In a candid and wide-ranging conversation in front of agents across the country, Jeff Smith and Jarod Steed of IA Valuations unpacked the challenges, missteps, and opportunities surrounding perpetuation planning for independent insurance agencies. Their exchange felt like a strategic roundtable for agents – part data dive, part storytelling, and part wake-up call to agency owners nationwide.
Their shared message was clear: the independent agency system is undergoing a massive generational shift. The value of an insurance agency has never been higher, but the risks of failing to plan have also never been greater. As Smith puts it, “if you take nothing else from this conversation, please have a contingency buy-sell agreement in place.”
A System at a Crossroads
Jeff Smith opened the conversation by examining where the industry stands today. As CEO of IA Valuations and Executive Director of the Ohio Insurance Agents Association, he’s seen hundreds of agencies up close, and the demographic trends trouble him.
Pointing to recent Agency Universe Study data, Smith notes that 22% of agency owners are now age 66 or older, up from 17% just two years earlier. “We’re not talking about 40 or 50-year-olds,” he emphasizes. “Those are owners who are well within the ability to retire in the American economy. That’s a little alarming.”
At the same time, one in three agency owners expects an ownership change in the next five years. Yet, while 80% claim to have a perpetuation plan, Smith says only half actually have anything written down.
Smith also notes that the shrinking number of agencies nationwide, down roughly 12% over three decades, reveals a broader structural shift. Consolidation, private equity activity, and heightened acquisition demand have created both opportunity and pressure. While he cautions against assuming this decline is solely due to poor planning, he stresses that the trend intensifies the need for today’s owners to be deliberate, proactive, and realistic about their succession timeline.
The Vanishing Internal Perpetuation
Historically, agencies transitioned internally to family members, partners, or key producers. Smith warns that internal perpetuation has grown harder over the last decade.
Many mid-sized agencies, he explains, now lean toward external sales, not because they want to – but because they waited too long. “If you wait too long, your options decrease dramatically. Then, the only option left is to sell externally.”
The cause? Rising agency valuations and shrinking timelines.
“Cramming the financials at the last minute,” Smith says, “is a real burden on the next generation.”
The Value Conversation: Reality vs. Assumption
Jarod Steed, IA Valuations’ financial analyst, steps into the discussion with the cold math that underpins perpetuation planning. Using a fictional case study – the Buckingham Nicks Insurance Agency, founded in 1977 with $750,000 in revenue – he explains how buyers actually evaluate an agency’s worth.
Steed warns listeners not to confuse revenue multiples with EBITDA multiples.
Every experienced buyer, he says, uses EBITDA multiples (earnings before interest, taxes, depreciation, and amortization), not top-line revenue, to determine value. “What drives an agency’s value,” Steed explains, “is its ability to generate cash flow for the owner.”
Smith reinforces that point: “No semi-sophisticated buyer is working in revenue multiples. Cash flow matters because that’s how you pay the debt back.”
The Buckingham Nicks example shows:
- External sale: $2.06 million up front
- Internal perpetuation: Up to $2.6 over time
Smith addresses a major industry misconception: “There’s this belief that you’ll make more money selling externally. That’s not necessarily true. You’ll get paid faster, but not always more.”
Steed further explains that internal perpetuation often yields higher total value because of interest earned over time and the tax efficiencies of staged buyouts. Additionally, internal buyers are more likely to maintain the agency’s culture, staff, and local presence. These are intangibles that matter to many agency owners, but don’t have a place on the balance sheet. “You’re not just selling a business, you’re handing over a legacy.”
When the Unthinkable Happens: The 3Ds
Much of the conversation turns towards what Steed calls “the 3 Ds”: death, disability, and divorce.
These aren’t theoretical. Smith notes that 10% of the valuations IA Valuations performs stem from one of these crises – and the aftermath can be devastating.
Steed shares a story of an agency owner where the owner’s failing health forced a premature transition. The successor, new to insurance, found themselves overwhelmed and had to sell quickly to avoid collapse. A rapid sale under duress, Steed explains, inevitably costs money. “You’re seriously risking at least 30% of the agency’s value in all scenarios if there’s no plan.”
Smith puts it more starkly: “The worst is when we’re valuing an agency post-death. It’s not a pretty scenario.”
Agency owners often underestimate their own importance to the business. An owner’s presence, skills, and relationships are often the single greatest asset the agency has. Without a continuity plan, client and carrier confidence drops, and competitors take notice. The pair also discusses the emotional fallout. Families grieving a loss must simultaneously make urgent financial decisions, often with limited understanding of agency operations or value. Employees experience uncertainty, morale drops, and competitors may actively recruit staff or clients. “These ripple effects are avoidable, but only with planning done before the crisis – not after,” Steed notes.
Why Single-Owner Agencies are Most Vulnerable
Steed brings data back into the conversation, demonstrating that agencies under $1 million in revenue often have just one owner – making them highly exposed. If that owner becomes unable to lead the business, “risk is concentrated,” he says, “and that is inherently less valuable.” Smith adds that husband-and-wife ownership structures don’t solve this problem. “If you’re together all the time, it’s the same risk. You’re not insulated.” Smith also emphasizes that smaller agencies often lack redundancy in operational knowledge. Everything from carrier logins to payroll processes lives in the owner’s head. In a crisis, even accessing basic systems becomes a challenge. This operational fragility amplifies risk and accelerates value loss.
How a Buy-Sell Agreement Protects Value
Steed outlines what a strong contingency buy-sell agreement should include:
- A clear valuation methodology, updated every few years at a minimum
- Defined triggering events
- A predetermined buyer – internal or external
- Operational guidance for interim leadership
The goal, Steed says, is simple: “Make sure the estate is not settling value in a panic.”
Smith adds that key person life insurance is equally essential: “Could you imagine if your spouse finds out you didn’t have it? You require your clients to buy insurance, but you don’t protect your own agency and assets?”
Steed also encourages owners to pair the agreement with documented standard operating procedures (SOPs) – everything from renewing carrier appointments to handling trust account activity. A buy-sell agreement protects the value. SOPs protect the operations. Together, they help stabilize an agency during a transition or sudden leadership loss.
The Hard Road vs. the Easy Road
The conversation shifts to the fundamental tradeoffs between internal and external perpetuation.
Internal perpetuation offers greater long-term financial upside, but requires:
- More time
- More planning
- More financial creativity
“This is the hard road,” says Steed.
External sale offers speed and simplicity – but often at the expense of culture, legacy, and personal relationships. Smith notes, “We’re seeing more owners pick the easy road because they failed to plan.” The “hard road” often includes mentorship, gradual equity transfer, leadership development, and restructuring compensation – elements that require patience from both buyer and seller. The “easy road” provides immediate cash, but reduces the owner’s influence on what happens next. As Smith puts it, “Your agency becomes someone else’s agency the second the ink dries.”
The Real Timeline: Start 15-20 Years Ahead
One of the conversation’s most surprising moments comes when Smith outlines the ideal perpetuation timeline.
“If you want internal perpetuation to be an option,” he says, “you have to start 15 to 20 years in advance.”
Steed nods, emphasizing that even if owners don’t plan that far out, five to seven years is mandatory for any meaningful transition – internal or external.
Smith notes that this timeline mirrors generational career progression. It takes years for a producer to become a leader and even longer to become an owner capable of navigating financial, operational, and strategic duties. Owners who wait until age 65 to address perpetuation are often shocked to discover they have no viable successors. Not because they don’t have talent, but because they didn’t give that talent time to grow.
Infrastructure: The Often-Ignored Barrier
Planning isn’t enough. Agencies must also have the right people in place. Smith breaks down the modern roles every agency should fill:
- Executive leader
- Operations leader
- Technology leader
- Sales manager
Smith is particularly passionate about employee agreements. “We won’t let any transaction happen without them. You’re investing in people – protect your business.”
He goes on to highlight that internal perpetuation suffers when owners fail to build a leadership pipeline. If the owner holds all these roles, the agency is not ready for transition. External buyers or internal successors will see a system dependent on a single point of failure. Without emerging leaders who understand operations, carrier relationships, and financial management, internal buyers can’t secure financing or handle ownership responsibilities. This lack of infrastructure pushes owners toward an external buyer who can simply “write the check” and absorb the business.
An added piece of infrastructure that is often the missing ingredient: mentorship.
Smith encourages owners to:
- Enroll next-gen leaders in association programs
- Provide leadership training
- Introduce them to carrier representatives
- Build their industry networks
- Test future owners through real responsibility
He also offers advice for the next generation: be patient, avoid dramatic first-year changes, and show gratitude. “Yes, maybe the older generation is out of touch with new tech – but they did something right. They built the agency you’re inheriting.”
Final Takeaways from the Conversation
The discussion ends with a rapid-fire summary from Smith:
- Start early. Five to seven years minimum – preferably 15 to 20.
- Secure key person life insurance.
- Draft a contingency buy-sell agreement.
- Write your perpetuation plan.
- Engage your advisors – IA Valuations, a CPA, banker, and financial planner.
The conversation between Jeff Smith and Jarod Steed serves as part warning, part roadmap. Perpetuation planning is not simply a business exercise – it’s a family safeguard, a legacy protector, and a strategic necessity in an industry facing rapid generational turnover.
Their tone throughout the dialogue is urgent but hopeful. Nearly every pitfall they describe is avoidable if owners choose to act early, document their intentions, mentor their successors, and put the right structures in place. Perhaps Smith said it best early in the conversation, summing up the entire discussion in one sentence: “A perpetuation plan in your head is not a perpetuation plan.”
To speak with IA Valuations about your perpetuation plan or to access our perpetuation planning workbook, reach out at contact@iavaluations.com.
By: Colleen Elliott
This article is based on a conversation between the IA Valuations team on our live webinar, A Perpetuation Planning Crash Course. You can watch that webinar recording, and access our whole library of content, here.
About IA Valuations and Agency Link – Founded in 2017, the IA Valuations team has performed over 400 valuations to independent insurance agencies across the U.S. Our advisors have 30+ 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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