buying employee benefits (primarily group health) agency

[Guest taylorjeff]

Hi,

I wasn't sure where to post this, but thought this would be a good place to start as I see other agents/broker's posts regularly. I currently work at an agency and am building my book of business. I primarily do group health but also ancillaries (dental, life, disability). I came into the agency two years ago having spent the prior 18 with a major health carrier. The agency principal is nearing retirement and we have discussed me taking over the business. His book is also primarily group health with many of his clients my old clients when I was at the carrier. The current income breaks down approximately 55% group, 20% individual health, 15% P&C, and 10% life commissions.

I've done some research and most of what I see on the internet focuses more on buying p&c agencies or finacial planning practices. Does anybody have experience either buying or selling a practice where the bulk of the income is group health. One time fee / multiple of income? Percent of renewals? I'm open to any advice.

Thanks

[Guest RichW]

Jeff,

I would think that you could use the 1 to 2 times gross revenue in purchasing this. That is typical for a benefits business and I am almost sure the same applies to a P & C shop. You never know how long some of that business will stay with you, so I would stick closer to the 1 times.

Good Luck

[KIP KRAUS]

I’ve never been involved in the purchase of an agency before, but what I know from working as benefits consultant/broker out of a primarily P&C agency I’d want to know more about the income generated from renewals and what the P&C bonuses are.

It’s been a while since I’ve been a broker, but group insurance commissions varied by insurer and first year commissions usually were higher than renewal commissions. However, some types of coverages such disability coverage can be level for the life of the contract.

I don’t know that much about P&C coverages but it’s my understanding that they are typically level premiums, and if I’m not mistaken P&C carriers give agencies bonuses, or profit sharing dollars at year end based on the volume of business placed with them.

My advise, have a CPA review the books. You clearly need to know the commission income and what amount of that commission level is going to continue if the policies remain in force.

Another major factor I would look at is what loyalty will the existing clients have to you if the current owner is not involved in the business. Tons of insurance is sold through the good-ole-boy network, and once that network ceases loyalty can be directed elsewhere.

[GBurns]

Just a few months ago National Underwriter though it important enough to devote a few weeks to cover the issue of "Who owns the client". This was caused by a number of recent cases both in court and in arbitration which involved agents and agencies trying to sell or colateralize their "book of business" or "future commissions". The end result seems to have been that neither the agent or the agency owns the client nor the commissions under most contracts but instead are at the mercy of the insurer who is the one with a contract with the insured.

I would first check to make sure that there is a "book of business" that the insurers recognize as being the agent's property. It is nice for agents to think that they "own" something, but the reality is that they usually do not.

More importantly, I would make sure that these insurers will accept a change of agent of record. What would happen if you bought the agency but the insurer does not accept changes to the agent of record and will only pay the commissions to that original agent. If he assigns the commissions to you he would still be liable for the income taxes, so he most likely would not do it.

What happens if the client will not sign off on the change?