How to Increase the Value of Your Insurance Agency Through Retention

Here's why retention should be top of mind long before selling an insurance agency.

a month ago   •   5 min read

By The ReFocus Team
Selling your insurance agency can be a hole-in-one if you plan ahead
Table of contents

Several factors go into determining the value of an insurance agency. Not all of them are in your control, such as interest rates and the general state of the economy. Fortunately, you have control over your income, debt level, customer base, and location. One way to maximize the value of your business is to focus on retention. Here's why retention should be top of mind long before selling an insurance agency.

Why Is Retention Important?

For many agency owners, "how to increase the value of my insurance agency" is a common concern. If you want to maximize the value of your business, customer retention is key. Retention is vital because it costs much less to keep a satisfied customer than it does to gain a new customer.

Think about how much you spend on marketing activities. You may pay for website hosting, brochure printing, business cards, and other marketing expenses year after year. The more marketing methods you try, the more your costs increase. You can't stop marketing completely, but you can shift your focus to retention to minimize your marketing costs.

Loyal customers also buy from you again and again, increasing your insurance agency's revenue. When your longtime customers are happy, they may even refer friends, family members, and colleagues to your agency, further increasing the value of your business.

What Retention Rate Do I Need to Sell My Agency?

In an article for the Independent Insurance Agents of Dallas, Lynn Thomas reports that the top five insurance agencies have retention rates between 93% and 95%. The average retention rate is around 84%, according to Bethan Moorcraft of Insurance Business America. The higher your retention rate, the stronger your position when you're ready to sell. Aim for a retention rate of at least 90% to show potential buyers that you produce above-average results.

There are 3 primary things to think about if you want to sell your insurance agency

3 Ways to Increase Your Retention Rate

Whether you want to know how to sell a book of business or your entire agency, there are a few things you can do to increase your retention rate ahead of time.

1. Engage in Active Listening

Shelby Hudson of Agent Pipeline recommends using active listening to show customers you care about their needs. Active listening involves understanding the speaker's complete message, not just hearing the words they're saying. If the conversation occurs in person, be sure to maintain eye contact and nod your head as the customer speaks. For telephone conversations, acknowledge each statement with a verbal response.

2. Stay in Touch with Customers

It's frustrating for customers when you only contact them when it's time to renew. Increase retention by staying in touch with customers throughout the year. Consider sending a weekly email or contacting customers by phone every quarter to find out how they're doing. Whatever you decide to do, make sure it creates value for the customer. If you decide to send a weekly email, for example, make sure it contains actionable tips to help customers save money or choose the right insurance products.

3. Personalize the Customer Experience

According to customer service experts from Zendesk, personalization helps you meet customer expectations and provide a more convenient experience. You can increase the value of your agency by personalizing the customer experience in the following ways:

  • Provide support via your agency's social media channels.
  • Customize email newsletters and other marketing materials with each customer's name.
  • Create an avatar to represent your ideal customer. Use that avatar to determine the best way to meet the customer's needs.
  • Give customers self-service options to reduce the time they spend waiting for answers to common questions.
Focusing on service increases your retention and the price you get when you sell your insurance agency

Additional Ways to Increase Agency Value

Once your retention rate is where you want it to be, continue focusing on activities that increase the value of your insurance agency. Here are a few ideas:

  • Diversify your business by adding smaller accounts. Buyers would rather see a large portfolio of small accounts than a portfolio with just three or four big clients. If one of those clients leaves your firm, your revenue could decrease drastically, reducing the value of the business.
  • Rewrite policies for customers who have been with your agency for several years. If you save them money, they'll be more likely to provide referrals and continue doing business with you.
  • Put your customer data in an electronic format. Buyers are likely to pay more if you make it easy for them to assess your business.

Steps in Selling an Insurance Agency

Careful planning is just the first step in selling an insurance agency. When you're ready to look for a buyer, follow these steps.

  1. Set a price. The value of your agency depends on many factors, but Capforge Bookkeeping & Tax reports that you can often get one to three times your annual gross commissions. Your historical retention rate for at least the last 3 -5 years is key to maximizing the amount you can sell your agency for.
  2. Think about who buys insurance agencies. You may want to sell to someone you already know, such as an employee or family member, or someone you've never met. As experts from the Independent Insurance Agents & Brokers of America point out, selling to someone you know gives you a slight advantage, as you'll understand the buyer's strengths and weaknesses.
  3. Hire an agent or broker. The Insurance Journal recommends hiring someone to help you determine when to sell, how to choose a buyer what you should expect during the process.
  4. Consult a tax professional to determine how the sale is likely to affect your tax situation.
  5. Hire an attorney to draw up a sales contract. Make sure the contract includes every term you've negotiated with the buyer.
  6. Have your consultant draft a letter of intent. Your attorney and your accountant will use this document to complete the documents you need to complete the sale.
  7. Ask your attorney to draw up the rest of the documents. Depending on the terms of the sale, you may need a consulting agreement, an employment agreement, or some other type of legal document.
  8. Execute the sales contract.
Selling your insurance agency is a lot like golf - a gameplan increases the odds of a successful sale

Plan Ahead for an Eventual Sale

Selling an insurance agency shouldn't be a last-minute decision. The longer you plan for the sale, the more time you have to focus on retention and increase the value of the business. As you get closer to the sale, don't be afraid to ask for help from your accountant or attorney to negotiate the most favorable terms and maximize the sale price.

Spread the word

Keep reading