In today’s market, finding an insurance agency to purchase is not easy. The demand for agencies far exceeds supply. And there’s no guarantee the agencies on the market are going to be profitable. However, you think you’ve done it. You’ve found the perfect agency, for the right price, in a great location – or so it seems. While it may look great on paper, there are three major local market conditions to consider before finalizing the purchase. Starting with:
Local Sensitivity to Price
The insurance industry is heavily influenced by price – long gone are the days where service beat low costs. Major insurance agencies cut the middle man and allowed clients to go straight to the source. This may not be true for all areas, but it certainly effects some more than others. Do some market research on the local economy and competitors pricing to see if you can realistically compete while still turning a profit. If the market is only looking for rock bottom prices and minimum coverage, you may want to pack your bags and keep looking. It’s probably not a good strategy to compromise quality standards for price; at least not as a small agency who relies on their brand image.
Availability of Markets
Another factor to consider is the availability of markets, or potential clients, in the area surrounding the agency. Study the surrounding businesses or households. Look at the risk associated with these people based on income, age, type of company, etc. If there are a lot of high-risk clients, like factories, or perhaps a stable, it may not be worth setting up in that market. On the other hand, if there are a lot of available clientele with low-risk businesses, it could be a perfect market. Insurance is all about risk vs. reward, so always be on the lookout for the highest rewards at the lowest possible risk.
Changing Legislative Environment
The third, and potentially most important, local market consideration is the legislative environment. How often are the laws regarding insurance changing? How engrained are local politics in the legislature? Finally, (and this may be harder to determine), is there a lot of red tape involved in the insurance industry in this area compared to other areas? If the laws are changing frequently, it may not spell death for your purchase decision – but it’s certainly a factor to consider. How much work are you willing to put in to ensure you’re following local procedures and keep up with a quickly changing legal environment?
There is a lot of work to be done when deciding to purchase an insurance agency. It’s easy to overlook small details that could hinder your business down the road. As long as you do your homework and determine the economic and legal environment of your potential market, you’ll be well on your way to a successful purchase and a healthy agency. Just keep an eye on competitors and legal politics.