8 January 2024: Selling a Professional Practice: Insurance Agencies
A couple of weeks ago, we posted a two-part series on selling a professional practice. That series – which can been seen here (Part 1) and here (Part 2) – though mentioning veterinarians and accounting practices, was rather general in nature. But they raised a couple of questions, specifically about insurance agencies.
Though the general processes outlined in those posts generally obtain when selling an insurance agency, there are some unique aspects involved when selling such agencies.
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In general, an agency owner needs to determine whether the time is right for selling. And by that we mean the readiness of the owner to transition out of the business as well as an assessment of the market to gauge the level of demand. In addition, knowing the business’ value is, as in any business sale, critical from two standpoints:
- Unrealistic price expectations is the primary reason businesses don’t sell. Knowing the businesses value and pricing it accordingly will significantly increase the likelihood of a successful sale in a reasonable period of time.
- Will the net proceeds of a sale (at or near the valuation) be sufficient to provide the seller with the post-closing lifestyle he or she expects? This is a crucial question insofar as a seller could walk at the 11th hour once he or she realizes that the net at closing will be less – possible much less – than they were anticipating.
But beyond these two points – common in most business transfers – there are unique and important considerations to be addressed when selling an agency.
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What follows primarily addresses issues specific to the U.S. market but similar concerns are present even in markets that supposedly offer only government-provided healthcare (i.e., NHS in the UK) because such governments have mostly come to the realization that they are unable to provide complete public healthcare at a level of service expected in most first world countries. In such regions, concierge healthcare services have been legalized – but these services provide highly personal care and are priced accordingly. They’re often not accessible to anyone other than the well-off.
Legal and Regulatory
Because there has been more and more government intrusion into healthcare, there has, needless to say, also been ever-increasing regulatory burdens; mandated certifications, compliance issues, reporting requirements, audits, bureaucratic approvals and enough red tape to wrap every CMS office – from the headquarters in Washington D.C. to the 2-room annex behind the post office in Podunk, U.S.A – up like a Christmas tree.
Here’s a (partial) list compiled by Bob Lochard and published in Insurance NewsNet to consider:
Change of ownership process: When selling an insurance business that offers MA or Part D plans, the seller and buyer must go through the CMS CHOW process. This process ensures that the buyer meets the requirements to assume responsibility for the MA or Part D contracts.
CMS approval: The buyer must obtain CMS approval to assume the MA or Part D contracts. This involves applying to CMS and providing detailed information about the buyer’s financial stability, operational capabilities and compliance with CMS regulations.
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Compliance with CMS regulations: The buyer must demonstrate compliance with all CMS regulations, including those related to marketing, enrollment, claims processing, beneficiary protections and quality improvement activities. CMS will assess the buyer’s ability to meet these requirements during the approval process.
Transition of beneficiaries: CMS requires a smooth transition of beneficiaries’ coverage and benefits during the sale. Buyers must have a plan to ensure uninterrupted access to healthcare services and medications for beneficiaries.
Reporting and notifications: The seller and buyer must notify CMS of the impending sale and provide relevant information about the transaction. This includes advising CMS of the change in ownership, submitting required reports, and ensuring compliance with CMS reporting requirements throughout the sales process.
Compliance audits: CMS may conduct audits to assess the buyer’s compliance with CMS regulations and contractual obligations. These audits may occur either during the approval process or after the sale is completed.
Bob also advises agency sellers to connect with CMS as early in the process as possible to avoid unnecessary delays (there will be plenty of “necessary” ones), get guidance from the people that will be either green-lighting your deal or holding it hostage and making the transition as smooth as any interaction with and permission from a federal-level bureaucratic behemoth could be expected to be.
The Bottom Line
Though the major issues to be considered when selling an insurance agency aren’t significantly different than those involved in selling in selling any other business – valuation, pricing, cleaning up the financials, performing “seller due diligence” – there are aspects of the process that are unique to agencies.
I’d like to hear from you. What topics would you like me to cover? How can we tailor these posts to be more useful to you and your business. Let me know in the comments box, below, or email me at jo*@Wo*******************.com.
If you have any questions or comments on this topic – or any topic related to business – I’d like to hear from you. Put them in the comments box below. Start the conversation and I’ll get back to you with answers or my own comments. If I get enough on one topic, I’ll address them in a future post or podcast.
I’ll be back with you again next Monday. In the meantime, I hope you have a safe and profitable week.
Joe
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The author is the founder, in 2001, of Worldwide Business Brokers and holds a certification from the International Business Brokers Association (IBBA) as a Certified Business Intermediary (CBI) of which there are fewer than 600 in the world. He can be reached at jo*@Wo*******************.com