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 12 months. When you’re within the place of evaluating (or being evaluated!) for an M&A match, don’t depart compliance controls out of the combination.

At AgentSync, we’re not legal professionals 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 matches in your insurance coverage M&A due diligence course of (and the quick reply is all over the place, it matches all over the place).

Priorities in M&A valuations

Most M&A due diligence lists have 10 to twenty key areas to analyze each for the needs of assessing a enterprise’s honest 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 under no circumstances complete, however these broad classes might help gauge a large scope of points that in the end will every require a extra microscopic evaluation.


Probably the most primary evaluation of a enterprise’s honest market worth goes to be primarily based on a number of completely different values. Now, there’s no straight reply for how one can worth a enterprise – all calculations can solely get up to now, as a result of the last word worth of a enterprise is no matter somebody is keen to pay.

Many businesses promote primarily based off of a a number of of money circulation or revenue – taking a 12 months’s price of commissions and different earnings, subtracting the price of operations and taxes and all, after which multiplying the leftover revenue to achieve their “quantity.”

Additionally widespread 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 by way of gross sales this 12 months doesn’t imply the identical might be true within the subsequent 12 months: Hopefully, this can be a lesson all of us discovered within the pandemic!


Once we speak about product, we’re speaking about product-market match, the realities of provide and demand, mental property and possession, and even enterprise repute.

Whether or not a enterprise has one thing price buying within the first place is an enormous 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 great product you might be dealing with dangers along with your returns.


What controls are in place in your insurance coverage enterprise? Processes are the place we begin to get into the “mushy” items of evaluating a enterprise. However these mushy 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 and marketing 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?

Relating to compliance, it’s necessary to guage the processes for onboarding producers (whether or not unbiased or workers) and sustaining license compliance. As an illustration, is there a single one who holds all the mandatory information of their head? Are there applied sciences that preserve 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 corporation has tons of of workers, then have they got a tradition that permits success? Do they embrace constructive modifications? In case your goal has a smaller workers, then are all the correct folks in the correct locations? Is there an over-emphasis on management?

The standard 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 essential in assessing the folks and tradition.

Moreover, the place is the cultural emphasis on compliance? When assessing compliance, it could actually assist to plug nationwide producer numbers (NPNs) for the contracted insurance coverage producers by way of NIPR and get a straightforward evaluation of information, comparable to whether or not they’re up-to-date on related licenses and appointments, or whether or not they have reported motion towards them in numerous states. Understanding whether or not your potential acquisition has a historical past of ignoring compliance might be key in assessing its worth, and in understanding how simply you’ll discover a tradition match.


Is a enterprise working at its peak? Possibly you solely need to purchase a streamlined ship that’s able to dart ahead. Possibly you’re keen to spend money on a fixer-upper. Regardless, understanding how a lot room for enchancment a possible acquisition has is essential in agreeing to a enterprise worth.

A part of a business’s potential is in its technology. Is it working with third-party distributors that add worth and effectivity? Are any tech companions really a danger due to lax information privateness requirements? Perceive which tech options add worth and which dilute it.

Compliance and insurance coverage M&A

As we see insurance coverage business consolidation, companies which might be buying and being acquired could have a protracted listing of issues earlier than agreeing to any deal. And it’s completely honest that compliance is under no circumstances the only real issue by which to guage a enterprise deal.

Nonetheless, for those who’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 preserve compliance requirements is probably going a great metric to diagnose different underlying points.

Not often do compliance points come to gentle 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, for those who’re a enterprise seeking to be acquired, your online business valuation can solely be helped by demonstrating that you’ve an environment friendly workforce of producers who might be licensed, appointed, and ready-to-sell on the drop of a hat.

When you’re searching for a strategy to sustain in a heated surroundings of M&A actions, put compliance first, and get AgentSync Manage.

Mergers & Acquisitions