We live in a world that is rapidly changing. As consumers, we expect immediacy and accuracy in almost every interaction. This is true in the way we shop, how we research who we want to do business with, where we want to travel, and the experiences we want to create. Gone are the days of waiting and wondering. In today's world, we have more data at our fingertips than ever before.

Independent insurance agents face the same expectations from their customers. Doing things the way they've always been done and expecting to continue to be able to compete in this ever-changing insurance environment is no longer feasible.

This shift in our society, coupled with the current employment environment, hard market and aging independent insurance agency ownership demographic, has created increased pressure for agency owners to ask themselves, “Is this the right time to consider selling?"

Two in 5 agencies anticipate an ownership change in the next five years, according to the 2022 Agency Universe Study. While many owners I meet have an idea of how they wish to perpetuate their agency, few have documented anything. This means that a single life event could cause their agency to sell at a significant discount while those who remain try to piece together an executable plan for the agency.

There are many reasons that agency owners put off building their perpetuation plan. The most common are time and fear. Let's face it, the process of building a plan for when you are no longer part of your business can be overwhelming. There are so many things to consider. Building a strong perpetuation plan and navigating those decisions can feel like an enormous task. Also, many think that having a perpetuation plan is only something that older agency owners need to worry about, but the reality is that every agency owner needs to have a plan in place.

Whatever the reason, roughly 90% of the agencies that I have worked with do not have a documented perpetuation plan in place. That needs to change.

Crunching Numbers

The first thing you should do to build a strong perpetuation plan for your agency is to get a valuation. This helps determine the amount of life insurance you will need to put in place for the current owners. It also sets the right expectation for your agency's worth in an internal ownership transition.

A valuation highlights the risk factors inside your agency and provides areas you could focus on to increase the agency's value. It can also give you the framework to begin talking to your potential successors about what to expect. The key is to take guesswork out of the equation, so when the time comes your loved ones know what to do to follow your wishes.

Emergency Plan

The first part of a perpetuation plan is documenting your emergency plan should something unexpected happen to you and you're no longer able to lead your agency.

If you have someone in mind as the future agency owner, put an agreement in place. If you do not have a successor in mind, consider appointing someone to be an adviser to your family as they work through the process of selling your agency. Having a colleague support your family can be a blessing at a time when they need it the most.

Either way, you can document the process and valuation method, and outline the terms of the agreement, creating a clear plan and process to follow. The agreement can include who has the first right of refusal, the sale terms and mechanism you wish to use for each triggering event, and a list of other people to contact if that person or entity does not wish to exercise that right.

You should have a list of all accounts, systems and passwords. Make a list of key staff, partners and clients that need to be notified and reassured that there is a plan in place. Additionally, provide a list of advisers, including your lawyer, accountant, lenders, broker and valuation experts, who can help speed up the process and remove the risk to the agency that can be created by the uncertainty of the situation.

Sum of Success

Once you have the emergency plan in place, you then can focus on de-risking your agency in preparation for the planned sale or transition of ownership. Here are eight common areas to consider: 

1) Staff. Your staff is your biggest asset. They are the heart and soul of your agency, and they are the ones who have built many strong relationships with your customers, community, carriers and partners.

Communicating to your staff that you have a plan in place should something happen to you is crucial. In the absence of good communication, your staff may become concerned that the job that they love will change drastically. Nine out of 10 agencies that I work with say that taking care of their staff, customers and family is their first priority in a transition. Communicating to them how critical they are to the ongoing success of the agency, as well as how they have factored into the decisions you have made for the agency's future, will go a long way to set their minds at ease.

2) Customer relationships. The retention of current customers and the agency's ability to write new business is one of the key factors that impact the agency's value. Ensuring that customer relationships are transferable and secure is one of the best ways to strengthen the agency's value.

People do business with people they know, like and trust, so introducing your key customers to several members of your team will go a long way to ensuring that the client remains with the agency if you are no longer there.

Clients often build strong connections with their account managers. When an agency changes ownership, it is key to make sure these relationships continue smoothly, too. If clients feel like their new account manager understands them and their needs, they are more likely to stick with the agency. Planning ahead and intentionally fostering these relationships helps ensure that clients feel comfortable and cared for during the transition.

3) Carrier relationships. Independent insurance agencies work with many carriers and the relationships that they build with the carrier representatives, underwriters and leadership are incredibly valuable. Familiarizing members of your team with the carrier's team is critical to not only the agency's current success but also the maintenance of those relationships during a transition. The last thing you would want to happen is for a carrier to become uncertain of the ongoing success of the agency in your absence and cancel the agency's contract.

4) Referral partners. The ongoing growth and performance of your agency can be greatly impacted if you can no longer maintain strong relationships with your referral partners. Your referral partners want to know that even though you are no longer there, the customers they refer to the agency will receive the same level of care.

Giving yourself and your successor the time and support needed to build these relationships allows the new owner to understand how these partnerships work and continue to build on them, ensuring the agency's ongoing performance will not suffer. Keep in mind that what the current owner has to say about the new owner is usually the biggest factor in maintaining these relationships.

5) Network relationships. Over 61% of independent insurance agencies are part of a network, cluster or aggregator. These groups provide access to markets, negotiated commission and contingency agreements, analytics, technology, networking opportunities and many other key services.

As agency owners, it is important to introduce your key team members to the agencies inside the network and the leadership team at your network to ensure that they maintain confidence in your team in the event of your absence. Maintaining the network relationship can be incredibly important to the performance of the agency post-transition.

6) Niches. If your agency specializes in specific types of insurance, you will need to ensure that several other people inside the agency have the expertise to maintain and grow the niche. This specialized expertise sets you apart and will require time and training to transfer to a new owner smoothly. Maintaining the relationships with your specialty carriers will also be critical to the successful transition of your niche.

7) Processes and procedures. Procedures for claims, renewals and client information keep everything running smoothly and ensure clients receive excellent service. Before ownership changes, it is crucial to document these processes and procedures so the new owner or team can step in without any hiccups. Planning ahead ensures that everyone knows how things are done and can maintain high service standards.

8) Technology. Technology plays a significant role in how insurance agencies operate today. From managing client data securely to comparing insurance options quickly, the right technology can make a substantial difference. When planning for the future, it is important to assess the agency's technological needs and capabilities. This includes making sure that the new owner understands how to use any software or tools the agency relies on. Planning ahead helps the agency stay efficient and competitive in a digital world.

Time is either your friend or your enemy when it comes to planning for your agency's future. Those who take the time to work through this process are far more likely to maximize their agency's value and create more options for the future. But the biggest and most immeasurable reward is the relief your family will feel when the time comes to implement the plan.

Carey Wallace is founder of AgencyFocus, an independent insurance agency consulting company.