Sunday, February 5th, 2023

Prioritizing Compliance in Insurance coverage Mergers and Acquisitions

This publish is a part of a sequence sponsored by AgentSync.

Whereas the pandemic cooled off mergers and acquisitions exercise within the insurance coverage market, all indicators level to a scorching M&A market within the subsequent 12 months. In the event you’re within the place of evaluating (or being evaluated!) for an M&A match, don’t go away compliance controls out of the combination.

At AgentSync, we’re not legal professionals or accountants, so we aren’t planning to handle the legalities or funds of insurance coverage M&A exercise in any depth. Nevertheless, we’re compliance junkies. And, to that finish, we’re right here to speak about the place license compliance matches in your insurance coverage M&A due diligence course of (and the quick reply is in all places, it matches in all places).

Priorities in M&A valuations

Most M&A due diligence lists have 10 to twenty key areas to analyze each for the needs of assessing a enterprise’s honest market worth and for figuring out a greatest match for an organizational merger. For the aim of brevity, we’re condensing these priorities into 5 buckets of values.

These are under no circumstances complete, however these broad classes may also help gauge a large scope of points that in the end will every require a extra microscopic evaluation.


Probably the most fundamental evaluation of a enterprise’s honest market worth goes to be based mostly on a number of totally different values. Now, there’s no straight reply for tips on how to worth a enterprise – all calculations can solely get to this point, as a result of the final word worth of a enterprise is no matter somebody is prepared to pay.

Many businesses promote based mostly off of a a number of of money circulate or revenue – taking a 12 months’s value of commissions and different revenue, subtracting the price of operations and taxes and all, after which multiplying the leftover revenue to achieve their “quantity.”

Additionally widespread is to make use of gross earnings earlier than curiosity, taxes, depreciation, and amortization (EBITDA) to find out enterprise worth.

Nevertheless, all of those have limitations. What a enterprise did when it comes to gross sales this 12 months doesn’t imply the identical can be true within the subsequent 12 months: Hopefully, this can be a lesson all of us realized within the pandemic!


After we discuss product, we’re speaking about product-market match, the realities of provide and demand, mental property and possession, and even enterprise status.

Whether or not a enterprise has one thing value buying within the first place is an enormous a part of the calculation when figuring out a enterprise’s worth or its intrinsic danger.

In fact, from a compliance perspective, if an insurance coverage product is being moved by those that aren’t correctly licensed, then even when it’s a very good product you could be going through dangers together with your returns.


What controls are in place in your insurance coverage enterprise? Processes are the place we begin to get into the “mushy” items of evaluating a enterprise. However these mushy items of the enterprise are the place the rubber actually hits the highway, so to talk.

As an illustration, does a enterprise have a advertising funnel that can ship leads day after day? Are there stable channels in place to empower workers to behave like homeowners, or is that this a enterprise engine that depends solely on management because the supply of inspiration and progress?

With regards to compliance, it’s vital to guage the processes for onboarding producers (whether or not impartial or employees) and sustaining license compliance. As an illustration, is there a single one that holds all the mandatory information of their head? Are there applied sciences that keep this? Is it a handbook course of, riddled with errors?

A enterprise’s processes and procedures are essential to understanding whether or not an company or provider is a one-trick pony or a machine of progress.


Tradition-fit is king in M&As, and in case you are performing a risk-management evaluation, the best way you assess tradition is within the folks. If a company has a whole bunch of workers, then have they got a tradition that allows success? Do they embrace constructive modifications? In case your goal has a smaller employees, then are all the proper folks in the proper locations? Is there an over-emphasis on management?

The standard folks pyramid could be a profitable mannequin, or it may be a decision-making bottleneck. Understanding which is at play for a given group is vital in assessing the folks and tradition.

Moreover, the place is the cultural emphasis on compliance? When assessing compliance, it will probably assist to plug nationwide producer numbers (NPNs) for the contracted insurance coverage producers via NIPR and get a simple evaluation of knowledge, comparable to whether or not they’re up-to-date on related licenses and appointments, or whether or not they have reported motion towards them in numerous states. Understanding whether or not your potential acquisition has a historical past of ignoring compliance might be key in assessing its worth, and in understanding how simply you can see a tradition match.


Is a enterprise working at its peak? Possibly you solely wish to purchase a streamlined ship that’s able to dart ahead. Possibly you’re prepared to spend money on a fixer-upper. Regardless, understanding how a lot room for enchancment a possible acquisition has is vital in agreeing to a enterprise worth.

A part of a enterprise’s potential is in its know-how. Is it working with third-party distributors that add worth and effectivity? Are any tech companions truly a danger due to lax knowledge privateness requirements? Perceive which tech options add worth and which dilute it.

Compliance and insurance coverage M&A

As we see insurance coverage business consolidation, companies which might be buying and being acquired may have an extended record of concerns earlier than agreeing to any deal. And it’s completely honest that compliance is under no circumstances the only issue by which to guage a enterprise deal.

Nevertheless, in case you’ll pardon a second of self-aggrandizement, we’ll put out an argument: Whether or not a provider, company, or MGA has been capable of keep compliance requirements is probably going a very good metric to diagnose different underlying points.

Hardly ever do compliance points come to mild with out accompanying points. Enterprise entities or carriers with poor customer support, struggling inner cultures, or problematic progress cycles usually had problem sustaining compliance hygiene lengthy earlier than different points turned public.

Conversely, in case you’re a enterprise seeking to be acquired, your corporation valuation can solely be helped by demonstrating that you’ve got an environment friendly workforce of producers who might be licensed, appointed, and ready-to-sell on the drop of a hat.

In the event you’re searching for a method to sustain in a heated surroundings of M&A actions, put compliance first, and get AgentSync Handle.

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