PIA Connection Online

Behind every insurance agency is a story—an entrepreneur taking a chance. Some new owners launch start-ups from scratch—starting with a few key clients, a laptop, and a belief in doing things differently. Others join a family business that has grown steadily over decades, adapting through changing markets and carrier relationships. Some agencies expand by acquiring others, adding talent, geography, and book size along the way. Each of these beginnings and new beginnings—start-up, succession, and strategic growth—require different approaches but share similar elements.

One thing is clear. No agency’s vision is static. Market conditions, carrier appetites, and emerging opportunities all influence how agency owners shape their next moves. A growth phase can shift unexpectedly into a perpetuation discussion. An acquisition opportunity might accelerate succession planning. The best-prepared agency leaders recognize that vision is both long-term and adaptive.

The good news is that the fundamentals of building a strong, valuable agency are the same, no matter the end point. Whether the long-term goal is to sell to a larger brokerage, partner with private equity, or pass ownership to family or employees, the same core principles apply: a disciplined business foundation, consistent growth, sound financials, and a stable, engaged team. These factors not only increase immediate profitability—they strengthen long-term options.

And in today’s market—where valuations remain historically high and well-run agencies still command high multiples—those fundamentals have never mattered more.

The Power of Planning

There’s one universal truth repeated by every advisor: start early. “Perpetuation isn’t something to think about when you’re ready to retire,” says Colby Allen, Vice President of Valuations & Consulting at Agency Brokerage Consultants. “The steps an owner can take to influence the exit look very different whether a transition is six months, one year, or five years away. If you wait until you ‘need’ to retire, it’s often too late.”

Allen recommends a three-to-five-year runway for owners contemplating a sale or succession. That window gives agencies time to optimize operations, groom successors, and clean up their data. It also gives owners time to mentally adjust to the idea of transition—something many underestimate.

Financial Discipline Drives Value

Beyond timing, how an agency runs day-to-day can dramatically affect valuation. Buyers scrutinize every expense: rent, staffing, benefits, vendor contracts, and technology platforms. One buyer explains, “Some agencies operate as lifestyle businesses taking personal expenses through the company and carrying unnecessary overhead. Buyers will spot that immediately—and you’re effectively lowering your valuation.”

He highlights a simple recommendation: “Right-size your expenses now.” A three-to-five-year track record of efficient operations builds credibility. “When buyers see that discipline, they trust your numbers,” he says.

That credibility also extends to your data. Chris Hughes, Managing Director at Merger & Acquisition Services, cautions, “Buyers live in the spreadsheets. Incomplete or messy management-system data can slow a deal or reduce confidence in reported results. Clean, consistent data—on clients, carriers, and commissions—can make due diligence smoother and raise your multiple.”

A Hidden Risk: E&O Exposure

One often-overlooked factor that can erode agency value is errors and omissions (E&O) exposure. “We see it all the time. A buyer acquires an agency and later discovers staff were sharing login credentials, skipping documentation, or writing business without proper licenses. That liability now sits with the buyer,” says Erin Dey, an E&O specialist and owner of Agency Insurance & Financial Services.

Dey advises both buyers and sellers to treat E&O diligence like a home inspection. “You wouldn’t buy a house without an inspection. The same goes for agencies. Look at their documentation process, training, and loss history,” she explains.  She recommends requiring sellers to provide at least five years of E&O loss runs and documentation on staff licensing and procedures.

Equally critical is ensuring the seller purchases an extended reporting period (ERP)—commonly known as a tail. “That tail covers claims that arise after the sale but stem from actions before it,” Dey says. “It’s the buyer’s safety net—and not all buyers require it, which is a mistake.”

Even agencies that are not planning an imminent sale should consider periodic E&O audits. “Consistency is huge,” Dey says. “Lack of documentation or uneven processes between teams can create serious risk—and it’s all preventable.”

The New Rules of Value

While industry chatter often focuses on EBITDA multiples, true agency value runs deeper. “The value of an agency is in the eye of the beholder. Multiples you hear in the market often lack important nuances—like deal terms, agency type, or size,” says Michael Mensch, CEO and Partner of Agency Brokerage Consultants.

Buyers increasingly look for operational excellence, growth systems, and data integrity. “Consistent, transferable growth and profit—that’s what drives value,” Allen adds. “When you combine great performance with clean financial and operational data, you have a recipe for a better exit.”

“Your carrier lineup absolutely matters. Some regional carriers don’t want to work with large aggregators. Knowing how your carrier relationships affect potential buyers can make or break a deal,” Hughes highlights. He also points out that certain carrier appointments—especially with strong regionals—can make an agency uniquely attractive to specific acquirers. “Sometimes that single relationship tilts the entire competitive process,” he says.

For many owners, the hardest part of transition isn’t the financial side—it’s the people side. Culture, communication, and leadership continuity can make or break integration success. Staff engagement can be a critical element to any transaction. “Many buyers use acquisitions to find great talent,” Allen says. “And if staff approach it defensively, they can miss real career opportunities.”

Buyers increasingly evaluate employee retention. When producers and service staff stay long-term, that signals stability—and stability equals value. In addition, low morale during due diligence and high turnover can be a red flag.

Understanding the Market

The last decade’s M&A surge was powered largely by private-equity investment. “Roughly 60–70 percent of agency transactions today are private-equity-backed,” Hughes says. These firms leverage debt to acquire and consolidate agencies, building large national platforms. Publicly traded brokers can also pay high multiples, while still profiting from the spread. “That arbitrage often keeps valuations high,” he explains.

But Hughes cautions that the environment is shifting. “With higher interest rates, buyers are more selective. Deals still happen, but the story has to be strong—clean financials, steady growth, and a management team that can sustain performance.”

Mensch agrees, noting that while the 2020-2022 period represented the peak of the market, demand remains resilient. “It takes more work to get a deal done today, particularly to achieve a high valuation,” he says. “If your goal is to maximize value, plan ahead and talk to multiple strategic buyers.”

Not every perpetuation path leads to a private-equity roll-up. For many agencies, an internal succession—selling to employees or family—is both viable and preferable.

However, internal transitions take time and discipline. They require financial literacy among next-generation leaders, clear buy-in structures, and sometimes outside financing. Without planning, even well-intentioned internal sales can collapse under misaligned expectations.

For agencies leaning toward any type of transition, pre-sale evaluation can be crucial. One buyer suggests that it’s helpful for agencies to obtain a structured review of operations and valuation readiness before they ever sign with a broker. Such programs, he says, would “save a lot of heartache.”

Data, Technology, and the Modern Buyer

Technology increasingly influences agency value. Buyers look for modern agency management systems (AMS), clean digital data, and tech-enabled workflows. Mensch notes, “Not all agencies have real growth engines—systems that produce new business and maximize retention independent of the owner’s involvement. Aggregators pay a premium for agencies that do, especially if they can leverage synergies.”

Cloud-based AMS platforms, integrated CRM tools, and data dashboards aren’t just operational efficiencies—they’re proof points of scalability. Agencies that can demonstrate predictable, data-driven growth are positioned to command higher multiples.

Buyers also evaluate cybersecurity maturity. An agency that can show evidence of multi-factor authentication, encrypted communications, and secure data policies signals lower risk—especially important to PE-backed buyers managing large portfolios.

Preparing for Due Diligence

When the letter of intent (LOI) is signed, the work is far from over. The due-diligence phase—typically 60 to 90 days—tests every aspect of the seller’s operation. Hughes, who often guides agencies through this process, describes it as “the longest and most stressful part of the transaction.”

Buyers will request three years of financials, detailed producer compensation, carrier statements, E&O history, lease agreements, and HR documentation. Any inconsistencies can delay closing or reduce price. “Think of diligence as your agency’s final exam,” Hughes says. “The better organized you are—the faster and cleaner you can provide information—the more confident the buyer becomes.”

He also advises sellers to assemble a transaction team early: a financial advisor experienced in agency valuations, an attorney who specializes in insurance M&A, and a tax professional. “The wrong attorney can cost you months,” Hughes warns. “There are only a handful who really know this space.”

People—not policies—are often the most valuable asset an acquirer buys. Retaining producers and service staff ensures continuity of revenue and client relationships. “Buyers are increasingly looking for agencies with career-pathing programs and documented training processes. It shows that the business isn’t dependent on one or two rainmakers,” Allen says.

Beyond the Numbers: The Emotional Journey

For agency principals, selling isn’t just a transaction; it’s a life transition. Many have built their businesses over decades, with deep community ties. “We were a Main Street agency for 25 years,” said one agency owner who recently sold his business. “Leaving it was emotional. But you have to balance sentiment with strategy,” he says.

For many owners, the agency is part of their identities. Hughes often counsels clients on both sides of the transaction. “We have sellers in their late 60s and buyers in their 40s. Their motivations are completely different,” he said. “In a good deal everyone’s motivations are aligned and everyone wins.”

The Power of Planning

“Those who fail to plan, plan to fail,” Allen says. “The agencies winning today are the ones that nail the entire cycle—preparation, execution, integration, and ongoing success.”

The independent agency system remains resilient and attractive because it combines entrepreneurial flexibility with recurring revenue and community roots. But as consolidation accelerates, the gap between prepared and unprepared owners will widen.

“Great agencies will always have buyers,” Hughes says. “The question is whether you’re one of them—or one that gets left behind.”

By planning early, operating efficiently, and leading transparently, agency owners can future-proof their value—not just for a transaction, but for the legacy they leave behind.

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Here are 6 keys, according to MarshBerry, to start future-proofing your agency:

1. Plan years in advance. Start thinking about perpetuation three to five years before any planned transition.
2. Relentless focus on organic-growth!
3. Invest in people. Retention and culture drive long-term value.
4. Avoid becoming a lifestyle business by only running business expenses through the P&L.
5. Be strategic about your markets and carrier mix.
6. Get expert help early. Engage advisors, attorneys, and accountants who know how to perpetuate internally and externally depending on your needs.