Home › What Goes Into an Insurance Agency Valuation?

Whether you’re considering selling or purchasing an insurance agency now or in the future, you’ll want to ensure a profitable transaction. When buyers or sellers use “average agency value” or “fair market value” as the basis for pricing an agency, they usually end up losing a lot of money. Although these terms are great for discussions and generalities at conventions and over the eighteenth hole, they won’t help ensure profitable acquisitions.

A businessman purchasing an insurance agency

Terms That Go Into an Insurance Agency Valuation

Average Agency Value

Well-managed agencies with large books are worth more than agencies with riskier futures. Your agency has features that can be better or worse than average.

Average agency value is for you if you have a perfectly average agency. In case you’re not aware, total agency values typically range from 0.5 to 4.0 times revenues. Since this is a huge range, it’s both unrealistic and simplistic to assume that your insurance agency falls precisely in the middle.

For instance, an agency shouldn’t sell for 1.5 times revenues simply because that’s what agencies in the same area are selling for. If that agency is better managed than the others, it should sell for a higher price. Selling such an agency for the average agency value is pricing it too low.

Fair Market Value

Fair Market Value (FMV) refers to the price an agency or any asset would sell for on the open market. This valuation method is based on the presumption of what a reasonable buyer would likely pay for an insurance agency. Your agency’s book of business value and your agency’s tangible assets determine your agency’s fair market value.

Unfortunately, the fair market value isn’t always a prospective buyer’s answer. While the assets indicated in your book of business value allow your agency to generate future sales, the probability of the buyer ever receiving that cash should also be considered.

A businessman talking about purchasing an insurance agency

Are You Selling or Purchasing an Insurance Agency?

At Energia Consulting Partners LLC, we understand that every insurance agency is unique. Whether you’re selling or buying an insurance business, we’ll help you with every step of the transaction to ensure a smooth and stress-free process. Contact us today to get started.