Big I Virginia, Spring 2016 by Blue Water Publishers, LLC

BIG I The

Official Publication of the Independent Insurance Agents of Virginia

Virginia Spring 2016

BEST PRACTICES TO AGENCY ACHIEVEMENT APRIL 25-26, 2016 | DOWNTOWN RICHMOND MARRIOT

REDUCING YOUR INSURANCE COSTS

DISTINGUISHING BAD ADVICE FROM GOOD ADVICE p.12

IS THE FUTURE POSITIVE FOR SMALL TRADITIONAL AGENCIES?

p.18

SUCCESSION or perpetuation p.39

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Spring 2016 • THE BIG “I” VIRGINIA

SPRING 2016

BIG I The

Official Publication of the Independent Insurance Agents of Virginia

Virginia

The Big I Virginia is a publication of the Independent Insurance Agents of Virginia 8600 Mayland Drive, Richmond, VA 23294 Phone: 804.747.9300 / Toll-free: 800.288.IIAV (4428) Fax: 804.747.6557 E-mail: members@iiav.com / Website: www.iiav.com IIAV IS AN ORGANIZATION DEVOTED TO PROMOTING, ENHANCING, SERVING AND ASSISTING INDEPENDENT INSURANCE AGENTS.

The Big I Virginia is a publication of the Independent Insurance Agents of Virginia and is published quarterly by Blue Water Publishers, LLC. The Independent Insurance Agents of Virginia, Inc. reserves the right in its sole discretion to reject advertising that does not meet IIAV qualiﬁcations or which may detract from its business, professional or ethical standards. IIAV and Blue Water Publishers, LLC do not necessarily endorse any of the companies advertising in the publication or the views of its writers. The publisher cannot assume responsibility for claims made by advertisers, content provided by the editor, or for the opinions expressed by contributing authors.

Inside this issue 6

Message from the Chairman of the Board - Jason Angus

Message from the State National Director - James P. Bradner

Message from the President and CEO - Bob Bradshaw

Reducing Your Insurance Costs - Distinguishing Bad Advice From Good Advice

Is the Future Positive for Small, Traditional Agencies?

IIAV Young Agents 2016 Upcoming Events

Agents Insurance Markets

Allstar Financial

Anderson and Murison

Atlantic Specialty Lines

Berkshire Hathaway/GUARD Insurance Cos. 35 Builders Mutual Insurance

Burns & Wilcox

FCCI Insurance Group

Grange Insurance

Harford Mutual

Hilb Group

Interstate Insurance Management

Jackson Sumner & Associates

26-28 InsurExpo 16 Information and Registration 29

Thank You Advertisers

Johnson & Johnson

2 24, 25

Millers Mutual Group

InsurExpo 16 Exhibitors and Sponsors

30-31 InsurExpo 16 Sponsorship Opportunities Information & Sign-Up 32

Activity Reporting - Measuring the Heartbeat of the Agency

Succession or Perpetuation?

Penn National Insurance

Preferred Property Program

Risk Placement Services

SIAA 14 Southern Insurance Company of VA The Iroquois Group

IIAV Staff Bevin Anderson Communications/Media Director banderson@iiav.com Robert N. Bradshaw, Jr., MAM President & CEO rbradshaw@iiav.com cell (804) 929-4134 Teri Chester Executive Secretary/ Receptionist & Membership Coordinator tchester@iiav.com

THE BIG “I” VIRGINIA • Spring 2016

21 5

For information on advertising please contact: Jim Aitkins, Blue Water Publishers, LLC 22727 161st Ave SE, Monroe, WA 98272 phone: 360.805.6474 / fax: 360.805.6475 jima@bluewaterpublishers.com

Joe Hudgins, CPCU Technical Consultant jhudgins@iiav.com cell (804) 929-4138

Danny Mitchell, AAI Vice President Business Development dmitchell@iiav.com cell (804) 929-4135

Marie Toney Sales Associate mtoney@iiav.com cell (804) 929-4136

Bonnie Joyce Insurance Administrative Assistant bjoyce@iiav.com

Susan E. C. Perkins Membership/Education Coordinator sperkins@iiav.com

Bonnie J. Warren Insurance Account Executive bwarren@iiav.com

Linda Loving, CIC, AISM, AIAO IIAV Chief Operating Officer & VFSC Executive Vice President loving@iiav.com cell (804) 929-4133

Kristina Preisner IIAV Director of Education & VAIA Executive Director kpreisner@iiav.com

Marianna Wilson Insurance Account Executive mwilson@iiav.com

EXCELLENCE Iroquois has been helping Independent Agents excel in Virginia since 1988. Proudly saluting the agency members and carrier partners who have been recognized for Excellence by the IIAV over the years:

Past IIAV Board Presidents ‘88 Charles B. Gibson, Sr. ’89 James S. Day, Jr. ’99 James P. Bradner

IIAV Annual Award Recipients

Bankers Insurance LLC DeJarnette & Beale Ins Agency Chesapeake Insurance Agency/ TowneInsurance Agency

‘93 Dennis Winfree ’93 ‘95 ’96

‘00 C. Dwight West, III

‘96

’03

’98

‘04 ’05 ‘06 ’07 ’09 ’13

Bankers Insurance LLC Charles F. "Bill" Bullington McLean Insurance Agency Inc. Richardson Harris Boatwright Ins M. Stevens Harris Welch Graham Ogden Ins Inc. Thomas L. Welch Haun Magruder Inc. Michael F. Funkhouser Ford & Thomas Ins Agency Inc. Tyler W. Hancock Hubbard Insurance Agency Inc. Cruger S. Ragland, Jr. Short Ins Assoc Ltd/Trustpoint Robert T. Short

‘99 ’00 ‘03 ’04 ’08

Wood Insurance Agency, Inc. McLean Insurance Agency, Inc. Doug Megill. Hubbard-Lash Insurance Agency Dick Lash. Builders Mutual Karen “Sue” Loan. DeJarnette & Beale, Inc. James Day. Richardson-Harris-Boatwright Stevens Harris. MetLife Auto & Home Tracy Blumberg. Hanover Insurance W. Morris Skeen. James R. “Judge” Parker. Donegal Insurance Group Haun-Magruder, Inc. Michael F. Funkhouser. Chesapeake Insurance Agency/ James P. Bradner. TowneInsurance Agency

‘08 Steve Franklin.

Berkshire Hathaway Guard Insurance Group

’10 Monty Dise.

Asset Protection Group, Inc. Hanover Insurance Straus, Itzkowitz & LeCompte Insurance Agency Inc.

‘10 Donald Bragg. ’12 Pettus LeCompte.

The

IROQUOIS Group

To learn more about how Iroquois could further strengthen your agency, contact Matt Ward at 804-320-6984 or mward@iroquoisgroup.com

www.iroquoisgroup.com

Spring 2016 • THE BIG “I” VIRGINIA

Chairman of the Board

Jason Angus jangus@hilbgroup.com

+VIRGINIA Leading the Insurance Industry I

t takes only a few seconds of scouring the news to be concerned of the economic headwinds facing our clients and our agenices today. Oil prices dropping, China’s economy stalling, stock market volatile, and so on. Yet, amongst these economic storms, shines a bright light for our industry and that is the strength of our industry in Virginia. I was recently asked to comment on the fact that Virginia received an “A” for the quality of the insurance industry in our state. It’s not surprising. We have a strong industry association made up of dedicated members who care about their agencies and the clients they serve. Our association leads the pack, remaining flexible and proactive in the challenges that face us. Our continued strength is reliant upon all of us to work together to continue to make Virginia a great place for being in the insurance business. Don’t wait. Get involved. Your Independent Insurance Agents of Virginia association is here for you.

THE BIG “I” VIRGINIA • Spring 2016

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State National Director

James P. Bradner jbradner@towneinsurance.com

+StayToClose Your Association I

t’s hard to believe it’s been six years already! That means my term as your National Director ends with the April Board Meeting. As I reflect back on our National Association, the most dominant issue during my tenure was the evolution of Trusted Choiceq. My first meeting was just after the 51 member board had voted overwhelmingly to go “all-in” on Trusted Choiceq as the new Independent Agent brand, replacing (or enhancing) the Eagle logo we were brought up on by Raymond Burr (remember him?). Six years ago, we were just beginning to see how the internet was going to be used to sell our products. The direct writers were the first to do “online quotes”, then came the quoting web sites, etc. Our leadership and Board saw the “tea leaves” and with the leadership of Tom Minkler, developed CAP (consumer agent portal). In six short years our world has changed. It’s

THE BIG “I” VIRGINIA • Spring 2016

no longer about giving quotes on-line, but about driving the consumer (who are embracing the internet as a way to get informed about insurance) to our Independent Agency System. Now it’s about getting Trusted Choiceq Agents to show up on the first page of Google when a key word is typed in. It’s about SEO (search engine optimization). I guess my parting advice is to get close to your associations. IIAV has so many tools available, assisting agents in their business, plus watching their backs with the General Assembly, that is a real value! Our National Association is constantly striving to give our members “A sustainable competitive advantage”. Thank you for allowing me to serve as your National Director, and I look forward to seeing you around the Commonwealth.

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President and CEO

Robert N. Bradshaw, Jr., MAM rbradshaw@iiav.com

Learn, Network, Have fun insurExpo16

pril 25-26 IIAV members will have the opportunity to experience something new with the IIAV insurExpo16 at the Downtown Richmond Marriott. This year – instead of the traditional convention in the summer – IIAV will be sponsoring an industry event that is low cost, quick, centrally convenient, with exceptional industry speakers. As well, there’s plenty of time for networking with a wide range of industry professionals. You will not want to miss the opportunity to meet nationally known insurance efficiency expert, Bobby Reagan, he offers great insight for everyone in the agency - principal, producer or account manager. Bobby will be presenting trends for “Top Performing Agencies” and reviewing the results of the Best Practice Agencies study. His message is in high demand across the country so we are honored that he is coming to speak at this event. We’ll also have Dave Tralka – President of InsurBanc – discussing what you need to know in regard to agency acquisitions and perpetuation. With the M&A activity our industry is experiencing, here’s your opportunity to hear from the banker who has financed more M&A activity than perhaps any other banking institution. This is critical information if you own an agency or aspire to own one. Save time also to hear from VCU’s marketing expert – Dr. Wayne Slough – on leveraging technology and the sales process. Dr. Slough makes a return visit to

THE BIG “I” VIRGINIA • Spring 2016

an IIAV program with practical experience and recommendations for truly bringing a customer focus to the industry sales and management force. We also expect an expansive trade show during the expo, with a wide range of industry vendors. Meet with your company partners, look for companies you would like to represent and get an overview of new products and services - all in the relaxed atmosphere of the trade show. You have asked for a different format of the traditional convention requesting the trade show, exceptional speakers, convenient location and a scheduling program that minimizes time outside the office…and did I forget to mention low cost? The insurExpo16 is a “must attend” annual event. Visit with your professional associates from across the Commonwealth for a relaxed and informative program. Attend one day or both, it’s entirely up to you to take advantage of this new program format. Oh yes – you certainly won’t want to miss our closing program speaker John Martin, CEO of GenerationsMatter, a specialty research firm that looks to industry trends across the country. John will be looking at generational expectations and address the future of Virginia’s insurance agencies. His insight will have you glued to your seat. Don’t hesitate – Register today for insurExpo16 at www.iiav.com.

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Reducing Your Insurance Costs…

Distinguishing Bad Advice from Good Advice

any Americans are struggling financially in the current economy, particularly those struck by lay-offs, and are faced with tough decisions about how to reduce expenses. As a result, much has been written in recent months about how to reduce insurance premiums as one aspect of a belt-tightening strategy. Unfortunately, too much of this advice has been BAD and much of this bad advice comes from consumer web sites and publications that have little understanding of insurance and risk management. The purpose of this article is to identify some of the bad advice being bandied about and to reinforce some of the good advice. It concludes with 10 reasonable things you can do to reduce your insurance costs. The first myth we want to dispel is that all policies are alike, the difference only being the price. Insurance policies are legal contracts and, aside from some industry standards, each insurer’s policy is unique. Some cover far more or less than others. For example, some auto policies do not cover non-owned autos. Do you ever drive someone else’s car? Some auto policies do not cover business use. Do you ever run by Office Depot, the post office, or the bank on behalf of your employer? Some auto policies exclude undisclosed household residents. Is it possible that a child might move back home for economic reasons and you forget to tell your insurance agent?

THE BIG “I” VIRGINIA • Spring 2016

We look for the best independent agents and build relationships that last the duration. We are committed to the independent agency system as the only means to deliver our products. Because of that, we work hand-in-hand to help our agencies grow profitably.

Our agents set us apart. Business • Surety • Auto • Home

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Might you drive that resident child’s car after they move in? Did you know that some auto policies won’t cover you while driving a resident family member’s car? Has a family member taken on a second job delivering pizzas to make ends meet? Some auto policies cover this, some don’t. These are all very real examples of coverage shortcomings that the “low cost” auto insurance advertisers don’t tell you about. In fact, if you ask to see their policies before buying, chances are you won’t get a copy. Consumers shop for most things based on value, not just price. The same should be true for insurance which is far too often portrayed as some sort of homogeneous commodity. So the next time you see a cute or clever sales pitch from a lizard, cave man, or giggling Walmart-like “pick your price” aisle clerk, ask what you’re buying. The amount of coverage you need depends on your exposure to loss and what assets and income you need to protect today and in the future, not what you’d like to pay. A second myth is that you can rely on insurance advice from consumer web sites and publications. Sadly, consumers often accept insurance advice from attorneys, plumbers, roofers, cops, and accountants before they’ll listen to their own insurance agent. A major national publication included advice from a “consumer expert” that

recommended dropping replacement cost coverage for “actual cash value” coverage, something that is likely to save the insured little in exchange for much in the way of lesser coverage. In the late 1980s and early 1990s, Charles Givens made a name for himself, in part, by recommending that consumers drop various kinds of insurance. Lawsuits ensued when consumers who followed his advice suffered catastrophic uninsured losses. One popular consumer insurance web site recommends that consumers consider dropping their physical damage and uninsured motorists coverage completely while reducing their liability coverage to the state minimum requirements. At a time when consumer assets are at their greatest peril, now is not the time to be reducing or eliminating critical coverages that protect you from catastrophic loss. The article shows that, by dropping your liability limits from 100/300/50 to 25/50/10 and eliminating the physical damage and uninsured motorists coverages on your auto, you can reduce your total premium by just over 50% on average. What they don’t show is that the average values of the autos they used in the examples ranged from $12,000 to $22,000 according to Kelly’s Blue Book. How many economically depressed or out-of-work families can afford

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even a $12,000 loss, much less a 6- or 7-figure liability claim? Auto liability limits of 25/50/10 mean that each person you negligently injure in an auto accident gets no more than $25,000 ($50,000 total for all injuries) and any property damage you cause, such as damage to the other vehicle, is limited to $10,000. Is it possible that a hospital bill might exceed $25,000? Is it likely that the other vehicle you total is worth more than $10,000? Of course, particularly considering that all of the autos they used in their examples of how you can save money by dropping physical damage coverage were worth more than that!

an auto policy if you have health or workers compensation insurance. Uninsured motorists insurance covers much more than just medical expenses. Given the growing number of uninsured motorists, removing or reducing this coverage can expose you, your family members, and passengers to catastrophic loss.

In the case of business insurance, many business owners are looking, if the law permits, to drop workers compensation insurance or have officers with strong health insurance plans exempt themselves. Workers compensation typically pays UNLIMITED medical benefits, According to the Insurance Research Council, 1 in 6 drivers plus disability, rehabilitation and even burial benefits. may be driving uninsured by 2010. With the number In addition, some health insurance plans exclude workof uninsured drivers already over 25% in some states, related injuries or work injuries that could have been Generic Adwhen for PPPʼs Program what happens a familyProperty member Manager is permanently covered by workers compensation. Some businesses are 7.25 xby4.625 disabled an uninsured driver and the family has considering eliminating business interruption insurance dropped its uninsured motorists coverage? A much better even though studies have shown that few businesses Job #3343 recommendation would be to begin cost-cutting measures survive a major loss long enough to be able to reopen their by eliminating the purchase of pizza, cigarettes and beer doors. instead of critical insurance coverages. A fourth myth is that you should insure the market value A third myth is that you can drop some coverages of your home or business building. Market value is based because others exist to pay in their absence. For example, not only on the cost to rebuild but also on the value of so-called financial experts may recommend dropping the location and land value. It’s also a function of how uninsured motorists and medical payments coverage on much someone is willing or able to pay for your property

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based on their financial position and the ability to obtain a loan. Your insurance limit is based almost exclusively on the cost to repair or replace the building. The market value can be significantly higher or lower and, just because the market value of your home or business building has declined doesn’t mean you should reduce your insurance limit. In fact, while home prices countrywide have declined measurably in the past year, the cost to rebuild those homes has risen about 4%. These are just a few examples of what consumers and business owners are doing to reduce their insurance costs, many of these approaches coming from extraordinarily bad advice from consumer writers and others who lack the knowledge to understand what they are suggesting. Attorneys, for example, often suggest that youthful drivers be placed on their own minimum-limits policies (and their vehicle titled in their name if possible) in order to insulate the parents’ assets from a lawsuit. Many, if not most, auto policies have an exclusion that would result in the parents having NO coverage under their own policy for some claims, an unintended consequence that arises from advice given by someone who lacks the intimate understanding of the insurance contract necessary to provide sound insurance advice. So, what are some reasonable approaches that CAN be taken to reduce or control insurance costs?

10 THINGS YOU CAN DO TO CONTROL INSURANCE COSTS

Investigate coverage and product options with your independent insurance agent. One of the advantages of using an independent agent is that s/he represents a number of insurers with different products and can assist customers in fitting the right product at the right price for the unique exposures you present. Keep in mind that a lower price often means inferior service and lesser coverage, possibly lesser to a greater degree than the premium decrease. Also note that this tip deliberately avoids advising you to “shop around” because that implies price comparisons should drive the decision.

Carefully consider whether increasing deductibles NOW is appropriate. While increasing a deductible can save money, it’s important to do it at the right time. Don’t raise the property deductible well past the point of sensible premium reduction on the theory that “it will never happen to me”...insurance purchasing decisions are often made with little regard to post-loss consequences of our current buying decisions. A higher deductible could pay for itself in 3-5 years, but it could take 7-10 years and 16

THE BIG “I” VIRGINIA • Spring 2016

not be a good investment. The preferred approach is to increase deductibles during good economic times when you can afford a $1,000 - $2,500 loss while accumulating a deductible fund that can be used during hard times if a loss actually occurs then.

Consider multiple-policy discounts. This is common advice and generally good advice. Having homeowners, auto, and umbrella policies in the same company will likely save money and, perhaps even more important, will make it less likely that a coverage gap will show up when more than one insurance company is involved in a claim. Likewise, in business insurance, having general liability and auto coverage in the same insurer using “ISO-standard” or superior forms is often critical.

Ask for credits. Too often, consumers are entitled to credits for alarms, extinguishers, good student driving discounts, etc. but the agent is not aware of them. Ask your agent for a list of everything that could reasonably reduce your premium and see if you can meet those standards. A good example is how your auto is rated for use. If you’re laid off from work or you’ve found a job closer to home, you might very well be entitled to a lower premium. Unless you tell your agent about these kinds of changing circumstances, you won’t reap the benefits of reduced risk.

If you’re going to drop coverages, consider dropping noncritical coverages. Examples include towing and rental reimbursement, credit insurance, etc. Your independent agent can assist you in making these decisions. Consider discontinuing high-risk activities such as using ATVs, jet skis, etc. Catastrophic injuries are common with vehicles of these types.

CAREFULLY consider dropping physical damage coverage on your vehicles. As outlined above, this is not always a good idea unless you can absorb a significant 4- or even 5-figure loss. Keep in mind, too, that as an auto loses value, the physical damage premium generally declines as well. Do not be fooled by any simple formula that says you should drop coverage when the value of the vehicle drops below “X” times the premium. You should base your decision on what you can afford to lose and, if your car was destroyed and you could not replace it, how would that affect you financially.

Weigh risk management alternatives to insurance. For example, you could place jewelry in a safety deposit box rather than scheduling it. Needless to say, this is probably more risky, but it’s a reasonable consideration. Also, do not cut back on maintenance and loss control procedures that yield long-term benefits like the reduction

of frequent losses and those often excluded by insurance policies.

If necessary, sell some possessions. Can you get by without certain autos, motorcycles, ATVs, jet skis and boats, homes, jewelry, guns, etc.? If so, you can drop the insurance on those items. However, it is generally a good idea to not drop insurance on property until your exposure to loss no longer exists. This is especially true of any possession that has a significant liability exposure.

Seek expert advice. Start with your independent insurance agent who is familiar with you and your circumstances, not a consumer web site or publication that presents generalized, sometimes suspect, advice, nor someone who lacks the training and experience to provide sound insurance advice. Work with your agent to seek outside advice from other experts. If you are getting insurance advice from your attorney or accountant, run it by your insurance agent to see what impact it might have on your policy coverages.

Question any advice you get, even the advice in this article! It may not be right for YOU. Before you make decisions to reduce or eliminate insurance

coverages, assess your risks of loss. What are your exposures? What can you lose? What exposures represent losses you cannot afford? What exposures can you retain? The quality of your decisions may be the difference between economic survival and bankruptcy. Carefully chose an insurance representative who can help assess risk with a degree of sophistication and business acumen.

Question any advice you get, even the advice in this article! Copyright 2009-2015 by the Independent Insurance Agents & Brokers of America. All rights reserved. NOTE: Policy coverages and circumstances can change at any time, so the information above may not be accurate at the time of reprinting or subsequently to that time. IIABA does not assume and has no responsibility for liability or damage which may result from the use of any of this information. The most current, up to date version of this article can be found at IIABA’s Virtual University at www.bigivu.com.

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Is The Future Positive For Small, Traditional Agencies? By Chris Burand

s the future positive for small, traditional agencies? As with most broad looking-into-the-future answers, it depends. It depends on knowledge, commitment, and recognizing reality.

KNOWLEDGE I find one reason many small, traditional agency owners are discouraged when looking into the future is partially caused by a lack of knowledge. Sometimes they read too much industry press written by inadequately knowledgeable people and sometimes they just don’t read. (As Mark Twain famously asked, “What is the difference between a man that doesn’t read and one that can’t read? Nothing.”) The inaccurate information being written and causing consternation includes the aging industry, the inability to develop new people, and how a few heavy advertising direct writers are having all the success. First, the industry is not really aging. Individuals are aging, as are their peers, making it seem like everyone around them is aging. The average agency owner age has not changed materially since I’ve been in this industry which has been 25 years. It was 56-58 years old then and its 57-59 years old now. Writers expressing concern the industry is nearing collapse because of aging agency principals are simply Chicken Littles. Second, the ability to develop new people has never been better. The resources for testing, hiring, educating, and training new people are of far higher quality and abundance than any time in my career. The problem I see is that few agency owners know of the resources or they do not use the resources appropriately. 18

THE BIG “I” VIRGINIA • Spring 2016

Meeting my customers where they work. Crafting each policy to meet different needs. Partnering with Builders Mutual insurance.

That’s how I get the job done right. BuildersMutual.com

Spring 2016 • THE BIG “I” VIRGINIA

Third, the heavy direct advertising is having an effect. It is successful. However, it is a strategy that ONLY APPLIES IF the company/agency is big enough to spend enough AND if the client target is not primarily interested in more than a superficial transactional relationship. The independent

the same concerns. They are playing offense to win and the traditional agents are playing to not lose. Playing to not lose is rarely a winning strategy and insurance carriers recognize the difference when appointing agencies. The solution many such agencies have latched onto is a cluster or aggregator. Done well, clusters and aggregators may be a solution, but the majority of these entities have been established sloppily. Sloppiness seems to abound because the members do not want to make a true commitment to an enterprise that ultimately requires a true commitment. These entities are partnerships and any partnership that truly succeeds requires a complete commitment.

Going forward, this industry has a great future for Thrivers, but maybe not Survivors. insurance agency system WAS DESIGNED TO AVOID BOTH CONDITIONS. The carriers that originally distributed insurance through independent insurance agencies did not advertise to the general public because they relied on their agents to advertise. Those agents in turn advertised generally on a community platform and marketed on a social platform. The advertisements were at the Little League park, high school yearbooks, local newspapers, and so forth. The marketing was through relationships and true social networking versus electronic social networking. These methods worked because the client target was someone wanting a relationship. Going forward then the question becomes, who is your client target and if it is people wanting superficial transactional relationships, can you afford to advertise adequately?

COMMITMENT The question is not only can you afford to advertise adequately, but will you commit to advertise so significantly? Your advertising budget may have to quintuple. Historically agencies, especially smaller ones, have not had to make much of a commitment once established. This is because once established, agencies’ retention rates were adequate to generate safe cash cows and since a great many agency owners were satisfied with the cash generated, they could just ride along. I hear the concern in many agency owners’ voices these days because they see they have to make a commitment and they don’t want to do so. One reason they enjoy the business is the flexibility they have and a commitment can sorely limit that treasured flexibility. The emotion tied to committing oneself to building a future is what causes so many to wonder about their future. On the other hand, approximately 5,000 new agencies have been created in the last five years. That is an amazing number and many of these agencies have made a commitment to the future. They haven’t yet experienced the cash cow and flexibility so they’re just busting their butts to pay the bills. They don’t really have 20

THE BIG “I” VIRGINIA • Spring 2016

Going forward then, the future is truly bright for those willing to make a true commitment to building their agencies every single day. This means selling every day. This means developing people using the great tools available.

ACCEPTING REALITY The reality is that owning and running an independent insurance agency is going to get tougher. More business A&M Assoc Ad VA PRINT.pdf

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Spring 2016 • THE BIG “I” VIRGINIA

operational knowledge will be required, more insurance technical knowledge will be required, and more leadership will be required. Instead of resting on one’s sales, reality is that no amount of volume will ever be enough. For example, historically in small towns many agencies would grow to some large percentage of the market and then plateau because the reality was that with their market share, they could not grow much more. The new reality is that it is time to start selling insurance in the next town over. The reality is that more structure is required to minimize E&O exposures, to appeal to younger employees, and to develop new employees more effectively. The reality is that your companies are no longer going to depend on just agencies to make their sales. They know some people only want superficial transactional relationships and they’re going to advertise to that audience. They know some agency owners are committed and they know some are not, they know some listen to too many tall tales about what is happening and they know some are quite well informed. In sum, the reality is that in the past, to put in the terms of the wonderful book by David McNally, The Eagle’s Secret, Survivors could do just fine in this industry. Going forward,

this industry has a great future for Thrivers, but maybe not Survivors. In fact, I don’t think I have seen more opportunity for Thrivers than ever before because historically, the ease with which Survivors survived was an important impediment to Thrivers thriving. Companies protected Survivors, customers would not leave Survivors easily, and the historic independent agency distribution model was designed to protect Survivors. The upheaval pressure Survivors are feeling, causing them to question the future of small traditional agencies, is directly correlated to their position as Survivors. Thrivers are not concerned about their futures because their futures are so bright, they have to wear shades. 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. Regulated individuals/entities should also ensure that they comply with all applicable laws, rules, and regulations. Copyright 2013 by Chris Burand. Reprinted with Permission

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Activity Reporting…

Measuring the Heartbeat of the Agency

By Al Diamond

“

Doveryai, no proveryai” – Ronald Reagan’s favorite Russian proverb – “Trust but verify” – quoted to Gorbachev about the arms control treaty in 1987. As agency owners and managers we have the opportunity to train our staff in what we want them to do. Then we “trust” them to do it. But how many of us “verify” that trust? Is it lack of confidence or the knowledge that verification makes it more likely that both sides do exactly what they agreed upon that makes real managers use metrics to manage the operation of their agencies? And are we trusting or gullible if we believe that our instructions are followed even if we don’t verify the accuracy of performance?

THE BIG “I” VIRGINIA • Spring 2016

Agency Consulting Group, Inc. has defined many metrics that are critical to the measurement of the success of insurance agencies. Obviously financial measurements define whether the agency is making money compared to its history in the same period in prior years and its budgetary measurement defines its performance compared to expectations. We’ve spent many words explaining the measurement of retention in the four critical categories (customers, commission, policies and premium) and the comparative importance of the pairs (customer/ policy and commission/premium). We have explained how metrics are critical to producers in their hit rates, proposal rates and sales call rates and how the combined rates for all

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Spring 2016 • THE BIG “I” VIRGINIA

agency producers tell an agency how it is performing from a sales and marketing aspect. We have even given you many reasons for reading your Balance Sheets to calculate the Liquidity Ratios of the agency to establish trends that reflect changes to the agency’s cash positions. If you would like to speak to us regarding developing metrics for your agency, please call us (800 779 2430). We’d be happy to help create unique metrics for your agency. But, until now, we have never illustrated how an agency can know where it is strong or weak in customer service and processing by analyzing activities. Each of the major Agency Management Systems have activities as a part of their infrastructure to allow an agency to initiate an “activity” for every event involving a client and for time spent by a staff member on that

what they do, just that they get the job done as well as each can? Just as your body often tells you when there is something wrong, so do your “feelings” tell you that your workflow may not be operating as well as you expect or desire. But you would never treat your body without medically diagnosing that “feeling” of illness, you should never try to address a potential problem or issue in your service or administrative unit without diagnosing the situation to determine a)if there is something actually wrong, or not, and b) identifying both the cause and the solution to rectify the situation. Activity Reporting is your diagnosis tool for operational issues.

We recommend that you familiarize yourself with Activity Reporting in your agency management system. Start slowly just to determine if activity reporting is being done to your standards. Use what you find as a training tool, not as an indicator of wrongdoing to be punished. If managed properly, Activity Reporting can be your hidden asset to help train your employees to do what you find most productive for the agency. client’s insurance program. Many agencies have asked and required their staff to create an Activity in the system every time they touch a customer, for whatever reason. This allows a history for a client that familiarizes anyone in the agency with the client’s transaction history even if the staff member who handles the client is gone. Standardization of activities as required on all transactions for all clients all the time also protects the agency against E&O exposure. What most agents never investigate is the reporting system that supports the Activities generated through the system. Imagine for a moment that you have four CSRs handling a department’s book of business. Do you know how much work each does? Do you “feel” that some may be more efficient than others? Which make more mistakes and which handle transactions effectively? Does it “feel” that some are always backlogged while others seem to handle the load? Have you been reluctant to address standardization of work because you don’t quite know 34

THE BIG “I” VIRGINIA • Spring 2016

Activity Reporting can be done in detail to determine if the employees are actually following your requirement to enter an activity on every touch giving you accurate records of activity for a client and protecting your agency from E&O potential if (and only if) activities are done on every touch. Activity Reporting can tell you empirically whether or not you have an equitable split of business by staff member and if some work more efficiently than others. Finally, Activity Reporting can give you trends by person and by department or for the agency to warn you when you will experience busy times in the future allowing you to staff up when volume trends dictate.

EQUITABLE SPLITS OF BUSINESS Remember when equitable split was as simple as A-L and M-Z? There are now dozens of ways of splitting workloads more appropriate to the type of business operated (PL/ CL/Specialty Lines) and the question that always arises is whether the workload is equitably distributed? Looking at Activity Totals by person in a department over an extended period of time is one way of determining whether the workload is equitably distributed.

EFFICIENCY OF WORK EFFORTS

Do some of your employees simply work harder than others? Or do some work so inefficiently that they must do more activities to yield the same results as the more efficient employees? Or do some employees do multiple activities on a customer contact (reflecting greater numbers) while others enter a single activity for any transaction (a training problem)? Or do some employees forget to do activities at all, resulting in activity reports and numbers that don’t reflect their actual workload (also an E&O hazard)?

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Consistent activity reporting allows you or your managers to address issues like these and resolve them through standardization of work activity.

ACTIVITY TRENDING Building a track record of activity reports will tell you whether employees, departments and the agency is getting busier or remaining in stable workload environments. Besides being an excellent training aid to managers trying to standardize their departments, this trending tool warns you long before performance problems or volume increases require staffing attention.

DETAILED ACTIVITY REPORTING – THE FIRST STEP First, you must determine whether everyone is treating activities in the same way. Run summary activity reports on each person doing the same job for the same period. Isolate the top five or ten activities for each person they should represent at least 80% of all activities done by that person and compare the activities of each person in a similar role. Are they closely aligned? Are the activities that take up 80% or more of their time what you expect them to be doing within their jobs? If the top activities are different for people in the same role, you already know that something is wrong that needs to be addressed. The problem could be as simple as different people using different activity codes for the same transaction. That is easily remedied by training them to use the same activity codes for common activities and auditing for a while to make sure they are adhering to their training. But it also could mean that different people handle their customers very differently. This could require some further attention and standardization so all similar roles in the agency handle customers in the way that YOU dictate, not necessarily in the way most comfortable to each staff member. If you have single performers, running activity reports on them weekly will tell you whether they are working consistently and whether their types of activities is what you expect them to be doing within their jobs. If you haven’t been paying attention to Activity Reporting to date, I can assure most agencies that different people labeling the same activity differently is the most common problem that needs to be addressed in 95% of all agencies. So looking at Detail Activity allows you to train and standardize your staff into your definitions of agency common activities. 36

THE BIG “I” VIRGINIA • Spring 2016

TRENDING ACTIVITIES BY INDIVIDUAL AND FOR THE DEPARTMENT/AGENCY The more encompassing need when doing Activity Reporting is to determine the workload and workload capacity of each employee in the agency and of departments. The greatest problem with standardization of workflow in an agency is your assurance that every customer contact and every transaction bears an activity in the system. Most agents would like to assume that their edict that all transactions and work efforts are covered with an activity (to protect the clients and the agencies from inaccuracy of client information and to protect the agency from E&O potentials). However, the fact is that no initiative exists in most agencies to influence the employees to adhere to the ‘activity for every touch’ requirement. If you show your employees that management is paying attention to the Activity Reports and that one of the metrics of job performance is based on activity management – the attitude that activity reporting need only be done on “important” issues begins to change. Doing work and not being credited is the result of working hard but not recording activities that you actually do on behalf of the client and agency. When comparing activities for individuals and noting that some staff members have exponentially higher activity levels than the others, you need to determine if the productivity of one employee is simply that much higher than that of another – or -- if activities are not being done on some transactions – or – if an employee is required to do more activities because of high error rates – or – if employees are multiplying activities instead of consolidating activities for complicated transactions. Don’t assume. Investigate. Every manager has a “feel” for who is efficient and who is wasting time. But we often allow ourselves to be fooled by assurances that activities are being entered on ALL transactions when, in reality, they are being done only on what the employee feels is critical. That which is not measured is not correctly implemented. Running and paying attention to Activity Reporting is like running blood work to identify the root cause of that feeling that something may be amiss. We recommend that you familiarize yourself with Activity Reporting in your agency management system. Start slowly just to determine if activity reporting is being done to your standards. Use what you find as a training tool, not as an indicator of wrongdoing to be punished. If managed properly, Activity Reporting can be your hidden asset to help train your employees to do what you find most productive for the agency.

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Succession or PERPETUATION? By Al Diamond

t would seem to be easy to create a succession plan if an agency has a sibling or siblings in the business or even if the agent has younger partners who know the insurance business and expect to be the next generation to own the agency once you retire. But a HUGE number of agents don’t have children in the business and are “Lone Rangers,” having managed their business on their own since starting the insurance business or became owners. What do they do? Many agents with successors in place are not so sure that their successors can manage the business as well as the older agents or sufficiently enough to assure the older agent a secure retirement payout. What do THEY do in this very sensitive situation? Until now the “Lone Rangers” simply sought the highest price from a buyer and sold out. That has

been the simplest way out and the agent didn’t have to do what they have never done before - bring someone else into their business, train and spend time with people who may have different ideas about running the agency. Most ‘Lone Rangers’ are comfortable enough with their clients and can even spend time with employees and company folks. But the idea of mentoring someone who will eventually own their businesses is foreign to them. Many of them are so averse to this concept that they will sell their agencies at a value below what they deserve to avoid this “unknown universe.” What the ‘Lone Rangers’ don’t consider is the ramifications of a sale if they intend to remain in their communities. Over the long years spent in a business, we find that our best and long term clients either are or become our friends, especially in rural areas. Selling out to the highest bidder (often banks, regional agencies, nationals or foreign competitors seeking a foothold) puts your “friends” into the hands of folks you (and they) might not find as friendly and service-oriented as you have been. No one thinks about how they will face their friends in the future having “sold” them with the agency.

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So selling to the highest bidder works well if you’re going to leave the area (and have the time to set up your agency for maximum value). Otherwise you may not get the full value for your agency in the sale. And, you have to deal with your client/friends after the sale if the service levels are not up to yours.

to a decade, these new owners will have secured their future by merging or selling their predecessors’ businesses at a tidy profit. This is only a shame and a problem if the older generation gave the younger generation a break on the price to allow them value benefit in the ownership transfer. In that case, the old owner discounted the value of the agency in favor of the new generation of owners only to have it sold at a tidy profit shortly thereafter. However, if the ownership transfer was at a fair value, then the new owners have every right and privilege to merge or sell if they are not up to growing the agency’s value as an independent entity.

Whether or not you have time before you turn over the reins to your next generation or if you still haven’t identified that next generation, a management reporting process can be established that will require the next owners of the business to operate it in a manner that will assure you of its ability to make payments to you in a buy-out. Meanwhile the ‘Lone Rangers’ are envious of their friends who have children, partners or employees who are capable of taking over the business someday. What the “Rangers” don’t realize is the panic faced by many of these owners with default succession plans. They have watched their children and/or partners/employees grow into their roles in the agency and they well-know the weaknesses of each of them. They wonder whether or not their successors can fill their shoes once the older owner departs. Many times there is truly no cause for this concern. Every parent and elder has periods during which he thinks of his successors as the “idiot children.” Their mistakes have been magnified to the point that the owner is concerned over the well-being of the firm and the security of his retirement payout. That’s why so many agents have required third party loans to fully pay them with the debt carried by a financial institution for the payments he could have engineered for him or herself. But the agents have convenient memories, remembering the faults of others and forgetting their own mistakes as they grew from their 20’s and 30’s into ownership positions. No, most are not ‘Idiot Kids,’ they are the same kind of people as their elders, learning more from their own mistakes than from the teachings of their elders. But it is hard for the older owner to distinguish between youngsters growing up and those real Idiot Kids who have been spoiled and will take over the agency long enough to realize that they don’t like it even without the older owner (who they always thought was holding them back). Within a few years 40

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The problem is not the eventual sale or merger of agencies. Sales and mergers are actually a part of agency life-cycles that is healthy for the industry. The problem is that the original owners knew that the new generation of owners were not capable of managing the growth and value of the agency and still sold it to them BECAUSE MOST OWNERS DON’T FEEL THEY HAVE ANY CHOICE.

So the ‘Lone Rangers’ sell their agencies because they feel they don’t have the option of internally succession and the multi-generational owners are concerned because they feel obligated to their children (or other successors) and feel they have no choice. Do you see the commonality? All of these agents, small, medium sized or large, urban, suburban or rural -- ‘Lone Rangers’ and agencies with successors -- all of them feel trapped with no options besides selling and hoping for the best.

BUT IT DOESN'T HAVE TO BE THAT WAY. No, we can’t rule from the grave (or from retirement), but tools are in place to secure the future of your agency (and the future of the payments to you) whether you are alone in ownership or have generations behind you. If you have time (several years before you either retire or want to cash out), there’s a plan of action you can take to make your retirement or withdrawal from ownership more secure. If you waited too long (you’re in the process of selling down or need to do something within the next year), there are still tools that can be implemented that can secure your payout to maximize the value of your asset. In a nutshell, whether or not you have time before you turn over the reins to your next generation or if you still haven’t identified that next generation, a management reporting process can be established that will require the next owners of the business to operate it in a manner that will assure you of its ability to make payments to you in a

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buy-out. This reporting requires the new owners to retain sufficient business and to grow the agency sufficiently to sponsor the payments to the retiring owner. If it doesn’t happen, they have pre-agreed in the purchase agreement that the agency will have to be sold once again to satisfy the old owners (or they must secure full payment of the remaining balance due to the retired owner). The reporting system mandates both retention and growth to minimum levels AND the prudent spending habits that keep the agency’s balance sheet liquidity ratios at levels that will assure any financial auditor of the agency’s continued ability to support it debt. The difference between having the luxury of time and doing this shortly before an ownership transfer is the training and implementation that can be done prior to (and proving the validity of) and ownership transfer and the need to establish the reporting system without any evidence that the new owners are capable of achieving the requisite goals to assure sufficient success to manage the value paid for the agency. If you have the time, you establish the management reporting program as a test of the ability of the agency (and its potential new owners) to support the financial strength needed to buy out the old owner(s). If the agency with its younger owner-potentials can accomplish this in the years available to them prior to the buy-out, the older owner can be reassured of the agency’s continued stability. The achievement of the objectives can be the pre-requisite for the ownership transfer and could, potentially, provide a ‘way out’ for an ownership change that could be disastrous if actually implemented. Doing what’s best for the old owner is also doing what’s best for the new generation. If they are capable of handling the ownership change, it’s wonderful. If not, we know this prior to any change in ownership and other avenues can be explored. If you are a ‘short-timer’ and need to make a transition quickly, this same management reporting requirement can be used to sell to a new owner who will either retain and build the business or have to re-sell it to satisfy the retired owner. No owner will ever be surprised again by their payments suddenly stopping and a sorrowful letter explaining the cash shortfalls that make further payments difficult. 42

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The reporting process and balance sheet liquidity reporting requirements will reflect any negative changes very quickly and the Sale Agreement will contain very specific remedies if the agency cannot support its payments. Plan ahead and any change of ownership can be managed to provide the maximum value to the old owner with a payment schedule that makes the burden bearable without sacrifice to the new owners. If you would like to explore Succession and Perpetuation Planning with Agency Consulting Group, Inc., please call us at 800-7792430 and we’d be happy to discuss your specific situation in complete confidence and confidentiality. Copyright 2011-2014 by Agency Consulting Group, Inc. All rights reserved. Reprinted from The PIPELINE, the national newsletter for agency principals. The PIPELINE is published by Agency Consulting Group, Inc., a leading consulting firm for independent agents in the U.S. for over 30 years. Call 800-779-2430, E-mail info@ agencyconsulting.com, or visit www.agencyconsulting.com for information about the content of this article or PIPELINE subscription information.

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