Advice On Selling An Agency To An Insurer

Mr. Southwick, who sold his independent agency–Blair, Cutting & Smith Insurance Agency in Amherst, Mass.–to Plymouth Rock Assurance Corp. in 1999, now heads the insurer's subsidiary that acquires independent insurance agencies in Massachusetts and Connecticut.

An account of Mr. Southwick's remarks yesterday was supplied by the association.

"Insurers are viable choices today, and sellers should look at every viable option. If the company is financially sound and can structure the deal the way you want it to be structured, you shouldn't rule it out," he said.

According to Mr. Southwick, an insurance company's financial strength is a major advantage for sellers because most sales involve time payments.

"You're assured that you'll get your payments and earn a reasonable interest rate on future payments," he pointed out.

Sometimes, he noted, a seller can get a better price from an insurer. For example, if the agency has a book of profitable auto business and the buyer is an auto insurer that might want to own some of that business, it might be willing boost its offer.

Mr. Southwick also provided counsel on how owners should deal with their concerns for the fate of their agency and its employees after the sale. Agents, he said, need to find out what the insurance company plans to do–whether it will keep the agency's name and operate it at the same location with the same employees.

"Make sure that the insurance company's core values are similar to your core values; that you're on the same page," Mr. Southwick said.

Negotiating the treatment of key employees and family members is crucial. Sellers may be able to negotiate employment agreements that protect these people, he advised.

Mr. Southwick said he increasingly sees situations where the next generation wants to stay on, but doesn't want to own the agency. The owner's son or daughter doesn't want the pressure of paying down the debt or the commitment to long hours.

To ensure the agent gets what he or she has bargained for, it's crucial to choose a financially strong insurer with stable management, he said.

"The way the current management team views acquisitions can be entirely different from the next management team, which might have a totally different business philosophy," Mr. Southwick explained.

He pointed out that selling the agency to a company it does or doesn't currently represent can be equally appealing. An insurance company already working with the agency might be willing to pay a premium to ensure that it doesn't lose the good business it has with the agency.

While Mr. Southwick said he understands why some people feel it's not right to sell an agency to an insurer, he suggested that opinion doesn't gibe with current realities. "The law used to keep banks out of insurance, but those restrictions are gone forever," he said.

People who worry about a company-owned independent agency remaining truly independent regarding how it treats its companies have a legitimate concern, he said, but with open communication, independence can be ensured.

He related that since its purchase by Plymouth Rock, Blair, Cutting & Smith has lost only one company, which has a policy of not working with agencies owned by competitors. "The others are still working with us and are happy because we continue to give them good business. What's best for the customer is what guides our decisions on where the business goes," he said.

Mr. Southwick doubts any insurer that wants to have multi-carrier representation would be so shortsighted. "It's in their self-interest to play fair," he said.

The BCS model is to keep the same look and feel to the agency, and retain the employees and the agency name. In contrast, some insurers are consolidators that close offices, move into a central location and hire new employees. Agents contemplating selling to an insurer should know if it's a consolidator or not, he said.