The Big I Virginia, Winter 2013 by Blue Water Publishers, LLC

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WINTER 2013

BIG I The

Official Publication of the Independent Insurance Agents of Virginia

Virginia

IIAV STAFF

Teri Chester Executive Secretary/ Receptionist & Membership Coordinator tchester@iiav.com Sandy Conigliaro Accounting Assistant sconigliaro@iiav.com Sherry Grubbs, AISM Accounting Manager sgrubbs@iiav.com Joe Hudgins, CPCU Technical Consultant jhudgins@iiav.com cell (804) 929-4138 Bonnie Joyce Insurance Administrative Assistant bjoyce@iiav.com Melanie Kjar Communications/Website Director mkjar@iiav.com

Inside this issue

Nettie Ardler, CPIW, DAE, AIAM Insurance Account Executive aardler@iiav.com Robert N. Bradshaw, Jr., MAM President & CEO rbradshaw@iiav.com cell (804) 929-4134

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

IIAV is an organization devoted to promoting, enhancing, serving and assisting independent insurance agents.

Message from the Chairman of the Board - Tommy Via

Message from the State National Director - James P. Bradner

Message from the President and CEO - Bob Bradshaw

The Merger and Acquisition Landscape in Virginia

Marketing M&A Value: Communications Key to Leverage Successful Mergers

Mergers and Acquisitions Checklist

Avoiding Michael Scott - Six Steps to Successful Recruitment

When Mergers and Acquisitions Destroy Value

Lessons from Mergers and Acquisitions

How to Properly Position an Agency When Planning to Borrow From a Bank

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The Mindset of Top Insurance Agents

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Virginia Financial Services Corporation: Coverages for your Agency

IIAV extends our appreciation to the following sponsors of this publication: Allstar Financial Group

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

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

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Kristina Preisner IIAV Director of Education & VAIA Executive Director kpreisner@iiav.com Lori R. Reed, CISR, CPIA Insurance Account Executive lreed@iiav.com Marie Toney Sales Associate mtoney@iiav.com cell (804) 929-4136 James West Director of Finance jwest@iiav.com

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

THE BIG “I” VIRGINIA • Winter 2013

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The Big I Virginia is a publication of the Independent Insurance Agents of Virginia and is published quarterly by Blue Water Publishers, LLC. IIAV and Blue Water Publishers, LLC do not necessarily endorse any of the companies advertising in the publication or the views of its writers.

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Winter 2013 • THE BIG “I” VIRGINIA

Chairman of the Board Tommy Via tvia@LLBrown.net

Enhancing the Value of Independent Agents in Virginia

elieve it or not, 2012 is almost history and the planning for 2013 is well underway for our agency members. I hope that you will investigate and use many of the services and resources provided through your IIAV membership. As a part of those services, and since this issue is dedicated to mergers/ acquisitions, you my want to visit the IIAV website to review agencies “for sale” or “agencies seeking opportunities to purchase other agencies”. In addition, IIABA has banking/financing opportunities for acquistions/mergers provided by InsurBanc. When you visit the IIAV website, you should take a look at some of the other opportunities such as our very successful “find a market.” This service allows agents the ability to seek help from many brokers and check their appetite for a particular account. While planning your agency budget for 2013, I hope you will consider contributions to Insurpac and VAPAC. Our IIAV staff is a super liaison for our association at the Virginia General Assembly and the IIABA staff is second to none working with the US Congress. They spend hours reviewing legislation, testifying at committee hearings and educating legislators to protect the interests of our agencies and our clients. At the same time, they keep the membership informed concerning the effects of new legislation on our agencies. What can we as agents do to help? Contact your legislator when asked and provide a donation to our PACs. No matter how large or small, your donation will benefit you, your clients and our legislative efforts. IIAV’s ultimate goal is to serve, protect and enhance the value of independent agents in Virginia. Please call the association office if you need assistance on any management issue or regulatory issue, including certificates of insurance. We will help or find the appropriate person to address the issue. My hope is that you all have a very Happy Holiday Season and very Prosperous New Year!

THE BIG “I” VIRGINIA • Winter 2013

Winter 2013 • THE BIG “I” VIRGINIA

State National Director James P. Bradner

jbradner@towneinsurance.com

This Issue’s Theme is “Mergers and Acquisitions”

nsurance agencies are combining at a rapid pace in order to achieve growth. Whether through clusters, affiliations, partnerships, or out and out sale or purchase, we are all trying to get economies of scale, increased commission income, increased contingency income, and thereby, profit. Whether you are an acquirer or a seller a lot of factors are important and need to be addressed up front. I’ve seen negotiations for agencies go on for over a year. Valuation is the biggest holdup, but there are a myriad of other issues almost as important. Stock, cash or a combination; contract conditions; non-compete/ anti-piracy; what to do with office, stock or asset sale; what happens to the name; employee benefits; the list can go on and on. I would suggest getting a standard due diligence worksheet from Reagan, or Marsh-Berry, etc. to fully realize what’s ahead. If you are selling, what are your goals? Not just price, but employees’ futures, company relationships, and the biggie, what will be your role going forward. Too many principals concentrate on the terms and conditions of the price, and leave their future to be settled after the closing. Make sure your role is spelled out, whether you want to be a producer, manager/producer, manage your own book only, etc. Once you’ve signed, you have very little leverage. Buying and selling is stressful and complicated; my advice is get professional or experienced help to attack the process with you.

THE BIG “I” VIRGINIA • Winter 2013

President and CEO Bob Bradshaw rbradshaw@iiav.com

IIAV Assistance No Matter What Your Needs

ardly a day goes by when we don’t hear about one agency buying another, or an insurance company buying another. Sometimes it’s a fire sale and sometimes it’s the result of careful planning to create synergy between two once competing entities. Sometimes it’s even a surprise and you find yourself amazed that a once “safe” agency has become one of the purchased many. It’s a process that is certain to create discussion. M&A activity seems to ebb and flow – being quite heavy one year and virtually non-existent the next. Agents have much to learn from each other in this activity and IIAV has worked to create the resources for those interested in exploring the possibility of being on one end or the other on the purchasing block. One particular resource is the IIABA Best Practices Study that is conducted every three years. Selected agencies are asked to submit operational information in many areas. This information is carefully evaluated and ranked. Ultimately you are able to download a Best Practices comparison spreadsheet to compare your agency’s year-end results with the study’s results. The annual Best Practices Study originated in 1983 as an initiative by the Big “I” to help its members build and maintain the value of their most

THE BIG “I” VIRGINIA • Winter 2013

important assets – their agencies. By studying the leading agencies and brokers in the country, the association hoped to provide member agents with meaningful performance benchmarks and business strategies that could be adopted or adapted for use in improving agency performance – thus enhancing agency value. Also available to IIAV members is the wide range of information on the IIAV website – www.iiav.com – designed to help your agency run more efficiently and effectively. From educational programs for principals, producers and CSR’s, to technical bulletins and a “dating service” of agencies looking to sell or be sold. While living in Washington DC, I saw an advertisement from a company that said; “An educated consumer is our best customer.” When you’re looking to buy or sell an agency, this mantra is more true then you can possibly imagine. If we don’t have the information you’re looking for, please call us. Believe me, there are very few questions we haven’t heard before. Stay in touch with IIAV – we’re here to help you. P.S. On a personal note – Here’s wishing you and yours a wonderful holiday season and a productive and profitable New Year!

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The Merger & Acquisition Landscape in Virginia By Stephen Scontras Market Outlook The insurance agency landscape in Virginia is highly competitive and constantly changing. As firms look for ways to grow and shareholders look for exit strategies, both agencies and brokerages continue to engage in M&A activity in order to realize significant growth. In this article, we will provide you with a condensed overview of the national merger and acquisition environment for insurance distributors and a glimpse into the current state of the insurance agency sector in Virginia. About Valuation Multiples Multiple of earnings, or EBITDA (earnings before interest, taxes, depreciation, and amortization), is the most widely used reference for translating the overall purchase price of an agency. This essentially represents “free cash flow” of the agency at the time of purchase. Acquirers generally determine purchase price based upon the trailing 12 month period’s free cash flow, adjusted for certain “pro forma adjustments” (non-recurring or atypical revenue or expenses of the agency). The second form of valuation multiple is based upon revenue. This is less scientific and merely a baseline measure with which to translate the value of a transaction. Active acquirers do not base their valuations solely on multiples of revenue – profitability matters. Thus, we simply use it as another lens through which you can view and understand the overall purchase price. Historic Valuation Multiples Historical M&A Multiples and Market Outlook Exhibit A represents historical EBITDA multiples for the composite insurance distribution marketplace and it includes all size transactions for all distribution deals, and represents the maximum 1 potential consideration that a seller can obtain. As you can see, valuations have improved considerably relative Maximum assumes that 100% of the earnout will be achieved and is incorporated in to the multiples shown in Exhibit A. 1

THE BIG “I” VIRGINIA • Winter 2013

Exhibit A Source: Dowling Hales.

to 2009-2011 metrics. This has been happening concurrent with improving fundamentals of the overall economy and the continued convergence of several key industry dynamics. We believe that the scarcity of quality “growth firms” of scale in desirable markets will drive multiple expansion as public and large regional firms alike continue to address organic growth challenges and the need to deliver returns to investors. Our outlook for the remainder of 2012 is that valuations will continue to be aggressive and the market will become increasingly competitive as private equity investors and strategic buyers vie for the same limited number of properties. Earnout structures are continuing to model the reality of the soft market, and buyers have also become more aggressive on the guaranteed components of purchase price. Don’t Jump to Any Conclusions Before jumping to a conclusion about the value of your agency based upon the multiples in Exhibit A, it is important to take a step back from the theory behind the valuation of an insurance agency and understand that values assigned to agencies are, more often than not, influenced by the agency’s individual characteristics and the potential group of buyers. Each respective buyer pool has its own set of criteria and rationale in evaluating a particular candidate. However, specific buyer groups can be discerned, which can provide insight as to how pricing metrics are affected given each circumstance.

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For statistical segmenting purposes, there are three major categories (all private) that fit most agency deals: 1. Platform Agency: This category generally represents agencies predominantly comprised of a significant middle market book and/or specialty book. These agencies usually have consistent organic growth, well-established territory, brand recognition, seasoned professionals, potential market penetration, and a scalable infrastructure. In most cases, higher multiples are ascribed to Platform Agencies resulting in a valuation premium. 2. Fold-in Agency: This category generally represents agencies where their book is predominantly comprised of small commercial business as well as personal lines. More full-scale integration with the acquirer is a common characteristic in these types of transactions. Integration may include the seller reporting to a regional management structure, to the complete elimination of backroom Exhibit B functions such as IT, Source: Dowling Hales. accounting, human resources, marketing, and other support operations. Fold-in acquisitions, in general, attract lower multiples than Platform Agencies. 3. Small Shop Agency: This category of agency has very few employees, the owners are usually the key producers, and operate a book of business mainly comprised of small main street commercial business and personal lines. These agencies tend to have very little to no new account growth and therefore typically rely on growing with their existing customer base. Additionally, this agency category does not have the personnel, scale, or infrastructure to support consistent revenue and profitability growth. These agencies generally attract lower multiples than 1 and 2 above. What’s happening in Virginia? Large public insurance brokers command significant market share with respect to the Fortune 500 customers headquartered in Virginia. Middle market commercial business is well dispersed between a few private regionals and former independent regionals that have been acquired by middle market aggregators. The most active aggregators in Virginia include BB&T, Bankers Insurance, Brown & 14

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Brown, USI and Marsh. Also, Wells Fargo has assembled an impressive on the ground presence through the acquisitions of Acordia and Wachovia. Small Shop Agencies continue to dominate in terms of numbers and remain focused on meeting the insurance needs of privately-held, main street businesses in addition to catering to individuals by selling homeowners, auto and other personal lines coverages. Target platform agencies available for potential acquisition in Virginia are limited in supply. There is a larger supply of fold in agencies and a very large supply of small shop agencies. An examination of year to date transaction confirms that deal activity in Virginia has been limited with only two reported transactions. This is a significant drop-off from 2011 where there were nine reported transactions and significantly below the most active states as indicated in Exhibit B below.

About the Author Stephen Scontras is a Senior Vice President with Dowling Hales. He has over 25 years in the insurance sector and has spent considerable time with insurers and agencies, gaining invaluable production, underwriting, operational, and management experience. During his time with Dowling Hales, Stephen has worked with middle market brokers and agents by providing them with buy side and sell side assistance. About the Dowling Group of Companies Dowling Hales, LLC, together with its broker-dealer affiliate, Dowling Hales Securities, LLC, a member of FINRA. Dowling Hales offers a broad scope of advisory services, including merger & acquisition consultation, private placements of equity and debt capital, valuations and due diligence review services. Contact Stephen Scontras Alexandria, VA Office: 771.970.5383 Cell: 202.230.4944 Email: sscontras@dowlinghalesgroup.com

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MARKETING M&A VALUE:

Communications Key to Leverage Successful Mergers

By Mike Gray and Andrew Ryan*

any sectors of the insurance industry, like much of the economy, remain stalled during this rocky economic recovery. There is some growth, but the recovery remains slow. Likewise, M&A activity among insurance agencies is muted. However, as Deloitte predicts in its 2012 M&A Outlook for the insurance industry, the time for an uptick in insurance M&A appears to be ripe, especially among smaller agencies. As independent insurance agencies in Virginia and across the United States consider potential avenues for expansion and growth, M&A activity remains a viable option. Mergers and/or acquisitions among insurance agencies offer a number of opportunities for growth and business development. Although many agencies focus on the financial and logistical components of such moves, the ways in which a merger is communicated internally and externally is essential to its success. If handled properly, a merger announcement gives an agency a reason to reach out to current and potential clients, generates excitement among employees, and positions the newly merged firm as a leader in its field that can better serve clients. In short, there is a great deal of marketing potential in mergers. Unfortunately, many agencies do not take advantage of this opportunity or fall victim to the perils of a botched announcement. As this article will outline, agencies should approach merger announcements and communications in three phases. 16

THE BIG â&#x20AC;&#x153;Iâ&#x20AC;? VIRGINIA â&#x20AC;˘ Winter 2013

Phase One: M&A Communications Planning As with any marketing effort, the initial phase must focus on planning. Agencies involved in a merger should develop joint merger communications plans. These plans will outline the goals of the merger and how the merger and newly combined firm will position itself. There are a number of components that comprise a strategic merger communications plan, but five key aspects should be included in all plans. First, the plan should include key messages and talking points. These messages will frame any marketing, public relations, and/ or business development activity about the merger. These talking points will ensure consistent communication that reinforces the messages you want to send. Second, the plan should outline all the target audiences of the merger. Who do you need to speak to about the merger? Who does it affect? Agencies must understand their target audiences and how to craft messages tailored to their specific needs and concerns. Third, the plan should include the tactics that will be used to reach your target audiences. What type of marketing and/or public relations will be most effective to get the attention of your audience? These tactics will be the primary focus of your strategy. The tactics will detail the tools you will use to disseminate your key messages to your target audiences. Fourth, the plan should identify who will serve as spokespeople for the agencies during the merger process. These spokespeople should receive media training

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and be familiar with the key messages. The plan also should indicate who may serve as spokespeople after the merger is complete. Although not necessary, many firms identify multiple spokespeople depending on the type, size, and variation of target audiences. Fifth, the plan should include a timeline of the merger process and when various marketing efforts will be deployed. A clear timeline will ensure that any marketing activity is coordinated and strategic, rather than disorganized and ineffectual. Merger communications plans should be developed by members of an in-house marketing team or external marketing and communications professionals. Although drafted by individuals with marketing expertise, it’s critical that members of the agency’s leadership team are involved in the merger communications planning process. Those leaders must provide buy-in for the plan to be successful. They must show support for the plan and ensure that they understand the plan’s key messaging, especially because they are likely to serve as spokespeople internally and externally. When moving through the merger process, many businesses do not consider their marketing plans until they near the conclusion of the merger. This is a mistake. Merger communications planning should begin at the onset of any merger discussions. If necessary, marketing professionals can be bound by confidentiality and/or non-disclosure agreements, but they must be brought into the discussion early. The reason for this is that they are trained to identify potential challenges and offer a valuable perspective as to how the merger will be perceived by internal and external audiences. Developing a plan early ensures that an agency or both agencies are prepared for any public announcements. Also, many merger communications plans include tactics and messaging if the negotiations unravel. Many businesses, including insurance agencies, have approached other businesses about a merger or acquisition. In many instances, those negotiations are successful and a newly merged business emerges. However, there are just as many instances in which negotiations fall apart or two sides cannot reach an agreement. Agencies must be prepared for this possibility. Having a strategic merger communications plan in place can ensure an agency is fully prepared and able to respond quickly if the merger negotiations are leaked or if an announced merger is not finalized. Regardless of the outcome, whether positive or not, a strategic merger communications plan is a critical tool that all agencies should develop early in the merger negotiation process. Phase Two: Implement the Plan Once a merger communications plan has been developed and approved, attention turns to the implementation. The plan should create a framework and guidelines for any marketing and communications efforts concerning the 18

THE BIG “I” VIRGINIA • Winter 2013

merger. Although the plan provides guidance, agencies must remain flexible. When implementing the plan, consider the following marketing strategies and tactics: •

•

Collateral materials: Develop a new set of marketing materials that incorporate your key messages, highlight your agency’s areas of expertise, showcase the benefits of the merger, and recall the strong foundation the previous agencies offered when they merged to create this even better agency. Collateral materials include brochures, fliers, direct mail pieces, e-mail fliers and e-blasts, etc. Public relations: Identify potential news outlet to contact about the merger. The two most newsworthy events in the merger process is the public announcement and when the merger has closed. Use these events to generate media hits. Consider offering a reporter access to agency leaders to discuss the new agency and merger process. Website: You should ensure that an updated website is ready to launch as soon as the merger is completed or you have a set timeline on when a new site will become public. After the merge announcement and as the process unfolds, begin making changes to the current agency websites to reference the merger and incorporate some of the key messages. After the merger is complete, the previous agency website(s) should be shut down and directed to the new site automatically. Press releases: Develop compelling and succinct press releases to share the news with media outlets and other target audiences. Press releases can make great content for websites and the language can be repurposed for other marketing materials. Social media: Depending on your agency’s use of social media platforms, can be effective channels to communicate a merger and its benefits. Social media provides another way to connect with your target audiences, especially platforms like LinkedIn, Twitter, and Facebook.

A merger communications plan should be executed during the merger process, as needed, and should last about 90 days after the merger’s completion. The plan should focus on the merger announcement and launching the newly merged or expanded firm. There will be significant attention on the merged agency and that attention can be leveraged to accomplish the following goals: •

Highlight the consistency between the previous agencies and the newly merged agency: Create links between the culture and success of the pre-merged agencies and the value and potential of the newly

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expanded or merged agency. Linking to the past will help retain employee and customer loyalty. It also emphasizes how the new firm will build on a strong and existing foundation of success. Showcase the strengths of the new agency: Use this window of attention to showcase the key strengths of the new firm. Explain in a clear and succinct manner why the new or expanded firm is better for current and potential clients. What can they gain from the merger? Position the new agency as a leader in its field: Now that you’ve identified the benefits of the new firm, work to position yourself and the firm as a leader. Highlight your experience and expertise. Offer current and potential clients resources on which they come to rely. Increase awareness for the agency and its services: It’s absolutely critical not to squander this opportunity. Don’t simply maintain the status quo once the merger is announced and completed. Make a big deal about it. This is an opportunity for you to be in front of the public and clients. Use it to brag a bit and increase your exposure for people who may not be familiar with your agency.

It’s also important to note that the timing of a merger announcement and completion is a key, but often overlooked component of merger communications. Ensure that you are prepared to discuss the new firm and its benefits before any announcement. Marketing efforts and materials should be developed and ready for distribution, especially in time for the merger’s completion. Finally, and perhaps most importantly, don’t forget about internal audiences. Much attention is focused on external communication with clients, prospects, competitors, and the public at large. Yes, these audiences are important. However, agencies and their leadership teams should focus first on their internal audience: agents and employees. These individuals are your front lines for customer service and support. If they are unhappy or confused, the mixed messaging and signals that they send could undermine the benefits of the merger. Always ensure that internal audiences understand the merger, what it means for them, how they will benefit from it, and how they should discuss it with any external audiences. Agencies should share certain marketing messages with internal audiences and even consider having an employee serve as a spokesperson. Throughout the merger process, leadership teams should speak with employees. After the process is complete, the leadership team for the newly merged or expanded agency should host a town hall meeting with employees and travel to all the agency offices (if the agency has multiple offices) to meet with employees in person. Before a merger and its completion are announced publicly, leadership teams must discuss the news with employees first. They should not find out about it on the news or from 20

THE BIG “I” VIRGINIA • Winter 2013

someone who is not based at the firm. Share the news with employees once you are ready to announce publicly and do so soon after talking with employees (in case the news is leaked), but always brief internal audiences first. Phase Three: Longer-Term Marketing Campaigns The newly expanded or merged agency should capitalize on the marketing surrounding the merger announcement and completion by developing a longer-term marketing plan. This plan can build on the messaging, target audiences, and tactics outlined in the merger communications plan. This plan should outline the agency’s marketing and business development goals for the next 6 – 12 months. In addition to the marketing strategies and tactics outlined above, consider these tactics for ongoing marketing campaigns: •

•

Branded content: Create content that is branded by your agency and provides a resource for current and potential clients. Branded content can be a powerful tool to highlight your expertise. Examples include reports, surveys, white papers, blogs, infographics, and contests. Q&A releases: This type of press release or collateral material takes the form of a Q&A and allows for discussion of an important issue in depth, while retaining some control of the messaging. Awards and rankings: Awards and rankings have great marketing and business development value. They can become strong credentialing devices that highlight your agency’s expertise. Develop a target list of awards and monitor for award announcements and calls for nomination. Interviews: Serving as a source for a news story can underscore particular areas of expertise. Identify potential reporters and news sources to become a source. Become a resource for a reporter by offering to serve as a source on a specific topic or suggesting a substantive story idea for an issue the reporter should cover. Article writing: Guest columns, also referred to as bylined articles, will position you as a thought leader and allow you to retain significant control over the content. These types of opportunities also provide more space to address topics of interest. Take a balanced approach when generating interview and article writing opportunities. Speaking engagements: These speaking appearances are a great way to increase your exposure in a particular industry. They also allow you to discuss an issue in depth. Targeting potential clients through speaking opportunities and using them to network are important aspects of any speech or presentation.

The announcement and successful completion of a merger can generate a significant level of momentum to position the new or expanded agency as a leader in its field. However, that momentum needs to be supported. Crafting a longer-term campaign can reinforce the messages developed during the merger process and build upon progress made during the process. For example if a newly merged agency wants to position itself as a leading provider of unique and flexible life insurance policies, it should develop and implement a multifaceted marketing campaign that targets current and potential clients in this area. This campaign should highlight the agency’s expertise and service offerings. Although the agency should have included similar messaging in its communications concerning the merger, the effects will be short lived after the 90 day merger marketing campaign ends. To build a sustainable and growth-oriented practice in this area, the agency will need to continue its marketing efforts. Conclusion As more independent insurance agencies consider expanding their business through acquisitions or merging with other agencies, agency leaders must not overlook the potential marketing opportunities presented throughout the merger process. Mergers and expansions can generate significant interest in an agency and provide a chance to connect with

current and potential clients about how the new or expanded agency can better serve them and/or has new service offerings. At the same time, if merger communications are not properly addressed, the potential for misunderstanding and confusion could undermine the goodwill marketing potential of a merger. Thus, it’s critical that agencies consider marketing and communications early in the merger process. Develop a strategic plan that outlines key messaging, target audiences, and tactics. Implement that plan during the merger process and pay particular attention to internal audiences. Agencies also should consider longer-term marketing campaigns for key service offerings to reinforce marketing efforts from the merger. Close attention to detail and thorough planning can ensure that an agency’s marketing efforts surrounding a merger will support its growth and business development goals. * Mike Gray and Andrew Ryan are partners with Commonwealth Partnerships Group, a full-service marketing, public relations, and community relations firm. Based in Richmond, they work with businesses throughout Virginia to develop and implement strategic marketing campaigns and have extensive experience with merger and acquisitions communications. They can be contacted at mgray@ cpgroupllc.com and akryan@cpgroupllc.com.

Winter 2013 • THE BIG “I” VIRGINIA

UCHECKLIST

Mergers and Acquisitions

This is a suggested list of issues to consider during mergers and acquisitions. It should not be relied upon as the sole source for reviewing and implementing mergers and acquisitions. Be sure to consult with qualified legal counsel. h Yes h No

1.) Has a careful and thorough due diligence been completed on the agency, brokerage, or book of business being acquired?

h Yes h No

2.) Has there been a thorough investigation and analysis of why the agency for sale is, in fact, up for sale?

h Yes h No

3.) Is the selling agency’s retention lower than average?

h Yes h No

4.) Are the current agency-company relationships in jeopardy?

h Yes h No

5.) Does the selling agency have a higher than average staff turnover?

h Yes h No

6.) Is there either frequency and/or severity of E&O claims against the selling agency?

h Yes h No

7.) Have outside contacts and sources been discreetly tapped to determine relative strengths and weaknesses of the agency for sale?

h Yes h No

8.) Have the documentation and file retention practices of the selling agency been audited?

h Yes h No

9.) Have you engaged a lawyer experienced in handling the purchase and sale of insurance agencies?

h Yes h No

10.) Does the purchase contract include indemnification language protecting your agency from claims relating to negligence of the seller before the sale closing?

h Yes h No

11.) Has your E&O insurer agreed to accept the risk of the acquired or merged operation?

h Yes h No

12.) Has a timeline been defined to fix gaps or non-concurrencies in coverage, inadequate liability and/or first-party limits and/or other potential coverage deficiencies in an acquired agency’s book of business?

h Yes h No

13.) Have the necessary resources been confirmed as available to service the acquired accounts on a basis that is consistent with your agency’s current level of service?

h Yes h No

14.) Has the selling agency purchased tail coverage for the protection of the acquiring agency or brokerage and its own protection?

h Yes h No

15.) Has a timeline been defined to integrate the acquired agency into the existing practices and procedures of your agency?

THE BIG “I” VIRGINIA • Winter 2013

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Avoiding Michael Scott –

Steps to Successful Recruitment

By Lisa Ritchie, Executive Recruiter, Affinity HR Group

nyone who has watched NBC’s The Office knows how annoying Steve Carell’s character, Michael Scott, was. Could you end up with a Michael Scott on your sales staff? Think about it. If the character on the TV show walked into your office today for job interview, he would present himself quite well – confident, charismatic, persuasive and experienced in sales – despite the fact that he is a walking disaster with no competencies and too many liabilities to list. Let’s face it, hiring top talent is no simple matter, and avoiding the Michael Scotts in recruiting is a serious challenge. Fortunately, there are some simple steps you can take to improve your chances of finding the right people for the important positions you need to fill. 1. Carefully analyze the job duties and craft a solid job description/job posting – Put some time into it! A clear, concise job description is the first critical step in hiring the right person. It will serve as your guide to everything that follows in the recruitment process – from advertising the job to evaluating candidates to making final hiring decisions. As you craft the posting, prioritize the job requirements, focusing on the “must have” skills and experience first. Plan to use your job posting as your touchstone to measure each candidate throughout the process. Consider the work that is currently expected in the role and imagine what the position might require in the future. Now is the time to think strategically! 26

THE BIG “I” VIRGINIA • Winter 2013

2. Cast a wide net! We live in the electronic age so make the most of it. There is no shortage of job boards like Monster.com and CareerBuilder. They are not cheap but they deliver results and are a must. The fact is that the vast majority of job seekers – and even many who are not actively seeking but are “just looking” – are using these sites, so posting jobs on them is effective. But don’t stop there. LinkedIn, Facebook, Twitter, and Craigslist can all be effective tools in your recruiting arsenal and they’re generally free to use! While casting a wide net, also think about the insurance industry. There are quite a few LinkedIn groups specifically for the insurance industry where you can post job openings. And don’t forget to forward your job posting to clients, friends, and business partners – because 70% of jobs are filled with the help of a personal connection. Bottom line: Don’t keep your open position a secret. 3. Get organized Whether you are hiring just one employee or the first of many, a recruitment process, plan and checklist can help you stay on track. It will make it easier to manage each candidate throughout the process. Consider establishing a interviewing committee that includes formal and informal leaders in your company. Don’t forget to keep in close regular contact with your candidates and treat them with respect – rest assured, they will share their experiences and feelings about your company whether or not they are hired.

4. Ask the right questions Here’s where that job description is going to really help you. Use it to craft your interview questions around the critical skills for success. For example, if one of the critical functions of the job is customer service, you might ask the candidate to give a specific example of when he/she had to address an irate customer. How did it turn out? What did the candidate learn from that experience? These are called Behavioral Event Interviewing techniques and they are highly effective because past experiences are a great predictor of future behavior. 5. Screen your candidates Once you have identified your top candidate(s), you need to verify their skills, experience, and credentials. Don’t take anything at face value. Always request work references, preferably from former supervisors, and ask questions designed to uncover more about the candidates’ skills – and, again, use that job description as your guide. Yes, we know the candidate is only going to have you call people who will give them positive reviews. But you can still get valuable information from these sources if you ask targeted questions. Don’t be afraid to ask about weaknesses and areas for improvement. Also, consider a style assessment such as DISC or TTI Style Assessment or Caliper – all of which will give you a better understanding of your candidate’s preferences, strengths and weaknesses. These are highly effective and can really help you select the right people and get them in the right positions. Once you’ve been through all the above steps and are ready to make the hire, don’t forget to conduct a proper criminal background check. Remember, if you hire someone with a known criminal history who goes on to cause harm, you can be sued for “negligent hire.” Why take that risk when background checks are cheap, quick and easy to conduct?

6. Avoid bias Remember Michael Scott? His goal in the interview is to relate to you in some personal way that has nothing to do with his ability (or inability) to handle the requirements of the job you are filling. Accordingly, when making your assessments, rely on that job description and do your best not to stray from it. Using criteria that are unrelated to the job duties can not only result in a mis-hire, but it can land you in a heap of legal trouble as well. So stay focused on the job description and the skills that are necessary to be successful in that job. It’s true, recruiting is not easy, but it isn’t rocket science either. By following the six steps listed above, you will be well on your way to finding the right talent for your company and, with any luck, avoiding Michael Scott.

Winter 2013 • THE BIG “I” VIRGINIA

When Mergers and Acquisitions By Al Diamond

very large agency we know is involved in acquisitions or wants to be. Most medium size agencies are seeking acquisitions or mergers to strengthen themselves. Many smaller agents find themselves continuous targets of other agencies’ acquisition marketing, getting some welcomed and other unsolicited offers that sometimes sound too good to be true. What we don’t hear is that 50% to 65% of all mergers and acquisitions actually result in decreased values of the remaining or combined entities. How can that happen? Here’s a recent example in which we were called upon to value a combined operation after an acquisition: A $3 Million (value, not income) agency purchases a $1 Million (value) agency. One year later the combined business is valued (the same way each was valued previously, based on the entities’ future earnings potential). It is valued at $3.5 Million, a $500,000 loss of value in one year. WHY? To find out why this happens, we collected what some of our clients told us when they invited us to help them re-connect with growth, profit and value AFTER each had implemented a business combination (merger or acquisition). 1. So much time was taken by management in the consolidation that we forgot to sell some insurance. 2. In the attempt to “integrate” one organization into a larger organization we destroyed the creativity and chased away the innovators that attracted us to the acquisition in the first place. 3. We never communicated properly with our employees and with our customers. We knew what we wanted to do in the merger, but we never shared our goals and strategies with the folks we count on most to make us successful. 4. We consistently searched for and found weaker or failing companies that we could get at a bargain. They imbued us with their negativity. It turns out that it wasn’t such a bargain after all. 5. We were two companies, each facing their own institutional problems, that merged creating a single, larger troubled company. 28

THE BIG “I” VIRGINIA • Winter 2013

DESTROY VALUE How do you avoid this scenario and still grow through mergers and acquisitions?

1. Plan your organizational growth STRATEGICALLY. Don’t even consider merging or acquiring unless you have determined that it fits your long term goals as an organization. What’s “long term”? At least five years and often 10 years. Does it make any sense to take on the responsibility for a merger or acquisition if you have just a few years before you want to retire? It may sound great to retire with a larger book of business under you, but are you ready for the work of integration at this stage of your career? Do you have the staff to handle a transaction now, and again when you retire? Do you have your own perpetuation plan in place? However, if you have a cogent Strategic Plan that identifies the market trends that you are pursuing (product, carrier, lines of business, geography) and expansion through merger and/or acquisition will help you reach those goals, then go for it! 2. The only agencies who should be considering mergers or acquisitions are ones who already understand their customers’ needs and are meeting them. Don’t lead with your weaknesses; lead with your strengths. An agency ready to acquire or merge has customer retention rates consistently above 90% (better at 95%). This means that you have strong customer loyalty and they “want” to stay with you. You lose them when they retire, die or sell their businesses. An agency ready to buy and merge experiences growth through referrals and wants to multiply their referral strategy by forming similar relationships with a whole new set of customers for whom they can offer similar services. 3. Benchmark yourself. Do you know how you stack up against similar sized agencies (overall, or in your State)? Do you keep records of your own productivity growth historically? If you don’t know yourself, how will you know if an association with another firm improve or decrease your metrics? We’ve known for years that we pay attention to what we measure. So if all we look at is commission dollars, we might beat ourselves unmercifully when our revenues decline in a period of soft insurance economy, during which the market

depresses by 10% or more in a given year. Agencies that pay attention to their own metrics understand and react to market fluctuations but measure the real signs of growth or shrinkage - customer counts. 4. Are you like the buggy whip manufacturer who bought up other failing buggy whip manufacturers as the automobile gained leverage on the personal transportation industry or could you expand into other categories of your industry? Most of our readers are insurance agencies. Have you looked to your merger or acquisition appetite for other dimensions in our industry beyond personal and small commercial lines property/casualty insurance? If not, consider Dimension Extension within your strategy for growth. 5. Don’t acquire or merge beyond your physical (or staff) capabilities to manage that growth. We encounter agencies every year that acquired or merged with the “hope” that they would gain the skills and talent to manage the resultant organization because they knew their own weaknesses. If you don’t have the strength to integrate and manage the combined operation, do your due diligence (including long term employment commitments) for the management and other talents needed to bolster your organization. 6. Define your technical competence before you venture into acquisition. We recently encountered a young personal lines agent who had the means and desire to acquire. But he wasn’t computer literate enough to understand his own basic agency management system. Nor did he have (or understand) the need for Internet presence for agencies expecting to remain in the personal lines business for more than one more generation. The more technically competent you are and the more you understand the relationship between internet technology and the customer in a service industry like ours, the more likely you are to make and implement successful acquisitions. The world is changing – quickly. You needn’t change to continue your career. But you can’t grow by acquisition or merger without a deep understanding of technological strategies around customer portals and remote access service. There is a subset of large, medium and smaller agencies whose owners and drivers are prepared to plan for growth instead of following every scent toward 30

THE BIG “I” VIRGINIA • Winter 2013

potential acquisition or merger “prey”. The untrained ‘nose’ may find that the scent can turn into a vicious odor once they pounce on their target. But if you take the time (before you acquire or merge) to strategically plan for your growth; if you understand and please your current customers; if you know your own metrics and benchmark yourself to assure that you are efficient and effective enough to enjoy value growth in a merger or acquisition; if you have examined your products and what will be the successful insurance products (or financial security products) of the future; if you have strong management and staff and if you are technically savvy; you are well prepared to enter the fray. Seek a merger or acquisition and gauge your success in the baseline terms of value to you over time. Otherwise, gain knowledge and get assistance BEFORE the acquisition or merger to keep from following a proverbial “skunk” down a hole (your worst case scenario occurs if you actually catch it). 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 20 years. Call 800-779-2430 for information about the content of any of these articles or PIPELINE subscription Information: E-mail: info@agencyconsulting.com Website: www.agencyconsulting.com Used with Permission.

Lessons From

Mergers Acquisitions

By Herb Greenberg, Ph.D., Founder and CEO of Caliper

s we emerge from the toughest years that many of us have experienced in quite some time, many companies are analyzing their true strengths and weaknesses. Many of us had to restructure, downsize and even merge into new, more diverse organizations to help us make it through. Immediately after a merger, the newly formed organization enters one of the most difficult transition periods imaginable. It is a time of enormous upheaval. At least on corporate culture and many jobs are at stake. It is during this time that the people side of the equation comes into play, when the vision and possibilities of the new organization captures the imagination of everyone within the organization - or does not. This transition period is when management must quickly determine, foster and inculcate the values, philosophy and style it wishes to see emerge. In a very brief span, management has to establish the operating environment and determine how the new organization will be perceived by its employees, clients and the public. At the same time, employees face the stress of an unknown situation. Some employees may leave, either by design or their own decision, and the rest decide whether they want to play the new game under the new rules. Often these decisions are made amid confusion and apprehension. While trying not to set off too many stress signals, management has to determine who has the necessary skills and motivations to help take the new organization forward. It is usually in this frantic, confused environment, immediately after the new organization is created, that, with little forewarning, the most important people decisions are made. These often hastily-formed decisions irreversibly imprint upon the newly-created organization. Not surprisingly, most newly-merged organizations are simply not prepared for this transition phase. By the very nature of two companies merging, the process is never as smooth as a dance. But there are some things the 32

THE BIG “I” VIRGINIA • Winter 2013

new management can do to make sure that the unfolding arrangement does not look like a wrestling match. The key challenge for management is getting the opportunity to see people in their best light, so that the most intelligent judgments can be made without offering any false promises. Quickly identifying the individuals who can help steer the organization onto a new course is a difficult assignment. One study has found that almost 60 percent of the top managers of acquired companies leave within five years of the acquisition. In some cases, the management team of the acquired firm is the single most valuable resource to be acquired. Therefore, it is important to take aggressive steps to ensure that key people are not discouraged by the acquisition. And, it is not simply a matter of keeping the best managers, but how you keep them. Conflicts can arise from a number of issues, not the least of which is: What do you do with very talented professionals who are accustomed to holding positions of power and responsibility? Can they work together in a collaborative effort? How can they focus their energies on helping the newly formed company through this difficult transition, while staying ahead of the competition? How can they obtain insights, information and objectivity about the new people they are supposed to manage? How can they motivate individuals to collaborate and adapt to the new environment? If you don’t know the inherent strengths, limitations and motivations of each of the key managers, the deal will go sideways. So, who should you look for? Ultimately, those who can help a new venture rise to its next level bring technical expertise; a desire to sign onto a new vision and help mold a new, emerging culture; an ability to learn quickly; and an ability to inspire others while being able to keep one eye focused on achieving new goals. The process of selecting the final management team is an ongoing one which focuses on assessing each senior manager’s strengths and weaknesses; not so much their

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technical and functional skills as their potential to get along and cooperate productively with their counterparts from the other company, and their ability to provide a strategic viewpoint on managing the merged operations. Still, there is no simple formula. By its nature, it is a time of reassessment. Some people just can’t psychologically make the shift, and others do not have the necessary skills. There are bound to be fears and conflicts throughout this volatile period. The best thing you can do is let everyone know you understand this is a trying time, then be clear about the goals of the new venture, and how you will approach those goals. You have to get people focused on solving the external problems, rather than worrying about their seating arrangements. By setting a tone that is forthright and caring, and making the transition as short as possible, you will be better able to win cooperation and trust so that an accurate assessment can be made of everyone’s strengths, potential and abilities to contribute to the emerging organization. Ultimately, leadership must communicate openly and consistently to create a vision of the newly emerging organization that is so appealing everyone will want to sign-up.

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Winter 2013 • THE BIG “I” VIRGINIA

How to Properly Position an Agency When Planning to Borrow from a Bank

By Robert J. Pettinicchi Executive VP and Chief Credit Officer, InsurBanc What Agencies Can Expect Accessing Bank Capital in the Current Credit Crunch Every morning, stories of financial sector gloom and doom fill the airwaves. A slowing economy has affected the ability of individuals and businesses to pay their bills. The term “credit crunch” has become a part of the daily lexicon, with loan losses and foreclosures at banks reaching record highs. Experts now believe there to be other problems on the horizon with consumer, credit card, and commercial business and real estate loans. Bank failures and increased regulatory pressure stress the financial system, restricting credit. Only high quality, well-prepared, and creditworthy individuals and businesses will find credit available in this crunch. Throughout my career, I have observed a “flight to quality” when credit gets tight. Lenders are less willing to “stretch” to make a loan. Few are willing to underwrite loans in an industry they do not fully understand nor are completely comfortable with. Unlike “traditional” distribution and manufacturing businesses, an insurance agency has a unique business model with low capital requirements and no significant working capital needs (unless there is an acquisition opportunity). But when capital is needed to seize an opportunity, such as the purchase of a competitor, the buyout of a retiring principal, or the lift-out of a business unit, the capital required can be substantial. Since many principals may never have borrowed from a bank, they may not be familiar with how credit is gained. While not a traditional borrower, insurance agencies still are desirable clients to banks because they tend to be substantial depositors. Banks will preserve this one-way relationship by occasionally making small loans to agencies, 34

THE BIG “I” VIRGINIA • Winter 2013

impressing the agency principal with the “good relationship” he/she has with the bank. But a good test for your banker is to ask if your agency would qualify for a large loan to make an acquisition. If his or her eyes gloss over, you may need to re-think your bank relationship. Understanding the Agency Business Bankers prefer to make loans to more “traditional” borrowers with tangible assets. Thus, in difficult credit environments, working with a lender who understands your business becomes more critical for obtaining credit. Despite many banks’ limited credit appetite in times of tight credit, loans to insurance agencies can be a good bet because of good repayment histories and predictable agency cash flows. Expect all lenders to require financial information for a loan application. Putting together this information should be easy for a well-run agency, but many owners neglect this area. The easiest way for a bank to take a pass on a loan is the inability of an agency to provide financial information. Also, a banker will treat your loan inquiry as suspect if a request for information is met with: “Why do you need that?” Such responses can precipitate a loan denial. Types of Loans Banks Offer Assuming your bank would be willing to make a loan to your agency secured by the assets of the business (rather than based on mortgages on the principal’s residences) here’s what you can expect: Acquisitions. For most acquisitions or internal purchases, a fully-amortizing five to seven-year term loan is standard. Usually an acquisition will require 30% equity in the

Winter 2013 • THE BIG “I” VIRGINIA

transaction (which may consist of existing business value). In a perpetuation, anticipate bank financing to account for about 60% of the total requirement. The remainder may take the form of a note from the seller or some other deferral. If an acquisition needs a 10- or 15-year repayment to cash flow, it is not an appropriate risk for a bank, nor a good investment for the agency. Credit Lines. A line of credit may be extended to agencies to augment working capital. Since the working capital need for most agencies is minimal, most line limits are small, representing approximately two-months of commission revenue, or less. Often lines are used to prepay expenses or pay bonuses prior to the end of the fiscal year in anticipation of profit sharing to be received. Producer Finance. Loans to finance new producers have the look of both a line and a term loan whereby a line is advanced to cover the costs of the new producer during their ramp-up period. At the end of 12-18 months, the line balance is converted to a term loan to be repaid over three years. All bank loans will have covenants, which are promises made by the borrower to the bank regarding the submission of financial reporting and other monitoring factors used by the banks. During this credit environment, financial covenants may still be negotiable, but most representations and standard terms, such as personal guarantees and default provisions, are non-negotiable. 9 Questions To Ask Yourself Before You Ask for A Loan Agency principals should ask themselves key questions to check their strength in accessing capital: 1. Is your agency profitable as a result of receiving profit sharing from your carriers or would you report a loss if the bonus was reduced/eliminated? Well-run agencies, like well-run households, need to live within their means and treat bonuses as windfalls, realizing that they may not always be received. 2. Is your agency consistently in trust? Contrary to popular belief, the balance sheet does matter! An out of trust agency can imply poor financial management (or worse, dishonesty). Related is having adequate working capital. A well-run agency should have 30 days’ of working capital. Stripping the agency of cash only benefits the owner in the short run. 3. Does your agency maintain good financial records and does your accountant produce a financial statement that is reviewed, or at least compiled? While tax returns are useful, bankers prefer to also receive a full set of financial statements with opinion and footnotes. You’ll need to provide three years of financial statements. Be prepared to provide production summaries for the last 36

THE BIG “I” VIRGINIA • Winter 2013

fiscal year and the current trailing 12-month period. This report should be provided by customer, line, carrier and producer. Also, provide actual insurance company data (production reports or experience reports) from your top five carriers to confirm the data. 4. Do you use the capabilities of your agency management system and compare data with the Big I’s “Best Practices” results? 5. Have you borrowed money from your agency? Pay these loans back, as your banker will not be pleased to see these. Also, if you take a bonus consider loaning some money back to the business to repay debt or replenish working capital. (Bankers like this, particularly if the loans have no set repayment terms.) 6. In a period of lower margins, have you increased your salary or draw? Is spending on your lifestyle reasonable? 7. Are you actively managing your accounts receivable, or are you supplying credit to your clients? 8. Is your balance sheet swollen from an accumulation of unreconciled carrier payables? This is a problem that reflects sloppiness and only gets worse (and more costly to correct) the longer it is ignored. 9. Have you maintained a very good personal credit standing? You will be required to personally guarantee a bank loan, and will likely pledge your stock in the agency as added security. The creditworthiness of a business owner is one of the best indicators of the propensity to repay a business loan. Reducing Risk A prudent agency owner will seek to borrow the least amount of money for the shortest reasonable period. This will reduce risk, reduce cumulative interest paid, and keep borrowing capacity available for future opportunities. You need to ensure that your business is on solid financial footing to gain access to capital. However, you will also need to present your business in the best light to convince a lender that your agency is a good risk. As professional risk managers, agency principals must realize that an inability to access capital puts their own business at risk. This threat can be lessened significantly if one understands how to properly position their businesses to borrow from a bank. Uncertain times always create opportunities for those in a strong financial position who can readily access capital. This article was reprinted with permission. Copyright 2008 Insurance Journal. All rights reserved.

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Winter 2013 • THE BIG “I” VIRGINIA

ACORD commissioned law firm report advances e-Signature and e-Delivery opportunities ACORD has contributed an extremely valuable resource to the industry by commissioning the law firm Locke Lord to produce “Guidelines for e-Signature and e-Delivery in the Insurance Business.” A copy of the report can be found on our website at www.iiav.com under Member Resources and Technical Bulletins – log in and look under the letter E.

By Jeff Yates, ACT Executive Director jeff.yates@iiaba.net Catalyst for Agency, Carrier and Vendor Action I hope this excellent report will serve as a catalyst for agencies to incorporate electronic signatures and e-delivery of electronic documents into their workflows in order to deliver a better customer experience. I urge carriers to encourage their agencies to implement these improved workflows and to provide them with guidelines that outline their expectations with respect to electronic signatures, electronic documents and e-delivery of these documents. This will facilitate the ability of agencies to choose the vendors most appropriate for them and to implement these tools and workflows consistently across their agencies. Finally, I encourage agency management system vendors to consider providing electronic signature capabilities in their systems, as well as to integrate with the electronic signature tools that are being used by their agency users.

“Electronic signature” is the better term to use when referring to a consumer’s signing a document online, because a “digital signature” can also mean a method by which two devices establish a secure, recognized connection. •

ESIGN & UETA permit the use of electronic signatures and electronic records even for “special consumer disclosures,” which are those contained in the insurance code that specify that the disclosure be made to the consumer in writing and be signed by the consumer (such as disclosures about uninsured/underinsured motorist coverage). ESIGN and UETA also require that the electronic record of these “special consumer disclosures” be provided or made accessible to the consumer for later reference.

•

The statutes require that the party initiating the e-signature and or e-delivery obtain both the consent of the consumer to complete the transaction electronically and the consent to receive disclosures electronically. Several states also require that the consumer reasonably demonstrate the ability to open an electronic record in the case of “special consumer disclosures,” so it is a good practice for the agent to determine this with the consumer at the time the agent receives the other consents from the consumer.

•

In addition to getting the consumer’s consent to sign a document using an electronic signature, agencies need to employ a process to authenticate the identity of the signer. This is often done by requiring the signer to enter some information that only the particular consumer and agency know. The agency’s electronic signature tool should also create an audit trail surrounding the

Key Report Findings Below, are some of the key takeaways that I got from the Locke Lord report: •

•

Both the federal ESIGN law and UETA, the state model law adopted in 47 states, permit the use of electronic signatures, electronic delivery and electronic records to satisfy the “in writing” legal requirements for transactions and permit companies to satisfy statutory record retention requirements solely through the use of electronic records. The law firm’s report describes these two laws and how they interrelate when both are in effect in a particular state. The report contains a very helpful glossary that defines both electronic signatures and digital signatures.

THE BIG “I” VIRGINIA • Winter 2013

signature process and apply a Tamper Seal to the electronic document upon signing, so that it cannot be altered. •

ESIGN & UETA only provide legitimacy for electronic signatures, e-delivery and electronic documents. All of the other requirements relating to the execution of documents contained in a particular law must still be satisfied (e.g., requirement to verify or confirm consumer’s receipt, requirement that a certain election be made before completing an application, etc.).

•

ESIGN and UETA allow companies to store electronic records in place of paper to satisfy their legal requirements to retain records in writing, provided the electronic records are stored accurately and are accessible on a timely basis to all persons who are legally entitled to access such records.

•

Agencies and other companies that retain electronic documents are going to have to meet the same evidentiary tests that they must meet for written documents in order for them to be admissible in court. The report lays out these tests and agencies should carefully review them to make sure their “records custodian” with first-hand knowledge of their processes can testify that their electronic signatures and electronic documents meet each of these tests (p.7). ESIGN and UETA delineate a few types of documents as exceptions where electronic documents are not given legal recognition. The exceptions pertinent to the insurance business where the notices may not be given solely via e-delivery are ones for termination of health insurance or benefits of life insurance (excluding annuities). Also, the statutes do not provide legal recognition to electronic signatures and electronic records relating to wills, codicils or testamentary trusts. The report then includes a number of helpful “best practices” for agencies and carriers to consider as they design and implement effective electronic signature, e-delivery and electronic archival processes in their firms (p.7).

I encourage you to review the entire report for more details. I hope you find this ACORD commissioned report to be a helpful catalyst for your agency or company to support and implement these new tools and workflows in our distribution system, so that we can continue to enhance our efficiency and deliver a better customer experience.

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Winter 2013 • THE BIG “I” VIRGINIA

The Mindset of

Top Insurance Agents By John Chapin

ike most other things in life, sales and success are 90% mental. Once you’ve been in insurance for a few years, you know what you need to do in order to be successful; at that point it simply comes down to doing it. The key to doing what must be done day in and day out, regardless of circumstances, comes down to having a superior mindset. It is this superior mindset that separates the top Insurance Agents from the mediocre and poor ones. This mindset gets them to the top and keeps them there. Here we will explore the four key aspects of this superior mindset. Four Key Aspects of a Superior Mindset: 1) Top agents are driven, motivated, and have a get-it-done attitude. This is perhaps the most important and most obvious part of a top agent’s mindset. Top agents have a no-excuses attitude and you won’t find them standing around complaining and coming up with reasons as to why they aren’t making sales. They find ways around any and all roadblocks and are relentless in their pursuit of success. Top agents know that they simply must get the job done, no matter what, and they are determined that nothing will get in their way. They will pay any price to be successful. Top agents are self-starters and they see themselves as self-employed. They don’t wait for others to get started, they don’t need someone looking over their shoulder, or telling them what to do. Top agents are anxious to get to work and make things happen. They have a gun-to-the-head mentality and a sense of urgency. Top agents know why they are doing what they are doing. They have reasons that drive them. They know why they need to make the sale and why they need to be successful. Whether it’s that dream vacation they’re going to take, that car they want, or something they want to give their kids, top agents have goals and dreams that lead to a strong inner drive. 2) Top agents have an ability to focus on what’s important. Top agents have an ability to always get the most important tasks done. They realize that the only activities that ultimately pay them are prospecting, presenting, and

THE BIG “I” VIRGINIA • Winter 2013

closing. They don’t disregard the other items that need to get done, but they never let them come before, or keep them from the actions that lead directly to sales and success. Here are some key questions that top agents ask themselves that lead to getting the most important tasks done: What will I do today to build my business and be successful? Is what I’m doing right now the best use of my time? What did I do today to build my business? 3) Top agents take 100% responsibility. The top agents take 100% responsibility for everything in their lives, from health, to relationships, to business. They realize that success in all areas of their lives is up to them and not determined by outside factors such as the economy, the market, or other people. Everything starts and stops with them. This attitude of complete responsibility leads to more control over their life, higher self-esteem, self-confidence, and ultimately more happiness and success. 4) Top agents have a strong belief system. Top agents have complete and total belief in themselves and their ability to sell. They also have a strong belief in their product and their company. The people they talk to can sense this complete belief and conviction and it wins them over. Top agents truly believe that others must have their

product and they believe that their customers’ lives are much improved as a result of owning their product. Top agents know that the first sale is to yourself. You have to have complete belief and conviction in yourself and your product before you can sell anyone else. So there you have the four key aspects of the top agent’s superior mindset. Your mindset is the most important determinant of success or failure in business and in life. All you need to do to increase sales and be more successful is to work on and get better in these four key areas. John Chapin is an award winning sales speaker, sales trainer, coach, and co-author of the gold-medal winning “Sales Encyclopedia”, a comprehensive how-to guide on selling. “Sales Encyclopedia” is written for sales professionals in all industries at any level of experience. Utilizing more than 21 years of sales experience and as a number one salesperson in three industries, John co-founded Complete Selling Incorporated, a company helping salespeople double their sales and find their motivation. If you would like access to John’s free white paper on what it takes to be successful in sales along with a monthly newsletter, you can visit John’s website at http://www .completeselling.com. For permission to reprint, or to reach John, email him at johnchapin@completeselling.com.

Winter 2013 • THE BIG “I” VIRGINIA

New Deductible Reduction Offers Policyholders Significant Savings

Written Documentation Can Save You Thousands

t’s pretty likely that every E&O seminar that you’ve ever MORE SAVINGS: Some carriers limit the size in which their been to preached DOCUMENT, DOCUMENT, DOCUvanishing deductible will apply with their claims-free accumuMENT! Hopefully, you were listening and more importantly lated experience. While the Deductible Reduction is capped you were implementing sound agency procedures to docu- at 50% of the deductible up to $12,500, there is no limit on ment the offer and rejection of coverage to customers. If you the number of claims that it could apply to. See the below were, you are well positioned to potentially save thousands of example of the potential savings over the course of several dollars with the introduction of Swiss Re Corporate Solutions’ policy periods. We assume the policy has a January 1st effecnew policy form and the “Deductible Reduction” feature. tive date and a $10,000 deductible in Year 1 which changes The new Deductible Reduction provision provides to $15,000 in Year 2. Further, the claims made against the policyholders with up to a 50% reduction of the deductible agency allege failure to recommend coverage or higher limits (up to a maximum of $12,500) for claims alleging failure to and where the agent has written documentation showing the procure coverage where Swiss Re determines the agency customer was offered and rejected coverage: has written documentation in the customer file refuting such a claim. With about 1 in 4 claims alleging failure Claim Date Policy Year Deductible Savings to procure coverage, this policy feature can result in 1. February 1st Year 1 $10,000 $5,000 significant cost savings if the refusal of coverage and 2. June 15th Year 1 $10,000 $5,000 higher limits is documented. 3. October 31st Year 2 $15,000 $7,500 While some carriers in the E&O market may offer 4. November 3rd Year 2 $15,000 $7,500 “vanishing deductibles” as part of their policies that TOTAL DEDUCTIBLE SAVINGS (over 2 policy periods) $25,000 seem attractive, they really don’t compare to Swiss Re’s Deductible Reduction. Here’s why: IMMEDIATE: The opportunity to save 50% on the deductible is immediate - you don’t have to be claims-free over time to build up incremental discounts.

50%

LONG-TERM BENEFIT: Even if you have claims you do not lose your eligibility to qualify for the Deductible Reduction since it is based on the documentation in the customer’s file for each particular claim. This is unlike other vanishing deductible models from other carriers that are based on being claim-free. One claim and you have to be claims free for another 5 years to get the same benefit of Swiss Re’s Deductible Reduction. 42

THE BIG “I” VIRGINIA • Winter 2013

The savings from the Deductible Reduction provision can be significant. With an average of 1 in 7 agents reporting incidents to their E&O carrier in a given year, the Deductible Reduction is a huge benefit and one that needs to factor into your E&O purchasing decision. But you can’t lose sight of the need to: understand the operations and exposures of customers; implement a best practices approach offering additional coverages and increased limits; and thoroughly document customers’ files on all customer interactions, especially the written acceptance and rejection of coverage. For those that have not renewed on the new policy form, keep in mind that the liberalization clause in your current policy allows you to benefit NOW! DON’T HESITATE TO START OFFERING COVERAGE/HIGHER LIMITS AND MAINTAINING THOROUGH DOCUMENTATION. Reprinted with permission of Big “I” Advantage, Inc. and Swiss Re Americas. All rights reserved. No part of this material may be used or reproduced in any manner without prior written permission.

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Winter 2013 • THE BIG “I” VIRGINIA

THE BIG “I” VIRGINIA • Winter 2013

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Winter 2013 • THE BIG “I” VIRGINIA

THE BIG “I” VIRGINIA • Winter 2013

Good people Make great partners!

When you represent Harleysville Insurance, you get the support of the industry’s best to help you succeed. By working with you to land key accounts. By helping you cross-sell to existing customers. By getting your policyholder a fast, fair claims settlement. And, well, whatever it takes to help you grow profitably with us. What’s more, as a member of the Nationwide family of companies, Harleysville’s commitment to the independent agent grows even stronger. Nationwide is one of the largest and strongest diversified insurance and financial services organizations in the U.S., and ranks among the top 10 independent agent companies in the country! For more information about the benefits of a Harleysville appointment, call the “Good people to know” at 800.523.6344, ext. 5016, or visit our website.