Is buying an insurance brokerage a good business opportunity?

Question

Where does running an insurance brokerage rank amongst the many business opportunities out there?

Answer 1

The answer depends upon the opportunity presented to you. In addition to the total cost and and how the pay off would be structured there are lots of other considerations.

Here are a few things to think about:

How long has the brokerage been in business?

What is the reputation in the community?

Is the brokerage a life insurance agency?

Or is the brokerage primarily property & casualty?

What insurance companies does the brokerage represent?

How many customers does the brokerage have?

How long will the owners stay to help with the transition?

Are there any employees? Will they stay on?

Are there any large accounts that might be lost due to the change in ownership?

Is the brokerage profitable?

Answer 2

If you mean purchasing an existing brokerage firm, it may or may not be a good investment.  There are companies that specialize in analyzing insurance brokerage firms and they can tell you what the future looks like to them.   There are just too many factors to attempt to discuss them here.  Have the analysis done before you make any decision.

Answer 3

OK, forgive me if you have already done copious research and I am stating the obvious but there are a number of things to consider.  I also assume that you are talking about general insurance brokers and not independent financiual advisors.  Insurance brokers have recently become regulated by the financial services authority who have imposed a huge regulatory burden both in costs and man hours over the last few years and if anything regs are getting tighter, added to that premiums are cheap at the moment which sometimes means lower commissions and a more competitive market.  Over the last couple of years many smaller brokers have decided to sell out because of the above, also a large number of insurance brokers were set up just over 30 years ago and the owners are now reaching retirement age.  Large brokers such as Towergate bought many of these firms and due to Towergates size and purchasing power with insurers are recording healthy profits.  

Prolific purchasers such as Towergate have pushed the price of brokers up though.

If I were to purchase a brokerage it would be one with a specialisation and a proven track record within a specific market place - they could be a motorbike specialist, a nursing home specialist or anything really but specialist brokers are probably more likely to maintain consistent results (I am waiting for many objections to this remark..............!) and be more attractive to potential purchasers in the long term if you intend selling on at a later date.  

Are you qualified and/or experienced within insurance? - If not I suspect you would find it very hard to cope with the day to day running of a decent firm.

The insurance market is cyclical and is expected to harden over the next few years which will be good news for the whole industry - including brokers - higher premiums equal higher commissions.

I think making serious money out of a small brokers doing just household and motor is almost impossible these days, so perhaps you should look at a brokers with a reasonable amount of commercial business (commissions are higher on commercial business generally)

There is a growing threat from online providers and banks even in the commercial insurance sector but broker networks and brokers having increasingly advanced software solutions are allowing brokers to hold their own at present.

Most brokers now are compliant with FSA legislation - so the money has been spent so maybe a brokerage is a good buy?

You could write 100 pages on this subject, I will leave it there - research 'insurance times' and 'BIBA' and if you want to be put off have a look at the FSA website :o(