Since the pandemic, the valuation of insurance agencies has never been higher. There are quite a few that even get 3 times the income. In 2020, one insurance agency even made 6x revenue and 10-15x EBITDA. The reason for this was simple: low interest rates.
- The impact of low interest rates
Low interest rates make it more affordable for people to buy, while investors have a harder time getting an adequate return on investment (ROI). Therefore, companies like insurance agencies with steady cash flow have never been more valuable. This trend is sure to last for a couple of years.
It also creates a high demand, but the supply is less than before. Currently, there is only a 4-year offering from investment grade insurance agencies on the market. This also means that your agency HAS NEVER BEEN WORTH more than it is now.
The pandemic has also brought new risks for agencies, affecting the value of a book of business. The economic disruption resulted in a loss of customers and premiums. This downward trend may also persist through 2024. So keep this in mind and do everything you can to maintain and increase your income, as it leads directly to an increase in value.
- Local Business Book vs. remote
Your location will also influence your final valuation, depending on who you are selling to.
Clients are used to their agent’s process. They will continue to expect you if they are used to meeting with agents at a local office. It would be a much more difficult purchase if you didn’t already have office space or a building.
A buyer may pay less for that book of business because of the additional trouble he would have in maintaining that book. So, depending on whether you serve customers locally or long distance, you may attract different buyers differently.
So, pay attention to how your customers are trained and who you’re selling to; you may be able to get a bigger deal if the buyer is local.
