Cologne Many insurance brokers are sitting on a treasure that financial investors and pools are after. What is meant is the portfolio of customer contracts, which flushes regular commission income into its owner’s account year after year. These are ongoing payments for brokering insurance. The inventory hunters are targeting these cash flows.
The Frankfurt company Policen Direkt buys portfolios from insurance brokers. This year they have already struck at 32 brokers. According to its own statements, Policen Direkt is the market leader for the takeover of small and medium-sized brokers in Germany. “Our target group are independent brokers and brokerage houses with a maximum of five employees,” says Philipp Kanschik, Managing Director of Policen Direkt.
Unlike larger units with millions in sales, this group has so far received little attention from professional buyers, says Kanschik. Of course, that can change. A lot of capital is currently flowing into the market via financial investors. Company buyers either take over entire broker pools or cooperate with large sales and service providers. They combine financial strength with specific industry know-how. For example, HG Capital acquired the majority of Fonds Finanz. The insurance broker pool JDC Group allied itself with two investors, Bain Capital and Great West-Lifeco.
One in three brokers will soon be retiring
In view of the huge interest, brokers could actually get a high price for their life’s work, may be the calculation of many of them. But the offer is also huge. The recently published “Police Direct Broker Barometer 2022” shows “that a major follow-up wave is imminent”. The reason: due to age, every third agent will retire in the next three to four years. 42 percent of the 413 brokers surveyed are striving to annul their portfolio. So you want to receive regular payments in retirement. On the other hand, a good one in five would like someone to buy the company completely from them.
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Throwing your portfolio onto the market now because buyers are asking so much is not a good idea, says Matthias Beenken, Professor of Insurance Economics at Dortmund University of Applied Sciences. Because buyers have a choice, the situation for sellers is sobering: “It’s difficult to sell stocks, and if so, then only after good preparation.” It’s not about weeks or months, but years. “It is advisable to plan with at least five, preferably ten years in advance.”
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Andreas Grimm, Managing Director of Results Institute for Business Analysis and Valuation Methods, confirms this: “A broker cannot change anything in the value of his company in the short term.” A written brokerage contract and a data protection declaration must be available from each customer, which includes the consent to the transfer to a successor.
“It is difficult to sell stocks, and if they do, then only after good preparation.” Matthias Beenken, Professor of Insurance Economics at the Dortmund University of Applied Sciences
A possible death of the broker must also be taken into account, so that in this case the heirs do not go away empty-handed. “Without the customer’s consent,” emphasizes Grimm, “a direct transfer does not work.” Therefore, it is not the amount of the current inventory that is decisive for the purchase price, but what the buyer receives.
Management consultant and succession expert Peter Schmidt explicitly points out the importance of digital structures: “Investors don’t like paper and hanging files. But if a brokerage office or company has reached a high degree of digitization, buyers open their wallets wide.” Otherwise, a portfolio is often only worth “an apple and an egg”.
In any case, investors and the pools that work with them take a close look at the stocks available on the market – and choose carefully. When asked which criteria are important to him as a buyer, Sebastian Grabmaier, CEO of the JDC Group, says: “We are basically interested in all types of portfolios, but the quality has a decisive influence on the purchase price.” That recently with Bain Capital and Great The joint venture founded by West-Lifeco has already received initial inquiries from commercial brokers with a turnover of over one million euros.
Insurance intermediaries can increase company value
Grabmaier pays attention to many purchase criteria when purchasing insurance portfolios: “We prefer a high rate of digitization and broker authorization, a high proportion of property, liability and accident insurance business or recurring personal insurance and investment fund solutions.” Well-maintained data and correct addresses are also generally important. An average customer and contract age as well as reasonable cancellation rates and as few complaints as possible are also advantageous.
Each of these criteria is a lever that a broker can use to get a good price for his business. If many or all of the criteria are met, buyers often pay three or four times as much, and occasionally more, for annual sales carried over, according to the market. The individual criteria have different weights for buyers. The composition of the customers and the technical setup are particularly important, explains Rolf Schürmann, CEO of the broker pool BCA, which is active, among other things, with its offer of the BCA broker pension. “If the broker also has the necessary business size in the investment business and has processed all contract data digitally, then this is the ideal case,” says Schürmann.
There is huge interest in well-maintained portfolios and professional brokerage companies. Above all, the recurring inventory commissions attract investors who go on the prowl in association with a large pool of brokers. However, brokers do not receive anything for free. If your office isn’t up-to-date in terms of technology – i.e. bytes instead of paper – your life’s work will hardly be able to sell well even in this environment. Possibly not at all.
More: Your investment advisor will soon have to ask you these questions.