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Succession Planning for Insurance Agency Owners: Protect Your Most Valuable Asset

Posted by Jason Konopik on Wed, Oct 16, 2019 @ 12:00 PM

Are you crazy-busy running the day-to-day operations of your insurance agency? 

Maybe a little afraid of how this boat would stay afloat if you weren't there paddling like your life depended on it? 

Always rushing to meet a deadline or make a deal.

Rarely taking the time to consider what would happen to the agency if you were to ever leave the business...


If that sounds familiar, you probably know that things we put off 'til later have a way of creeping into our minds and keeping us tossing and turning at night. 

How to Protect Your Most Valuable Asset and Rest Easier

As an insurance agency owner, your most valuable asset is your business. But what’s troubling is that many insurance agency owners aren’t protecting it like they should.


Because succession planning can be one of those things that make you think, Eh, that’ll take way too long. I’ll do it later… And “later” turns into “never” as it often does.


This is a widespread problem.

According to a 2018 study by the Financial Planning Association and Janus Henderson Investors, “While advisors are more likely to explore their options as they near retirement, 73% overall lack a formal succession plan.”1

And this from CNN Business, proves that lack of succession planning permeates all industries —


“Whether they quit, retire, get fired or die, all CEOs eventually leave. The billion-dollar question is: Who should replace them?

The boards of 20% of public companies and 32% of private ones can't answer that question. That's because they haven't discussed long-term succession planning in the past 12 months, according to a survey conducted by the National Association of Corporate Directors.”2

Whether we’re talking about CEOs, agents, advisors, or in our case agency owners, not enough leaders are spending time developing a succession plan. But —


It’s not your fault.


Between working with producers and their clients and managing employees, we know it can be difficult to dedicate time to planning your exit from the business. And it can also be an unpleasant to think about! If you love what you do and don’t see yourself ever retiring, you might feel like putting a succession plan together means you have to stop working. That can be bittersweet for those committed to this business.


But that’s not the case and it’s not a reason to put off succession planning.


Similar to clients who would rather avoid the discussion of life insurance because it makes them think of their own demise, it’s still vitally important.


This is why more and more organization leaders are making succession planning a part of their overall strategic plan. Not only do they want to leave a lasting legacy, they want to offer their clients and employees an answer to What will happen to me if you leave the business?


Several years ago, in the investment world, a group created a model rule that states could adopt, to require registered advisors to have a business continuity and succession plan in place to help ensure clients didn’t experience service disruptions or harm because of an advisor exiting the business.


This begs the question…


why wouldn’t insurance agency owners want to look at this in the same light?


Not only are you providing exceptional service to your producers, it’s likely you’ve created a very lucrative career for yourself and jobs for others as well. And that’s commendable—


But to sustain our industry and continue to serve your clients even when you’re no longer there, it’s essential that your business endure and increase in value over time. So, how do you do that?


Develop a succession plan, of course.


Succession planning addresses one big overarching question — What do I want to do in the future?

Answers to that will vary:


·       Buy other agencies

·       Merge my insurance agency with another

·       Pass my agency ownership to a family member or key employee

·       Sell my agency


Reap the Benefits of a Succession Plan

Now, before you start thinking, OK, let's just get this done... creating a succession plan isn't merely something to check off your to-do list. There are concrete and long-lasting benefits to taking your time with this and doing it right.

Let me explain.

Succession planning can help you achieve some important goals, such as: 

  • Getting the most value from your agency. During succession planning, you begin to fully understand the drivers of growth in your business and put concrete numbers behind what your business is worth. This allows you to make better decisions about retirement plans, taxes, compensation, insurance, and shareholder agreements, to name a few.
  • Ensuring talented people continue the business you created. Your legacy can be passed from generation to generation when you have people you admire and trust as successors. 
  • Increasing the chances that your clients will receive the same level of service in the future. One of the hardest parts of leaving the business can be giving up the service you provide to your clients. You want to know that someone will be there to make sure their retirement goals are met. 
  • Structuring your business in a way that's consistent with your personal vision and objectives. An adverse effect of not incorporating succession planning into your long-term strategy is that you leave everything up to chance. By planning, you get to design your succession plan to accomplish what you set out to when you started the business. 

Reduce the Overwhelm Associated with Succession Planning

Although you want to dedicate a significant amount of time to this, well-organized steps can make succession planning much easier. We'll lay those out for you below. Then all you have to do is execute each one. 

0) The preliminary step is to create a continuity plan. A continuity plan will help ensure that you, your family, your clients, and your staff are taken care of in the short-term before you fully develop a formal business succession plan.

1) Next, you'll want to seek outside consultation from an industry expert. Succession planning can often be an emotional and daunting process so having someone ask the tough questions, provide objective feedback, and help keep the process moving along can be extremely valuable. 

2) Pick an exit date. The purpose of planning is to get rid of the uncertainty as much as possible. So, choosing a date is working with the end in mind and improving your chances of being able to achieve your objective. 

3) Identify potential successors. Hire, retain, and train the leaders you want to take over your business whenever you decide to make your exit in the future. This may be a family member or key employee, a business partner, or it could be someone you haven't even met yet. You'll want to define the characteristics you're looking for in a successor. 

4) Prepare an updated valuation of your business. After identifying the key drivers in your business, you'll review historical performance to help predict future outcomes. This is an opportunity to establish a solid growth plan. If you're not growing, you're dying. And a business that slowly dies, won't be worth anything at the time you decide to exit the business. That's why it's so important to find ways to create sustainable growth over the long-term. Your business should be running on all cylinders from growing in profitability, to maintaining organizational health, to executing a solid succession plan. 

5) Set financial terms. Will you sell your shares to a co-owner? Or draft a buy-sell agreement? Perhaps, you'll allow a key employee to make a down payment or pass ownership interest to a family member. Whatever you decide, it's best to formally state your intentions. 

6) Develop a timeline for the transition process. The actual transition phase can be around 6 to 12 months. Allow plenty of time for mentoring those who will take over for you and make sure the business is financially, politically, and emotionally sound before passing the baton to your successor. 

Of course, you don't have to do this alone and we don't suggest it. 

The team at Partners Advantage has years of experience in succession planning and can help guide you in achieving your objectives. Whether that means passing ownership to a successor, selling or merging your agency, or includes buying other agencies – we’ve developed a smooth process that greases the wheels, which can allow you to achieve your end goals and help make your business more profitable in the meantime.


Final Thought

Don't let your business slowly die and fade away. What you've created should live beyond your own career. Remember, starting succession planning early doesn't mean you're done working. It means that you have more options and more time to cement the kind of legacy you want to leave. 

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Tags: agency resources, succession planning



This content is for informational and educational purposes only and is not designed, or intended, to be applicable to any person's individual circumstances. It should not be considered as investment advice, nor does it constitute a recommendation that anyone engage in (or refrain from) a particular course of action.

1O’Brien, Sarah. Most financial advisors lack a succession plan, a crucial aspect of running a firm. CNBC.  April 29, 2019. https://www.cnbc.com/2019/04/29/a-majority-of-financial-advisors-lack-a-succession-plan.html.


2Sahadi, Jeanne. A surprising number of companies don’t have a CEO succession plan. Here’s why. CNN Business. September 6, 2019. https://www.cnn.com/2019/09/06/success/ceo-succession/index.html.