There are many outstanding questions about what the coming months and year may bring for the independent agent given the economic uncertainty over the last 18 months. The M&A world wants to be able to answer the following: Will M&A activity pick up steam in the coming months? Will the broader economic labor shortage and insurance industry specific talent crisis resolve itself or at a minimum, improve? While we don’t have a crystal ball, we do see some positive trends that could signal the “return to normal” agency growth we’ve all been awaiting.
The economic environment
Economic challenges continued to plague the first half of 2023. M&A activity in the insurance space—among independent agencies, as well as managing general agents, remained unimpressive as the volume and value of transactions continued to trail 2021 levels. While the market is unlikely to return to those highs, we may expect to see some positive momentum and appetite for acquisitions in the coming months.
Why? For one thing, there is plenty of capital available. In fact, a mid-year M&A industry update from PwC highlighted that as of June 2023, $2.5 trillion in private equity was on the sidelines waiting to be deployed. Additionally, as dealmakers gain a better view of where interest rates are headed, or at least that they’ve somewhat stabilized, they’re likely to regain confidence in deploying cash for acquisitions.
Talent wars will rage on
Unfortunately, the outlook may not be quite as rosy when it comes to recruiting and retaining talent at independent agencies and across the broader industry. Independent agents, MGAs and the like will continue to struggle to acquire the best producers, underwriters, CSRs, account executives and more. Of course, as leaders work to best position their agencies for deals, having the talent to perpetuate business growth is paramount. In the coming months—and for the unforeseeable future—agency leaders will not only have to continue to commit resources toward acquiring talent, they also will have to explore new, creative ways to bring quality people onboard (e.g., building a best-in-class culture, hybrid/flexible work arrangements, competitive benefit packages, amongst others).
2024 & beyond
It is crucial for independent agents to understand these factors and continue building their organization on a foundation of thoughtful and informed decision making.
At the beginning of 2023 independent agents were convinced the market was headed for a downward spiral. The market has continued hardening with carriers pulling out of select geographic areas and reinsurance capacity dwindling. Fortunately, the dramatic plunge anticipated in the broader economy has not come to fruition. Moving into the second half of 2023 and 2024, while agency leaders can’t control the economy, they can take steps to protect and strengthen their businesses to weather any economic challenges and talent crises they encounter. Those include:
- Focusing on what they can control (e.g., strengthen their balance sheets by paying down debt and conserving cash),
- Remaining opportunistic, even when things seem grim. This could mean remaining open to deals or continuing to seek them out to ensure when a deal comes through that’s a good fit, the business is prepped and ready to strike.
- Look internal; improve existing processes, get to know your employees, and understand what motivates them and figure out where you can make incremental tweaks to improve profitability.
Despite economic, societal challenges and more, independent agents continue to prove their resilience. That resilience is partly borne out of offering a compulsory product to their customers, but also through collaboration.
During these times, agents should lean on their personal networks and professional networks to maintain an understanding of current economic and industry trends to ensure they are well positioned to take advantage of opportunities to grow their agencies.
Sean Kenny is senior vice president of corporate development for SIAA, The Agent Alliance (siaa.com).