Where does the time go? Four months into 2017, here are four industry observations and four action items every insurance agency principal can take before the next four months pass.
1. Merger and acquisition activity and agency prices have peaked, reflecting a downward trend in 2016 from 2015. The market may have plateaued, but it mostly resembles a prairie. It is wide open, and the direction will depend on where sellers take it. The market favors sellers with attractive smaller agencies in hot demand.
How might this change? The increasing interest rate posture and the possibility of tax reform are uncertainties that will influence deal activity throughout the rest of this year. Private equity-backed buyers have been very active, but they are now aiming their sights toward smaller agencies.
2. Increasing interest rates will negatively impact valuations, notably the value of slightly larger agencies and in particular the “almost platform” agencies. The private, equity-backed larger acquirers will seek tuck-in acquisitions to round out the franchises for their acquired platforms. The desirability and value of your platform agency may be weakened, particularly if the platforms in your area have already been acquired by one of the “bigs.”
3. The defeat of the “repeal-and-replace” initiative for the Affordable Care Act (ACA) reminds us that politics and geopolitical events can and will have an influence on our business, particularly as it relates to investments and values.
4. Commercial property/casualty insurance has been in a soft market that appears unlikely to end soon, but there are pockets of pricing strength. In April, for the first time in 20 months, the composite rate index for commercial accounts measured an increase of plus 1 percent.
Do This Now
1. Call your banker. Put your agency in the position to take advantage of opportunities with a ready line of credit. Having borrowing power is an effective way to compete with the large acquirers. This is also a test to determine if your bank can handle future opportunities such as a recapitalization, financing an acquisition or funding a perpetuation.
2. Connect with an intern. Many in the industry complain of the dearth of young talent. Call the dean’s office of the nearby undergraduate business school. Temple, Eastern Kentucky, Georgia State, University of Hartford and 500 other AACSB-accredited business schools have willing students eager to learn. Offer a paid summer internship to a promising sophomore or junior. Not only will you show them the incredible opportunity available in our industry, but you may learn a thing or two about millennials — your next generation of clients.
3. Cozy up to a consultant. We are all familiar with the names of the major consulting companies. While their knowledge is industry-leading, you may also like to know there is an association of highly qualified professional consultants called AAIMCo, with several members in nearly every state ready to serve your needs, big and small.
4. Cybercrime check. Large data breaches at department stores make the news, but the major vulnerability to your data, your clients’ data and your money come from phishing, pretexting, spoofing and other social engineering threats. Do not be afraid to seek the help of experts to strengthen your systems and train your weakest links. The vulnerability in your system may be your own unpatched laptop on your home network.
Let’s work on these and see what the next four months bring.
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