Why Insurance Agency Valuations are at an All Time High

In 2019, the insurance mergers & acquisitions industry maintained the healthy trajectory it has been on for the past several years. After scrutinizing contributing market factors, STG’s analysts (along with experts across the industry) have concluded that the positive insurance M&A activity shows no signs of stopping anytime soon. Consequently, owners across the country are experiencing all-time high insurance agency valuations.

The burst of M&A activity, as demonstrated by the record-breaking number of transactions throughout 2019, is obviously good news for agency owners who wish to sell. What may be less obvious is that this is also a great time to jump into the insurance world by purchasing an agency that is thriving. Independent buyers who are overwhelmed at the thought of navigating the complex M&A process should work with a business broker like Springtree Group.

Anyone considering buying an independent insurance agency should have a solid understanding of the state of the industry they’re about to become immersed in. To wit: why are agency valuations at record-breaking highs? There are several contributing factors.

Technological Developments

Insurance agencies are increasingly investing in cost-saving technologies like cloud computing and blockchain. Initially, independent insurance agencies were merely intending to make their offices more fiscally sound, but these technological advances have had the bonus effect of making their agencies more efficient. With improvements in speed and scalability, agencies can take on more clients while also experiencing an increased capacity for customer care.

Increasing Home Ownership Rates

Although the rate of home ownership has almost made it back to pre-recession levels, some nervousness surrounding the 2008 real estate crash still lingers.

However, it’s important to keep in mind that, although home ownership may not have skyrocketed like some other sectors, the year-to-year trends are consistently moving in the right direction. Thanks to a solid market and a drop in interest rates, millennials have finally begun to shake off their fears of homeownership. Springtree experts agree: investing in select insurance lines to meet the needs of this group of new homeowners is a profitable move.

Climate Change Awareness

In response to climate change concerns, some insurance agencies are now moving away from insuring non-renewable (ex: fossil fuels) energy companies. Here in the US, Axis Capital was the first insurer to restrict policies covering coal and tar sands projects. This trend means independent insurers can decide whether to cease working with these types of businesses or to take them on—after calculating the necessary increase in their rates.

Low Unemployment Rates Coupled with Steadily Rising Income Rates

Some of the macroeconomic factors influencing the surge in insurance activity and record high agency valuations include low unemployment rates, rising disposable incomes, and low interest rates (thus minimizing risks to borrowers across the board). Thanks to these economic boons, today’s consumers are ready to invest in a multitude of products that will each need to be insured. By offering a wide array of products from respected insurers, independent insurance agencies can continue to participate in the overall prosperity the country is experiencing.

Whether you are interested in buying or selling an independent insurance agency, reach out to Springtree Group at service@springtreegroup.com. Our in-house financing and extensive network within the insurance M&A space helps position buyers to make an aggressive, well-timed offer on a highly valuated agency. We also have a targeted approach that allows us to match buyers with the right sellers while maintaining agency confidentiality throughout the process.