An AgencyEquity Exclusive
Farmers Agencies for sale? Yes, you heard right!
Farmers Insurance has recently announced a new program to their Insurance Agents that allows them to sell their insurance agencies on the open market. Previous to this, Farmers Agents had an option to either cash their book for “contract value,” which would vary depending on the years of service they have vested with an additional bonus for underwriting profitability, or sell their agency to a direct family member.
Under this new program, Farmers Agents are able to sell their agency on the open market to a buyer who is able to meet the company’s qualifications as an acceptable buyer. This is being allowed under a new Farmers Agency agreement that an agent would need to agree to before this option is available. Market value is expected to be significantly higher than what is offered under the Farmers “contract value,” which in most cases calculates to about a year’s worth of commissions payable over a period of time.
This opportunity will allow for both current agents and outside acceptable buyers to have a shot at acquiring an existing Farmers Agency. For those who don’t currently own an agency, acquiring an Independent Agency can be a long shot in most cases.Yet for those who qualify, going through the Farmers Training program allows them to learn the business and become an acceptable buyer. This will open up many doors for those looking to be a small business owner in a very rewarding industry.
Buyers and Sellers should access professionals, such as business brokers, valuations experts and attorneys to assist them with these transactions to protect the interest of both parties. Brokers can play a role in matching buyers and sellers; in addition, they are professionals who can help you structure these deals in a number of ways. A valuation can vary depending on the agency’s retention, loss ratio, percentage of business by line, average policy size, book size and a number of other factors. An attorney should be used to draw up the contract and each side should have their own representation. With so many legal factors and differences in situation to consider, an attorney who has had experience with insurance agency acquisitions will know how best to address these issues, and each side having their own representation will allow for a balanced contract to address issues and help prevent future conflicts.
In addition, buyers who are not fully funded will need access to loans. The good news is, there are a number of lenders who specialize in Insurance Agency lending. They know the business, know how the commission structure works and because of this, going through an agency lender takes half the battle away simply because of their understanding of the insurance agency structure. Some of these lenders have access to SBA loans, which provide attractive terms for those who qualify.
This is a great decision by Farmers Insurance;this is good news for both buyers and sellers who are able to transact these agencies just like other businesses are transacted, and without the limitations offered by the fixed amount specified in the agent’s “contract value.” Also, for the many buyers who have been waiting to acquire an agency, this really helps gain access to agency ownership.