This is by no means a fully comprehensive list, but below are a few key items to consider, that I’ve seen, when an agency decides to purchase a book of business. The first is the status of the agent or agency selling the book of business. Why are they selling? If the principal or owner is retiring, have they been checked out and essentially “retired” already that their clients have been neglected? Has the demographic of the book aged so that the retention of the book may be low because of those factors?
Secondly, what is the level of automation and documentation in the agency? Are the client files easy to find, and are they complete? Sometimes many months can be spent just sorting, figuring out, and organizing the existing file infrastructure. If it’s all paper and you are paperless, then scanning or converting the files to a readily accessible method of use can also be time-consuming.
Do the carriers match up with what you have? Occasionally, a selling point can be that you may acquire a new carrier or two out of a book purchase, if they have contracts with sizeable premiums that you didn’t have already. Be careful to secure with the carrier that the contract will, in fact, transfer though because sometimes the carrier was looking for an excuse to terminate the code if the loss history was bad or production was low.
How much you pay for the book is largely determined by current market value and the “quality” of the book. The above factors play a part, but the high-risk or business with high-risk auto carriers should usually be about (or less than) half of what you’re paying for the preferred portion of the book of business. There are websites that are available which list agencies for sale that can help you determine the fair market value.
Graph it out. Factoring in the monetary cost of the book plus annual interest is one of the monetary factors, but also be sure to calculate the money you currently make per hour to determine how much your time is worth. You’ll need to determine if the cost in time of assimilating the book into your operations is better spent by hiring someone to sort/file/mail etc., rather than taking yourself out of production with your currently growing book.
At times, it makes sense strategically to purchase a book of business and sometimes it doesn’t. Hopefully, these items help you in determining whether a book that’s available to purchase would be a profitable venture for you or not.
Josh Nordin, CIC