Sampling The M&A Climate

Two states with significant agency merger and acquisition activity are Texas and New York, but local independent agent associations say that while the two states might be quite different, the motivation behind the drive to grow through combinations is the same.

In Texas, noted David VanDelinder, assistant executive director of the Austin-based Independent Insurance Agents of Texas, agencies are typically looking to grow larger through acquisitions so they can attract carriers and create market combinations.

“Probably the primary motivation of many agencies is to increase premium volume and represent as many companies as possible to make their clients happy,” Mr. VanDelinder said. “In order for agencies to have the right markets in place, they need to have the volume in those companies to satisfy the companies demands. If an agency had the volume [on their own], I dont think acquisitions would be taking place.”

The need to grow to keep carriers happy by providing the required volume standards is no different in New York, said Lisa K. Lounsbury, vice president of marketing, membership and marketing research for the Independent Insurance Agents Association of New York, based in Syracuse.

However, while a lot of mergers are taking place, there are also a lot of startup agencies being launched, especially in New York City and Long Island, Ms. Lounsbury noted.

North of New York City, especially in the western portion of the state, agents are more inclined to look at clustering, Ms. Lounsbury noted. The advantage of clustering is that it allows agencies, by grouping together, to have the volume and marketing power companies demand without giving up the independence of their individual firms.

The trend in New York is that either big agencies are getting even bigger through M&As, or smaller startup agencies are being launched, while mid-size agencies are apparently becoming a thing of the past, Mr. Lounsbury observed.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, April 1, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.