Independent Insurance Agency Valuation Process

By Team INEX |

Profit margins in the insurance industry are notoriously low. According to statistics, many agencies operate with just 2% to 3% profit margins. Of course, insurance agents know that this is just one part of the picture regarding the value of their agency. That’s why professional insurance agency valuations are an essential investment for any insurance business.

In this article, learn more about the valuation process for insurance agencies and why it’s so important.

The Process

Conducting an insurance agency valuation might seem straightforward — calculate your business’s profits and deduct expenses, and the resultant sum is its value. Although this formula may be trustworthy for other types of businesses, the nature of an insurance agency means that its valuation is far more complex. In addition to your agency’s internal liabilities, a valuation must also account for all of your clients’ risks. Similarly, most insurance agencies have investment assets that demand more in-depth consideration.

Benefits of Insurance Agency Valuation Consultants

When you partner with insurance agency valuation consultants, you’ll receive a thorough report detailing the overall value of your agency, its assets, and its liabilities. This information is more than just data, though — it can serve as a resource when bargaining with potential acquirers. It is one of the greatest benefits agencies can enjoy when they enlist help from a business valuation insurance agency. If you have plans to merge or sell your agency, you don’t want to underestimate its value.

Factors That Determine the Value of Your Agency

Insurance agency valuation consultants will consider many different factors when calculating the overall worth of your agency. Each firm is unique, so a consultant will start by calculating your business’s profitability. They may start by looking at profit and loss statements and then project the potential fluctuations in revenue and expenses your agency will likely see. Other factors impacting insurance agency valuations include your business’s tax burden and earnings before interest.

What to Do After Receiving Your Valuation

Once you receive your valuation report, you may wonder what to do next. The answer depends on your own unique goals and vision for the future of your agency. Knowing the value of your business is an essential piece of knowledge, no matter what your plans may be. Partnering with a professional valuation consultant is advantageous because they can help you interpret the assessment results and apply their findings to your business.

Why Insurance Agency Valuations Are Important

There are many other reasons insurance agency valuations are a wise investment. Often, the information in a report may help an agency develop a strategy for future growth and risk mitigation. This is especially true when seeking to increase profitability, as too many insurance agencies go without an accurate or complete view of their profits. A valuation report is essential to providing the knowledge you need to establish achievable profit growth goals while helping to frame your business in the most realistic and advantageous way possible when engaging external stakeholders.

About INEX

INEX is a multi-disciplinary firm providing management consulting to the owners of insurance agencies throughout the United States, and real estate investment services. Our senior principals have participated in over 300 perpetuation, merger and acquisition (M&A) transactions over the past three decades. Staff professional designations include Chartered Property & Casualty Underwriter (CPCU), Certified Insurance Counselor (CIC) and Certified Commercial Investment Member (CCIM), as well as a variety of insurance and advisory licenses throughout the United States. To learn more, call us at 603-691-3155 or visit our website.