Prioritizing Compliance in Insurance Mergers and Acquisitions

This post is part of a series sponsored by AgentSync.

While the pandemic cooled off mergers and acquisitions activity in the insurance market, all signs point to a hot M&A market in the next year. If you’re in the position of evaluating (or being evaluated!) for an M&A fit, don’t leave compliance controls out of the mix.

At AgentSync, we’re not lawyers or accountants, so we aren’t planning to address the legalities or finances of insurance M&A activity in any depth. However, we are compliance junkies. And, to that end, we’re here to talk about where license compliance fits in your insurance M&A due diligence process (and the short answer is everywhere, it fits everywhere).

Priorities in M&A valuations

Most M&A due diligence lists have 10 to 20 key areas to investigate both for the purposes of assessing a business’s fair market value and for determining a best fit for an organizational merger. For the purpose of brevity, we’re condensing those priorities into five buckets of values.

These are by no means comprehensive, but these broad categories can help gauge a wide scope of issues that ultimately will each require a more microscopic analysis.


The most basic assessment of a business’s fair market value is going to be based on a few different values. Now, there’s no straight answer for how to value a business – all calculations can only get so far, because the ultimate value of a business is whatever someone is willing to pay.

Many agencies sell based off of a multiple of cash flow or profit – taking a year’s worth of commissions and other income, subtracting the cost of operations and taxes and all, and then multiplying the leftover profit to reach their “number.”

Also common is to use gross earnings before interest, taxes, depreciation, and amortization (EBITDA) to determine business value.

However, all of these have limitations. What a business did in terms of sales this year doesn’t mean the same will be true in the next year: Hopefully, this is a lesson we all learned in the pandemic!


When we talk about product, we’re talking about product-market fit, the realities of supply and demand, intellectual property and ownership, and even business reputation.

Whether a business has something worth acquiring in the first place is a big part of the calculation when determining a business’s value or its intrinsic risk.

Of course, from a compliance perspective, if an insurance product is being moved by those who aren’t properly licensed, then even if it’s a good product you may be facing risks with your returns.


What controls are in place in your insurance business? Processes are where we start to get into the “soft” pieces of evaluating a business. But these soft pieces of the business are where the rubber really hits the road, so to speak.

For instance, does a business have a marketing funnel that will deliver leads day after day? Are there solid channels in place to empower employees to act like owners, or is this a business engine that relies solely on leadership as the source of inspiration and progress?

When it comes to compliance, it’s important to evaluate the processes for onboarding producers (whether independent or staff) and maintaining license compliance. For instance, is there a single person who holds all the necessary knowledge in their head? Are there technologies that maintain this? Is it a manual process, riddled with errors?

A business’s processes and procedures are crucial to understanding whether an agency or carrier is a one-trick pony or a machine of progress.


Culture-fit is king in M&As, and if you are performing a risk-management assessment, the way you assess culture is in the people. If an organization has hundreds of employees, then do they have a culture that enables success? Do they embrace positive changes? If your target has a smaller staff, then are all the right people in the right places? Is there an over-emphasis on leadership?

The typical people pyramid can be a successful model, or it can be a decision-making bottleneck. Understanding which is at play for a given organization is key in assessing the people and culture.

Additionally, where is the cultural emphasis on compliance? When assessing compliance, it can help to plug national producer numbers (NPNs) for the contracted insurance producers through NIPR and get an easy assessment of data, such as whether they’re up-to-date on relevant licenses and appointments, or whether they have reported action against them in various states. Understanding whether your potential acquisition has a history of ignoring compliance can be key in assessing its value, and in understanding how easily you will find a culture fit.


Is a business operating at its peak? Maybe you only want to acquire a streamlined ship that’s ready to dart forward. Maybe you’re willing to invest in a fixer-upper. Regardless, understanding how much room for improvement a potential acquisition has is key in agreeing to a business value.

Part of a business’s potential is in its technology. Is it working with third-party vendors that add value and efficiency? Are any tech partners actually a risk because of lax data privacy standards? Understand which tech solutions add value and which dilute it.

Compliance and insurance M&A

As we see insurance industry consolidation, businesses that are acquiring and being acquired will have a long list of considerations before agreeing to any deal. And it’s totally fair that compliance is by no means the sole factor by which to evaluate a business deal.

However, if you’ll pardon a moment of self-aggrandizement, we’ll put out an argument: Whether a carrier, agency, or MGA has been able to maintain compliance standards is likely a good metric to diagnose other underlying issues.

Rarely do compliance issues come to light without accompanying issues. Business entities or carriers with poor customer service, struggling internal cultures, or problematic growth cycles often had difficulty maintaining compliance hygiene long before other issues became public.

Conversely, if you’re a business looking to be acquired, your business valuation can only be helped by demonstrating that you have an efficient workforce of producers who can be licensed, appointed, and ready-to-sell at the drop of a hat.

If you’re looking for a way to keep up in a heated environment of M&A activities, put compliance first, and get AgentSync Manage.

Mergers & Acquisitions