How To Value An Insurance Book Of Business

Being an independent insurance agent, your book of business stands as your most precious asset, symbolizing the potential income you’ll accrue throughout your career.

Opting to sell your book of business essentially places a monetary value on the years of dedicated effort you’ve invested.

When selling your insurance book of business, it’s crucial to recognize that it’s more than a mere compilation of policies; it’s a valuable reservoir of income and clientele.

Consequently, evaluating your book’s worth involves considerations beyond policy numbers, encompassing factors like book size, coverage types, and customer retention rates.

For those aiming to maximize the value of their book of business before retirement, Cake presents a novel avenue.

How to Value Insurance Book Of Business
Valuing an insurance book of business is a critical task for both buyers and sellers. There are typically two primary methods to deriving the value of an agency / book of business; (1) a multiplier of revenue, or (2) a multiplier of profits (a.k.a. “EBITDA”): Photo source (Investopedia)

We offer a platform where agents can buy and sell books of business, affording the flexibility to sell the entirety or a portion while retaining control over the retained accounts.

Determining the worth of your insurance book of business involves evaluating three key factors:

  1. The magnitude of your book of business.
  2. The significance of different insurance policy types.
  3. Your customer retention rate.

The size of your book of business

A large book of business is crucial for valuing your business, with size and policy type playing key roles.

Selling life insurance policies adds more value than selling automobile insurance.

The mix of policies in a large book is almost as important as its size.

Larger books are generally more expensive to buy due to increased workload for acquiring or renewing policies.

If you’re selling your insurance book of business, Cake offers a marketplace for agents to buy and sell, allowing control over retained accounts.

Valuable types of insurance policies

Certain insurance types hold greater value compared to others.

Take life insurance, for instance, which is frequently marketed in sizable policies featuring high face values.

This characteristic renders the policy highly valuable to the insurer.

Another valuable category of insurance is property and casualty coverage, a prevalent policy that ensures a steady stream of revenue.

In essence, policies that generate substantial revenue will inherently possess a higher value than those producing minimal revenue.

While this concept may seem straightforward, it is crucial to bear in mind when assessing the worth of your portfolio.

Irrespective of the insurance category you specialize in, comprehending its significance to both the customer and the insurer is paramount.

By gaining insights into the value of your products, you can ensure that you are securing the most favorable terms for your book of business.

Also read: What Is Controlled Business In Insurance?

Your retention rate

A high retention rate is crucial for insurance agent success, indicating strong client relationships and policy renewals.

To enhance retention, prioritize excellent customer service, be readily available, and build trust with clients.

Evaluate and adjust your practices to ensure client satisfaction, as strong relationships contribute to the long-term value of your business.

How to sell your insurance book of business

Selling your insurance book of business as an independent agent has various options, each with pros and cons.

Selling directly to a local agent offers a quick but potentially less lucrative deal.

Using a third-party broker for a sale to a larger insurer might yield more money but could take longer.

Ensure the broker understands the insurance industry and can accurately value your book.

Keep in mind that the value can vary based on the buyer’s intentions with your client base.

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