Now we will explore the factors that will have the greatest bearing on determining how agency value will be negatively impacted following the unexpected passing of the agency owner:

Leadership of the agency: If the agency owner is the internal leader, leading producer, networker, carrier relationship manager, and identity (literally – the agency name) of the agency, this is a huge risk. If you are an aspiring agency owner or employee, you would be concerned about working in a situation like this, with all of your eggs in one basket. The loss of the leader will be demoralizing beyond just the passing; it will cause great uncertainty in your life as an employee. This is hard to quantify, but it could impact agency value by 30 – 35%.
Top 10 accounts percentage of agency revenue: If the Top 10 accounts make up more than 10% of the agency’s revenue and they are primarily the relationships of the agency owner, this is a big risk factor for agency value. This could swing agency value by 10% – 20%.
Commercial lines (CL) vs. personal lines (PL) split: This is the one exception where a higher volume of PL business may be of greater value to an agency than CL. PL, while highly vulnerable to commoditization, is much stickier in a transition and is less connected to the relationship of an agency owner. Even a sympathetic buyer is going to greatly discount the value of a heavy CL agency that no longer has its leading producer and relationship; this could impact agency value by 15 – 20%.
Insurance experience: In most situations, agency owners have the most insurance and risk management experience and expertise. Depending on the CL/PL split, if you have a lot of unique and complex risks, this loss will be detrimental. If you take that away abruptly and without a plan, it could impact value by 10 – 15%.
Culture of the agency: The loss of a leader is transformational, regardless of whether there was any preparation in place. To lose a leader without notice or a plan is a double-whammy. It will impact the culture in untold ways. It is hard to quantify the impact on value but it could be significant, especially if the staff loses energy, becomes disengaged under the new leadership, or decides to leave.

These are just some of the ways in which agency value could be impacted by the unexpected loss of an agency owner. In our work with insurance agencies, we have seen this happen time and time again.

Special Reports /

How does the owner's unexpected death affect agency value?

Related Stories

Recommended For You