Buying a Book

[Ann H]

My book is also IFP and Group. I have had high retention, and I service my book closely.

Yet I expect 60-70% of my small groups to dismantle the group plan. (Those that won't are either very near 50 lives or they are family-owned groups of 5 and under.) Out of those groups that dismantle the group plan, I expect to keep 50% of the employees, and the other employees will be glad to have the independence from their employer's broker & their employer's choice. Out of my IFP account's I will probably keep 90% of them if I have the time to transition all of them well. And, I hope to pick up quite a few new accounts, as time allows. I plan to hire, and I've set up my processes already to make this a volume business rather than an underwritten business.

That's coming from a book I've owned for years, with solid relationships with clients and good servicing. If I were buying another agent's book, I would expect lesser results.

You asked how you could win big. Well, what are you already set up to do well? If you are set up to cross sell into P&C or Life, LTC, etc., then I would say hire a quality health agent who will do subsidy apps and health apps so that the clients know that your agency is helping them with the transition into the 2014 Obamacare market. Then cross sell them while your reputation is hot. If you are already set up to do IFP & Group health and med supps, then I would say consider this a set of warm leads. I would warn you not to go into something you are not already set up to do well. If you are just now learning the 2014 market for health insurance, then purchasing this book would be a disaster.

 

[Double D]

My book is also IFP and Group. I have had high retention, and I service my book closely.

Yet I expect 60-70% of my small groups to dismantle the group plan. (Those that won't are either very near 50 lives or they are family-owned groups of 5 and under.) Out of those groups that dismantle the group plan, I expect to keep 50% of the employees, and the other employees will be glad to have the independence from their employer's broker & their employer's choice. Out of my IFP account's I will probably keep 90% of them if I have the time to transition all of them well. And, I hope to pick up quite a few new accounts, as time allows. I plan to hire, and I've set up my processes already to make this a volume business rather than an underwritten business.

That's coming from a book I've owned for years, with solid relationships with clients and good servicing. If I were buying another agent's book, I would expect lesser results.

You asked how you could win big. Well, what are you already set up to do well? If you are set up to cross sell into P&C or Life, LTC, etc., then I would say hire a quality health agent who will do subsidy apps and health apps so that the clients know that your agency is helping them with the transition into the 2014 Obamacare market. Then cross sell them while your reputation is hot. If you are already set up to do IFP & Group health and med supps, then I would say consider this a set of warm leads. I would warn you not to go into something you are not already set up to do well. If you are just now learning the 2014 market for health insurance, then purchasing this book would be a disaster.

Great info Ann. He is set up with 4 employees that have been there 5-10 years. He wants to stay on as a pt producer as well. I would be relying heavily on him and the employees through the transition with my goal of a) keeping as many clients as possible and b) cross selling life and P&C . I usually walk away or pull the trigger on big decisions rather easily but I can't seem to get off the fence on this one.

 

[Ann H]

Great info Ann. He is set up with 4 employees that have been there 5-10 years. He wants to stay on as a pt producer as well. I would be relying heavily on him and the employees through the transition with my goal of a) keeping as many clients as possible and b) cross selling life and P&C . I usually walk away or pull the trigger on big decisions rather easily but I can't seem to get off the fence on this one.

Those details make all the difference in the world, Double D. If he has a staff (with longevity), a stable book with good retention, and he plans to stay for the transition to Obamacare, it's a huge plus. In that case, your gamble relies on these things.

1) The Market in Obamacare for your area (commission, products, # of carriers participating, etc.)
2) The commitment of the buyer and his staff to stay and help transition the clients

The rest is up to you. I would suggest a contract that requires the current agent to continue working and help transition the clients. If you can secure a contract based on the actual income post 2014 for clients who stayed with the agency, you're better off. The only other thing I noted is that a staff of 5 to service $600k of income made mostly of IFP and Med Supps seems high.

I still have doubts as to why he would do that, though. If I was 64, had a staff of 4 and planned to stay pt through the transition to Obamacare anyway, I would hire an agent to help, then wait until June 2014 to sell the book for full price. It's not worth much more than a hope and a prayer now, but once transitioned to Obamacare it's a stable book.

 

[pahealthquotes]

How could I win big?

by building your OWN book as earned.

Take the money you we're going to invest and delevop a strong marketing strategy over the next few years. I believe 2014 will big the biggest opportunity to grab business in our lifetime. Prepare now and you will be mint.

 

[Ann H]

by building your OWN book as earned.

Take the money you we're going to invest and delevop a strong marketing strategy over the next few years. I believe 2014 will big the biggest opportunity to grab business in our lifetime. Prepare now and you will be mint.

YOU ARE CORRECT PA!! I feel for those who left early and didn't prepare for this market. This is a grand opportunity.

 

[Double D]

Those details make all the difference in the world, Double D. If he has a staff (with longevity), a stable book with good retention, and he plans to stay for the transition to Obamacare, it's a huge plus. In that case, your gamble relies on these things.

1) The Market in Obamacare for your area (commission, products, # of carriers participating, etc.)
2) The commitment of the buyer and his staff to stay and help transition the clients

The rest is up to you. I would suggest a contract that requires the current agent to continue working and help transition the clients. If you can secure a contract based on the actual income post 2014 for clients who stayed with the agency, you're better off. The only other thing I noted is that a staff of 5 to service $600k of income made mostly of IFP and Med Supps seems high.

I still have doubts as to why he would do that, though. If I was 64, had a staff of 4 and planned to stay pt through the transition to Obamacare anyway, I would hire an agent to help, then wait until June 2014 to sell the book for full price. It's not worth much more than a hope and a prayer now, but once transitioned to Obamacare it's a stable book.

2 employees are ft and 2 are pt. Ann I appreciate your input. What do you feel would be a solid offer for this book?

 

[b61mack]

The problem I see, is you will be wasting a lot of time chasing his clients as they drop off. I think it is a suckers bet.

 

[DS4]

Lets say you buy the book. Even with "all hands on deck" during 10.01 to 12.31, I see a 10 to 20% drop in the book before next summer.
If you are set on buying this book, I would make a downpayment. I would then structure the deal in such a way that you analyze the book every 6 months. Future payments would be tied to the books retention.

 

[Ann H]

2 employees are ft and 2 are pt. Ann I appreciate your input. What do you feel would be a solid offer for this book?

I think DS4 said it well when he said, "If you are set on buying this book, I would make a downpayment. I would then structure the deal in such a way that you analyze the book every 6 months. Future payments would be tied to the books retention." I had been thinking the same thing, but wasn't sure how to word it.

The deal is that you aren't really buying a book. You're buying warm to hot leads. They are hot if the prior agent stays and helps them through the transition. Otherwise they are just warm leads. The only way they are a book of business is the amount of commission you will receive from date of purchase to 12/31/2013 for Group & IFP, and full price for the Med Supps.

It sounds like the buyer wants payment up front because he's afraid the book will implode. Otherwise he would transition the book to Obamacare then sell it for full price. So, I would consider a down payment based on probable commission from the date of sale until October (for the IFP and Group business). In other words, if the date of sale is May 1st, then you have probable renewal commission for May, June, July, August and September. I would make your down payment based on that income, plus the Med Supp commission. Then I would go into a contingency deal with the buyer. You could pay him a salary or commission based on every client he transitions to Obamacare. Or, you could pay him for every client retained. There are several ways to go about this.

The sales price should be set based on the vulnerability of the business. About 20 years ago, I sold a book for 100% of gross revenue, and that was the going price at the time. But that was when health insurance was a roaring business. Today, that book is vulnerable to implosion. You have 3 things to worry about. First, some people will drop coverage in October and take a short-term plan (or else no coverage) until 1/1/2014. Second, some people won't use your agency to transition to Obamacare, or else they will go uninsured due to how unaffordable it is going to be. Third, most agents expect this to be a 3-5 year run, and then agents will no longer be needed. It will be a shorter run in states where few carriers participate.

I haven't bought or sold a book in years, so I don't know the going rate today. However, I know that 1.6x's is extravagant. It sounds like this buyer has built a quality business, though. If he's age 64, and his staff has stayed 5-10 years, and he has $600k of gross revenue, he's probably a quality agent. A win-win might be to give him his down payment, with a contingency for cases that are retained.

I said all of that regarding your questions about what you would offer for this book. But my real feeling is that buying this book is probably not in your best interest. It sounds like you are attracted to this deal because of the cross-selling opportunities, plus the fact that his book appears to be a quality book. That's a unique perspective. There's another way to go about it, though. Personally, I would not be buying health insurance leads of any type right now. We will have leads swarming around us like confetti at a New York parade. I would not buy a book. If I were a P&C agent who wanted to build a base of customers during this "open hunting season" to cross sell them, I would simply hire a former health insurance agent who knows the market but feels he cannot financially survive during the transition. I would pay him a salary and commission split to go out and transition people to Obamacare, then I would cross sell P&C & Life to them.

 

[Double D]

Do you feel agents will not be needed in 3-5 years?