Valuing an Insurance Broker
When valuing an insurance broker, a business appraiser considers the following information. Insurance is understood by many as a must-have. However, the process of acquiring insurance can sometimes be difficult. The process of acquiring insurance has been simplified over time through insurance brokers that work with buyers rather than insurance companies. Insurance brokers make up one of the largest industries in the US. In 2018, the industry recorded $165.3 billion in revenue and a 2.9% growth rate. This growth rate is on par with the past five years’ annualized growth rate of 3.1%.
Although it may seem counterintuitive, the best time to sell a business is during a healthy economy. If you currently own an insurance brokerage, consider the possibility of selling when cash flow is trending upward. Current industry trends point towards further growth, which provides a great opportunity to sell now. The first step to selling your business is obtaining a business valuation. Whether you are looking to sell or expand an insurance company, understanding the market value of an insurance broker is important. A valuation specialist such as Peak Business Valuation, business appraiser, will show you a range of values for your insurance brokerage. They can also consult with you on how to increase the value of your insurance brokerage.
Over the past five years, I have provided business valuations for several insurance brokers for various valuation purposes. To give you an idea of each of those engagements, I will list out some of the key factors we use when valuing an insurance brokerage. Keep in mind that the factors listed below are only a guide.
Market Multiples for an Insurance Broker
- 1.57x – 2.41x Sales
- 3.18x – 4.33x Sellers Discretionary Earnings
- 4.28x – 5.24x EBITDA
Disclaimer: These multiples have been provided for educational purposes only. As such, the information provided does not constitute valuation advice and should not be acted as such. These multiples do not represent the valuation opinion of Peak Business Valuation or any of its valuation professionals. Instead, you should seek the guidance and advice of a qualified business valuation professional with respect to any matter contained in this article.
Multiples are one method a business appraiser uses when valuing an insurance broker. With a clearer understanding of what your business is worth, you can begin taking steps to increase the value of your insurance brokerage prior to a potential sale. I will touch on four ways in which you can increase the value of an insurance brokerage. There are many factors to take into consideration, but this will provide you with the basis of what your company is worth. And it highlights a few ideas to increase your insurance company’s value. If you are searching for a more extensive valuation for an insurance brokerage, reach out to Peak Business Valuation, business appraiser.
Key Success Factors for an Insurance Broker
There are several success factors that help distinguish an insurance broker. For more ideas see the following articles:
- Value Drivers for an Insurance Agency
- Value Drivers for an Insurance Brokerage
- Valuing an Insurance Agency
Insurance brokers must establish relationships with underwriters to increase the number of insurance products they can offer. A diversified portfolio of products allows for increased customization for each client. A valuation expert analyze your product mix when valuing an insurance broker.
Insurance brokers must comply with state and federal legislation that impacts the entire insurance sector.
Having a solid understanding of the products offered that are distributed will separate the most successful brokers from the less successful brokers.
Insurance brokers have the ability to diversify clients through policy offerings. Insurance policies can range from health and medical to life and accident. In addition, insurance brokers can diversify by focusing on individuals and companies. For instance, health insurance policies apply to everyone while large corporations need access to group insurance plans for employees. However, in order to expand policy offerings, insurance brokers need to establish proper relationships with underwriters to increase the number of insurance products.
If you or your firm offer a handful of insurance policies, you may want to consider expanding the offerings to encourage growth and customer acquisition. As a business appraiser is valuing an insurance broker, they will analyze your customer concentration.
Technology and Systems
Insurance brokers rely heavily on technology for their business operations. Technology is used to maintain customer records, process financial transactions, provide sophisticated advisory services, and assist in marketing products to customers. There are several advantages to technology for insurance brokers:
- It enables brokers to reduce the processing time of insurance policy sales
- Improves access to insurance carrier information and source insurance policies with underwriters
- Enables customized policies
- Provides timely information to customers
Overall, any online technology that enables customers to easily select and purchase insurance coverage from a variety of underwriters will benefit insurance brokers. As such, make the investment in technology. Invest enough to support your ability to act as an advisor to customers.
Revenue for insurance brokers is relatively stable. This is because revenue is generated from commissions related to insurance policy sales and fees. Due to the nature of insurance policies, revenue fluctuates with macroeconomic trends. As such, insurance brokers need to develop programs to ensure continuous sales and revenue streams. One way to do this is by offering diversified insurance policies that tend to offset each other during periods of economic downcycles.
In addition, build a sales team that focuses more time and energy on target accounts. Learn to build appropriate marketing plans that attract a certain clientele. Regardless of how you approach sales and growing revenue, you must never stop selling.
Understanding the value of your insurance brokerage is important, regardless of any near future transactions. Even if you have not thought about selling your business, consider the future of your business; it is never too early to start planning. The first step in that process is a business valuation, which we are happy to provide you with. We can also help to identify ways to increase the value of your business.
We at Peak Business Valuation, business appraiser, work with dozens of insurance brokers. Questions are always welcome about valuing an insurance broker Feel free to reach out by scheduling your free consultation below!
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