The Oregon Agent, Fall 2015

THE

Official Publication of the Independent Insurance Agents and Brokers of Oregon

2015 IIABO Convention Photo Recap No, You Didn’t Lose Your Largest Account Because of Price A Word About S-Corporation/LLC Status Beware of the Top Seven Be Agency Myths

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The Oregon Agent • Fall 2015

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FALL 2015

INSIDE THIS ISSUE: Page 10 IIABO Office 5550 SW Macadam Suite 305 Portland, OR 97239 Phone: 503-274-4000 Fax: 503-274-0062 Toll Free: 866-774-4226

Page 19

IIABO Staff Directory Executive Vice President Jim Perucca jimp@insureoregon.org

Page 22

Page 16

Sr. Vice President Marketing & Communications Barb Demings barbd@insureoregon.org Vice President Education & Finance Tyra Dressel tyra@insureoregon.org

Page 26

Asst. Vice President Agency Products & Services Abby Kahl abbyk@insureoregon.org IIABO Lobbyist Roger Beyer roger@rwbeyer.com

6

Letter from the President, Trish Fulwiler

8

IIABO 2015 - 2016 Leadership

10 No, You Didn’t Lose Your Largest Account Because of Price 14 2015 IIABO Convention Photo Recap

For more information on advertising, contact Jim Aitkins Blue Water Publishers 22727 - 161st Avenue SE Monroe, WA 98272 360-805-6474 fax: 360-805-6475 jima@bluewaterpublishers.com

16 A Word About S-Corporation/LLC Status 18 E&O Risk Management Course: Meeting the Challenge of Change

The Oregon Agent is the official magazine of the Independent Insurance Agents and Brokers of Oregon and is published four times yearly. IIABO does not necessarily endorse any of the companies advertising in this publication or the views of its writers.

19 Coverage Checklists Improve Customer Service, Sales 22 Beware of The Top Seven Agency Myths 26 The Battle Begins: Google Compare Auto Insurance Launches in CA 29 Potential E&O Claim: Should I Report it to My E&O Carrier?

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FROM THE PRESIDENT

Trish Fulwiler

T

hank you for the opportunity to serve as your president. It was a real honor to take office at the 87th Annual Convention at our new and exciting venue—the Eagle Crest Resort.

I want to thank Liberty Northwest and Safeco for being our “Title Sponsors”, and I also want to thank all the other sponsors and exhibitors who help make the convention a success. Our goal is to show agents, vendors and companies that there is real “value” in attending an IIABO event.

This year the presentations by John Chapin were something special. Agents came away with specific things they could do to improve customer communications and increase sales.

Looking forward, we have John Mitchell, PhD scheduled for our Annual Forecast Breakfast, January 7, 2016 and you won’t want to miss our special program at the MidWinter Education Symposium, March 3-4th, 2016 at the Inn at Span-

ish Head, Lincoln City, Oregon. The MidWinter brings 12 hours of quality OR/WA CE and an opportunity for a great getaway to the Oregon Coast.

Our focus as an association is to help members become better producers, managers and owners. We want to help agents both as insurance professionals and as owners of small businesses.

We are a strong voice for you, both in Salem and in Washington DC. Whether it is health care delivery, taxation or tort reform, our lobbyists are there speaking out for independent agents.

Please consider getting more involved in the IIABO. If you want to talk about membership or how you can become a bigger part of the association, call me on my direct line at J. D. Fulwiler, 503-977-5623.

Thanks again for the privilege of serving as the president of this great organization.

Trish Fulwiler, President IIABO J.D. Fulwiler & Company

Your association staff: Executive VP Sr. Vice President Vice President Asst. Vice President Toll Free Numbers: 6

The Oregon Agent • Fall 2015

Jim Perucca Barb Demings Tyra Dressel Abby Kahl

1-866-77-IIABO or 1-866-774-4226

503-274-0583 503-274-4000 ext. 26 503-274-4000 ext. 31 503-274-4000 ext. 23

jimp@insureoregon.org barbd@insureoregon.org tyra@insureoregon.org abbyk@insureoregon.org

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2015 - 2016 IIABO LEADERSHIP The IIABO Board of Directors is a diverse group of insurance professionals representing the varied interests of agents throughout the State of Oregon. We would like you to learn more about these volunteer leaders and the years of experience they bring to the association.

Trish Fulwiler President, IIABO President, J.D. Fulwiler & Co. Portland, Oregon - 24 years

Kay Hunkapillar President Elect, IIABO President, Wheatland Ins. Ctr., Inc. Pendleton, Oregon - 46 years

Brett Slater Vice President Chief Operating Officer, Slater & Assoc. Insurance, Inc. Tualatin, Oregon - 26 years

Ed Davis Past President, IIABO Maps Insurance Services Salem, Oregon - 49 years

TJ Sullivan Legislative Chair, IIABO Huggins Insurance Services Salem, Oregon - 18 years

Keith Blackerby Finance Chair, IIABO Chief Operating Officer, Bisnett Insurance Offices throughout Oregon - 28 years

Mark Atkinson Board Member President, Atkinson Insurance Group Portland, Oregon - 25 years

Steve Fitzwalter Board Member President, Rogers, Fitzwalter & Powell Portland, Oregon - 40 years

Brian Wilbur National Director, IIABO Owner, Pacific Insurance Partners Forest Grove, Oregon - 21 years 8

The Oregon Agent • Fall 2015

Debbie Flores Board Member KPD Insurance, Inc. Springfield, OR - 29 years

Gary Githens Board Member Data Breach Specialist Brown & Brown NW Bend/Portland, Oregon - 35 years

Greg Horner Board Member Commercial Lines Producer, Insurance Partners, LLC Portland, Oregon - 20 years

Joe Hubbard Board Member Managing Partner, The Protectors Insurance Medford, Oregon - 31 years

Marty Kantola Board Member Owner, Chet Hill Insurance Portland, Oregon - 30 years

Debbie Krambeal Board Member President, CAL/OR Insurance Specialists, Inc. Brookings, Oregon - 32 years

Matthew Pidcock Board Member Co-Owner, Valley Insurance LaGrande, Oregon - 17 years

Steve Smelley Board Member Chief Operations Officer, PayneWest Insurance Beaverton, Oregon - 25 years

John Timm Board Member President, Timmco Insurance, Inc. Portland, Oregon - 39 years

Adam Harris Board Member Vice President, LaPorte & Associates, Inc. Portland, Oregon - 18 years

Insurance carriers and service providers do not serve on the IIABO board of directors, but support the association as Associate Members, Sponsors and Exhibitors. If you want to learn more about the IIABO, or if you would like to get involved, please contact any of these individuals. If you are not a member, please email Jim Perucca, jimp@ insureoregon.org for information on membership.

Fall 2015 • The Oregon Agent

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No, You Didn’t Lose your Largest Account Because of Price

By John Chapin

If you truly believe people buy on price, you don’t have a price problem, you have a mindset and a sales problem.

10

The Oregon Agent • Fall 2015

T

his past week an insurance agency called me for help because they just lost their largest account that they’ve had for the past 24 years. When I asked how that happened, the clear, confident response was, “Price!” The only piece of good news I could glean from this initial exchange was that my gag reflex is working perfectly.

If you think you lost your great, long-term customer based upon price…

First, understand that people don’t change for the sake of changing… …especially if they’ve been with you for a substantial amount of time. The only way a long-term customer will change is if they see significant pain to staying with you coupled with significant benefit to moving. You blew it somewhere. Somewhere you dropped the ball related to the relationship, value, or both.

Possible solution: You have to get into that account and do anything to save it. In the process, find out why you lost it and start to correct the problem in the accounts you still have left.

Second, understand that if someone’s price is significantly better than yours, there’s a reason that you’d better make clear to the customer because they are in danger.

There is simply no way someone can deliver a superior product, superior service, and a much lower price. If someone is 33% cheaper (use this word when referring to the competition) than you, as was the case with the insurance company, you are selling apples and they are selling oranges. There are holes in the policy that can hurt them.

Possible solution: You need to get in there and scare the Bejesus out of them. You have to raise doubt that they are getting what they expected. For example, with an insurance policy, you have to show them where the possible holes are and where they might be exposed.

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Note: The above assumes you still have a strong enough relationship and they still like and trust you. If they trust (believe) you, and like you (aren’t changing out or spite), you can raise that shadow of a doubt and that is your objective here.

Third, you didn’t lose this customer overnight. It’s probably been over a series of years.

Solution: You need to make some changes, most likely significant ones, to how you deliver value and build long-term relationships.

How to Eliminate your “Price” Problem Step 1: Accept that only about 7% of people buy primarily on price.

Until you accept this fact, you’ll never be able to overcome the price problem. And no, your market isn’t different and the people you’re dealing with aren’t different. This is another excuse I hear weekly and in each and every case I’ve ever encountered, the top performing companies and salespeople are always selling more expensive products to the people who supposedly buy on price.

Think about it. How many things do you buy solely on the fact that they are the lowest price? Do you buy your fiancé the cheapest diamond? Do you send your kids to the cheapest schools? Do you invest in the cheapest cancer treatment for your loved one? These are extreme examples but they highlight the point that if you’re like most people, the lowest price scares you. Dad was right, “you get what you pay for.”

If you truly believe people buy on price, you don’t have a price problem, you have a mindset and a sales problem. “Price” is simply an easy, throw-away excuse to justify hanging out in your comfort zone and being mediocre while simultaneously avoiding the hard work and pain necessary for salvation. There’s pain in letting go of an old belief. The amount of work it takes to build sales skills, adjust mindset, and admit you’re wrong, is immense and the reality is: most people won’t do it. They will simply hide behind the price excuse and whine that their situation is different.

It isn’t. And the faster you accept that reality, the faster you’ll begin to turn things around.

Step 2: Realize that selling on price is the surest way to go out of business.

There can only be one low-price provider. If you are it today, you won’t be it tomorrow or when your customer is shopping the next time. There will always be someone willing to sell something cheaper and, in some cases, even give it away. Low price cheapens the marketplace and destroys loyalty, trust, credibility, and relationships. Competing on price will ensure both you and your business live a shorter, more painful life.

Solution: Get great at building relationships and value. This is going to take some work, but it will be worth it. Look, is price 12

The Oregon Agent • Fall 2015

important? Yes. Is it the most important? In 93% of the cases no.

It’s funny that any time the subject of relationships comes up and I ask how important they are in the overall sales and business process, I usually get the answer that they are the most important part. When I later ask the same person why they didn’t get the business, they say “price.”

At the end of the day, whatever you believe to be true, will be true. While I can show you over and over again study after study that show that only 7% of people buy primarily on price, you won’t believe what you see, you’ll see what you believe. As we all know, the first sale is to yourself. If you don’t believe in your product and the price you’re asking for it, you either need to find that belief or leave your company and go work for the low-cost provider. Either way, if you’re going to survive long-term, feel good about yourself, and ultimately thrive in the market place, you have to let go of the price excuse and learn to sell value and relationships.

John Chapin is a sales and motivational speaker and trainer. For his free newsletter, or if you would like him to speak at your next event, go to: www.completeselling.com John has over 27 years of sales experience as a number one sales rep and is the author of the 2010 sales book of the year: Sales Encyclopedia. For permission to reprint, e-mail: johnchapin@completeselling.com.

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IIABO 87th Annual Convention & Trade Show

PHOTO RECAP

Monday Banquet

Board and Past Presidents’ Dinner

Sunday “Eaglefest” 14

The Oregon Agent • Fall 2015

Exhibit Hall

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Fall 2015 • The Oregon Agent

15

A Word About

S-Corporation/LLC Status

By Chris Burand

I

find many agency owners have firm opinions regarding the importance of S-Corporations and LLC’s. These opinions are not always fully informed. Making the situation worse, their advisors and particularly their accountants are not always fully informed. The accountants continue to make the assumption that all businesses are the same relative to whether S-Corporations, C-Corporations, or LLC’s are best. They are particularly not informed regarding cash flows that cause them to make generic recommendations. Here are points every agency owner should consider when choosing their business type:

TAXES Taxes affect each agency differently for many reasons.

Therefore, no universal answer exists.

Here are a few generic characteristics: • C-Corporations o Possibly lower income taxes. o Probably, but not necessarily, higher taxes when agency is sold. It depends on how the agency is sold.

• S-Corporation o Likely lower taxes, though not always, when agency is sold. Again, it depends on how the agency is sold. o Possibly lower income taxes.

• LLC o It depends somewhat on the state (no federal LLC statute exists so each state is slightly different). o It also depends partially on the type of LLC as several different forms exist.

Taxes Upon an Asset Sale • C-Corporations: o Taxed twice if the sale is not carefully designed. o The first tax is a corporate tax. o The second tax is a dividend tax or long-term gain as a liquidation distribution.

• S- Corporation o Taxed once.

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The Oregon Agent • Fall 2015

o Ordinary tax rate on 1245 assets (computers, equipment, previously purchased books of business) or capital gains on self-created assets.

Taxes Upon a Stock Sale • C-Corporations: o Taxed once. o Capital gains tax.

• S-Corporation o Taxed once. o Capital gains tax.

Most agency sales to outside third parties are asset sales. I’ve reviewed the publicly traded brokers’ 10K’s for the last five years and approximately 99% of their acquisitions have been asset purchases. However, the vast majority of internal perpetuation sales are stock sales.

I see agencies being encouraged to switch to an S-Corp to avoid the double taxation upon sale when the only sale that will occur is a stock sale. I get the impression the accountants never even ask the question.

S-Corp Disadvantages Inadequately Considered by Many Attorneys and CPAs 1. All stock is equal. It all has to be common.

2. It is possible in some situations to create voting versus nonvoting but this requires care and is not always applicable.

Doing so in the right situation is the right solution but doing this when the situation is not exactly correct may have serious implications.

3. Everyone gets the same distribution as a percentage. This not only enables but it often contributes to poor performance of shareholders who make too much from distributions.

Here is an example of CPA’s not understanding agencies

but giving generic advice. Maybe an S-conversion does save taxes but an underperforming owner who is enriched by large distributions WILL DAMAGE the agency’s value. An agency might realistically go from $1 million in revenue and $1.5 million in value to $800,000 in revenue and $1 million in value.

I have seen it happen many times. The truth is the agency will save a lot in taxes because the value will be so much less. These kinds of decision should NEVER be made in a silo.

4. I can design plans that get around this problem. However, if the agency is a C-Corp and wants to switch to an S-Corp, consider this very serious risk first. It is easier to design plans within a C-Corp that avoid this situation.

S-Corp Disadvantages Inadequately Considered by Many Attorneys and CPAs Specific to Agencies Outsiders do not understand trust monies. Every state is a trust state (that is a fact you can look up at the National Association of Insurance Commissioners’ website). The myth within the industry is that only a handful of states are trust states. Reality is that only a handful of states forbid commingling of funds which is entirely different.

Because all states are trust states, all the cash agencies have at year-end cannot be legally distributed because some of that cash is likely trust money. That means an S-Corp can actually cause financial damage to shareholders.

This happens when the agency has more income than cash.

The shareholders have to pay taxes on the income regardless of whether the agency distributed the cash with which to pay those taxes. Legally, the agency likely cannot use the trust monies, even as a “temporary” solution. The idea that taxes are less because the corporation does not pay a tax becomes rather pointless in these situations. Paying taxes without cash is far more punishing than paying an “extra” C-Corp tax by many magnitudes.

Right Solution Every situation is unique so no generic “right” solution exists. Lots of wrong solutions occur though and most are initiated by professionals giving advice that do not understand the facts and environment.

Discover the right solution for your situation by first analyzing the entire situation laying all the facts on the table. If you need to hire someone that knows the insurance industry to educate your attorney and CPA, absolutely do so. Their fee, at least relative to what I charge, is peanuts compared to cost of making the wrong decision.

Chris Burand is president of Burand & Associates, LLC, an insurance agency consulting firm. Readers may contact Chris at (719) 485-3868 or by e-mail at chris@burand-associates.com.

NOTE: None of the materials in this article should be construed as offering legal advice, and the specific advice of legal counsel is recommended before acting on any matter discussed in this article.

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Fall 2015 • The Oregon Agent

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The Oregon Agent • Fall 2015

By Chris Amrhein

Coverage Checklists Improve Customer Service, Sales

I

t’s April! Spring has sprung, the smell of fresh flowers wafts through newly opened windows, and every baseball fan’s team still has a shot at the pennant. Perhaps the latter is the true origin of “April Fools?”

Ah, if only all fools were merely captives of sports daydreams.

Unfortunately, it appears there are far more fools than suspected lurking within our own industry.

Those of whom I speak were revealed by recent articles and presentations from my friend and agency consultant extraordinaire Chris Burand. As one example, Chris wrote the following in his December 2014 Burand’s Insurance Agency Adviser newsletter, in response to the outpouring of agent derision following Google’s announcement that it was establishing an insurance quoting site: “The fact is these opinions [agent pushback against Google] are hypocritical because while agents can definitely offer crucial and important education to consumers, in both personal lines and commercial clients, they too often choose to not offer any education, any coverage reviews, nor even review the insureds’ true coverage needs. I have been visiting agencies for 25 years and I have been doing E&O audits for approximately 20 years. My experience is 90%+ of agencies do not use coverage checklists of any kind on a consistent basis.”

I freely admit that 90% is a stunner. E&O claims analysis has shown conclusively that the regular application of coverage checklists is a key driver of better coverage recommendations, higher sales, increased revenues and lower E&O exposure for the agency. What’s not to like? And yet other E&O auditors will tell you that Chris is right on the money.

How ironic. The vast majority of consumers want what agents have to offer. The vast majority of agents aren’t delivering it.

Fools.

The fields of insurance, particularly in property & casualty (P&C), are not lying bleak and frozen under winter winds, but literally as white unto harvest as nature in the fullness of spring.

Consumers want advice and counsel Endlessly we are assaulted with Albert Einstein’s famous definition of insanity: “Doing the same thing over and over again and expecting different results.” Permit me to suggest an applicable quote for these “90 percenters”: “Insanity is doing nothing and expecting results.” Specifically, it’s expecting that consumers will continue to seek out the trusted advice and counsel of agents who provide neither.

The truly sad aspect of this is the simple truth that I attempt to illustrate in these articles every month: The fields of insurance, particularly in property & casualty (P&C), are not lying bleak and frozen under winter winds, but literally as white unto harvest as nature in the fullness of spring.

Just take a moment to consider the use of a checklist. Properly included within a fact-finding interview, proposal or policy renewal review, using a list takes no great additional time—in fact, I’d argue that it actually makes the time you do spend with the client or prospect more focused and better utilized. Even if it does take a bit longer, what part of better coverage recommendations, higher sales, increased revenues (plus dare I say increased commissions?) and lower E&O exposure isn’t worth a few seconds of extra effort?

Create a checklist for your customer If your hang-up is a specific checklist you hate, find another. ANY checklist is better than none. Or heck, create your own!

For example, perhaps a list that consists totally of forms, endorsement or coverage names strikes you as confirmation of Fall 2015 • The Oregon Agent

19

all the “dry insurance stuff” so many believe is typical of “boring” P&C. But instead of ignoring all those potential benefits, why not try another approach?

Many years ago my good friend Mike Edwards and I teamed on a multi-week tour of Florida to teach agents the wonders of the newly minted ISO HO-84 program. One of the highlights was teaching from a comprehensive text of coverage analysis, claims examples, and court case references created by one of the truly brilliant insurance gurus of this industry’s history, Bob Smith (perhaps better known to many of you as the inventor of the Rapid Rater). When writing the chapter about perils, the natural point arose to explain the advantages of what was then referred to as “all risk” versus “named peril;” specifically in that day, why the HO-3 over the then more popular HO-2; and why the HO-5 instead of the HO-2 or 3? The additional premium was often significant. The traditional approach, favored by nearly every article or textbook, was classic insurance: here are the exclusions. Overlooked was what seemed to be the obvious question for many agents, if not every consumer even to this day: I see what you don’t want to cover; what’s left?

Bob decided that question was worth an answer, particularly in answering another key question: What makes this “all risks” worth the higher cost?

This approach was not totally unknown. Here are two “covered by all risk, not covered by named-peril” examples regularly cited by insurance publications and textbooks of the day: • A wounded deer crashed through a living room window and bled all over the carpeting.

•

Here’s a suggestion: Follow Bob’s lead and create your own checklists—or modify others — to identify the specific realities of your applicable prospects and clients. Do you need ideas? Convene an office meeting and swap common consumer questions and claims. Peruse my past articles and others from NU for coverage stories, claims examples or just to trigger your own ideas. With apologies to a popular movie hero of that year, Mr. Miyagi (The Karate Kid, 1984): 1. Close eyes; picture real-life examples of coverage needs.

2. Open eyes; make checklist.

3. Use checklist.

Make this April the month you seize the checklist. Profit from the opportunity of that 90%’s failure by providing your targeted prospects and clients with real knowledge, counsel and trusted advice.

And for those 90 percenters? Permit me to honor the spirit of April, and the remembrance of 1984, by giving the last word to then-monster rockers Def Leppard: You better stop “F-f-f-fooling.”

A circus elephant escaped from a train and trampled buildings and property.

A Daytona Beach client spoke for multitudes when he responded to the first with an exaggerated eye-roll: “Oh, yeah, happens around here all the time.” His response to the second was simply to look at me blankly, then quietly but firmly suggest I cut the “nonsense” (not his word) and renew his HO-2.

Smith, understanding that for the list to have value it must include things that really happen to everyday folks, came up with a plethora of such events. Here are just a few of his examples: • Ruptured waterbeds. Such beds were extremely popular back then, and no, we weren’t going to ask what they were doing when it ruptured.

20

the exterior first. Have you ever worked in an attic and stepped “just a bit too far or shy” of the rafter? “Honest, I was reaching for the air conditioner and next thing I know I was sitting on a broken table in the living room.”

•

Leaking or ruptured fish tanks. And not just the fiveand 10-gallon hobby tanks; 50- and 100-gallon indoor aquariums popular in dentists’ offices anyone?

•

Overflowing toilets, particularly when due to a child attempting to flush his new toy submarine—you get the picture.

•

Damage done by kids. Think about “artwork” on the walls; chemistry experiments; “fun with pets.”

•

The weight of objects, or falling objects that didn’t damage

The Oregon Agent • Fall 2015

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Fall 2015 • The Oregon Agent

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Beware of The Top Seven Agency Myths

By Roger Sitkins

I

f you hear the same things often enough, repetition becomes reality. And through the years in our industry, certain ideas have been repeated so often that they’ve become widely accepted as the truth when in fact, they’re nothing more than myths. As a result, many people in the agency business have made some very serious mistakes caused by believing in these myths.

Here’s my list of the top seven myths to avoid.

Myth #1: Every Account is a Great Account Most think that every account is a great account, which simply is not true. This is especially true with you newer producers, who tend to confuse activity with results. In their minds, anyone who can fog a mirror and pay in U.S. dollars is a great account.

These are normally order-taking accounts. Typically, the prospect will call for an insurance quote after seeing an ad or will click to receive a “Free Quote” through the agency’s web site.

So the producer follows up and provides a quotation and winds up taking an order on about 2 out of 10 opportunities. They sell just one policy that the prospect had requested, with the plan to round them out someday. The problem is, that day never comes.

If it did, we’d certainly have a smaller percentage of single-policy accounts. But the reality is that more than 50% of personal lines and small commercial lines are single-policy accounts. You wind up with low revenue per customer and lower retention. No wonder the average agency loses money on 80% of their customers!

I’m a firm believer that you have to know your numbers. You may recall my comments in past articles about “Knowing versus Guessing”. It’s important to complete a profit-center analysis on your various types of clients. For example, if all you had were personal lines, what would be your income and expenses? Most agencies — not all, but most — will lose money on the vast majority of their customers because they don’t even take a look at it, they don’t “know”.

Myth #2: Hire People with Insurance Experience When most agencies have an opening, because they say they don’t 22

The Oregon Agent • Fall 2015

have time to train, or any New Employee On-Boarding process, they look to hire people from inside our industry. Typically, they want service people who are already licensed and producers with experience at another agency. But when you go that route, in most cases, all you’re really doing is hiring a bunch of baggage!

If someone is going to move to your agency, you should be questioning why. Assuming they’re not working for a terrible agency, you have to wonder why they’re leaving their current employer if they’re really that good.

I remember one of the early interviews I conducted as an agency owner in Michigan. The prospective employee was working for a reputable competitor in town and had applied for a personal lines CSR position with us. Naturally, I asked her why she wanted to change jobs. Her reply: “ If I can make a few bucks more per hour, that would be great! I’ll move.” Wrong answer!

What happens next year when someone else offers her a few dollars an hour more?

I mentioned above the importance of knowing vs. guessing your numbers. It’s equally important to know your people, both existing and future employees.

Hire Attitude and Aptitude. I believe in hiring attitude and aptitude first. I also believe in hiring to match your overall agency culture. If we can hire great people and train them, we’re better off. OK, I realize that it’s not that easy, but you can always teach insurance.

With producers, look for sales talent first. You can always teach them insurance. In fact, at one point, everyone reading this article knew nothing about insurance! You’re not born with innate knowledge of the insurance business — you have to learn it! My two grandsons will attest to that — once they learn how to talk (they’re only two weeks old). Right now they know nothing about insurance. And at some point in their life, even the most successful producers in the industry didn’t, either.

Similarly, seek out service people with the qualities that can’t be taught. Look for customer service people with empathy; those who truly enjoy helping people and have a “customer-first”

attitude. Don’t hire someone who’s rude just because they know insurance.

Get Profiling Assistance. Work with a profiling firm such as Omnia. Profiles can help you take a closer look at people so that you’ll know what you’re getting. What’s interesting about this service is they ask nothing about insurance, yet they can tell you very clearly what it takes to be successful in this business.

Their profiles tell you how the candidates’ characteristics match up against the traits needed to be successful at a specific job.

It’s really remarkable how accurate profiles can be, so if you are working with a reputable profiler, listen to them. If they advise you not to hire a certain candidate, believe them. No matter how much you like that prospective employee; it’s never a good idea to hire against the profiler’s recommendation.

Myth #3: You Can’t Have Too Many Insurance Carriers Are you proud that your agency represents so many companies?

If so, you’re not alone. I’m amazed at the number of carriers the average agency has. But what’s even more amazing is when they figure out how many they have! In reviewing their “insurance company accounts payable,” most agencies are shocked to see how many carriers are listed. Sometimes, when looking at all companies and E&S Brokers, it’s in excess 75.

Often, agencies will take a contract with one company or one E&S lines broker for one piece of business.

We always talk about the 80/20 Rule, but were you aware that it applies to your carriers also? Basically, 80% of your premium volume is written with 20% of the carriers that you represent. Take a look at your own book if you don’t believe me.

Today more than ever, you need relationships and clout with your carriers. That way, you’re more apt to get their cooperation when you need help with a client who is high-risk or hard to place. Chances are you won’t enjoy that benefit if you’re trying to “spread the wealth”.

First, you’ve got to know your numbers. You may not agree with the 80/20, but go ahead and find out if it applies to you.

Just look at all the carriers that make up the bottom 80% and ask yourself: “Why do we have this carrier? Who else could take this premium volume? Who could we take this premium volume to, continue to do a great job for the client but more importantly, be negotiating better deals because we have the clout to do so,” etc.

Currently, there are a few major companies that allow the business that you place with E&S business lines to count towards your premium volume requirements on your contingency income contract because they own the E&S business also.

Myth #4: 90% Retention is Great Everyone thinks this is such a great business because 90% of your customers stay with you. As wonderful as that sounds, here’s another area where you have to know your numbers. For example, let’s say that you have 1,000 customers and a 90% retention.

Here’s how that would play out over a five-year period.

Year 1: 1,000 clients Year 2: 900 Clients Year 3: 810 Clients Year 4: 730 Clients Year 5: 660 Clients Basically, in four renewal cycles, you’ve lost one-third of your business! And when you look at it that way, if you’re not growing by 33% every four years, you’re going backwards. So the fact is, 90% retention is terrible.

There are several keys to retaining clients, starting with taking a hard look at writing full-time clients only (for the 10 millionth time). Also, you should have formal relationship management programs in place for your A&B customers and do stewardship reports for them, as well. Finally, if you’re really serious about retention, then you won’t start treating every customer like a VIP customer?

Myth #5: We Can’t Compete with GEICO and Progressive GEICO & Progressive each spend $1 billion a year on advertising.

When was the last time you watched TV and didn’t see a gecko or Flo? Geico’s gimmick has been that customers who spend 15 minutes can save 15% on their insurance. Now Esurance is saying

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Fall 2015 • The Oregon Agent

23

that 15 minutes is too long! They claim they can save you just as much on your insurance in half the time — just 7.5 minutes. You really can’t compete with that (and I hope that you don’t want to) because it’s strictly a commodity-based business! However, you can compete — and you will win — if you decide that you want a relationship-based business and everybody is a VIP. A couple of questions to ponder: Have you ever been the lowest price and not won the account? Have you ever been a higher price on a renewal but you still kept the account? That should tell you that relationships are important, and it’s not always about price.

Granted, some buyers only care about price. But again, those are the commodity buyers that will leave you for $100 a year.

Since you can’t build a career or an agency around them, let them go — you’re not making money on them anyway!

not, they do none of the above, which understandably doesn’t sit well with most prospective customers. After all, if they can’t follow up there, I’d hate to see how they service their accounts.

Social media is another arena to approach with caution. Be especially careful about what you and your employees post on Facebook. If you don’t want your customers to see it, don’t post it. For instance, if you’re asking customers to “like” your page, don’t be posting wild and crazy party pictures on it. And speaking of pictures, if you’re part of an online professional networking group such as Linked In, make sure that your profile photo looks professional. I’m often invited to connect with other professionals and am frequently surprised by the poor quality and casual, “afterhours” look of some of the photos. Do you really think that a photo of you partying on a boat projects the appropriate professional image?

Myth #6: You Can’t Earn a 25% Operating Profit People are constantly refuting the idea that it’s possible to earn a 25% operating profit, but the truth is, yes you can! How? (And here comes the big trick) You simply can’t spend more than 75%!

Seriously, I could earn a 25% operating profit if I truly managed to a financial model designed with that in mind. In that case, the bottom line would become the top line and you would live by the 25-50-25 Financial Model (a 25% operating profit; 50% service and administrative expenses, and 25% on sales expenses).

What’s your Financial Model? At some point, you have to draw a line in the sand and commit to earning a 25% profit.

Make it a defining moment!

The Bottom Line Obviously, myths abound in our business and these are just a handful of the most prevalent. It’s your job to avoid them. Don’t make them the future of your agency. Prove them wrong! Or you can ignore what you’ve just read, continue buying into them and watch what happens. It’s your choice.

Myth #7: A Website and Social Media Will Solve All of Our Problems I can’t believe how many agencies will spend $50,000 on a website and expect the public to knock their doors down.

Apparently, their theory is “Build it and they will come.” But after seeing some of these sites, I wonder how much time (if any) the agency owners actually spend on them. Some of the sites are atrocious.

What’s worse is the owners are often oblivious to what’s on them. They don’t visit them and don’t realize that their website is their brand, that they need to protect. Instead, they’re using their website for automated practice quoting: “Click Here for a No-Obligation, Free Quote.”

While that may seem like a great way to get leads, those leads are only as good as the follow-up. Usually, agencies respond to automated inquiries either with an automated online reply or a phone call, or in rare cases, both. But more often than 24

The Oregon Agent • Fall 2015

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The

BATTLE Begins:

Google Compare Auto Insurance Launches in California

By Marty Agather, Senior Vice President Client Development, Consumer Agent Portal Trustedchoice.com

G

oogle announced recently that their Google Compare Auto Insurance site is now live in California. If you run through their site, you will see that it is very well-designed, and straightforward to use. They are quoting 14 different carriers.

Google offers the shopper the option of either filling the data in, or having Google retrieve the data for them. Although I didn’t take this option, Google will pull data from public information sources such as LexisNexis, or perhaps resources they’ve been building in the background.

In my test, I received seven quotes, and seven carriers chose not to provide a quote. I don’t blame those who didn’t return quotes. I wouldn’t quote me either.

Could Google’s End Game Be Walmart?

The steps taken today are Google’s lowest cost method of entry into the market. They are providing a comparative rating tool, and then allowing the carriers either to bind online, or to direct the consumer to one of their agents for binding and policy issuance.

26

The Oregon Agent • Fall 2015

An intermediate step would be to own and staff an agency.

In this way, they would control the process more fully, and they’d get better business intelligence as well. They would know what business closed and what didn’t. However, their ultimate goal is probably much bigger.

Google’s research finds that consumers want quotes from two or more insurers. Very quickly, Google will have enough traffic and brand awareness from insurance shoppers that they can start to require players on their platform to participate in specific ways. Walmart did the same thing back in 2003.

In 2003, Walmart announced new requirements to vendors who wanted to sell product in their stores. The most forward thinking of those was to require RFID tracking tags in each item. The tag tells electronic readers the product SKU, description and the name of each specific item.

RFID tracking tags allow Walmart unprecedented inventory control and data. They know when product arrives, where it is stored, and when it is sold. Twelve years later, all large retailers are using RFID for inventory control. Walmart played the long game, and revolutionized the retail industry.

• Identify distance to re hydrants and stations • DIC cross selling opportunities with geographic overlays & risk mapping • Connrm risk data from your desk with tools to measure distance, area & elevation • View current or historic re data with up to date wilddre mapping

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Onon “target” (preferred) have bars beenin Alaska, Oregon,consistently Washingtonable and,tomore recently, in Colorado.

We've written over 10,000 policies and $50 beat expiring pricing by 20% and more and our bind-to-quote ratioover is more million inthan premium 70%. in this class of business.

We’re stable. We’ve been with the same carrier for over 10 years and our loss and loss expense ratio is the–six priorfor to submitting this advertisement, we have only lost two renewals and right at In 40% so weeks we’re here the long haul. our written premium versus the same period in 2009 has more than doubled. Our application We have great rates. Because we have been so profitable, we haven’t been forced to take the big rate flow is up more than five-fold. Most accounts are quoted within 4 to 48 hours. increases that have plagued our competition.

We haveOur a strong form.

Wenon-admitted are usually silent on policy Assaultform & Battery on the we offer several carrierpolicy is rated A- IX, and our is strong.

ThisCGL is a and package policy other coverage advantages over our competition. that includes Property, General Liability and Liquor Liability. We have a Property broadening dohave not exclude Medical Payments.

Battery is of usually included We are endorsement. growing rapidly.WeWe a very high “hit ratio” and, inAssault the first&six months the year, our written without limitation or sublimit on target accounts.

We offer Food Borne Illness coverage with premium is up almost 40% over last year. We do rushes. sublimit. Our commission level is generally much higher than our competition’s.

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27

How might Google implement a similar approach? How about if they said to any insurance company that wanted to quote on their platform: “You can’t ask any of your carrier unique questions. And you can only use the Google agency to bind and service the accounts.”

Sure, insurance companies could refuse to participate using the new rules. Let’s talk turkey: Too many insurance companies are too competitive. Somebody will be first, and then the rush to play will be on.

Could Google Become an Insurance Carrier?

The revolutionary approach is to completely rewrite the way insurance is transacted. Google has access to so much data that they can effectively underwrite almost every individual according to their individual risk profile.

How? That amazing computer you carry around with you in your hip pocket or purse: Your cell phone. GPS and Google maps, put together, make for a very insightful look at your behavior.

• Google knows when you are on the road, how fast you are going, and what the speed limit is on the road upon which you are driving.

• •

Google knows when you are in the bar or restaurant, when you are at the mall shopping.

Google knows when you are at home.

And isn’t insight into behavior what underwriting is all about?

How about pricing? No need for telematic devices when you’ve got ‘The Google’ in your pocket. They could price by when and where you drive. How frequently your car is in a different territory overnight or by miles driven.

So let’s say that Google decided that it wanted to start an insurance company. You think that they couldn’t find the cash to fulfill surplus requirements? How about senior executives that have carrier experience? Cash and staffing aren’t going to be a problem for Google. When they started their assault on search, they hired the best minds in computer science and half a dozen other disciplines.

The truth is, the barriers to starting an insurance company are pretty low, particularly to an organization with Google’s scale and appetite. They recently announced that they partnered with Fidelity in a BILLION dollar investment in Elon Musk’s Space X. I’m not smart enough to know what they are thinking there, but anybody who is playing in the space game is definitely thinking big.

Long Story Short Today’s announcement is the first step in Google’s insurance foray. The next step will be expanding to additional states. Of course, there are no guarantees that they will be successful, 28

The Oregon Agent • Fall 2015

but the opportunity to capture a significant portion of the auto insurance market is attractive. If they can generate cash by facilitating the placement of insurance by others, isn’t getting a bigger slice of control and the revenue something they would be interested in?

Who is most at risk right now?

TrustedChoice.com’s job just got harder, and conceivably more expensive. Google can attract lots of eyeballs, and they are directly competing with anyone who is in the internet insurance shopping business. Other lead aggregators are probably in a more difficult position.

Good customer-focused independent agencies should be impacted the least in the short run. Captive agents don’t have an option, and if one or more captive agency companies decide that selling direct via Google is the right direction, some of that business will come at the expense of their agency forces.

Thirty years ago, Progressive turned the market upside down by taking business nobody wanted, and using better information to underwrite it profitably. If I was running Google Compare, I’d work very hard to replicate their success. There is quite a bit of money waiting for the company or companies that can do it again.

TrustedChoice.com Can Help For independent insurance agents, there is a way to combat Google Compare (and other digital competitors): TrustedChoice.com. Independent Agents do not, and should not, sit on the side lines as Google and the competition attempt to take our market share.

There is an aggressive way to combat the competition, not just to protect our market share, but to increase our market share by becoming an Advantage agency on TrustedChoice. com.

The platform is up and running and proven, generating great referrals for agencies that embrace TC.com. Now is the time to combat Google, the directs, the market disrupters, and the captives! And it’s relatively easy to do!

In just the first four days of March, TrustedChoice.com has delivered over 650 unique online referrals to independent insurance agents across the US. To claim your advantage profile and begin receiving new inbound leads from TrustedChoice. com click the banner below: It’s time for the independent channel to respond as one.

Whether you’re an agency or carrier, the easiest and most cost effective way to do this is to join TrustedChoice.com today by going to http://www.agencynation.com/advantage/.

The next 36 months are going to be very interesting.

Good Selling!

??

Potential E&O Claim:

Should I Report It To My E&O Carrier? ? t r o p Re

By Brian Snyder, J.D., Assistant Vice President, Claims Specialist, Swiss Re Corporate Solutions

Don’t Repor t?

T

he decision whether an insurance agency reports a potential claim to its professional liability carrier brings with it a host of issues to consider. What effect does reporting a potential claim have on my agency’s loss history? How will it affect my agency’s premium? What difference can it make?

After all, it is a potential claim. My customer has not hired an attorney or filed a lawsuit against my agency. Am I only creating trouble for my agency by reporting this potential claim?

The best source to answer this question is the agency’s professional liability policy. The policy requires that an agency report potential claims to its carrier.

But apart from that, there are additional, common sense reasons for doing so. The following example highlights those reasons.

An agency’s most important and long-term customer owned an engineering business along with numerous commercial buildings. The agency handled all of the customer’s insurance needs obtaining, among other coverages, commercial property coverage.

A pipe burst in one of the commercial buildings resulting in over $200,000 in damage. Unfortunately, the building was vacant for several years, a fact not shared by the customer with the agency. As a result, the commercial property coverage placed by the agency contained limitations on coverage for vacant buildings.

Even though the agency suspected the carrier would invoke the vacancy provisions of the policy, the agency thought it was best, nevertheless, to report the claim to the carrier. The agency’s suspicions were well-founded as the carrier denied coverage for the property claim because the building was vacant at the time of the loss and was vacant for several years.

The customer was outraged by the lack of insurance coverage though it did not take issue with the carrier’s coverage position. Like many business owners, the Fall 2015 • The Oregon Agent

29

customer believed that the significant premiums he paid each year entitled him to coverage in the event of a loss regardless of policy language.

The agency was worried about losing its most important customer though it knew it did not breach any duty owed to the customer. After all, the customer never told the agency about the change in the building’s status: from occupied to vacant. And the agency also agreed with the carrier’s coverage position.

Faced with an angry customer who was litigious by nature, and a significant uncovered loss, the agency decided to report a potential claim to its professional liability carrier, Westport Insurance Corporation.

The Westport claim handler made his initial contact with the agency within 24 hours of the potential claim being received by Westport. After collecting the claim information, the Westport claim handler and the agency worked together as a team to develop a strategy focusing on both the customer and the carrier.

The customer was assured that the agency would advocate on the customer’s behalf with the carrier in an effort to identify any avenue of recovery for the customer. At the same time, it was explained to the customer that the agency did nothing wrong in placing the property coverage that included vacancy provisions. The customer’s indulgence was sought so that the agency could have time to then discuss the situation with the carrier. A commitment was made to provide frequent updates to the customer.

The focus then turned to the carrier. As there was no dispute with the carrier’s coverage position, the Westport claim handler and agency agreed on a two-part strategy that would leverage the agency’s long-term profitable relationship with the carrier, and the customer’s profitable account history.

The agency appealed to the carrier using empirical data to prove that the carrier benefited throughout the years by doing business with the agency and the customer. As a result, the carrier agreed to make a business accommodation by paying the customer $100,000 on the uncovered claim. This decision was relayed to the customer.

The agency believed that the carrier would contribute more. After further discussions with the Westport claim handler, the agency made an additional appeal to the carrier resulting in an agreement to pay an additional $100,000 bringing the total recovery to $200,000. The agency’s contact with the carrier said that he had never seen a payment of this kind on a loss that was clearly not covered by the policy.

The Westport claim handler and the agency had many conversations about not only what to say to the customer and carrier, but how to say it. Of utmost importance were creating and keeping goodwill with the customer.

While not every potential claim is resolved on such favorable terms, this example shows what can be achieved 30

The Oregon Agent • Fall 2015

when a thought-out, collaborative approach is taken by an agency and Westport. Without question, had this potential claim not been reported to Westport, the customer would have sued the agency and the carrier, and the agency would have lost it most important customer.

The agency may also be concerned about whether the mere reporting of a potential E&O claim will have any adverse underwriting effect on their E&O. Each situation is unique and each carrier is different. Westport will review the facts and circumstances of the individual situation, but as a general rule the mere reporting of a claim does not automatically result in any underwriting action or increase in premium. Because your E&O professional liability policy is claims made, it is imperative that you report any potential claims immediately to your E&O carrier. In fact, Westport recommends that you report them as soon as practicable to ensure that the claim is reported during your policy period so coverage can be determined. In the situation described above, there generally would be no underwriting action taken or premium increase as a result of the potential claim.

Not every potential claim will end up with a result like this one, but if you give yourself (and your E&O carrier) the opportunity to resolve things before they develop into something bigger, the probability of a positive outcome increases dramatically. And if you don’t, the possibility is completely gone. By taking steps to report potential claims to Westport early, you may avoid actual claims and maybe even litigation.

This article is intended to be used for general informational purposes only and is not to be relied upon or used for any particular purpose. Swiss Re shall not be held responsible in any way for, and specifically disclaims any liability arising out of or in any way connected to, reliance on or use of any of the information contained or referenced in this article. The information contained or referenced in this article is not intended to constitute and should not be considered legal, accounting or professional advice, nor shall it serve as a substitute for the recipient obtaining such advice. The views expressed in this article do not necessarily represent the views of the Swiss Re Group (“Swiss Re”) and/or its subsidiaries and/or management and/or shareholders. Insurance products underwritten by Westport Insurance Corporation, Overland Park, Kansas, a member of Swiss Re Corporate Solution. *Brian Snyder, JD, is Assistant Vice President and Claims Specialists with Swiss Re Corporate Solutions. Brian joined the company in 1995 and has worked in several claims departments during that time, and handled insurance agents and brokers professional liability claims since 2001. Prior to joining the company, Brian spent three years as a litigation attorney in Kansas City, Missouri.

Copyright 2014 Swiss Re

A NAME THAT BUILDS RELATIONSHIPS At Risk Placement Services (RPS), we are committed to building relationships one retail partner at a time. Our stewardship begins by providing you access to the finest markets and top producers in the industry and providing customized solutions to meet your needs by designing, negotiating and tailoring individual risks that help you succeed. It’s a partnership you can count on!

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31

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