How do you Evaluate an Insurance Agency, and how do you Estimate the Valuate an Insurance Portfolio?

An insurance agency is a business that sells different insurance policies - whether it's property insurance policies or life and health insurance policies.

When an insurance agency sells an insurance policy, it creates an insurance portfolio. The compensation structure of the agency from the insurance company creates value for the insurance portfolio. Before we understand how to evaluate an insurance agency's value and how an insurance portfolio's value should be assessed, we will first discuss the insurance agency's income from the insurance portfolio.

When an insurance agent sells an insurance policy to the insured, he benefits from two commissions from the insurance company - a scope commission and a paid-up commission. One commission is paid to the insurance agent for the sale. It is equal to a percentage of the premium paid by the insurance company. This fee reaches tens of percent of the annual premium. The second fee is paid as long as the policy is valid.

Insurance policies such as life insurance policies are policies the insured will pay for many years. This means that as long as the insured does not change his policy and does not switch to an insurance agency - the insurance agent will continue and enjoy the commissions from that initial sale of the policy. In other words - if an insurance agent sold a life insurance policy to an insured at the age of 30 and did not change the insurance agent - the agent will continue to enjoy the premiums for many years.

What factors affect the value of the insurance portfolio?

When taking an insurance portfolio, which includes a certain number of insurance policies, we talk about a situation where the insurance policies are transferred to the care of another insurance agent. The new insurance agent will benefit from the commissions generated by the insurance portfolio. As mentioned above, the fees can be paid even for many years.

Therefore, when discussing selling an insurance portfolio, you have to consider the possibility that the insured will continue to pay for the policies. As a rule of thumb, use the profit multiplier method.

What factors affect the value of an insurance agency?

When talking about calculating the value of an insurance agency - all the components of the agency must be examined - first of all, the value of the insurance portfolio - but not only. An insurance agency is a going concern. Its employees know how to generate additional income. Therefore, when talking about the valuation of an insurance agency - the cash flow discounting method should be used.

Conclusion