Critical Considerations When Buying An Insurance Agency

The acquisition of insurance agencies has reached an all-time high in recent years. There are many reasons for this reported number, such as the global hikes in expectations, capital rise involving small firms, and other industry norms. However, the unique risks posed by the purchase of such entities still prevails, as buyers would encounter challenges that are applicable only to this industry. In that sense, here are some things that investors must contemplate before proceeding to purchase surety companies. 

Regulatory considerations 

The first concern in buying an insurance agency is staying up-to-date with the regulatory guidelines and approval criteria administrated by the laws of a company’s home state. Some states require pre-closing notifications before completing deals, or otherwise, they would disapprove by considering this noticed timeframe. To avoid such complications, always disclose regulatory necessities with partners and understand the updated requirements. 

Individual licensing 

It is essential for an agency to employ only contractors having insurance producer licenses. Additionally, they also need designated producers responsible for their actions held within an entity. In that sense, consider the individual licensing of each agent and employee for seamless transactions. Since some states have a few exceptions, it is better to understand them in advance. 

Customer account entries 

Every insurance agency maintains policy ownership of expirations or renewal entries. In other words, it grants access for them to actively renew a customer’s policy once it expires. In some cases, entities only handle general industry exclusivities. Therefore, it is crucial to identify such provisions before carrier agreements. 

Earn-out mechanisms 

When customers aren’t satisfied with the services of an agency after its transaction, they would simply find a new insurance company. Thus, make sure to include earn-out mechanisms in the initial purchase price to uncover any risks. 

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