Tell-tale signs it’s time to sell your insurance business

By Bob Lochard

You may have reached a point where you are considering selling your insurance business. Selling a business is not a decision to take lightly. It requires a series of critical considerations, including timing, maximizing profit potential, navigating the legal and regulatory process, and emotional issues.

From the conglomerate boom in the late 1960s to the technology and digital transformation wave of today, there have been seven historical runs of merger and acquisition activity throughout modern history when significant increases occurred. It's important to note that these runs were not mutually exclusive, and there may have been overlaps or variations in different regions and industries.

When we look at the history of M&A, a new period emerges representing the insurance industry and may be affectionately referenced as “The Great Alignment.”

Marketing insurance products has been highly beneficial and challenging for business owners within the insurance industry in recent years. Once fierce competitors vying for the same market share as individual insurance agent producers, field marketing organizations are now primarily aligned with large organizations backed by private equity groups to streamline resources, capital and knowledge to increase market penetration and extend consumer outreach.

For an agency owner, the underlying question is, how do you know when and if your company should consider selling? If you are considering selling, do you seek a merger or an acquisition? Do you maintain a controlling interest or merge 100% of your resources and assets into the new company? What is the valuation of your company, and what will help pave your off-ramp from company owner to new adventure?

Although many of the same principles apply across most industries, selling your insurance business requires a slightly different approach.

Time to move on?

Knowing when the right time to sell can be challenging for a business owner. However, sure signs may help. In addition to understanding these signs, analyzing current market conditions and understanding how to price your business for sale are important considerations to maximize profit potential.

The first key consideration is determining whether you are truly finished with your business or whether you can get a higher price if you agree to stay on for a few transitional years. Second, conduct due diligence to understand whether there are any “gray areas” that might cause concern for a potential buyer. Unless you’re Elon Musk, no one wants to purchase a company with ongoing problems or looming threats.

Finally, look closer at your current earnings before interest, taxes, and earnings before interest, taxes, and amortization. This will give you unique insights into how your company compares to similar companies within your industry. This also can help you determine if you are ready to sell now or if making a big push for the next year or two will increase EBITA and raise the overall valuation.

Analyzing current market conditions is also essential when deciding whether to sell your business. Evaluating demand for similar businesses in your sector can provide insight into what buyers may be willing to pay and what type of buyer may be interested in purchasing your company. It's also important to look at recent deals within similar industries to know what other companies are being valued at and how those prices compare with yours.

Navigating the legal and regulatory process

Several legal and regulatory considerations must be addressed when selling an insurance business. The Centers for Medicare and Medicaid Services is the most important of these regulatory agencies. CMS plays a significant role in selling an insurance business if the business deals with Medicare Advantage or Medicare Part D prescription drug plans.

Here are some key considerations to address when preparing to sell your insurance business:

Change of ownership process: When selling an insurance business that offers MA or Part D plans, the seller and buyer must go through the CMS CHOW process. This process ensures that the buyer meets the requirements to assume responsibility for the MA or Part D contracts.

CMS approval: The buyer must obtain CMS approval to assume the MA or Part D contracts. This involves applying to CMS and providing detailed information about the buyer's financial stability, operational capabilities and compliance with CMS regulations.

Compliance with CMS regulations: The buyer must demonstrate compliance with all CMS regulations, including those related to marketing, enrollment, claims processing, beneficiary protections and quality improvement activities. CMS will assess the buyer's ability to meet these requirements during the approval process.

Transition of beneficiaries: CMS requires a smooth transition of beneficiaries' coverage and benefits during the sale. Buyers must have a plan to ensure uninterrupted access to healthcare services and medications for beneficiaries.

Reporting and notifications: The seller and buyer must notify CMS of the impending sale and provide relevant information about the transaction. This includes advising CMS of the change in ownership, submitting required reports, and ensuring compliance with CMS reporting requirements throughout the sales process.

Compliance audits: CMS may conduct audits to assess the buyer's compliance with CMS regulations and contractual obligations. These audits may occur either during the approval process or after the sale is completed.

Engaging with CMS early in the sales process is crucial. It’s also crucial to work closely with legal and regulatory experts who have experience in navigating CMS requirements. This will help ensure a smooth transition and compliance with all CMS regulations associated with the sale of your insurance business.

Selling your business is a critical decision that requires careful consideration and evaluation. Ultimately, the decision to sell should be based on a thorough analysis of both internal and external factors, ensuring that your decision aligns with your long-term goals and maximizes the value of your business.

Bob Lochard is chief distribution officer with Gordon Marketing, an AmeriLife affiliate. Contact him at [email protected].