Does an insurance brokerage need the insurers’ approval to sell its book of business?

A brokerage’s book of business is a set of client relationships plus the insurers that let the brokerage place and service those clients’ policies. Two groups can affect a sale: the regulator, which sets rules for the brokerage, and the insurers, whose agreements set the terms of the placement. They ask different questions, and a buyer needs the answer to both.

What the regulator asks

RIBO’s guidance on selling a brokerage says members are free to sell at any time and to anyone, and calls it a matter between the old owners and the new owners. The brokerage must still comply with the Registered Insurance Brokers Act, regulations and by-laws, and RIBO singles out two provisions: the brokerage must be trust positive at all times, and a corporate brokerage must keep its minimum capitalization. RIBO advises using legal and accounting specialists.

What the insurers can ask

Brokerages typically operate under agency agreements with the insurers whose products they place, and those agreements commonly include conditions about a change in ownership or control. Some require notice, some require consent, and some let the insurer reassess or end the relationship if the brokerage changes hands in a way it does not like.

Why it affects what the buyer is getting

Because the book rests on the ability to place and service policies with existing insurers, losing one significant insurer relationship in a poorly handled sale can reduce what the buyer thought it was buying. A buyer that sets up a new firm to take over the book also needs its own licence. RIBO says a firm must register as an active firm licensee before selling insurance in Ontario, and that applicants submit letters of intent from insurers with the application.

How buyers handle it

• Read every material agency agreement in due diligence, looking for notice, consent and termination terms.
• Contact key insurers before signing rather than after.
• Write any required insurer consent into the closing conditions of the purchase agreement.

The guide to buying an insurance brokerage covers the wider diligence list.