Now that the presidential election is over, it is time to analyze how the result will impact the independent insurance agency values.

Since 2016, regardless of who occupied the White House or controlled Congress, agency values have steadily risen. Data from IA Valuations shows that agency values have appreciated by over 40% since 2016.

Similar to past elections, the agenda for the major parties contrasted greatly, particularly for how they could impact agency owners. The primary area of difference was related to individual, business and capital gains tax rates. Both parties agreed on enhancing the childcare tax credit to help working families manage the costs of child care—but that is where the similarities in the major parties' tax plans ended.

Incoming President Donald Trump and the GOP campaigned vigorously on cutting taxes to stimulate economic growth, whereas Vice President Kamala Harris and the Democratic party campaigned on middle-class tax cuts and implementing a variety of tax increases on businesses and higher-income earners. This issue, more than any others, would have had the greatest impact on agency values, specifically what an agency owner would have taken home after a sale based on tax rates.

With the Republican party winning the presidency and control of the U.S. Senate and House of Representatives, we will likely see an aggressive effort to extend the 2017 20% corporate and pass-through entity tax cuts. In addition, we will not likely see President Trump and the GOP take any steps toward implementing an increase in capital gains taxes or other tax increases. This will be a priority agenda item for the Republicans as they enter the new congressional session.

As a result, we will not see the same agent and broker mergers & acquisitions (M&A) run-up that we experienced in the fourth quarter of 2020 and the first quarter of 2021 when Joe Biden won the presidency and Democrats controlled the House and Senate.

For agents considering when to sell, tax increases are no longer a factor. Agency owners can decide without fear of the federal government changing tax rates, which would have an impact on their value or take home from the sale. This may result in a decrease in M&A activity and therefore could create a larger supply of agencies.

Another issue is interest rates. With inflation cooling over the past year, interest rates are unlikely to go up under the new administration and should free up cheaper capital for private equity (PE)-backed brokers to continue their hunt for acquisition targets, thereby keeping the demand for agencies high.

One question, however, is the future funding and extensions of federally subsidized insurance programs, such as the National Flood Insurance Program (NFIP) and Federal Crop Insurance Program (FCIP). With the growing national debt and as budget hawks put pressure on GOP leaders to reduce spending, it could be difficult to fund every federal initiative while also delivering tax cuts.

If your agency has a large federal flood or crop book of business, pay close attention to how these programs are treated when federal funding runs out under GOP rule. It will provide some insight into how the majority of policymakers plan to treat the funding of these programs.

Like elections in the past, this one will not impact agency values—but fiscal policy could impact the portion owners take home. Overall, expect values to continue to trend up. The outcome of this election should buy agency owners more time to make their decision on when and how to transition ownership or sell due to tax rate stability.

Jeff Smith, JD, CIC, CAE, is CEO of IA Valuations and the Ohio Insurance Agents Association.

The information provided in these documents is general in nature and shall not be construed as personal legal, tax or financial advice for your situation. Email contact@iavaluations.com to discuss your personal situation.