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Independent Insurance Agencies Face Succession Challenges

Independent insurance agencies are facing all the challenges of other small family businesses. As senior principals prepare to step down, they rely on proceeds from buy-outs to fund their retirements. At the same time, increased competition, demanding suppliers, and the need to invest in new technology are placing new demands on company management and finances. While 90% of U. S. insurance agencies are still family-owned, their number has declined from 44,000 to 42,000 in the past four years according to an Independent Insurance Agents of America study, and 29% of independent agencies were involved in mergers and acquisitions.

Banks have been active buyers of independent agencies. Roll-ups are also increasingly common.

Whether an agency remains independent and in the family, depends a great deal on the preparation, motivation and attitudes of successor owner/managers, according to Al Diamond, president of the American Association of Insurance Management Consultants.

Too often, owners’ offspring are brought into the business for the wrong reasons. “After they graduate from college, the father offers them a job in the agency at a starting salary they couldn’t make anywhere else. Before long, the offspring realize that they can pretty well run their own lives at work with few requirements to meet,” he told Best’s Review. “Most parents are very bad at firing their own children, and once they’re in there, they have jobs for life … (which) can turn into a very sad event. There’s a big difference between a 30-year career and a 30-year jail term. For some, it’s a career. For others, it’s a jail term that happens to pay well.”

Diamond sees several factors that lead to successful generational transitions even given the challenges facing the independent agent.

  • Owners’ offspring must be committed to taking over and growing the business. “It’s not the security of taking over the parent’s agency, it’s the potential for doing something on their own.”
  • They must be willing to risk and prove themselves. Their motivation, skills and talents should meet or exceed that of the current generation.
  • They must be technologically savvy and be willing to consider changing agency strategy and operations to adapt to the new demands of competition and product providers.

We see the same circumstances affecting small family businesses in industry after industry. That’s why, “only 30%” survive from generation to generation

 

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