Assessing the value of an insurance agency book of business: A Comprehensive guide

A book of business is a convenient and easy step to calculate and find the success of an agency. Nevertheless, it is used in a very rare condition due to its limited nature. The book of business usually holds the data of clients and the recurring payments of that client. Several factors evaluate the value of an insurance agency’s book of business in the market.

Understanding the Valuation of an Insurance Agency’s Book of Business

Key Factors for Valuation

Different factors for evaluating the value of an agency, these are:

  • Location, Size, Profitability, and Growth: Initially, the location, size, profitability, and growth of an agency play a very crucial role in the valuation of an agency.
  • Diversity and Quality with Client Retention: Apart from this, the second slab of factors include diversity, and quality with the retention of eminent clients.
  • Commission, Mix, and Type of Sold Products: Moreover, the valuation of an agency is also based on the commission, mix, and type of the sold products.
  • Goodwill, Branding, and Market Position: An agency is also required to gain goodwill, and branding and create a position in the market.
  • Operational System and Stakeholders: The operational system and the stakeholders are essential because they have to manage several risks and bring opportunities for an agency.

These are all the key factors that make the valuation process of a book of business easy and efficient.

Methods of Valuation

Apart from the above mentioned factors, there are still two methods through which the valuation of a book of business can be done:

  1. Revenue Multiplier: The revenue multiplier is calculated by a multiplication process, i.e., total revenue achieved by a book of business by a particular percentage. This method is applicable in case of limited sales to the book of business rather than an agency.
  2. Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA): This method depends upon the multiplication of cash flow. To calculate EBITDA, it is necessary to add all interests on debts, amortization, compensation of owner, net profit, and any other expenses.

Illustration of Valuation

Let’s have a look through an illustration, if the revenue of an agency reaches $10 million in a year and the EBITDA is 15% of margin, then you multiply both revenue and EBITDA. After multiplying you will get $1.5 million, which will be your EBITDA. If you follow the current trend of multiplier i.e., 10.6 multiples EBITDA, then the value of your agency seems like $15.9 in millions. However, if you multiply 7 multiples of EBITDA, then the value of your agency seems $10.5 in millions.

Distinguishing the Multiples

Table: Distinguishing between the multiple of EBITDA and the multiple of Revenue

AspectMultiple of EBITDAMultiple of Revenue
Calculation ProcessComplicatedStraightforward
VerificationRequires verification of revenue and expensesRequires only verification of revenue
ToleranceLow risk of toleranceHigh calculation risk of tolerance
Due DiligenceExtensiveLower
Allowance of IncomeNet income and expenses of the buyer are essential.Requires only the net income of the buyer.


In a nutshell, the valuation of an insurance agency does not seem easy and uncomplicated. The calculation requires a deep analysis and research on several factors which affect the valuation. The application of different methods for calculation also requires various sources to get an accurate estimate.

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