Prioritizing Compliance in Insurance coverage Mergers and Acquisitions


This submit 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 sizzling M&A market within the subsequent yr. In case you’re within the place of evaluating (or being evaluated!) for an M&A match, don’t go away compliance controls out of the combo.

At AgentSync, we’re not attorneys or accountants, so we aren’t planning to deal with the legalities or funds of insurance coverage M&A exercise in any depth. Nonetheless, we’re compliance junkies. And, to that finish, we’re right here to speak about the place license compliance suits in your insurance coverage M&A due diligence course of (and the brief reply is in every single place, it suits in every single place).

Priorities in M&A valuations

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

These are in no way complete, however these broad classes can assist gauge a large scope of points that in the end will every require a extra microscopic evaluation.


Essentially the most primary evaluation of a enterprise’s truthful market worth goes to be primarily based on a couple of totally different values. Now, there’s no straight reply for methods 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 companies promote primarily based off of a a number of of money circulate or revenue – taking a yr’s value of commissions and different earnings, subtracting the price of operations and taxes and all, after which multiplying the leftover revenue to succeed in their “quantity.”

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

Nonetheless, all of those have limitations. What a enterprise did when it comes to gross sales this yr doesn’t imply the identical will likely be true within the subsequent yr: Hopefully, it is a lesson all of us discovered 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 a giant a part of the calculation when figuring out a enterprise’s worth or its intrinsic danger.

After all, 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 superb product you might be dealing with 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 “smooth” items of evaluating a enterprise. However these smooth items of the enterprise are the place the rubber actually hits the street, 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 house owners, or is that this a enterprise engine that depends solely on management because the supply of inspiration and progress?

In the case of compliance, it’s vital to judge the processes for onboarding producers (whether or not unbiased or employees) and sustaining license compliance. As an illustration, is there a single one that holds all the mandatory data 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 if you’re performing a risk-management evaluation, the way in which you assess tradition is within the folks. If a company has a whole bunch of workers, then have they got a tradition that permits success? Do they embrace optimistic adjustments? In case your goal has a smaller employees, then are all the appropriate folks in the appropriate locations? Is there an over-emphasis on management?

The everyday 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 might probably assist to plug nationwide producer numbers (NPNs) for the contracted insurance coverage producers via NIPR and get a straightforward evaluation of knowledge, corresponding to whether or not they’re up-to-date on related licenses and appointments, or whether or not they have reported motion in opposition to them in varied states. Understanding whether or not your potential acquisition has a historical past of ignoring compliance may be key in assessing its worth, and in understanding how simply you can see a tradition match.


Is a enterprise working at its peak? Perhaps you solely need to purchase a streamlined ship that’s able to dart ahead. Perhaps you’re prepared to put money into 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 trade consolidation, companies which are buying and being acquired can have a protracted listing of issues earlier than agreeing to any deal. And it’s completely truthful that compliance is in no way the only issue by which to judge a enterprise deal.

Nonetheless, in the event you’ll pardon a second of self-aggrandizement, we’ll put out an argument: Whether or not a provider, company, or MGA has been in a position to keep compliance requirements is probably going a superb metric to diagnose different underlying points.

Not often do compliance points come to mild with out accompanying points. Enterprise entities or carriers with poor customer support, struggling inside cultures, or problematic development cycles typically had issue sustaining compliance hygiene lengthy earlier than different points grew to become public.

Conversely, in the event you’re a enterprise trying to be acquired, your small business valuation can solely be helped by demonstrating that you’ve an environment friendly workforce of producers who may be licensed, appointed, and ready-to-sell on the drop of a hat.

In case you’re on the lookout for a option to sustain in a heated surroundings of M&A actions, put compliance first, and get AgentSync Handle.

Mergers & Acquisitions


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