Risk practices attracting a premium
Risk practices with large books of unserviced clients who have expensive or outdated policies are attracting a premium, according to Radar Results' John Birt.
Birt, who is a buyers' agent, said he recently negotiated the sale of a risk practice for just under four times recurring revenue.
"The reason it attracted that sort of pricing was because it was run down. It hadn't been fully serviced for a while, therefore there were a range of old risk policies," said Birt.
The vendor, who now has his own licence, was previously a 'tied agent' who was forced to write the majority of his policies with one insurance company, said Birt.
Since most of the clients hadn't had their policies looked at for 10 to 15 years, the buyer decided it wouldn't be a difficult task to 'shop around' their details and secure a huge reduction in their premiums, said Birt.
"Some of the policy premiums vary immensely in the industry now. If you shop around now, you can get a variation of at least 20 per cent I'd say, at least. If a whole family has insurance and they're up for $10,000, it's a saving of at least a few thousand a year," he said.
While the buyer would have the chance to cross-sell to the clients (who will be pleased with the money he had saved them), the main attraction was the opportunity to secure a lot of upfront commissions.
"And that's why our client paid close to four times recurring revenue - because he knew that he could get the money back within the next three to four years," said Birt.
Birt was quick to pre-empt cries of 'churning'.
"It's looking at the client's current situation, and doing a Statement of Advice on their situation which hasn't been serviced recently. The client might be on a higher salary now or they've changed jobs - therefore they need a higher insurance level," said Birt.
"Churning's only if you do it purposefully and there's no client benefit: if you just do it for your own benefit. I think it does go on to some extent, but not as much as the media speculates," he said.
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