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Insurance agency succession and perpetuation planning | Pie Insurance

Independent insurance agency owners are largely nearing retirement age. How should they tackle perpetuation planning for their agency?
Insurance agency succession and perpetuation planning | Pie Insurance

What is perpetuation planning?

Perpetuation planning is the process of identifying and documenting what the next steps of leadership look like for an insurance agency if and when the current leadership steps away. This can happen for a number of reasons—retirement, poor health, death, or other circumstances. It sounds simple, but perpetuation planning, also known as succession planning, is an involved process that often includes: 

  • Choosing your insurance agency’s successor(s) 
  • Creating a training plan for the chosen successor(s) to prepare them for eventual agency leadership
  • Deciding whether the agency will change ownership as part of the success plan and, if so, how
  • Backup successors in case the the first in line is no longer available to lead
  • Legal, financial, and tax arrangements in the event of a change in agency leadership

As part of this planning process, you’ll also want to consider how you’d like your agency to continue into the future. According to the Insurance Journal, four of the most common strategies for agency succession include: 

  • Selling the agency to key employees, which may be a family member who’s already employed
  • Leaving the business to someone through the process of inheritance 
  • Selling the business to another insurance agency, private equity firm, or insurance aggregator
  • Merging with another insurance agency with the possibility of the other agency buying out your shares later

These are just a few of the many decisions you’ll need to make during your agency perpetuation planning. Keep reading for more guidance on questions to ask and things to consider as you start to tackle this process.

Why focus on insurance agency perpetuation planning?

No one understands the unpredictability of life more than an insurance agent, whose business is often built on selling products that protect clients’ financial wellbeing when an unexpected loss occurs. So, why is agency perpetuation planning still such a touchy subject? Much like estate planning on a personal level, this practice is essential for ensuring an agency’s success down the line, but people still avoid dealing with issues of their own mortality.

The Insurance Information Institute estimates there are about 36,000 independent insurance agencies in the U.S. Based on the Agency Universe Study conducted every two years by the Big I, about 90 percent of these agencies have perpetuation planning in place. That still leaves an estimated 3,600 agencies without any plans. 

If you’re one of the several thousand agency owners who hasn’t yet formalized a succession plan for your independent agency, or if you’re interested in revisiting your perpetuation planning, here are some tips to help you tackle the process.

Should I sell my insurance agency?

For many independent insurance agency owners, this is the first question to answer when thinking about agency perpetuation planning. There are many good reasons to consider selling the agency you’ve spent your life building, purchased years ago, or took over from a family member. There are also great reasons not to sell. It’s something only you can decide.

To determine whether you want to sell, and if so, what kind of timeline you’re looking at, here are some questions to ask yourself. 

How long do you plan to keep working at your agency? Would you retire immediately if the right buyer came along at the right price? Or is it important to you to continue working even if you’re no longer the owner or sole owner of your agency? 

How much money would you need to sell your agency to maintain your current or future standard of living? Don’t forget about taxes you may have to pay after selling your agency.

How will the value of your agency be calculated? What will you actually walk away with if you sell? What types of performance metrics does the agency have to hit before the sale to ensure this number? 

Is the acquiring firm a good fit for your agency? How will your staff be impacted? Will the agency function with the same culture that you worked to establish? 

After thinking through these questions, it may become clear that you’ve got great options for selling your insurance agency now or in the future. Or you may realize that you’d rather plan for a family member or high-level employee to be the next owner of your independent agency instead of selling or merging with a larger agency.

How to tackle perpetuation planning when you want to keep your insurance agency in the family

Many independent insurance agencies are family businesses. Whether yours is a first-generation insurance agency that you started, or one that’s been in your family for decades that you’re now leading, it’s important to consider how your agency will function successfully once you’re no longer there. How you do this depends in large part on the size and current structure of your insurance agency.

Perpetuation planning at small independent insurance agencies

Small independent insurance agencies, such as those with less than twenty employees, may have family members already on staff who are designated to take over the business when the current principal retires. 

It’s important to start thinking about who these people are as early as possible. The role your planned successor plays in the agency today, one they may be very good at, could require very different skills from the role you want them to play in the future. Part of successful perpetuation planning is not just identifying who you want to take over, but making sure they’re trained and ready to do so.

Perpetuation at large independent insurance agencies

For larger insurance agencies, there may already be an executive team in place who can both assist with perpetuation planning and step into interim leadership roles if needed. If your independent agency has grown this large, you likely have a team of professionals including lawyers who are heavily invested in your agency’s continued success. The considerations don’t change, but you may have more resources to create a tightly buttoned up insurance agency succession plan.

Putting your agency’s perpetuation plan into action

Planning is one thing, but what happens when it’s time to act? The good news is that a proper agency perpetuation plan includes action steps from the very beginning so the change happens slowly over time.

As you and your team work on your independent insurance agency’s succession planning, you’ll be taking steps to ensure a smooth transition in the future. From choosing and training the next leader(s), to creating your timeline and strategy for leaving, to communicating the change and the entire change process to both agency staff and clients, there’s plenty of action taking place. By the time retirement day comes, assuming you’ve planned adequately, there shouldn’t be surprises for your team, partners, or clients. 

In fact, you as the agency owner, might be the one person who’s most unprepared for the reality of leaving your leadership role. Don’t ignore the dramatic mental and emotional change of going from an independent insurance agency owner to playing a less active role, or even full retirement. 

Everything above assumes a nice, slow, planned exit strategy for insurance agency leadership. But don’t forget that perpetuation planning is equally important for younger agency owners because, as insurance agents are all-too-well aware, the unexpected can happen at any time. Even if retirement seems decades away, creating your insurance agency’s succession plan and revisiting it periodically, are vital to your continued success.

Thanks for reading our educational resource! Any above reference to a specific company, method, or product is meant for educational purposes only and is not specifically endorsed by Pie.