How Succession Planning Can Save Your Independent Insurance Agency

An agency owner begins to develop a succession plan.

By David M. Dawson, CPCU

The thing about independent insurance agents is that it isn’t just something they do. It’s who they are.

The men and women who endeavor each day to protect the interests of their clients take well-deserved pride in their work. They are tireless entrepreneurs, many of whom have spent decades building their book of business. Some are respected, recognizable figures in their communities. They sponsor a local little league team. They lead local charity efforts, or are involved with their chambers of commerce.

As such, successful independent agents tend to stay on the job into their golden years. After all, why give up the life of an agency principal when you’re still active, you enjoy your work, and you continue to make money? The value of any business is its future earnings potential, and doing your best to add to that for as long as you can is a sound strategy.

Unfortunately, it’s quite common for agency principals to not spend a significant amount of time pondering the future of their agencies as it pertains to their exit. They’ve led their business for so long that they can have a hard time picturing someone else at the helm, and discussions around who will succeed them often get put off for another day.

The problem is, in some cases that day doesn’t come – and when something unexpected happens to the agency principal, responsibility for the fate of the agency suddenly gets thrust upon his or her family. Quite often, that valuable business that took decades to build gets sold well below market value. 

Having an agency succession plan in place can provide peace of mind to the principal, business partners, the staff, and the owner’s family. It’s the elephant in the room that agency owners can no longer ignore.

Why an Agency Succession Plan is in Your Best Financial Interest

The average age of independent agency principals in the U.S. is 55, according to the 2020 Agency Universe Study conducted every two years by the Big “I” and Future One. While some experts will assert that age is probably slightly higher, 55 is still a good age to start thinking about what your endgame will be.

That may involve appointing an internal successor, bringing in a qualified person to fill the role, merging with another agency, or selling. Savvy agents know that doesn’t mean you should wait until 55 to start protecting your agency; contingency plans in the event of a life-changing event should be updated at every step of your agency’s development.

If your imagined scenario includes an eventual sale, here’s something you should know: You’ll likely end up with a bigger payout and incur fewer taxes by selling your agency internally (having someone succeed you and buy you out) than if you sold to a third party.

“You’re going to get less by selling outside your firm than selling inside because an outside sale most likely will be an asset sale,” says Al Diamond, President of Agency Consulting Group Inc. in Cherry Hill, N.J. “They’re buying your assets from your corporation. And you’re going to pay not only capital gains tax but greater income tax on the revenue that you generated. An internal sale is often a stock sale, and all you’re responsible for as the seller is the capital gains tax.”

One benefit of an internal sale is that if you negotiate properly, you can arrange for a much longer payout and accept smaller payments over an extended period of time, as opposed to a larger sum received up front in an external sale, Diamond adds.

The extended payout period also makes it easier for an internal successor to afford the payments with the agency’s cash flow, and it provides interest payments to the seller that increases his or her overall return. (The process of valuating your agency is extensive, and full of considerations; for that reason, we won’t cover it here but check out our previous blogs on the topic for a deeper dive.)

Download our free e-book here: The Independent Agent’s Playbook for Success – How to Solve Your Agency’s Five Biggest Challenges 

Selecting a Successor for Your Agency

In order to successfully navigate the waters of agency succession, agency owners need to have the full picture of their options and develop a comprehensive plan.

Reflect on the idea that someone will succeed you, not replace you. (After all, no one can replace you.)

Even if retirement seems like a long way off, regardless of your age, agency owners would do well to develop a vision of what their eventual, ideal exit would look like. At what point do you see yourself stepping down? (“I’ll know when it’s time” is not an acceptable answer.) Do you already have someone in house to whom you’d like to pass the baton someday? Would you prefer to keep your agency intact and independent, and retain your staff?

Bear in mind that if you sell externally, you’ll have little to no influence on which of your CSRs or office staffers get to keep their jobs. If you feel a personal responsibility to the well-being of your people, that’s another reason to ensure that the next person to run your agency shares your concerns about keeping them employed.

Your successor needs to be someone you trust implicitly with every line of your agency’s financials, and with whom you can be completely transparent in all matters. While there always intangibles involved, here’s a checklist of desirable qualities in an ideal successor, in order for your agency to succeed beyond you:

☑ Thorough knowledge of your book of business

☑ Devotion to serving your customers

☑ A deep understanding of your carrier relationships

☑ A good interpersonal relationship with your staff

☑ Attentive, mindful leadership

While many agency principals say they would rather keep their business in the family, that’s not always achievable. Sometimes, having a son or daughter employed at your agency could prove a natural fit; in other cases, even the smartest heir might not be a qualified leader.

Whether it’s your progeny, another internal candidate, or an agent you recruit specifically as a potential successor, you’re responsible for grooming them to assume the duties of running the entire agency. Every agency is different, and only you know the length of time required to train that person to take over completely.

Develop a detailed plan to facilitate a smooth transition for your employees. When it finally comes time for someone else to take the helm, craft an announcement for your clients. It’s vital to them that they know they can expect the same level of personal attention.

Don’t Go It Alone

A well-executed succession plan requires the counsel of a team of trusted professionals. These should include your business lawyer, your accountant, and a separate financial advisor if you have one. If your agency has an ownership structure in which others have a stake, they need to be included as well.

Advice from others in your position is also valuable. Talk to fellow agency owners and discover how they’ve approached their succession plans. One of the advantages of being part of an agency network is having the opportunity to ask fellow members how they’ve handled it.

Likewise, a consultant can help answer any questions and can prove a valuable partner throughout the process. B.H. Burke & Co. and Agency Consulting Group are just two examples.

In order to ensure the value of your agency, principals need to focus on continually enhancing your profitability to achieve higher levels of annual revenue growth – and this is where succession plans often get derailed. Even while continually working to build your business, the work must be put in to protect it.

Throughout the entire process of handing over the reins of your agency, even if it takes a decade or longer, plan for the best and prepare for the worst. Know that if something should happen to you, the timeline you’ve set could always be cut short. Flexibility will become key.

Creating a well-documented and well thought-out succession plan is one of the most critical investments you will make in your business to protect your family, customers, and employees – and the legacy of all you’ve built will be preserved.

David M. Dawson, CPCU, is Regional Executive Vice President of Renaissance Alliance.

Calculate your agency’s projected cumulative earnings and valuation here: Calculate Your Growth Potential 

About Renaissance

Powered by a differentiated suite of technology products and services, Renaissance drives organic, profitable revenue growth for your insurance agency.

Keep Reading



These Non-Disclosure Terms and Conditions (“Agreement”) govern the provision of information by Renaissance Alliance Insurance Services, LLC (“Renaissance”) to a prospective agency member (“Recipient”). Renaissance and Recipient Renaissance and Recipient are hereinafter referred to together as the “Parties,” and each may be referred to separately as a “Party.”

The Parties acknowledge that Renaissance may disclose to Recipient certain of Renaissance’s confidential, sensitive and/or proprietary information including, but not limited to, business, financial or technical information, in connection with the potential establishment and/or conduct of a business relationship or transaction between the Parties (the “Transaction”). In connection therewith, for good and valuable consideration, the receipt and sufficiency of which consideration are hereby acknowledged by Recipient, and as a condition of the provision of Confidential Information (as defined below) to Recipient, Recipient hereby agrees as follows:

  1. Confidential Information.Confidential Information” means any and all information provided by Renaissance to Recipient in any form, and at any time (including prior to or following the execution of this Agreement), including but not limited to any such information that (a) is related to Renaissance’s business, finances, financial information, pricing, business plans, profitability, projections, business or financial opportunities, investment strategies, other strategies, data, products, services, concepts, contacts, personnel, customers, vendors, prospects, intentions, formulas, methods, processes, practices, models, tools, computer programs, software, discoveries, inventions, know-how, negative know-how, business relationships, agreements (including this Agreement), intellectual property, trade secrets (whether or not patentable or copyrightable), trade secrets, or other confidential or proprietary information, (b) contains or is related to any communications, negotiations or proposals regarding the Transaction; (c) Recipient has either been informed, or reasonably should know, is confidential in nature; or (d) consists of or contains names, addresses or other information of any description relating to any of Renaissance’ member agencies or any of such member agencies’ customers or clients. Confidential Information shall also include any analyses, compilations, studies or other documents or materials prepared by Recipient or by any of its Representatives, that contain, rely upon, are derivative of or otherwise reflect any Confidential Information as described in the preceding sentence. The foregoing notwithstanding, Confidential Information shall not include any information which, at the time it is provided to Recipient; (i) is already known to Recipient, (ii) is then or later becomes available to the general public without violation of any requirement of confidentiality.
  1. Providing of Confidential Information. Renaissance may provide to Recipient any Confidential Information, in such manner and at such times as Renaissance may determine, to assist Recipient in evaluating, negotiating and carrying out the Transaction, but shall have no obligation to provide any, or any particular, Confidential Information to Recipient. Renaissance makes no, and disclaims any, representations or warranties regarding any Confidential Information it may provide, except as may be provided in any definitive documentation relating to a Transaction.
  1. Non-Use and Non-Disclosure; Representatives. Recipient agrees not to use any of Renaissance’s Confidential Information for any purpose other than for or in connection with the evaluation, negotiation, entering into or carrying out of a Transaction. Recipient agrees not to disclose any of Renaissance’s Confidential Information to any third party other than Recipient’s directors, officers, employees, affiliates, counsel, consultants, advisers, representatives and agents (collectively, “Representatives”) who have a reasonable need for the same in connection with the uses thereof permitted under this Agreement. Any such Representatives who are provided with any Confidential Information shall be instructed to maintain the same in confidence, and not to make any use or disclosure of the same other than as permitted under this Agreement. Recipient shall be responsible for any breach of this Agreement by any of its Representatives, to the same extent as though Recipient had committed such breach personally. Recipient agrees to use the same level of care in protecting the Confidential Information from unauthorized disclosure as it uses to protect its own confidential or proprietary information, and in any case will use no less than a commercially reasonable level of care in protecting all Confidential Information from unauthorized disclosure. The foregoing notwithstanding, Recipient shall be permitted to disclose so much of the Confidential Information as has been authorized for release by Renaissance in writing, to the persons and upon the conditions so authorized by Renaissance, in connection with the carrying out of the Transaction. Recipient shall not circumvent or seek to circumvent Renaissance’s negotiations with any third party, either by entering into discussions directly with such third party otherwise than on behalf of Renaissance, or otherwise. For purposes of this Section, each Party shall act in good faith and deal fairly with the other Party.
  1. No License; Return of Confidential Information. Recipient will not acquire any license or other rights whatsoever with respect to any of the Confidential Information by virtue of its disclosure to Recipient pursuant to this Agreement, or by virtue of any use thereof permitted hereunder. Recipient agrees to destroy or to return all Confidential Information to Renaissance, including both originals and all copies thereof (other than copies created as part of the routine backup of Recipient’s servers, or copies retained pursuant to a requirement of a governmental or regulatory authority, all of which retained copies shall be held confidential for so long as such materials are so retained), and to confirm the completion of such return or destruction to Renaissance in writing, promptly upon demand by Renaissance within the term of this Agreement. The term of this Agreement shall be for a period of five (5) years, commencing on the Effective Date set forth above. Either Party may terminate this Agreement at any time, upon written notice to the other Party, provided that the obligations of Recipient hereunder shall nevertheless survive for the period above stated, with respect to all Confidential Information provided prior to such termination.
  1. Orders Requiring Production. In the event Recipient receives a court subpoena, request for production of documents, court order or other requirement of a governmental agency to disclose any Confidential Information (a “Disclosure Requirement”), Recipient shall (unless prohibited by law) give prompt written notice to Renaissance thereof so that Renaissance may seek to challenge or limit the Disclosure Requirement. Recipient agrees to cooperate reasonably in any effort of Renaissance to limit or prevent any required disclosure of Confidential Information, provided that Recipient shall: (i) not be required to incur any expense in connection with such cooperation, and (ii) not be required to disobey any Disclosure Requirement. Recipient shall not be deemed in violation of this Agreement if it complies with any such Disclosure Requirement either after having provided Renaissance with notice thereof and a reasonable opportunity to contest the same, or if such notice is not permitted. Recipient agrees to (a) exercise reasonable efforts to disclose only the minimum amount of Confidential Information that Recipient is compelled to disclose, in the opinion of its legal counsel, and (b) request that confidential treatment (if legally permissible) will be accorded to the Confidential Information being disclosed.
  1. Injunctive Relief. Recipient acknowledges that the Confidential Information is confidential, and that disclosure or use of said information in violation of the terms of this Agreement would result in substantial and irreparable harm to Renaissance, the actual dollar amount of which damage would be impossible to determine. Accordingly, Recipient agrees that, in addition to any other remedies that may be available, in law, in equity or otherwise, Renaissance shall be entitled to seek injunctive relief against the actual or threatened breach of this Agreement or the continuation of any such breach by Recipient, without the necessity of proving actual damages and without posting bond. This provision shall not limit the right of Renaissance to seek actual damages or any other legal or equitable remedy for any breach hereof.
  1. Miscellaneous. This Agreement shall be construed in accordance with and governed by the laws of the State of Illinois, without regard to its conflicts of laws principles. Any action or proceeding against either Party relating in any way to this Agreement shall be brought and enforced only in the Federal (to the extent appropriate jurisdiction exists) and State courts located in Cook County in the State of Illinois, and the Parties irrevocably submit to the jurisdiction of such courts in respect of any such action or proceeding, and irrevocably waive any objection to venue in such courts, including but not limited to any objection that such venue is inconvenient. This Agreement embodies the entire agreement of the Parties with respect to the subject matter hereof, and supersedes all prior and contemporaneous agreements and understandings, oral or written. No amendment to this Agreement and no waiver of any provision hereunder shall be effective unless it is in writing and signed by an authorized officer of the Party against whom such amendment or waiver is asserted. No invalidity or unenforceability of any provision of this Agreement shall affect the validity or enforceability of the remaining portions hereof. This Agreement shall be binding upon, and shall inure to the benefit of, each of the Parties and their respective successors and assigns. There are no intended third-party beneficiaries of this Agreement. This Agreement does not in any way bind either Party to enter into or continue any type of business relationship with the other. Nothing in this Agreement shall prevent Renaissance from at any time disclosing any of its Confidential Information to others or negotiating with others for any purpose whatsoever. Nothing contained in this Agreement shall be construed to constitute the Parties as partners, joint venturers, co-owners or otherwise as participants in a joint or common undertaking. Recipient’s indication of assent to this Agreement via electronic means shall be equally binding and effective as an original signature hereon, and shall be deemed duly and effectively delivered if so transmitted or provided.