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Independent Insurance Agents Discover Life Under Corporate BannerLock Icon

5 min read

For 21 years, it was a big deal for David Todd to go to work and see his family’s name on his office door.

The Todd Agency prospered after his father, Richard, founded the independent insurance agency 36 years ago in Little Rock. In May 2019, the Todds sold the company to the Sunstar Insurance Group, and David Todd says life under the SIG umbrella isn’t that different.

For many independent insurance agents, consolidation through merger or acquisition is a popular option. Sunstar has acquired about 20 Arkansas agencies since its founding in 2012 in Memphis; Sunstar is backed by the considerable financial weight of Brown Brothers Harriman Capital Partners.

“We had no interest in selling; we had no interest in merging at all,” David Todd said. “[We liked] being a completely family business, being total entrepreneurs who answer to no one, but it made very good business sense.”

David Todd laughed when asked if it was a difficult decision to turn the family business into a corporate subsidiary. Todd and his father are still executives with the agency, which operates under the Sunstar banner.

“We had hundreds of hours of conversations,” Todd said. “We agreed that it was a good fit, and it has been.”

Not all the mergers and acquisitions have involved a large corporation buying up smaller agencies. Earlier this year, American Safeguard Insurance in Conway acquired TLC Insurance Group in Mountain Home.

ASI was founded in 2000 and rebranded in 2010 and has just two offices after its acquisition of TLC. ASI Managing Partner Jason Smith called his firm, which he owns with two partners, a midsize agency that was looking for a good fit to increase its resource base.

TLC was for sale after founder Christy Sven Tullgren died in April. ASI already had an office in the same town, met with Tullgren’s widow, Estella, and bought the company, keeping three employees from the small firm.

“When her husband passed away she was left with an agency she didn’t want to run or know how to run,” Smith said. “It was a great opportunity for us.”

Andrew Meadors is the CEO of Sunstar’s operations in Arkansas and Tennessee. He said many of the mergers and acquisitions taking place in the independent insurance agency world have to do with the aging of the founders.

Risk Planning

Meadors, a longtime insurance agent in the state and the son of Arkansas Insurance Hall of Fame inductee Allan Meadors, said the valuation for insurance agencies is high, and many owners are looking at their impending retirement. He said many owners are receptive to an offer that allows them to sell their ownership stake while remaining as a working agent.

“There are many agency owners who are aging now throughout America,” Meadors said. “They realize they have almost their entire net worth inside four walls, so they want to diversify their risks with their investments for their own retirement. They can come with us and stay; we actually want the agency owners to stay. They still handle their book of business as agents.

“They are still making money that way and running their shops. We are still paying fair price; there is no COVID-19 discount.”

For the independent agencies, life under a larger umbrella has its professional benefits. An independent insurance agent, in short, works as a matchmaker between clients and insurance carriers.

Large insurance carriers require agents to have a certain level of insurance premiums to qualify for services. A more stable and successful agency can increase the number of carriers an agent has access to.

David Todd said his agency can provide more competitive rates now, and if a client wants a service his agency doesn’t specifically offer, there is a good chance a Sunstar affiliate does.

“It gives you more capabilities with your customers with carriers,” Todd said. “Contracts can be difficult to get as the market gets harder and harder.”

The beauty of the Sunstar partnership, Todd said, is that Sunstar is not interested in running the agency. Meadors said it would be bad business to buy an agency and then change the way it was doing business.

“They are looking for successful entrepreneurial-driven agencies [and tell them], ‘You guys do what you do,’” Todd said. “Other than the name change, it is 95% the same as normal. We wouldn’t have done that otherwise.”

Meadors said Sunstar isn’t Gordon Gekko, the corporate raider of the 1987 film “Wall Street.”

“We tell these agency sellers that it’s not like corporate can come and be bossy on you,” Meadors said. “There’s only like five people in our corporate office in Memphis. You really still are captain of your own ship, but you have the safety of numbers. It is a big Sunstar umbrella.”

Ongoing Trend

The investment banking company MarshBerry Capital of Woodmere, Ohio, released a report on independent agency consolidation earlier this year.

The trend has been growing since 2016, when there were 443 mergers and acquisitions. That number increased to 557 in 2017, 580 in 2018 and 651 in 2019.

There have been 436 in 2020, behind the pace of 2019, but that is in part because of the pandemic. The report said that after a significant cooling in April and May — when coronavirus cases were seeing their first peak — there was a sharp increase in July.

Smith said he thinks the consolidation trend will continue.

“What is happening with these smaller agencies, the last 15 to 20 years, there is a pretty good age gap between the successful insurance agents in the state,” Smith said. “What you’re seeing now is these older agents who had successful agencies have gotten comfortable but didn’t grow. They are beginning to retire and pass away and phase out of the insurance market.”

Meadors said he has tremendous respect for the entrepreneur agents who scratch and hustle to build their agencies. Often, the easiest way to grow is through acquisitions.

“It takes a tremendous amount of money, just the money we spend on digital advertising, websites, equipment and plus our management system for multiple carriers to have a system that can host all the data,” Smith said. “These smaller agencies will continue to be gobbled up because that is the nature of the industry.”

Todd said in the discussions with his father the decision came down to how could the business grow most effectively. Joining with Sunstar has already allowed the Todds to cross-sell more services to their clients.

“It was a win-win for all of us,” Todd said.

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