Buying an insurance agency in Florida

An insurance agency sells and services policies for insurance companies (the carriers) and earns commissions: a percentage of each premium, paid when a policy is first sold and again each time it renews. The main asset is the book of business, meaning the policies the agency services and the commissions they produce. Because most clients renew every year, a good book brings steady income.

Agencies come in two kinds. Independent agencies hold contracts with several carriers and shop each client's coverage. Captive agencies sell for one carrier. Under many captive contracts the carrier, not the agent, owns the book, which limits what's for sale. Most agencies focus on personal lines (home, auto, flood, umbrella), commercial lines (business property, liability, workers' compensation) or life and health, and many do some of each. Some carriers also pay yearly bonuses for growth or claims results.

A small agency usually has licensed agents who sell, customer service representatives who handle changes and renewals, and an owner who often handles the biggest clients.

• Most clients renew every year, and the agency can show you the numbers by line of business.
• Several policies per household or business. A client with home, auto and umbrella coverage in one place is much less likely to leave than one with a single auto policy.
• A spread of carriers, so one cutting commissions or leaving Florida doesn't gut the book.
• Commercial accounts spread across many businesses, not a few large ones that a competitor could take in one meeting.
• Licensed customer service staff who handle renewals and changes without the owner.
• Every client, policy, carrier and renewal date recorded in the agency's management software.
• Carrier contracts in the agency's own name that can survive a sale.

The Florida Department of Financial Services (DFS) licenses insurance agencies. Only a single agent working alone under their own name is exempt, and branches under the same name and federal tax ID are listed rather than licensed (section 626.112, Florida Statutes). Each location must be in the full-time charge of a licensed and appointed agent, the agent in charge (section 626.0428). The agency can't do business without one. It must report a change within 30 days, and with no one named, its license expires on the 91st day.

You don't have to be a licensed agent to own an agency. The application lists the owners, officers and directors who help run it, and any who aren't agents are fingerprinted (section 626.172). Without a license, though, you can't sell or advise on coverage.

Licenses and appointments belong to the person or company named and don't transfer (section 626.441). If you buy the company that holds the license, report new owners and officers within 30 days (section 626.541). They get the same background check. If you buy the assets through a new company, expect to apply for a new agency license. Carrier contracts often need consent. Confirm the steps with DFS and each carrier.

• Commission statements from each carrier for three years, matched to the agency's books.
• Renewal rates by year and line of business.
• Florida homeowners policies. In recent years carriers have pulled back or left, and many policies have shifted into and out of Citizens, the state-created insurer of last resort. Know how much of the book depends on that market.
• Each carrier contract: who owns the book, how it can be ended, and whether a sale needs consent.
• Errors and omissions insurance, and any claims that the agency failed to arrange coverage it should have.
• Agreements with producers (the agents who sell for the agency): whether they can take or solicit clients if they leave.
• Carrier bonuses, which can swing widely year to year.

• How many clients renew each year, and has that changed?
• How much of the book is Florida homeowners coverage, and how much is with Citizens?
• Who's your agent in charge, and will they stay?
• Which carriers must consent to a sale, and have you talked to them?
• Under each carrier agreement, who owns the book?
• How much of your commissions come from your ten largest clients?
• Have you ever had an errors and omissions claim?