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EXPRESS “What You Don’t Know Can’t Help You!” … Eddie K. Emmett, Editor / Publisher
THE LAW OF DIMINISHING RETURNS From FYI Archives
In This Edition The Law of Diminishing Returns ..................................................... 1 A Very Grim Fairy Tale ............... 6 A Very Grim Fairy Tale: The Lost Chapters .................................... 12 Why be a Limited Subagent with no binding authority when you can be a fully licensed Personal Lines Agent?............................. 14 When an expense is incurred has a loss happened? .............. 22 Do CSRs need to be licensed?24
(Editor’s note: I was going through the FYI Archives pulling together information for “The World’s Best Insurance Agency Operations Manual”. This Oldie but Goodie caught my attention!)
THE LAW OF DIMINISHING RETURNS By Michael B Krizmanich
Example 1: $600,000 x .15 $60,000 = $30,000.
Hard as it may seem, writing more business for less commission only nets less profit for the agent. If you doubt the preceding statement, you should take a look at the math before you become a statistic:
I know what you're saying... "The insurance company said that if I sell lower price I will write more policies and make more money." Let's change the numbers to apply this theory. Let's say we change "A" to $800,000 in premium at $500 an average policy. Keep in mind that premiums will now be lower and you cost factor will go up because you will have more clients to service - this will translate to a client base of 1600 ($800,000 divided by $500 = 1,600 accounts).
B = your commission base off of the premium (10% or 15%)
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Now apply the formula A x B C=D
Note: At a 15% commission average you are $30,000 plus.
C = the cost to underwrite and manage these policies. Let's say for demonstration purpose that we use $60 per policy as the cost for now. You can use whatever you think, however, you should be aware that most industry articles are currently advising that it may even be higher than $60.
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D = your profit after expenses (i.e. the agency's owner's income)
These days, I hear many agents comment on lower commission products. I myself have thought much about this subject and I would like to share with you some of my thoughts regarding this issue:
A = 1000 policies at $600 premium per policy ($600,000 in annualized premiums)
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Examples of these costs would be postage, time involved with the policy, wear and tear on your copy machine, endorsements, taking payments, faxing long distance, etc.
Example 2: $600,000 x .10 $60,000 = $0. Note: at a 10 % commission average you have no profit.
Example 3: $800,000 x .10 $96,000 = $16,000 in the red!!! (** remember 1,600 accounts x $60!!). You made more revenue, but your expenses went up also. Continued on page 2 April 2016
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I feel the answer to that question is both yes AND no. Yes, you may lose a few accounts. However, by only quoting a higher commission product that formula previously mentioned can now work possibly in your favor. Perhaps you even "lost" two clients out of ten because you quoted only higher commission products (i.e. 15%). That's 20% of your business. What would happen?
THE LAW OF DIMINISHING RETURNS Continued from page 1 You now cannot pay yourself and you probably will want to let someone go at your agency to break even. Scary stuff, huh?! Furthermore, has anyone ever considered what premium income the insurance company is "giving up" with these lower commission products? In most, cases, the only difference between one tier plan and another is just the agent's commission!!!
Example 4: $480,000 x .15 - $48,000 = $24,000. (We adjusted the premium policy count, premium, and cost to manage each policy by 20% because premium and policy count decreased).
THE BOTTOM LINE
Now remember Example 3 above:
If you decide to sell lower commission products and still survive, you will need to cut your expenses and / or servicing cost associated with each client. But what you need to consider is, can you cut your expenses adequately without cutting the quality of service?
$800,000 x .10 - $96,000 = $-16,000!! Which profit and loss statement would you prefer? THE ZERO POINT What is the "zero point"? That's the point where the agent sees zero in the checkbook even though he has increased his client base.
Remember, every time your employee is involved with a customer, this is a time and wage expense. Every time you take a payment for a client that isn't even late and use your own postage to mail this payment, this is a time, wage and postage expense. Every time you do a policy change request that decreases your commission and process it to your company this is a time, wage, postage and loss of commission expense. In other words, every time you sell a lower commission product, the insurance company is really laughing at you!
Eventually it will happen to any agent who decides to work for minimum wage. The question that needs to be addressed is will you permit it to happen to you? As long as agents continue to sell themselves short (no pun intended) companies will always be attracted to playing these commission games. What everyone seems to forget is that IT ALL BEGINS WITH THE AGENT. IF THE AGENT DOESN'T QUOTE THE PRODUCT, IT CAN'T BE SOLD. IF IT CAN'T BE SOLD, NO MONEY IS MADE FOR THE COMPANY.
As far as I have seen, the amount of service needed has not decreased in proportion with the commission. In fact, I have actually seen it go in reverse due to the decrease in the quality of service with some carriers as they try to lower their own servicing costs.
In other words, the agent has always been in control even when they sometimes complain that they are powerless. If enough agents realize this reality, what would companies do? Perhaps, (drum roll please) raise commissions to attract more business?
TRUTH OR DARE Are you afraid that by only quoting 15% commission products you will lose business and as a result lose $$$?
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Anyway, let’s assume $8,000 per month expenses. That's $96,000 per year before good old boy, S.C. sees a dime.
A Very Grim Fairy Tale Adapted from an original story by Byron McKibben
S.C. wasn't doing too badly for himself. A couple of years back, S.C. showed a net written premium of about $1,000,000 which paid him 15.00% commission. He grossed $150,000 and paid expenses of $96,000 leaving him $54,000. Even after paying self -employment taxes (or corporation taxed), S.C. would still need to make almost $50,000 in a real job to make that much money.
Once upon a time there lived a handsome prince named S.C. Agent. S.C. had a single location agency selling essentially 100% specialty auto coverages. S.C.'s castle was in a suburban location and had a fairly large yellow page ad on which the Southern Bell tooth fairy gave no discount. S.C. has been in business for several years and is fortunate to receive 65% of his transactions as renewals and the other 35% as new, rewrites, etc. On staff are two long term, well trained, licensed insurance worker persons who don't work free (Nor should they be expected to).
Not bad for a country prince in the big city. The hard work and sacrifice S.C. put into building his magic kingdom was finally paying off. The kids would be able to go to good public colleges and complain about their parents, even though they would have to drive pre owned Japanese chariots. And, when S.C. is ready, he can sell his kingdom to another young prince and retire on the payout.
By the time rent on the castle, phone, insurance persons, advertising, paper clips, etc., etc., ad infinitum are paid, the total expense for this location will be in excess of $8,000 per month. This must be paid before our hero sees one cent. I am using $8,000 for a base, but I sincerely would expect 10 - 25% more expense if the agency is aggressive in advertising and sales.
It came to pass that the King of Palmetto sent out a decree that chariot insurance was to be changed. Company reps from all over the country descended on the land like a swarm of locusts. One day, S.C. lost a quote to the Joe Dokes Agency across the street. About a month later, he lost another one. Neither quote showed up on S.C.’s comparative rating program and it sort of bothered S.C. since he didn't know who Joe Dokes had written the customer with.
The only way to operate on much less is to gut everything including quality employees. But alas, a shoe string operation will not last. Without new business, the business will simply melt away due to the high nonrenewal ratio of specialty auto. The handsome prince would eventually wither and die and become a frog.
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Continued on page 8
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More Tips & “How-To” videos at www.FYIExpress.com The staff continued to load up Grab & Hold because A Very Grim Fairy Tale they had become very fond of the field rep that was always visiting and calling and telling them what a great job they were doing. The staff never missed an opportunity to tell S.C.’s other companies just how wonderful Grab & Hold was. Those carriers were now relegated to second drawer, and Grab & Hold became the apple in everyone's eye.
Continued from page 6 Besides, S.C. had never cared for Dokes who was very obnoxious and looked like his fairy godmother had already turned him into a toad. S.C. waited about a month and called the customers he had lost to Dokes. It seems Dokes had written both of them with a new and improved company called the Grab & Hold Insurance Company. S.C. then called Grab & Hold to see about getting a contract with them.
"But we've always stood by you", said the Star of Orion, “and helped you build your fine castle with stable rates and claims service!” "That's okay', said our hero, "Grab & Hold is just a few percentage points less. And they have a bonus plan, too". "Well, thanks for what you sent us", said the Star of Orion as he shook his head and mounted his steed to call on other princes.
The company rep called on S.C. a few days later. The rep was very intelligent, articulate and extremely well versed in the company's doctrine - a truly sharp individual. "Hi, Mr. Agent" said the rep. "I'm from Grab & Hold Insurance, and I'm here to help you." S.C. was extremely impressed by this recent college graduate, as were the members of his staff. The rep went over how easy it was to quote their product, how the company mails everything direct to the insured, and how they take a lot of work off the agent using an 800 number. S.C. couldn't wait to start. The two members of his staff were even more anxious to start since the field rep had told them all the ways Grab & Hold would help to make their bleak lives in the tower easier.
A couple of years later, our hero had to complete a financial statement for the bank because money had gotten tight and, quite frankly, S.C. needed some cash to bring his bills up to date. Even though business was still great and holding steady, it just seemed harder to make ends meet. Then, as if by magic (this is a fairy tale), something strange and mysterious happened. It was as if the clouds had parted and the sun suddenly began to shine after a long period of darkness.
When S.C. got his contract, he read over it and happened to notice that the commission structure was different than his other companies. The rep had apparently forgotten to mention this to S.C. The company paid only 12% on new business and 8% on renewals. S.C. mentioned this to the rep.
S.C. looked at his commission statements. S.C.'s net written premium with Grab & Hold was now $600,000 of which 65% was renewals paying 8% commission (390,000 x 8% = $31,200) and 35% was new business paying 12% commission ($210,000 x 12% = $25,200) for a total of 56,400 income on 600,000 of premium.
AND FRIENDS, THIS WHERE OUR FAIRY TALE REALLY BEGINS!!!
The rest of S.C.’s book of business was only about $400,000. However, on this book of business he was still receiving 15% or $60,000.
The rep, never flinching, responded, "Don't worry, S.C.! (They were now on first name basis). Our procedures will make your agency so much more efficient that you will save more than the difference in commission. Besides, our rate is slightly lower and you will be able to sell more Grab & Hold!"
Let's look at that one more time, good princes and princesses. Grab & Hold Insurance Company
AND THIS IS THE PART WHERE THE SWAMP REALLY GETS DEEP!!
Total book of $600,000 which is 35% new and 65% renewal.
"8% of something is better than 15% of nothing.” thought S.C. "Anything I write with Grab & Hold will be gravy for me". S.C. signed the contract.
New income = $600,000 x 35% x .12 = $25,200
S.C.'s staff just loved the new company. Peace, love, and tranquility had arrived. The local peasants were surprised but pleased that S.C.’s staff was reducing the number of coins required to renew their chariot insurance. S.C. had expected a lot of extra business, but overall app count stayed about where it was before.
$600,000 x 65% x .08 = 31,200
Renewal income =
Total income = $56,400, or 9.4% average commission Other companies = $400,000 x .15 = 60,000 Continued on page 10
The end result was movement of a lot of business to Grab & Hold that had been going to others, while the overall volume was cut almost in half.
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April, 2016
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More Tips & “How-To” videos at www.FYIExpress.com I don't know if there is a moral to this fairy tale. But A VERY GRIM FAIRY TALE there ought to be. Continued from page 8
Byron McKibben owned and operated the McKibben Agencies of Columbus and Atlanta in Georgia.
Average of entire agency = $1,000,000 premium / $116,400 on which he still had an expense of $96,000, leaving S.C. $20,400 for his trouble, only 40% of what he was earning previously, and less than either of his employees were earning. It was even less than his daughter was earning in her first year of teaching. And S.C. was still working 50 plus hour weeks and had his neck on the line every day. For the mathematically inclined among you, I want to present one more fact. If S.C. has a $1,000,000 book of business and $96,000 in expenses, then 9.6% of gross premium goes for expenses. On the book of business above, if S.C. had placed all of his business with Grab & Hold, then his income on $1,000,000 would have $94,000, since his average commission on Grab & Hold business is 9.4%.
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THAT MEANS THAT IF S.C. HAD WRITTEN ALL OF HIS BUSINESS WITH GOOD OLD GRAB & HOLD, HE WOULD HAVE TAKEN IN $94,000 AND SPENT $96,000 IN EXPENSES. NOT ONLY WOULD S.C. HAVE NOT MADE ANY MONEY FOR HIMSELF, HE WOULD HAVE HAD TO BORROW $2,000 JUST TO KEEP HIS BUSINESS RUNNING! THIS CONCLUDES THE FAIRY TALE, BOYS AND GIRLS. The End P.S. I wish I could say S.C. lived happily ever after. This is a fairy tale, after all. But unfortunately, that is not to be. Do you remember Joe Dokes? His income was dropping, too. He ultimately got into financial trouble, and got caught holding a BIG box full of Grab & Hold apps. In return for not prosecuting, Grab & Hold took over his book of business and rebound the box full of apps. Then, they opened up their own shop in the old Dokes location.
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In the meantime, our hero had to let his experienced help go and started trying to get by with part time employees. One of them started writing apps and (you guessed it) keeping the money. When everyone eventually found out, most of the companies, including Grab & Hold, terminated our hero, despite pleas for mercy from him. By the time S.C.’s customers started getting nonrenewed, Grab & Hold had begun running huge newspaper and television ads. Guess where most of S.C.'s Grab & Hold clients wound up? Yep. You guessed it. Across the street. Grab & Hold was, after all, a few dollars cheaper. In addition, they had a real sharp, talented, licensed, recent college graduate running their office for them.
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S.C. looked as he was bid. There, not fifty feet away, was Joe Dokes cruising by in the slickest new chariot he had ever seen pulled by two powerful white stallions. What's more, next to Dokes rode one of the kingdom's fairest maidens, clearly thrilled to be in the company of one so powerful and successful.
A VERY GRIM FAIRY TALE: The Lost Chapters by Ronald J. Manera The Underwriter’s Insider Author's note: The scrolls on which these lost chapters had been translated were recently unearthed near the mouth of an ancient cave.
“Dokes! Dokes! What happened?” S.C. yelled to his former competitor. “Last thing I heard, you'd lost your agency to old Grab & Hold Insurance Company and were working as a jousting dummy. Now you're cruising in high style with new wheels. Dokes, what turned your life around so?"
So, one day shortly after a check cashing operation took over the lease on his insurance castle, S.C. Agent was skulking around his new office — a low rent cave that had recently served as the winter residence of a hog herd — when he stepped in a steaming pile of fresh dragon doo. “This is it! This is really it! This is the last straw!” shrieked S.C. in utter frustration at the awful string of misfortune that had befallen him since Grab & Hold Insurance Company had come to his village.
“No time to talk now, S.C. Sabrina here is running low on jewelry and we're headed to the mall. Then I gotta stop at the bank and make another deposit and then we're having lunch with a couple of Counts and a Duke,” Dokes replied without slowing down. “Please Dokes! Just give me a clue — I'm about to end it all. How did you get out of that financial dungeon you were in?” S.C. implored at the top of his lungs as the dust cloud from the passing chariot settled around his head.
Intent on ending it all, S.C. climbed to the top of a sheer cliff face, left a short note to his favorite princess expressing his misery and remorse, looked into the sunset and leaned into the void. “Are ya happy now, Grab & Hold? Go ahead and steal all my renewals because you won't have S.C. Agent to kick around anymore!” He screamed.
Dokes never did respond, but lovely Sabrina did. She turned, gave him a cute little smile and said as they passed, “Towing & Rental, S.C. Towing & Rental. Forget insurance commissions — they won't even cover your expenses. The only economic reason to even sell insurance is to get a chance to sell some Towing & Rental alongside. That's your real income source. You can still save yourself, S.C., if you act now!”
Just as he flung his body out over the abyss, an incredible gust of wind (some would later claim it was fairy dust) blew up that shear face — carrying S.C. Agent back from eternity and depositing him gently on a smooth stone well back from the precipice. That's when S.C. heard the clear, magical voice say, “S.C., S.C., don't despair — look, look over there.”
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More Tips & “How-To” videos at www.FYIExpress.com
Online Practice Quizzes w/ Answers certain premium, the two parties have entered into a contract. Although a contract of insurance can be oral, it is usually written in the form of an insurance policy. http://www.proprofs.com/quizschool/story.php?title=insurance-contract
Personal Auto Insurance 14 questions on Personal Auto Insurance. Answer to Question #9 is incorrect since Property Damage is included in Georgia’s Uninsured Motorist Coverage. http://www.proprofs.com/quizschool/story.php?title=personal-auto-insurance
Insurance Transactions A number of steps must be taken before an insurance transaction can be completed. These include making an application for insurance, underwriting the risk, and including all the steps required for forming a valid contract. http://www.proprofs.com/quizschool/story.php?title=insurance-transactions
P&C Insurance Practice Exam 22 Questions. Great practice. Don’t worry about correctly answering the ones on commercial insurance since you will be taking the Personal Lines Agent Exam http://www.proprofs.com/quizschool/story.php?title=pc-insurance-practice-exam
Property and Casualty Insurance License Exam Cram 83 Questions. Great practice. Don’t worry about correctly answering the ones on commercial insurance since you will be taking the Personal Lines Agent Exam http://www.proprofs.com/quizschool/story.php?title=property-casualty-insurancelicense-exam-cram
Principles of Insurance This quiz reviews basic principles that provide a foundation for the insurance industry. They range from the concept of risk, to the idea that individuals and businesses can minimize losses by transferring and sharing risks, to the application of the law of large numbers. Various principles also determine why some risks of loss are insurable whereas others are not. http://www.proprofs.com/quizschool/story.php?title=principles-insurance
Property and Casualty Insurance Quiz 85 Questions. Great practice. Don’t worry about correctly answering the ones on commercial insurance since you will be taking the Personal Lines Agent Exam http://www.proprofs.com/quizschool/story.php?title=property-and-casualtyinsurance-quiz
The Insurance Contract A contract is a legal agreement between two or more competent parties that promises a certain performance in exchange for a certain consideration. When an insurance company agrees to pay for an insured's losses in exchange for a
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April, 2016
More Tips & “How-To” videos at www.FYIExpress.com He decided he would only sell the contract on fullcoverage chariot policies and on chariot policies that were financed. These are the groups that would buy, S.C. reasoned. But he sold only a miserable few. But, like many good businessmen, when the going got rough, S.C. got creative. “We'll send out a T&R offer on all renewals notices and we'll do a special mailing to all our castle owner policy holders. We'll sell lots of these things!” S.C. explained to his staff. At the end of two months and thousands of mailings, S.C. counted three T&R sales. Finally, S.C. had remembered what the Charming Prince had told him years before. “Just add this little line to each quote after you have briefly listed and described each insurance benefit included in your quote: 'Towing up to $125 per occurrence and rental in the event of most collision accidents up to $25 per day for up to $20 days.' Add the cost of the T&R to the down payment and you're done. Do it every single time on every single chariot policy. If your customers don't want T&R, they will tell you.” Well, thought S.C., I've already wasted several months on this stuff, what's a little more time... Taking down most of the signs, S.C. called a staff meeting and instructed his staff to matter-of-factly include the little line to each chariot quote, each time. Well, just like magic, S.C.'s little agency started selling T&R and lots of it. As a matter of fact, at the end of the first month, his staff had sold a T&R on just about every chariot policy sold. That's when he got the bad news. The awful news. His policy count was down 20%. Worse, his top sales person advised that they were losing one or two quotes per day to Doke's agency.
https://issuu.com/rmanera/docs/2016_april_tui/1 A VERY GRIM FAIRY TALE: The Lost Chapters continued from page 12 “Towing & Rental?” S.C. scratched his dusty head. Then he remembered a Charming Prince from a land far South of his village who had stopped by his insurance castle once years ago. The Prince showed him a wonderful little Towing & Rental add-on package that could earn him an extra $40 - $50 per sale while delivering incredible benefits to his customers.
S.C., being nobody's fool, knew right away who the culprit was. It was that doggone T&R. Why should anybody buy from his insurance castle when Dokes' down payment was $50 less? He could just imagine Dokes over in his castle gloating and smirking about picking up 20% of S.C.'s business. It took about 20 seconds for that T&R stuff to hit the trash.
The Charming Prince (one helluva fella, actually) showed S.C. just how to sell the T&R Contract to his customers, but S.C. had only sold a few of them before quitting. Why, the Prince's system had been just too simple — just too easy to really work. S.C. decided he could enhance the Prince's simple system to fit his agency.
No, S.C. was nobody's fool, even though he never quite made the connection between that one month of T&R sales and the simultaneous cash surplus in his accounts — a rare event indeed. As a matter of fact, S.C. thought at the time, “Hey, I guess I'm doing all right. I've got some money in the bank. I don't even need the aggravation of selling any of that T&R.”
The first thing S.C. had done was to put up signs up all over his castle explaining the terrific T&R contract. Then he tried to ask most of his customers if they wanted to buy one of the contracts. Everybody seemed to like the contract, but only a very few made an active choice to buy one right then.
And now Dokes himself was zipping around in that sporty new chariot with money he made selling T&R? Something wasn't making sense yet... Maybe I ought to call that ol' Charming Prince, decided Dokes.
But S.C. wasn't discouraged. After all, wasn't he a pretty sharp marketing guy? He could think of lots of clever ways to sell a product as good as this T&R contract.
FYI Express
Continued on page 18
Page 16
April, 2016
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April, 2016
More Tips & “How-To” videos at www.FYIExpress.com A VERY GRIM FAIRY TALE: The Lost Chapters continued from page 16 And that was the day S.C.'s life changed. S.C. found out how tantalizingly close he had already come to solving his financial problem — if he just hadn't been so hung up on counting policies. “There is no business reward for writing the most policies,” the Charming Prince had explained patiently, “The business reward,” said the Prince,”is for the highest net income.” “Sure I might be losing money on some of those policies, “countered S.C.,”but those customers will send in their friends and relatives to buy insurance!” “Yes, that may be true,” the Prince explained gently, “then you will get to lose money on each of those accounts too. Remember, S.C., it doesn't matter if you lose an unprofitable account. As a matter of fact, the more of them you lose, the better off you are!”
By the end of his long & prosperous career, S.C. had built the most successful chariot insurance agency in the land, had been knighted by the King and had married the loveliest maiden in the village. Sure, there had been many agents with more customers, and old Grab & Hold had given each agent a nice wall plaque before throwing them out in the street, but who cares, thought S.C. “My insurance business had the highest income — AND the best served customers!” Ron developed the NCS T&R from his years of living this "Grim Fairy Tale". Thanks to both Byron and Ron for sharing their warped sense of humor with the industry. Eddie
“You mean I can lose 20% of my business to my competition and make more money?” asked S.C. incredulously. “Better than that, S.C.,” explained the Prince. “Selling T&R, you can lose 6 of 10 quotes and still make twice as much money as if you had sold all 10 quotes without the T&R!” S.C. was dumbfounded, but he did the math over and over again. The Charming Prince was right. Policy counting was a waste of time. It was dollar counting that made sense. And, yes, it was a hard and emotional decision — like when you learned drinking whole milk is bad for you after your mother spent your entire childhood telling you the opposite. But S.C. finally decided it would be just fine if some policy-counting agent wrote all of his unprofitable chariot accounts. Within a short time, S.C.'s insurance business moved out of the hog cave and into a bigger and better insurance castle than ever before, and he hired the finest CRS's in the Kingdom. Not only were expenses down and income up, but S.C. found he had far fewer unhappy customers after a claim — now that they had towing up to $125 and rental up to $25 per day up to 20 days.
No Contract! Stop when you want
Within five years, Grab & Hold bought many of the unprofitable insurance castles in the Kingdom at a fraction of their former worth and turned them into company stores.
Here's what you get for only $99.00 per month:
But not S.C. Every month, he got to infuriate the representative from Grab & hold Insurance Company, (a recent college graduate), by explaining that they were getting along quite nicely without Grab & Hold.
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April 2016
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Mergers and Acquisitions – a potential E&O exposure? I recently read a National Underwriter article dealing with Mergers and Acquisitions. The primary focus of the story dealt with the record year for M&A activity of insurance agencies. In fact, the new record broke the old record (just set the prior year) so it certainly appears that M&A activity is extremely active. While there are many issues related to mergers and acquisitions to consider, there is one that doesn’t seem to get the attention it deserves: how does the typical E&O policy address potential liability issues that can make a good deal a “nightmare” without the proper attention. While this is not an overly complex matter, it is also not all that simple. Proper planning and appropriate attention to detail are extremely important. A good time to become educated on some of the significant coverage issues is as soon as you start thinking about buying or selling. Any good E&O carrier “worth its weight” can provide guidance and direction based on your specific scenario. They should be contacted.
lead to a claim, it is vital these are reported to your E&O carrier to lock in coverage. Failure to report these real or potential claims has significant potential to result in a lack of coverage. The seller should secure an optional extendedreporting-period endorsement (a/k/a “tail”). Even after a sale, the now-defunct agency is still at risk of being sued. The purpose of this optional tail is to provide an additional period of time after the expiration of the policy for which valid claims will continue to be accepted, provided the wrongful act occurred before the end of the policy period. Be aware there is a tremendous lack of consistency as to the available options. Some carriers only allow an additional 1-year “tail” while others offer options much longer. The charge for this additional coverage comes with a hefty premium charge, so plan for this expense. You also only have one time to make the decision. Thinking about buying an agency or selling yours? Now is the time to start understanding the E&O issues. More E&O Tips at http://www.agentseotips.com
Both the buyer and the seller should allow sufficient time for the development and providing of additional paperwork, copies of the proposed transaction documents, applications, etc., the E&O carriers may require. When you’re the buyer, it is best to consider “assetonly” purchases, and not purchases of any liabilities of the agency going out of business. This is one of the many areas where an attorney is needed to ensure the buyer is fully protected. The traditional approach is to have your E&O policy endorsed to provide coverage for the “new” agency for errors made by the “new” agency starting with the effective date of the acquisition. If you are selling your agency, contact your E&O carrier and advise them of your plans. Don’t hesitate to ask questions regarding cost, options, timeframes, etc. This is an important decision and should be carefully planned. One of the many important issues is to understand the “known loss provision” in the E&O policy. If you are selling your agency and are aware of any actual unreported claims or situations that could FYI Express
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HU
Questions? Contact Eddie K. Emmett at eddie@fyiexpress.com or (770) 312-2342. UH
April 2016
Â
Go to www.EandOQuote.com for more information
More Tips & “How-To� videos at www.FYIExpress.com A personal auto policy consists of four coverages; hence, there are four separate insuring agreements. If a loss or claim is not covered under any one of those insuring agreements, there is
If you have the knowledge to see the problem, you will also have the ability to discover the solution.
no coverage.
The Producer Online IN ACTION is a monthly reminder of how you can turn the knowledge gained from The Producer Online into powerful sales opportunities.
Click here to review the Personal Auto Policy insuring agreements.
Explaining isn't always easy
When an expense is incurred has a loss happened?
Personal Auto Policies are often purchased with little understanding of the coverage being provided. It is sometimes purchased merely to satisfy state requirements for registration of the vehicle or to obtain financing. Would you like to provide a very simple overview of the coverages that you could post on your website or send in a newsletter? Click here for two e-marketing articles on Personal Auto Coverages.
While driving in difficult road conditions, Melody's car started to slide, left the road, and came to rest. The good news is that no
Personalize your personal lines marketing
one was injured and nothing was damaged. However, Melody did need to be rescued from her predicament. The nearby volunteer fire department responded, rescued Melody and then sent her a bill for $1,200. She asked her insurance company, State Auto, to pay the bill. They denied coverage because the expense was not related to a covered loss. Melody and the fire department did not agree and asked the courts for help. Click here to see if the courts considered the rescue fees
Your clients are always making decisions that impact their loss
covered under Melody's personal auto policy.
exposures and their risk retention. They might not be aware of the impact such decisions or changes could have on their lives.
Insuring agreements are important
Helping your clients understand basic risk management can help them protect themselves while keeping their insurance costs reasonable. An email or letter providing risk management techniques is a good way to stay in contact with your client. Let them know that you are concerned about their safety and well-being. Ken http://www.rn-agencyonline.com/letters/3-c-26.htm http://www.rn-agencyonline.com/letters/3-c-27.htm
Every ISO insurance coverage contains an insuring
Click here to review two personal lines risk management letters
agreement. This agreement broadly describes and frames the
to get you started.
type of losses that are covered.
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Page 22 of 25
April 2016
For 135 years Rough Notes has been dedicated to making you a better agent. Become the coverage expert with the Producer Online-Plus Producer Online-Plus Includes Commercial Lines Risk Evaluation Survey Personal Lines Risk Evaluation Survey Policy Form & Manual Analysis Coverages Applicable The Insurance Marketplace Marketplace Cybercast
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EXPRESS “What You Don’t Know Can’t Help You!” … Eddie K. Emmett, Editor / Publisher
Do CSRs have to be licensed? Do CSRs have to be licensed? The answer is “Yes” if: The CSR is a person who sells, solicits, or negotiates insurance. The CSR receives commission on insurance sales. The CSR handles endorsements and reinstatements. The CSR gives quotes for insurance. The CSR completes insurance applications. The CSR handles renewals. The CSR answers coverage questions. So just what can an unlicensed CSR do? Mostly managerial and clerical tasks only indirectly related to the above tasks. I’m not so sure they can even take payments since that is a vital part of insurance sales. Check out O.C.G.A. § 33-23-4 in the “Laws & Regs” link at the bottom right corner of www.GAInsurance.org for a more murky explanation. So what should an unlicensed CSR do? If they are handling only Personal Lines P&C, a Limited Subagent license should do the trick. The sponsor is responsible for their actions, a state exam is not required and they can take the required 20 hour pre-licensing course from the comfort of their desks for only $79.00 at www.Georgia-Agents.com.
The Georgia Department of Insurance encourages the insuring public to report any complaints about insurers, agencies and agents. The first thing checked is whether or not the person in the complaint is properly licensed for that transaction. Here’s the scenario if the CSR is found to be in violation of O.C.G.A. § 33-23-4: Any person who willfully violates this Code section shall be guilty of a misdemeanor and, upon conviction thereof, shall be subject to punishment as provided in Code Section 17-10-3, relating to punishment for misdemeanors. Code Section 17-10-3: By a fine not to exceed $1,000.00 or by confinement in the county or other jail, county correctional institution, or such other places as counties may provide for maintenance of county inmates, for a total term not to exceed 12 months, or both. That applies to the CSR, the agency owner, and the insurance companies who paid commissions to unlicensed entities. I wonder if they assign adjoining jail cells.
www.Georgia-Agents.com
It gets even better than that! CSRs may study the 20 hour Limited Subagent course, take an exam and download a Certificate of Achievement for free. It serves as great refresher training on Personal Lines such as auto, home and renter’s insurance. But if the CSR handles lines other than Personal Lines, a full blown agent’s license is required.
GIAA Members can earn 24 hours Online CE and 20 hours Limited SubAgent Prelicensing for all employees for only $99.00 per year!
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20 Hour Limited Subagent Pre-Licensing Online Course only $79.00 After you get licensed … then you get to learn how to sell & service Personal Lines Personal Lines CSR training using “How To” videos, articles and interactive quizzes. Get the latest “How To” instructions on Web Marketing for your insurance Agency
Check it out at www.FYIExpress.com or www.Georgia-Agents.com