Insurance brokerage due diligence

An insurance brokerage has few hard assets to inspect, so diligence is almost entirely about the book, the carrier relationships and the people who service them. The findings that actually derail these deals cluster around a small number of specific issues, and a buyer who checks each one directly is in a materially stronger position than one relying on the seller’s summary of the business.

Carrier consent is the deal’s real contingency

Pull the schedule of carrier appointments and ask each material carrier, in writing, whether it will approve the change in brokerage of record — this is usually the critical path item in these deals, ahead of anything else in diligence. A carrier declining to approve the change for a meaningful share of the book is one of the more common reasons an otherwise sound deal falls apart, and it is far better to learn that during diligence than after a purchase agreement is signed.

Read contingent and profit-sharing commission agreements directly

Get the actual contingent and profit-sharing agreements with each carrier rather than a summary of the income they produced last year, and confirm whether those arrangements are tied to loss-ratio performance that could shift, to volume thresholds a smaller post-sale book might not clear, or to the current ownership structure specifically. Income that looks stable in historical financials can shrink materially if the underlying agreement does not survive a change of ownership on the same terms.

Client concentration, verified independently

Cross-check the seller’s account-level premium and commission schedule against actual policy and billing records for at least the largest accounts, rather than accepting a management summary at face value. A handful of large commercial accounts leaving at renewal can move the brokerage’s numbers more than the loss of many smaller personal-lines policies, so concentration in the top accounts deserves the same independent verification as the carrier relationships themselves.

Errors-and-omissions history, checked directly

Confirm the brokerage’s own errors-and-omissions claims history and current coverage directly, rather than accepting the seller’s description of it, since a claims history that affects the brokerage’s own insurability is exactly the kind of issue that surfaces late and expensively if it is not checked early. A brokerage’s ability to place its own liability coverage on reasonable terms going forward is itself part of what a buyer is acquiring.

Producer relationships, tested rather than assumed

Identify which producers hold the deepest client relationships, whether they are bound by any non-solicitation terms, and — where the seller allows it — get a genuine sense of their intentions around the sale. A producer who leaves shortly after closing and takes clients to a competing brokerage can undo a meaningful share of what the buyer thought they were purchasing, and this is a harder finding to price precisely than a document gap, which is exactly why it deserves direct attention. Review each producer’s compensation structure as well, since a producer paid mainly on new business rather than on renewals has less financial incentive to stay through a transition than one whose income depends on the book they already service.

Broker-management system and file quality

Beyond the individual documents, look at how the brokerage actually keeps its records — whether client and policy information lives in a shared broker-management system with a real audit trail, or scattered across individual producers’ own notes and inboxes. A brokerage that cannot produce a clean, system-generated client and policy schedule on request is telling you something about how the business would actually run under new ownership, independent of what the financial statements show.

What a finding actually means

Not every finding is a reason to walk away — a carrier that wants more information before approving the change, or a contingent-commission arrangement that needs renegotiating, is common and can often be addressed through a price adjustment, an earn-out or a holdback rather than treated as disqualifying. In Ontario, RIBO’s own regulations on sale and perpetuation of a brokerage set out how a change of ownership is expected to be handled; the applicable regulator differs elsewhere, but the underlying carrier-consent mechanic is common across the industry. What matters is that each finding gets identified and dealt with explicitly in the purchase agreement, rather than discovered for the first time after closing, when the buyer has far less leverage to do anything about it.

• Written confirmation from each material carrier on approval of the brokerage-of-record change
• Actual contingent and profit-sharing commission agreements, not a summary of the income they produced
• Direct confirmation of errors-and-omissions claims history and current coverage
• Producer employment terms, non-solicitation coverage and a genuine read on retention intentions
• A plan for how each finding gets addressed in the purchase agreement rather than assumed away