Health Insurance Book of Business Valuation?

[YouGotMyMoney]

Watching a dust storm roll in right now. Ever since 2 yrs ago, when we had a really big one roll in (the one on TV), it's been a repeat performance every week, every time a monsoon rolls in.

Last time I was in Az, there was a LOT of hotties, the heat must melt the fat off, If you dont have a heat stroke first or the bbw's stay indoors..

 

[AgencyEquity]

Right now, it's risky because of healthcare reform. Without healthcare reform, I would say it's worth at least 15k. With healthcare reform, it's really hard to say, it's more of roll of the dice. Given you are talking small dollars, are you comfortable parting with the 5k and risking it? It looks like you will need to get at least a year of commissions to break even. It's a risk that and you need to figure out what is your tolerance for risk? It's not going to get you rich, but you are not a ton in the hole either.

 

[jmilber]

I know Health Reform is risky, but I am not 100% sure health reform means the end for all in 2014?

1.) Even if it hurts the business for new sales, won't many people just stick with their current plan? Perhaps the price will be lower / better than the exchange plans and they are happy with the plans they are on? They will not be forced to change, right?

2.) In CA they recently voted to have agents sell in the exchange AND "recommendation of staff which was accepted by the board was that agent commissions should be competitive with market levels outside of the Exchange.".

3.) Even if all hell breaks loose with the exchanges, they won't all drop at once. I may still make a profit on the book even if all hell breaks loose and exchanges nix agents, because people will transition slowly most likely.

I feel $2500, as suggested by a couple of people, is too low--- even with health reform. Maybe $3500-$4000 would be an alright gamble. I dont know =-\ Thanks for suggestions

 

[LOM58]

I wouldn't pay a dime for the groups until you have had a chance to meet with the decision makers for all three companies and to the best of your ability ascertain their willingness to stay with you, at least for the first year. Perhaps defer payment for 90 days to allow you to do so. Even better, a pay as you go for the first year. Only 3 groups and 2 of them recent? Good chance these groups pass out multiple censuses each year and change brokers like underwear.

 

[Yagents]

When you do an AOR or buy a block of clients, do these clients now fall under YOUR E&O now? So, if client was initially sold a stripped down policy (no Rx), are you now at risk?

 

[The HIC Group]

Hey Guys,

Some guy is trying to sell me his very small block of individual & small group health insurance business. One flat payment, or maybe put a clause that if one of the 3 small group clients leave me he gets less or something because they make up 70% of the profit I realized. Health reform is very scary, but in my favor, CA recently agreed to let agents sell in the exchange and pay them competetively compared to out of exchange commissions. THat's good, I guess?

The book makes like $684/mo. I was thinking of offering $4500-$5000. Any thoughts on this? Am I over paying? Or is this a good deal that might pan out? The part that worries me most is that 3 small groups make up 70% of the income. Maybe $4000 flat and I take the risk is fair? Thanks for your feedback!

PS. In an email I wrote him, I cited the following as reasons why I don't think his book is worth much...

1.) I looked at Excel sheet, and 70% of your commission comes from three small group clients. That is very risky--- if one or more leaves, my whole investment is over. Small groups are worth much less than individuals because they can, and often do, switch brokers. 2 of them are from 2012 which means you haven't built much loyalty with them (let alone me).
2.) Locked into the new, lower commission brackets. In the past, 20/10 was standard. Now it's like 12/6 for most carriers or less.
3.) None of your business is grandfathered which raises likelihood that they won't get to keep their plan 2014
4.) A reasonable amount of your individual busienss is first year commission so residuals will get lower.
5.) I consider every month towards 2014 the book gets less and less valuable. If I purchased this in June, I would have had July and August and September commissions by now--- instead, you've gotten those commissions so to me the book is worth less every month I don't buy it.
6.) Health Reform!

Below is a great informational piece I came across:

Hope this helps:

Individual health is a bit of an unknown at this time with ACA on the horizon. However, as in many transactions, deals can be closed with the right structure that provides a win/win for both Buyer and Seller. A 100% individual health book would definitely command a lower cash up front structure, then say a small group and definitely large group health book of business only or established group-focused company. From selling other health related books of businesses, there are buyers all day long that will pay on a retention basis, anywhere from 1-2x the gross commissions, depending on the aggressiveness of the payout structure...[view less]
I think without any details of the volume of commissions we're talking about, I think realistically if you called $X your gross commissions, some kind of structure that approximates the following would be a reasonable scenario where you would attract legitimate buyers:

Scenario A: 0.25x in cash at close. 1.75x paid out over a 4-5 year period. 2x secured over the course of the payoff. Ideally for the Buyer's protection there would be some form of agreed upon look-back period after Obamacare was implemented fully. Say for instance with the health exchanges if 30% of the book migrated (somehow - very doubtful if you ask me) then there would be a reduction in the payout to 1.4x since 0.3x disappeared on a 2x multiplier.

Scenario B: Could take something of the effect of 0.75x at close, and another 0.5x paid out in a balloon 1 year from closing. This way 2014 gets some time to develop, but yet the Buyer pays a fair price, with a claw-back likely going against the balloon if the same exchange type client loss occurred.

So in a vacuum it's tough to tell you without many other details needed to put a real valuation on any book of business or insurance agency. But I would say those would be very imminent payout structures that I would be comfortable presenting to my Buyer pool and I'd be confident we'd both be paid in a reasonable period of time with a fair market price point. That's the goal in every deal of course!

Cheers,

-Rick Carlson of Ace Business Brokers.

 

[DS4]

So, if client was initially sold a stripped down policy (no Rx), are you now at risk?

I would constantly remind my new client that I wasn't the original agent that sold him this piece of $hit!