The insurance world is constantly shifting. From increased carrier demands and lower commissions to consolidation and new competition, it feels some days that change is the only constant. With an industry constantly in flux, it’s not uncommon for agencies to feel the pinch and look for growth options outside their own doors. For many agency owners, restructuring is the best way to survive and thrive. Formally merging with other brokerages has a lot of benefits – but also comes with a few challenges that must be considered in order to achieve success. Here’s a look at the pros and cons of insurance agency mergers.
Pros of Agency Mergers And Acquisitions
From expanding distribution and outreach to accessing increased resources and expertise, there are many upsides to considering a merger.
Expand customer base, product offerings, and market range.
Merging with another agency is a great way to tap into a key market or a demographic that your agency hasn’t been able to successfully reach. Expanding into new territory requires a lot of legwork, from conducting market research to ensure success, to finding a physical location and hiring staff. Merging with an agency already in that territory eliminates the need and hassle for all that work.
Similarly, if your agency has struggled to reach a certain demographic in the past, partnering with an agency already achieving success in this area can eliminate the need to come up with new marketing strategies while instantly expanding and strengthening your customer base.
Agency mergers are also a great way to instantly diversify your product offerings.
Increase efficiency and reduce costs.
Combining two agencies into one unified entity has the potential to reduce redundancies, create efficiencies and ultimately save money. First, there are savings on overhead and staffing to consider. Instead of paying rent on two office spaces, you might combine workforces into one building. Instead of two marketing or administrative departments, you reduce to one set of departments that serves both sets of producers. Reduced costs can also lead to better prices for customers, increasing your competitive advantage.
As the old saying goes, if you can’t beat them, join them! Merging or acquiring another agency can take a competitor off the market. Instead of two companies, offering the same product and working against each other, you have one single entity capable of claiming more market share, increasing clout with carriers, and offering streamlined services to customers.
Bringing together professionals with expertise in different areas can create an overall stronger organization. During your years in business, you may have gained great insights into managing one specific portion of your agency. Meanwhile, your new partner has found a great way to do something that you’ve never thought of. By combining forces, you’re increasing your new agency’s overall business intelligence.
Cons of Agency Mergers And Acquisitions
While there are many benefits to merging two insurance agencies, this task is not without its challenges. Here are some of the potential downsides to consider.
Bringing together two separate businesses, each with its own style of operation, can be challenging. Success starts with the top-down, so it’s crucial for managing partners to be on the same page when it comes to business priorities and management style. Setting expectations is crucial, especially if the division of labor and compensation is not going to be even between both partners.
One of the benefits of merging agencies is the combination of expertise, but this is only true if you maintain key employees during the transition – and unfortunately, mergers have the potential to affect employee retention. Some employees fear they may lose their jobs and preemptively look for new employment. Fear over this potential loss can also result in decreased productivity in the time leading up to and directly after a merger.
Carrier Relationship Disruption
Shakes up between agencies also have the potential to affect your relationships with your carriers, which in turn can disrupt ongoing business performance.
Energia Partners is Here to Help You Merge
Although there are some potential pitfalls to be aware of, when done smartly, mergers can be a great strategy to grow your business and increase profitability. If you are in the market to conduct a merger and are looking for a trusted partner to guide you through the process, Energia Partners is here to help. Our consultants have over 150 years of experience in the industry with a proven track record of success. Ready to get started – or simply need more information on the process? Contact us today.