Passing the Torch: Agents Share Their Advice for Succession Planning

When it comes time for agency perpetuation or succession planning, many independent insurance agency owners want to keep the business in the family.  

According to the Liberty Mutual 2023 Agency Growth Study, internal perpetuation – or transferring agency ownership to a family or staff member – is the most common succession plan for independent insurance agencies. The research found that 42% of agency principals who expect an ownership change in the next five years are planning for a family member to take over, 37% plan for other principals to buy out their interest, and 16% plan for non-principal employees to buy the principal’s interest.  

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Internal perpetuation can be a great option for agency owners who want to see the business they worked hard to build continue into the next generation. However, internal perpetuation also brings unique challenges. As most of us know, family dynamics can be complicated, and handing over control of a business can be emotionally charged, no matter who is stepping in to take over.   

We talked to agents who have internally perpetuated an agency to learn about their experiences and what they wish they had known about the process. Here are their stories and advice for successfully navigating internal perpetuation.  

Stories of Agency Succession Planning

A continued commitment  

When Claudia McClain started thinking about the future of McClain Insurance Services, her main focus was continuing the agency’s commitment to its staff, clients and community.  

“An insurance agency has the opportunity to do a lot of good in both the lives of the employees that decide to join the team, but also in the lives of their family members and in the lives of the community that we serve – either those who are clients of the agency or those who may benefit from the philanthropy of the agency,” she says. “So, from my perspective, it wasn’t so much about having a particular name on the agency, but if someone was going to just swoop in and buy the agency for the profits and cut back on everything else, that wasn’t even a consideration for me.”  

Fortunately, McClain had a long-time staff member – Nick Pembroke – who shared her heart for the community.

About 10 years ago, McClain and Pembroke started discussing the possibility of perpetuating the agency.  

Pembroke, who has worked at the agency since 2000, said that the idea of taking over “lit a fire” in him and made him excited about his future at the agency.  

In the next few years, he and McClain started having serious conversations about transferring ownership. McClain hired a perpetuation consultant and talked to multiple experts including attorneys and CPAs to help work out a framework and deal.  

At the same time, McClain started including Pembroke in carrier meetings and asked him to take over as team leader in the agency’s weekly team meetings. McClain retired this summer, and while the staff misses having her in the office, Pembroke says the gradual approach helped ease the transition for staff, carriers and clients.  

“They got used to the idea well in advance,” he says, “so when it became official it was just seamless. It wasn’t like suddenly Claudia was gone and everything they knew had changed.”  

In taking over the agency, Pembroke sees himself as a steward of McClain insurance.  

“I want to build and grow it,” he says,” I want it to be healthy, and carry it on as the community sees it.” 

Letting go  

Ashley DeCarteret jokes that she was brainwashed into her role as president at Harbor Brenn Insurance Agencies – her father started introducing her as his retirement plan when she was still a teenager.  

She officially joined the agency in 1998 and worked in every role in the agency before taking over as president. She says this set her up well for leadership because she understood the different roles and needs in the agency. Eventually, she was essentially running the agency, with her father minimally involved in the day-to-day operations.  

However, getting a stake in agency equity proved harder. After seeing friends sell businesses and then lose money in the stock market crash, DeCarteret’s dad was hesitant to make a plan that would cut him off from the agency’s revenue. DeCarteret had to make a case to get equity in the business.  

“It’s been a long process of me telling him, you know, I’m not going to be here to run this business for you if I don’t have ownership in it,” she says. “This growth that we’ve had has been under my leadership, and that needs to be compensated accordingly.”  

DeCarteret researched different options, and came up with a plan for her dad to gift her shares of the company so she has ownership, but her dad can still generate revenue out of the agency. Today, they are both 50% owners, and she’s working on a plan for full ownership.  

She says she’s seen many examples of agency owners being hesitant to let go. That approach is not good for the agency owner or the next generation coming in.  

“You need to be able to relinquish the reins and let that next generation make their own mistakes like you did when you were younger and starting an agency.”   

DeCarteret is planning to work for another 10 to 20 years, but she’s already starting to plan for her own perpetuation. Because her kids aren’t interested in running the agency, she’s already thinking about how to grow and mentor a young employee she recently hired who could possibly be a good option for perpetuation.  

Carrying on the legacy  

Joshua Morey’s father and uncles originally planned to sell their agency, but a few years after he joined the agency in 2009, they started cultivating him for leadership, along with some other young leaders in the agency.  

It was a challenging process. As the younger generation progressed in leadership, they butted heads with the older generation, who wanted to do things the same way they had for decades. And even when the next generation had the reins operationally, none of them had an equity stake in the company.  

The Moreys hired a consultant to guide them through the process, but it took five years to figure out the full plan for transferring ownership.  

Morey is passionate about helping perpetuate other agencies that serve the Japanese-America or other minority agencies, many of which don’t have a perpetuation plan in place. In 2021, The J. Morey Company partnered with Alliance 360 Insurance Solutions to form Ori-gen, a network that helps businesses carry on the legacies they have built in their communities.   

“We need more generational businesses, not only in this industry, but in this country,” Morey says. “If you lose the local, generational businesses, you lose these amazing American stories.” 

When Morey is considering an agency to acquire or partner with, he looks at their commitment to their employees and clients and the impact they have in their community.  

“That’s the value,” he says. “It’s not about the money. There’s meaning in continuing something that’s been going on for generations. What wakes me up every day is that we can continue these stories that have been going on much longer than I’ve even been alive.”  

Advice for Successful Internal Perpetuation 

Start early 

It can be hard for owners to take a step back from the day-to-day operations of their agency to think about their long-term goals and plans. But Claudia McClain says it’s important to consider your options early on.  

“You have to start thinking, ‘Okay, if tomorrow or next week or 10 years from now I couldn’t stay here, what’s going to happen?’” She says. “You don’t want a fire sale, so start educating yourself on your options.”  

McClain suggests tapping into your network and talking to other agents who have gone through the process.  

“Talk to somebody who sold to a venture capitalist. Talk to somebody who merged with another agency or sold internally,” she says. “As the good, bad and the ugly so you have a general sense of what you might be getting into.”  

Ashley DeCarteret agrees that it’s important to think about your plans early on. An agency owner in their late 50s or early 60s might not be thinking about retirement yet, but in the next 10 years, they might realize they don’t want to be working anymore.  

“So think about your life now,” she advises, “and start to grow that potential replacement for yourself.”  

Joshua Morey points out that the earlier agency owners start thinking about the future of their agency, the more options they will have when the time comes.  

“M&A activity has slowed down a lot,” he says. “Maybe 10 years ago you thought you’d just sell at some point, but now there may not be as many options for that. Maybe you should think about who in the agency could be a good owner and start having those conversations now rather than waiting and getting into a bind.”   

Give equity and leadership throughout the process  

Morey’s dad and uncles did not stay involved after transferring ownership to him, and Morey initially struggled without them in the picture to help make decisions. He says he wishes he would have been more involved in some of the strategic planning processes before he was running the agency.  

“I would have loved to have been, like, a .05% equity owner in the company and then be in shareholder meetings and have a seat at the table even though I could get overruled.”  

He suggests that owners give young leaders “nuggets of ownership” early on.  

“I think if the young leadership team can taste it early, it’s incentivizing,” he says. “It also makes them prove that they are ownership material. If you give someone a taste of what ownership is, you’ll figure out if that person’s really an owner and really believes it’s about the company first.”  

Hire a consultant to help with logistics  

On first blush, hiring a specialist may seem like too big of a deal, McClain says. Agency owners may be tempted to just say “We’re all friends here, let’s just do this on our own.”  

But, she says, it’s hard to understand the complexity of the transactions without help. An outside party can help determine how to value the agency and craft a plan that makes it possible for the buyer to afford the agency, the current owner to get a fair payout, and the agency to stay healthy in the process.  

Morey says agency leaders should consider hiring a consultant to help determine what their agency is currently worth and also identify some things they could do within a few years to increase the agency’s value.   

“Not all evaluators are created equal,” he warns. “So you have to choose a good one. They’re not cheap, but they pay for themselves.”  

Accept that things will change, and allow room for mistakes   

Now that McClain has retired, she recognizes that the agency she founded will evolve and change in ways she might not have anticipated.  

 “It may not look exactly like I would run it in the future,” she says, and it shouldn’t, because it’s their agency now. But it will carry the same values with it, and to me that meant a lot.”  

Morey says that current and future agency owners will have to find ways to compromise. Agency owners can’t expect the next generation to do things the exact same way they did. They have to be open to new ideas and trust that the next generation is capable.  

Meanwhile, the younger generation needs to acknowledge that the older generation built the agency and has a wealth of knowledge.  

“You can’t just come in with guns blazing,” he says. “There has to be mutual respect.”   

DeCarteret advises agency owners to remember how they gained the knowledge they’ve built, and give future leaders the same opportunities.  

“When the agency owner was coming into the business, they made their own mistakes and learned from them,” she says. “If they don’t give their next generation owner the experience of making their own mistakes and learning from them, they’re doing a huge disservice to those future leaders.”