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Compliance Priorities in Insurance Mergers and Acquisitions

This post is part of a series sponsored by AgentSync.

While the pandemic has dampened M&A activity in the insurance market, all signs point to the M&A market taking center stage next year. If you are in a position to assess (or be assessed) M&A suitability, don’t rule out compliance controls.

At AgentSync, we are neither lawyers nor accountants. As such, I won’t delve into the legality or financials of his M&A activity in insurance. But we are compliance junkies. To that end, let’s talk about where license compliance fits in an insurance company’s M&A due diligence process (the short answer is, it’s everywhere, it fits everywhere).

Priorities in M&A evaluation

Most M&A due diligence lists have 10 to 20 key areas to investigate, both for the purpose of assessing the fair market value of a business and for the purpose of determining the best combination for an organization. For brevity, we summarize these priorities into buckets of five values.

While these are by no means comprehensive, these broad categories ultimately help assess a broad range of problems that each require more microscopic analysis.


The most basic assessment of fair market value of a business is based on several different values. There is currently no clear answer on how to measure business value. All the math can only go so far, because the ultimate value of a business is what someone is willing to pay.

Many agencies base their sales on cash flow or profit multiples. That is, a year’s worth of commissions and other income, minus operating costs, taxes, etc., multiplied by the remaining profit to get a “number.”

It is also common to use gross earnings before interest, taxes, depreciation and amortization (EBITDA) to determine business value.

However, they all have limitations. What a business has done with sales this year doesn’t mean that the same will be true next year. Hopefully this is a lesson we all learned in the pandemic!


When we talk about products, we are talking about product and market fit, supply and demand reality, intellectual property and ownership, and even business reputation.

Whether a business has anything worth acquiring in the first place is a large part of the calculation in determining the value of a business or its inherent risk.

Of course, from a compliance standpoint, if an insurance product is being moved by someone who is not properly licensed, even if it is a good product, it may face the risk of being returned.


What controls are in place in your insurance business? The process is about to begin with the ‘soft’ part of business valuation. But these soft parts of the business are where rubber really hits the road, so to speak.

For example, does your business have a marketing funnel that delivers leads every day? Do you have robust channels in place to enable employees to act like owners? A business engine that relies solely on leadership?

Regarding compliance, it is important to evaluate the process of onboarding producers (whether independent or staff) and maintaining license compliance. For example, is there one person who has all the necessary knowledge in his or her head? Do you have the technology to keep this up? Manual process riddled with errors?

Business processes and procedures are critical to understanding whether an agency or carrier is a one-trick pony or a machine of progress.


Corporate culture fit is king in M&A. When evaluating risk management, people are the way to evaluate company culture. If your organization has hundreds of employees, do they have a culture that enables them to succeed? Are they open to positive change? If your target is understaffed, are all the right people in the right places? Is there too much emphasis on leadership?

A typical person pyramid can be a model for success or a bottleneck for decision-making. To evaluate people and cultures, it is important to understand how they affect a particular organization.

Additionally, where is the cultural focus on compliance? When assessing compliance, plug in the National Producer Numbers (NPNs) of insurers contracted through the NIPR to see if they are up to date with relevant licenses and appointments. Or you can easily assess data such as whether they are up to date reporting actions against them in different states. Understanding whether a potential acquisition has a history of neglecting compliance is key to assessing its value and understanding how easy it is to find cultural fit.


Is your business at its peak? Maybe you just want to get a streamlined vessel that can move you forward quickly. Regardless, understanding how much room for improvement a potential acquisition has is critical to agreeing on business value.

part of Business potential lies in technologyAre you working with third-party vendors that add value and efficiency? Are any of your technology partners at real risk due to lax data privacy standards? Which technology solutions add value and which add value? Understand what to dilute.

Compliance and Insurance M&A

Where we see consolidation in the insurance industry, acquiring and acquiring companies will have lengthy considerations before agreeing to a deal. And it’s entirely fair that compliance isn’t the only factor in evaluating commerce.

But if you’ll allow me a moment of self-exaggeration, I’ll give you an argument. Whether a carrier, agency, or MGA has been able to maintain compliance standards can be a good indicator for diagnosing other underlying problems.

Compliance issues rarely manifest themselves without problems. Entities and carriers with poor customer service, problematic internal cultures, and problematic growth cycles will find it difficult to maintain compliance hygiene long before other issues become public. often happened.

Conversely, for businesses considering acquisition, business valuation can only be aided by demonstrating that they have an efficient workforce of licensed, appointed, and ready-to-sell producers. increase.

If you’re looking for a way to keep up with the hot environment of M&A activity, think compliance first. Get AgentSync.

Mergers and Acquisitions

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