2025 Predictions

Looking ahead to 2025, our AgencyFocus team put together some of our predictions for what agencies should be expecting in the upcoming year based on trends in data we have seen this year. Good news for almost everyone- we believe the market will begin to soften.  

M&A Trends: Growing Divide in Agency Valuations 

M&A activity will remain strong but the gap between those that command strong multiplies and those that command weaker ones will continue to widen. This will be based on agency performance, risk, and transferability.  

Softening Market: Overall Revenue Dip Based on Retention Rate 

As the market begins to soften, many agents who saw an all-time high revenue due to large rate increases will experience a dip in their overall revenue and growth as a rate correction occurs. For agencies that shrunk in policy count while rates were at their high, the gap created by rates stabilizing will be more severe than those agencies that maintained high policy retention rates during the hard market. 

Staffing Challenges  

For many agents, finding and keeping talent has been the number one factor keeping them up at night.  The continuity issues that are created when an agency has lost key people or has no next-generation employees who are willing to stay with the agency through a sale cause the agency’s retention risk to increase. Agencies that face this issue should expect sale structures that include a retention clause if they expect to command a competitive multiple.  

The use of Virtual Assistants (VA) will increase among agencies who want (or are forced) to have a lean team but keep high efficiency. VA usage isn’t a new topic among the industry, but there is a great divide among agencies who have learned to leverage their power and agencies who have played with the idea but are not leveraging all of the benefits within their agency. There is lots of room for utilization increase among agencies of all sizes. 

Interest Rates Drop: Spurring M&A Activity  

If interest rates remain stable or drop, many sellers may want to exit before their revenue drops, staffing challenges increase,  and the need for efficiency through technology and innovation continues. Many agency owners near or past retirement age will be contemplating an exit and those looking to grow by acquisition will have greater opportunities for acquisition.  

In one of our latest Insurance Refocused episodes with Mike Strakov and Mike Wagar from Live Oak Bank, we asked them their predictions from a banking perspective. Their predictions touched on rates, PE buyers activity, agency multiple trends, market softening and what that will look like for agencies.  

Listen to the full episode here: https://agency-focus.com/insurancerefocusedpodcast   

Smaller Agencies 

There will be acquisition opportunities with reasonable rates on smaller agencies who can’t command PE multiples will be able to be purchased at reasonable rates. This will be based on their risk and overall expected cash flow. Given the expected correction in revenue due to the market softening, now is not the time to assume a rule of thumb multiple of revenue to all agencies as this practice can lead to many buyers overpaying for agencies.   

Small independent insurance agencies will face the necessity of being highly adaptable to thrive in a digital and competitive marketplace. One effective strategy is to collaborate with insurtech firms or to implement digital platforms. It is crucial for these agencies to focus on technology integration that enhances human interactions, ensuring a tailored customer experience. Furthermore, by tapping into the expertise and resources of insurtechs, small agencies can protect their data and operations while offering clients more robust cybersecurity measures.