Family Ties: Succession Planning for Family-owned Insurance Agencies 

4 Oct 2023

Family Ties: Succession Planning for Family-owned Insurance Agencies

Estimated read time: 4 minutes

It’s important for every insurance agency owner to have a detailed succession plan in place—even if you’re lucky enough to have grown children involved in the business. 

After all, your agency is not only your life’s worknot to mention, a highly valuable asset—it’s a complex operation that requires astute management. Transitioning its leadership calls for the same level of thought and care you put into building it in the first place. 

It goes without saying: success takes planning. Yet, according to one industry study, only 55% of insurance agency owners have formal succession plans in place, although nearly half of those surveyed plan to pass the business down to their children or other family members. 

Keeping your hard-built business in the family is a gratifying legacy.  But in order to ensure the most successful outcome, you need to have a plan.  

The Benefits of Succession Planning

As an insurance professional, you understand risk mitigation better than most. In large part, that’s what succession planning is all about.  

Succession planning ensures business continuity when agency leadership changes. It ensures that clients will continue to receive the quality service they’ve come to expect—and that producers will receive the same level of of support. It safeguards your valuable relationships with employees, insurance carriers, colleagues and members of your community. 

In short, the goal of succession planning is to make sure that your current business stays on the books…new business keeps flowing inand everyday operations continue without a hitch.  

Last but not least, effective succession planning guarantees that your hard-earned knowledge and expertise stays within the agency, because you’ve taken steps to pass it along. 

Elements of a Valuable Succession Plan

A well-designed succession plan gives you a step-by-step roadmap to follow. It will define 

  • Who the successor(s) is/are—i.e., the new ownership structure  
  • The role/responsibilities of the successor(s)  
  • How the successor(s) will be prepared for their new roles 
  • The future role of the founder, if there will be one   
  • The financial and legal arrangements surrounding the transfer of ownership 
  • A communication plan for clients, producers, employees, carriers, etc.  
  • How the transition period will unfold  
  • A contingency plan (so the agency can continue to function even if other elements of the plan change) 
  • A system for monitoring the plan’s progress 
  • The flexibility to make plan adjustments when needed 
  • A succession timeline, complete with target dates  

While some experts suggest creating a succession plan at least five to 10 years in advance of the owner’s retirement, the earlier you start, the better. This will give your successors-in-training ample time to grow into their new role, while you’re still at the helm, maintaining stability.   

Common Challenges and How to Overcome Them

One factors that makes family businesses especially challenging is that, with loved ones, it’s never “just business.” Sometimes, family member’s emotions, ambitions and expectations clashmaking succession planning especially tricky. 

For example, what happens when multiple siblings crave the leadership role? Or when one sibling doesn’t want to work in the business, but rather a share of its equity? What if the parent fears that their successor isn’t ready? 

Research indicates that some families avoid formal succession planning to avoid conflict and keep the peace. But that simply kicks the can down the road, which can endanger the agency’s future.  

For all these reasons, many agencies engage third-party experts—accountants, attorneys, financial advisors, etc.—to help navigate such issues professionally and objectively, while keeping all parties on the same page.    

Keep in mind: there are solutions to every conceivable hurdle. The goal is to arrive at them as smoothly as possible.  

The All-important Transition Period

Building a formal transition period into your succession plan timeline is essential. It allows the agency owner to pass on their essential knowledge, while gradually stepping back from the business (which can be difficult in itself). Similarly, it allows the successor(s) to slowly take on more responsibility, without putting operations at risk. 

And for everyone else in the agency’s orbit—producers, employees, insurers, etc.—participating in a smooth transition builds confidence in the new leadership and keeps those valuable relationships on course.  

In fact, one sign of an effective succession plan is that by the time it’s fully implemented, all the stakeholders are so comfortable with the new arrangement, it doesn’t feel “new” at all.  

Needless to say, over the course of PALIG’s 112-year history, we’ve seen many family-owned insurance agencies passed down from generation to generation—and have often played a helpful role in the process. If you would like to use us as a sounding board while crafting your own succession plan, please contact your Regional Sales Vice President.     

This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for legal or financial advice. You should consult your own legal and financial advisors before engaging in any transaction

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