‘Tough to Say No’: Mergers and acquisitions dominate local insurance scene
The name of your local independent insurance agency may not be changing, but its ownership might soon be — if it hasn’t already.
Several northwest Michigan agencies selling property, casualty, business, health and other insurance products have been acquired in recent years by large companies, such as Grand Rapids-based insurance broker Acrisure and Detroit-based private equity firm Huron Capital.
Traverse City-based High Street Insurance Partners, formed by Huron Capital in August of 2018 as an agency acquirer, has since purchased Traverse City-based Peterson McGregor & Associates, Boyne City-based KorthaseFlinn Insurance & Financial Services and Tompkins Insurance Agency in Traverse City.
Peterson McGregor and KorthaseFlinn will retain their names and continue to be operated by current management, according to High Street news releases. Tompkins Insurance owner Steve Tompkins has retired and his agency will become an office of KorthaseFlinn.
Officials for High Street, which also acquired a Pennsylvania insurance agency in November, declined to be interviewed for this story.
Industry officials and experts say insurance agencies offer a lucrative, low-risk business opportunity for large acquirers that can consolidate back office functions, implement new technologies and use their market power to negotiate better prices from insurance companies, such as State Farm and Allstate.
Last year, some 600 insurance agencies and brokers nationwide were acquired, according to consulting firm Ernst & Young, which expects the trend to accelerate.
“For the acquirer, there’s a certain known cash-flow model there,” said Matt Anderson, who sold his Global Marine Insurance Agency in Traverse City in 2016 to New Jersey-based Specialty Program Group, a unit of insurance broker HUB International. “You have to buy insurance every year and there’s a certain retained (customer base). It’s a fairly simple model.”
Anderson remains president of the agency, which kept its name, and is a shareholder in Chicago-based HUB International.
There is no shortage of small agency owners looking to sell. Some, who want to retire but don’t have a succession plan, are being enticed by attractive buyout offers, experts say. Others, who want to continue operating their agencies, need more capital for new technologies and other investments that large companies can provide them.
“It’s tough for some owners to say no. There are some big-dollar offers being made,” said Jeremy MacDonald, a board member of the Michigan Association of Professional Insurance Agents and owner of Mid-Michigan Agency in Alma.
The agency merger-and-acquisition trend hit Traverse City in 2015 when Acrisure acquired the Shumsky West and Larkin Group agencies, and merged them under the Larkin Group name.
Shumsky West President Tod Beynon said at the time he was motivated to sell because he was 63 years old and he “might want to play a little more golf in a few years.” Beynon is still with the company, as is Larkin CEO Bryan Taggart, who headed the Larkin agency at the time of the merger.
Acrisure, which was formed in 2005 to acquire independent insurance agencies, has since grown to 450 locations in 37 states with revenues of more than $1.7 billion.
The company announced in August it will relocate its corporate headquarters next year from Caledonia to a new, $30 million office building in downtown Grand Rapids, where it will employ 400 people, according to business publication MiBiz.
Anderson said selling his marine insurance agency to Specialty Program Group allowed his business to focus on growth through greater access to capital and leaving back office functions to the new owner.
“This is a small business, but a national business,” he said, adding that the new ownership gave them an opportunity to take the business to a level that “we really couldn’t do on our own.”
Since being acquired in 2016, employment of Global Marine Insurance in Traverse City has nearly doubled, from 35 to 65 employees. Revenues in that same period also have doubled to about $8 million, Anderson said.
David Ford, president of Ford Insurance Agency in Traverse City, said he’s contacted almost daily by large companies wanting to buy his agency, which offers personal, health, life and business insurance.
But Ford, who founded his agency in 1985, said he plans to keep his 25-employee agency independent. Many owners of small agencies are selling to larger companies because they don’t have any children interested taking over or they haven’t groomed successors, he said. Others need more expertise in technology or other business functions they can’t implement on their own. But Ford said he thinks his agency is well-positioned for the future.
“We like the culture we have built and the brand we have built,” he said. “We see a spot in the world for companies of all sizes. Being independent fits our business plan and the needs of our customers.”
And local agencies that merge with larger companies don’t always find a happy marriage. “Anybody who has gone through a merger in which it’s said that nothing changes, finds that’s not always the truth,” Ford said. “Often, decision-making isn’t local anymore.”
But Ford is bucking a tidal wave of mergers in the insurance industry that is not likely to subside. Ed Majkowski, Ernst & Young’s insurance adviser leader for the Americas, told the Insurance Journal in July that the need for agencies to cut costs and invest in technology will lead to more merger activity.
“The agent is still very valuable today, and I think there’s always going to be a role in this industry for the captive agent, the independent agent,” he said. “However, I think that the agency business and the agents themselves (will) continue to consolidate.”