Whether you’re looking to create a new insurance agency or grow your existing company, buying an insurance book of business can be a great way to quickly expand your customer base.
However, not every book of business is the right fit for every buyer. And even if buying an insurance book of business does make sense for you, there are several key questions you’ll need to ask before purchase in order to make your new acquisition as smooth and productive as possible.
Here are seven questions to ask before buying an insurance book of a business:
1. Are the agency’s products a fit for my target customers and the area I’m planning to do business in?
Product-market fit is a key component of any successful business, and the insurance industry is no different. If you’re most comfortable selling auto insurance policies, it might not make sense to buy a book of business in an urban area where most of the people rely on public transit. Instead, you might want to seek out a book of business in a suburban area with a large population of young families who might be a better fit for what you’re trying to sell.
What’s important is that you’ve done the research to ensure that the products you’re trying to sell are an appropriate fit for the people you’re trying to sell them to.
2. How likely are the agency’s customers to stick with me moving forward?
Buying an insurance book of business is most valuable when the customers in it are likely to renew with you year after year. Ideally, you’ll want to buy a book that includes lots of economically secure, long-term customers, who won’t be incentivized to look for a slightly better deal every time their policies approach expiration.
To this end, it’s useful to ask the agent you’re buying from how many of their customer relationships are unique to the specific agent they’ve been working with. If there are lots of people whose customer relationships are tied to a specific agent or producer, find out what the agent you’re buying from is willing to do to facilitate the transfer of these relationships to you.
And if there are any important carrier contracts that are on the verge of expiring, you’ll want to know sooner rather than later.
3. Why is the agent selling their business?
In order to get a sense of what you’re getting into, you’ll want to learn more about why the agent you’re buying from has decided to sell.
Some agents sell their books of business because they are retiring after a successful career in insurance sales, some do so because their business isn’t doing so hot, and still others are motivated simply by a desire to try something different. Either way, the answer to this question gives you important information that allows you to learn more about the value of the book you’re considering—and what it will take to make things a success if you buy it.
For instance, if an agent is selling their business because they weren’t succeeding, that might be a red flag. Certainly, you’d want to ask what wasn’t working and how you might chart a better path. Or, if an agent is retiring, you might ask what worked for them as they built their business and how best to service the key customers on their books. The more you know about the book you’re inheriting, the easier it will be to maximize the profits you earn from it.
4. How has the business performed in recent years?
Regardless of why an agent is selling their insurance book of business, you’ll want to take a look under the hood to assess how well the agency has been performing in recent years. Ask whether the business has been trending toward more or less profitability lately, and why. This will help you more accurately value the book of business and make smarter decisions if you do wind up buying it.
5. Do you have enough people to service your new customers?
Bringing on a bunch of new customers means you may need additional people to support them. Ask the person you’re buying from for an estimate of how many person hours go into servicing their customers each year, and assess whether you currently have enough producers on-hand to handle this workload.
If you don’t have enough personnel to take on an otherwise appealing book of business, it’s worth asking whether you might also be able to hire some or all of the agency’s current producers.
6. Does the agency have renewal rights to its book of business?
In many cases, insurance agencies have contractual agreements with their partner insurance carriers that grant them the right to renew customer accounts when they expire. Essentially, this prevents the corporate carrier from cutting the agency out of the deal by swooping in and selling a new policy to the customer directly.
These agreements help protect the value of an agency’s book of business and increase your renewed commissions, so it’s important to consider them as you’re evaluating a potential acquisition.
7. How well organized are the agency’s business records?
One unforeseen cost of buying a book of business is organizing an agency’s business records. Depending on the size and the tech-savviness of the agency you’re buying from, customer records could be stored in paper documents scattered across a physical office. As you consider the value of the book, you’ll need to factor in the time and money you’ll have to spend to centralize (and potentially digitize) this account information.
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Once you do your due diligence by collecting the answers to these important questions, you’ll be all set to make an informed decision about buying an insurance book of business. While doing so isn’t the right choice for every active or aspiring insurance agent, you might just find that it’s the best way for you to jumpstart a new or existing business with a glut of new customers.
And if you’re looking for additional avenues to acquire new customers, we’d love to chat with you about our MediaAlpha for Agents lead-buying solution, which empowers agents to reach high-intent auto insurance shoppers just as they’re about to make a purchase. Drop us a line here to schedule a meeting and learn how we can help you acquire new customers with precision, efficiency, and scale.