If you’re familiar with the 2010 adaptation of Alice in Wonderland, directed by Tim Burton, you’ll remember that Alice tries to pinch herself awake from what she believes is a dream because it isn’t going how she’d expected. She spent her entire childhood building relationships in a fantasy world that was everything she loved. When she became a young adult, she had to make important decisions that impacted her own life, and those around her, to save Wonderland. Building your own business to be everything you want it to be and then acquiring someone else’s is much like Alice’s dream. Pinching yourself awake isn’t going to help you with an agency acquisition, but I‘d like to dive down the rabbit hole of things to consider before making a deal with a possible “Queen of Hearts” so you can continue building your Wonderland.
As a business owner, you know what you want in your business. No two agencies are exactly the same, so prior to going into the early stages of a possible acquisition, there are a few things you need to know. Over the past few years, our agency has acquired a handful of other agencies, each one different from the last. With each completed transaction, we learned more and more about how to have a more solid process for any potential future acquisitions. If you’re anything like me, you like checklists, and I’m here to share a few tidbits from ours.
Check the numbers
Purchasing another agency may seem like a quick and easy way to grow your book, but it may not always be great for the long term. Much like Alice drinking the magic potion to change her size, you’ll be asking yourself, “How long is this going to last?” A few ways to determine the potential outcome is to find out the retention rate of the book, the average customer lifetime, and what the losses look like. Fun fact, two of those things can be pulled right out of HawkSoft reporting for your own book!
Compare systems & carriers
That takes us to our next items on the list. Not every agency has HawkSoft. So what do they use? Along with needing to know the client management system they have, or don’t have, you may also want to consider the carriers they write business with. HawkSoft has made it pretty painless to convert other management systems into theirs, but getting appointed with additional carriers isn’t always a simple process! In our industry, we are all too familiar with the limitations each carrier has for writing business. That being said, just because you have acquired a book that contains business with those carriers, it does not mean you’ll be able to maintain those policies. You may have to place them with another carrier at renewal, so you’ll want to ask yourself, is it worth it?
Assess the risks
Now I mentioned earlier that you’d want to know what their losses look like. That doesn’t just mean the losses on the policies themselves. While you don’t want to take on “bad business,” you also don’t want to put your own business at risk. It’s important to ask if there are any past E&O claims within their agency. Even if that employee is no longer there, that shadow is likely to follow each bit of business they wrote. This may mean additional time will be needed to pull information if the claims are still open, and it will definitely mean additional time is needed for underwriting those policies.
Understand staffing needs
You may also want to consider whether any existing staff will be joining your team. If so, will you keep their existing office, have them work hybrid, or is there space at your location for a few more desks? If you keep their office, what does that look like for all of the essentials, like internet, utilities, equipment, etc?
While the list is never-ending and there’s a million more things to consider, once you have the information outlined above, you’ll be on your way to making a more educated decision on the pros and cons of each acquisition and whether or not it’ll have a long-term benefit.
Author
Heather Killian
Atkinson Insurance Agency
Mechanicsville, VA