both your legacy and your financial future.
The Reality of the Timeline
First, let’s address expectations. From the moment you decide to sell until you sign a purchase agreement takes an average of 250 days – over half a year. But that’s just the transaction itself. Industry experts recommend planning 5-7 years in advance for an external sale.
For internal perpetuation? That’s a decades-long commitment. If internal succession is even a possibility for your agency, you need to start putting the pieces in place now. Otherwise, that option quickly becomes unrealistic given today’s market dynamics.
The 10 Critical Factors
1. Stress, Burnout, and Personal Priorities
This might be the hardest factor to quantify, but it’s arguably the most important. The combination of COVID and the subsequent hard market created unprecedented stress for agency owners. When you layer in administrative burdens, changing carrier relationships, and market availability challenges, many owners find themselves maxed out.
Are you prioritizing life differently than you used to? Has your focus shifted from growth to simply hanging on? Is your energy waning, or has your health become a concern? Personal factors, such as wanting to travel without guilt, spend time with your grandchildren, or pursue other passions, often become the primary drivers of considering a transition.
And here’s something important: if you’re feeling the burnout from the hard market, remember that evidence points to a softening market ahead. If you’re on the fence, you might want to give it another 2-3 years to see what life looks like after this period.
2. Agency Performance and Growth
The numbers tell a story. If you’re growing commission revenue in the 5-10% range, you’re keeping pace with industry averages. Above 10%? You’re likely growing regardless of rate increases.
Key questions to ask yourself:
- Do you have an annual growth plan with accountability measures?
- Do you have the energy to create and stick to a strategy?
- Is your retention in the 90-95% range?
Your growth trajectory is a leading indicator of value. The results that show up in a valuation are lagging indicators – the work has already been done. If you’ve lost your appetite for strategic growth planning, that might signal it’s time to transition.
3. Agency Profitability
Average agencies maintain profitability between 23-30% EBITDA. If you’re consistently below these benchmarks when you weren’t previously, that’s another data point suggesting a potential transition could be beneficial.
Profitability matters because it directly impacts your agency’s value, but more importantly, it reflects the health and efficiency of your operations.
4. Agency Value Has Peaked
Here’s a fascinating insight: agency values typically peak when owners reach age 58. After that, values tend to decline.
For younger agency owners considering partnering or selling to focus their time differently, this data suggests holding onto independent ownership might be your best strategy. Your agency’s value is still building.
Current multiples are at record highs. We’re seeing fair market valuations averaging 8-9X EBITDA, not revenue. This is driven largely by private equity interest, but don’t make guesswork of your agency’s value. A professional valuation reveals both strengths and areas for improvement, giving you a roadmap for maximizing value.
Key value drivers today:
- Growth trajectory
- Age and talent of your roster
- Geographic location
- Revenue size
5. Team Health and Talent
Walk into your agency and ask yourself: Would you want to work here if you were looking for a job? That simple question reveals volumes about your culture and attractiveness to next-generation talent.
Consider these factors:
- How often are you changing staff?
- Is your team aging alongside you as the principal?
- Do you invest in upskilling and professional development?
- Do you have a talent recruitment strategy?
Research shows that Gen Z and Millennials prioritize learning opportunities and flexible work arrangements. If you’re not creating that environment, you’re at a competitive disadvantage.
Agencies with younger ownership and staff typically demonstrate stronger growth profiles. The weighted average shareholder age correlates directly with growth rates – as ownership age decreases, growth tends to increase.
Here’s a critical insight: producers aged 36-55 drive the majority of new business. Agencies that invest in young talent early prepare them to drive during these peak producing years.
6. Book of Business Composition
Personal lines versus commercial lines: it matters. Right or not, buyers often view heavy personal lines books as less defensible, requiring more work per client, and potentially vulnerable to changing consumer behavior driven by AI and other digital tools. As agencies grow, they typically shift toward commercial lines. It’s not necessarily a dealbreaker if you’re heavily personal lines, just be prepared to discuss your client age profile and demonstrate diversity in your book.
Questions to consider:
- What’s the average age of your clients?
- Are your clients aging alongside the aging principal?
- Do you have the appetite to diversify your book of business?
Also, examine concentration risk. If your top 10 accounts represent significantly more than 10-15% of revenue, you need a succession plan for those relationships. Can you articulate how they’d be handled if something happened to you? Does your team have the expertise to service them?
7. Carrier Relationships and Commitment
The hard market forced carriers to change appetites, which directly and personally affected your business. Looking at your carrier lineup now, consider:
- Is it sufficient for your current and future business needs?
- How strong and longstanding are those relationships?
- Are you hitting profit-sharing goals?
- Do you plan together annually, or is it just a marketing rep asking for 5% more growth?
Loss ratios matter, too. On average, agencies maintain loss ratios below 50% across most lines. These are profitable relationships that carriers value.
8. Technology Adoption and Innovation
A stark reality: it’s not the big eating the small; it’s the fast that will eat the slow.
Technology has intensified dramatically, especially with AI commercialization over the past three years. The question isn’t whether technology will impact your business, because it will. The question is whether you have an active relationship with it.
Do you have:
- An agency management system (AMS)?
- A customer resource management (CRM) and pipeline management tools?
- A rating platform?
- A technology roadmap and strategy?
Best practices agencies are investing heavily in technology, and the data is clear: tech-enabled producers significantly outperform those who haven’t embraced these tools. This has traditionally been a level playing field, but technology is creating differentiation that will only accelerate.
Your employees are already using AI – 57% of employees report using it at work. The question is whether you’re leveraging it strategically in a secure environment, or whether it’s happening in the shadows.
9. Financial Planning and Tax Strategy
This should actually be your first consideration, not your ninth consideration. Before you can determine if a transition makes sense, you need to understand financially:
- What do you need in retirement?
- What can your agency’s sale actually produce?
- How does the agency fit into your overall retirement plan and picture?
You can’t get an agency back after you sell it. That income-producing asset with its year-over-year variability is gone, replaced by a fixed amount from the sale proceeds.
Work with your financial planner to understand your complete picture. Then engage valuation experts to model scenarios: What does life look like if you sell today versus one year, five years, or ten years from now?
Tax implications are also critical. Many agencies are still structured as C-Corps, facing double taxation on their sale. Converting to an S-Corp takes a minimum of five years with the IRS. The longer your runway, the more options you have – and options have value.
10. Perpetuation Planning
The majority of agencies don’t have a documented perpetuation plan. But agencies with plans on paper consistently show higher revenue, stronger growth, and greater value. Why? Because everyone is marching in lockstep toward shared goals. Key employees know their future. There are no surprises when an owner decides to exit.
Your plan should address:
- Agency stock and equity offerings
- Leadership transition
- Book of business relationships
- Key client and carrier relationships
For all transitions, but internal perpetuation specifically, uncertainty creates risk. If you have a plan, articulate it. Start the conversation with potential successors. Get it in writing so you can strategize around something tangible.
Work With Trusted Advisors
Don’t navigate this alone. Assemble your team:
- Financial planner: Start here to understand your retirement needs and how an agency sale fits.
- Valuation expert: Get an objective analysis of your agency’s current value and growth potential. This is where IA Valuations can help.
- Tax advisor/CPA: Especially critical for internal perpetuation and tax optimization.
- Legal counsel: Essential for reviewing purchase agreements and employment contracts.
It’s Still a Seller’s Market
Despite all these considerations, remember: valuations are at all-time highs, and projections suggest this will continue. There’s no shortage of buyers for well-run agencies.
Private equity buyers, once viewed as simply chasing money, are increasingly acting as partners. They want to retain staff, maintain locations, and preserve the business continuity that made your agency valuable in the first place.
The agencies doing it right have already maximized many aspects of their operations. Buyers recognize that and want to integrate those best practices while achieving economies of scale.
The Bottom Line
Is now the right time to transition your agency? Only you can answer that question, but these ten factors provide a framework for making an informed decision.
Use IA Valuations’ Ownership Transition Workbook scoring system to objectively assess whether you’re in growth mode, hold mode, or transition mode. Be honest about your stress levels, energy, and appetite for what lies ahead. Look at your numbers – growth, profitability, retention. Examine your team, your book composition, and your technology adoption.
And most importantly: plan. Whether you’re 45 or 72, whether you’re considering internal perpetuation or an external sale, planning is what separates successful transitions from regrettable ones. Your agency represents decades of work. It deserves a thoughtful, strategic approach to transition – one that honors your legacy while positioning both you and your agency for continued success.
To discuss the results of your Ownership Transition score or to connect with IA Valuations on any questions, specific or general, please reach out to contact@iavaluations.com to get started planning your future today.
About IA Valuations and Agency Link – Founded in 2017, the IA Valuations team has performed over 350 valuations to independent insurance agencies across the U.S. Our advisors have 25+ years of experience guiding agency owners on maximizing their agency value, planning, and legal needs for ownership transition. In addition, IA Valuations has provided perpetuation planning, financial modeling and business planning for independent insurance agencies. Finally, IA Valuations has advised dozens of agency owners on selling their agencies through our Agency Link process. Agency Link is a platform that connects buyers and sellers together to further the growth and strength of the IA system. To learn more about IA Valuations, please visit IAValuations.com or contact@iavaluations.com.
The information provided in these documents is general in nature and shall not be construed as personal legal, tax or financial advice for your situation. Please contact@iavaluations.com to discuss your personal situation.
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