March/April 2016
Young Agents
The next generation of industry leaders
KESA has been hitting the road in our beautiful state for 35 years. We have been meeting with our policyholders, handling claims, visiting our agency partners, conducting SAFETY WORKSTM seminars, and implementing loss prevention programs. KESA’s goal is simple - to reduce workplace injuries and keep Kentucky employees working safely and productively. KESA knows Kentucky.
200 Executive Park, Louisville, KY 40207 502.894.8484 | 800.367.5372 | www.kesa.org
Inside
What's
Page 7
Contents
11 Ready, Set, Hire, Train! Your On-boarding Solution
Page 12
12 How to Create a Hiring Strategy with a Perpetuation Focus 14 Good Risk Management is More than Just an Insurance Policy 18 Getting to Know Neel Ford, Young Agent Chair 20 2015-16 Young Agent Committee
Page 18
24 Selling Your Agency May Be Hazardous to Your (Financial) Health 33 4 Ways to Get New Talent, Vets to Work Together
In Every Issue The Kentucky IA is the official magazine of the Independent Insurance Agents of Kentucky, and is published bi-monthly. Editorial offices are located at 13265 O’Bannon Station Way, Louisville, Kentucky 40223. Telephone:(502) 245-5432 Email: iiak@iiak.org Fax: (502) 245-5750 The Kentucky IA welcomes all advertising and editorial submissions. Inquiries for advertising, news releases and editorial contributions can be directed to Nikki Robins at the editorial office address or via email at nrobins@iiak.org
4 From the Chair
27 Member Spotlight - NEW!
5 DOI News
31 How Risky Is It?
7 E&O
34 Advertiser Index
8 Education Calendar
34 Classified Ads
16 Industry Partners
34 Social Media Links
17 Upcoming Events
34 There’s an APP for that Mission Statement
The mission of the Independent Insurance Agents of Kentucky is to be the preeminent advocate for Kentucky Independent Agents and support their business and professional development needs.
www.iiak.org | March/April 2016 | 3
Chair
Officers
From the
David M. Houk Chair, Horse Cave 270.786.2724 George L. “Chip” Atkins Chair-Elect, Louisville 502.585.3600 Michael G. Johnson, CIC Vice Chair, Lexington 859.233.1461 James D. England, AAI Treasurer, Pikeville 606.437.7361 Stephen R. Kinkade, CPCU, AAI National Director, Leitchfield 270.259.5465 Michelle L. Love Immediate Past Chair, Owensboro 270.926.2806
Directors Allen J. Crawford, CIC, CSRM Somerset, 606.679.6311 Neel Ford, AU, CPIA Owensboro, 270.926.2806 Sharon B. Hill Jamestown, 270.343.3144 Aaron LaRue Bardstown, 502.348.0050 Skip McGaw, CIC Madisonville, 270.821.3122 Crystal Reid, CIC Paducah, 270.442.3533 Ray A. Robertson, CIC Mt. Sterling, 859.498.3410 Laura Yount, CIC, CISR London, 606.878.0100
Staff Peggy P. Porter President & CEO Crystal Brown Administrative Assistant Katie M. Freshley Education & Events Director
Hello everyone!
Spring is in the air and my hope is that Old Man Winter has moved on to other parts of the world. In this edition of our magazine, there are two topics of great interest; young agents and agency perpetuation. These are two of the most important topics that will be discussed in any insurance publication. As I look around the room at meetings I attend, I see faces that I have seen for nearly forty years now. Not that I don’t appreciate the years and effort that our friends have put into their businesses, but plain and simple, we need more young faces in our industry! We do have an amazing Young Agent force that will soon lead our association in the future and I’m not discounting these young men and women, but the elder of our association far outnumber these fine young people. Our association supports the young agents of our Commonwealth one hundred percent. Internships are a great way to breathe new life into your agency. If you need help starting an internship program, we have created the Agent’s Guide for Internships. Contact Tara Purvis at tpurvis@iiak.org or go to www.iiak.org and click on the News & Resources tab to learn more. Let us move on to the second part of our magazine topic: perpetuation. As mentioned above, we older agents will be looking toward retirement in a few years. I am extremely fortunate to have a son and daughter that want to take over my business after I retire. Some of us are not so fortunate and cannot leave the business to family and it is very difficult to make a decision to sell the business to the first interested party that comes along. What are the answers to these difficult decisions that need to be made by agents in the near future? How do we recruit the young person and how do we show them the value of being an independent business owner? Hopefully we can gather some knowledge from this edition of our magazine and let us set goals to recruit and bring great new talent into our industry! Our future depends on it. Sincerely,
Nikki S. Robins Communications Director Tara T. Purvis Marketing Director Kristie Weyer, CISR Insurance Services Director
4 | www.iiak.org | March/April 2016
David M. Houk
DOI News
From the Commissioner By: Brian Maynard Since this is my first column for your group, I wanted to express my appreciation for the warm welcome I have received from the agent community. I look forward to meeting more of you as our paths cross in the near future. By way of introduction, I was appointed as commissioner in January and have nearly 30 years of insurance accounting experience, 16 in the industry and 14 as a regulator. Prior to my appointment, I had been a contract examiner for Kentucky since 2004. I am a graduate of the University of Louisville with a degree in accounting. During my time as an examiner and now as commissioner, I have come to appreciate the role agents play in the insurance industry. You are a vital link to the consumer and have the opportunity to improve the lives of your clients. This month, you are focusing on young agents. I asked our Agent Licensing division for any information they would like me to share with the young agent population. They offered these specific training requirements for selling certain insurance products: • Agents selling, soliciting or negotiating insurance products that qualify under the Long-Term Care Partnership Insurance Program must complete eight hours of initial training and four hours of additional training for each continuing education compliance period. These hours must be in a course concentration for the long-term care partnership. • Property and casualty agents must complete three hours of initial training if they plan to sell flood insurance through the National Flood Insurance Program.
Another important reminder to all agents: Any change to your address, phone number or email address must be submitted to the Department within 30 days. You can easily update your records by using eServices. Go to http://insurance.ky.gov and click on eServices in the upper right corner. Once you have logged in, “Record Correction Request” will be an option on the menu. Updating your information will ensure the receipt of notices and reminders from the Department. As you develop in your careers, we hope you will contact the Department of Insurance if you ever have questions or need assistance. We are here to help you be successful.
• Agents selling, soliciting or negotiating the sale of an annuity must complete four hours of initial training in “annuity suitability” prior to selling that product. Agents may be asked to provide training certifications at any time so be sure to keep any certificates in an easily accessible location. www.iiak.org | March/April 2016 | 5
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On the Hook
Is employee incentive compensation a catch-22? The purpose of employee incentive compensation is clear—it encourages employees to sell more insurance, which generates more income. This creates a win‐win: Customers receive better coverage while the agency benefits from the additional sales. Insurance agencies also participate in carrier incentive programs based on the amount of coverage the agency places through the carrier or loss ratio for that business. But what’s the relationship between incentive compensation and E&O risk? Conventional wisdom tells us that attempting to sell additional coverage or policies at higher limits drives down E&O exposures— the customer either receives better insurance or the agency winds up with proof that the customer has declined it. But when the primary focus shifts from meeting the customer’s needs to meeting agency targets or increasing business placed with a particular carrier, the temptation to cut corners grows. Typical claim scenarios include taking applications over the phone and failing to secure a customer signature; failing to review proposals to see if they provide the information the application requests; and failing to review policies to ensure they cover what the customer requested in the first place.
By: Jim Redeker
While passing the deductible cost to the employee responsible for the alleged error in no way covers the agency’s entire cost for the E&O claim, it helps lessen the cost—and hopefully reinforces better practices among agency employees. One such practice all employees should adopt is documenting the refusal of any customer to accept a coverage type or limit recommendation. Westport Insurance feels so strongly about this documentation that it reduces insureds’ deductible by 50% in any claim where the agency customer alleges they should have had a type of coverage or higher limits—but the agency has contemporaneous, written documentation that it did so. This type of documentation greatly assists in the defense of the insurance agency and reduces the overall cost of the claim, thereby creating a win/ win/win for the insurance agency, the agency employee and the E&O provider. Jim Redeker is vice president and claim manager at Swiss Re Corporate Solutions and works out of the Overland Park, Kansas office.
We can’t say for certain that employee incentive compensation plans are the sole reason for these errors. But anything that leads an insurance professional to take shortcuts on essential processes greatly increases the likelihood of an E&O claim. Some agencies have taken employee incentive compensation one step further. Employees reap the benefits of selling more insurance through greater compensation, but they are also responsible for the insurance agency’s deductible if a customer files a claim against the agency. www.iiak.org | March/April 2016 | 7
Upcoming Education Classes Affordable Care Act: Update 2015 & Beyond* - NEW 3 hours C.E. May 12 @ 1 pm
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How to Create a Hiring Strategy with a By: Morgan Smith Perpetuation Focus Two-thirds of agencies did not hire a new producer in 2012-2014, according to the 2014 Future One Agency Universe Study. And of the 34% that did, 22% hired just one. As baby boomers start to fade out of the independent agency channel nationwide, agencies need to take a closer look at whether their hiring strategies are sustainable. “If you think about the No. 1 problem for the future of the independent agent channel, it’s the talent pipeline and recruiting the best and the brightest into the industry,” says Warren Wright, executive vice president of LifeCourse Associates. “It’s not today’s problem, but it’s tomorrow’s problem.” Wright references the “silver tsunami” that’s about to hit the industry, citing figures that estimate nearly 400,000 boomers plan to retire in the next two years. It’s an inescapable truth that agencies will need to start replacing their workforce. But “hiring a couple of new producers is not a perpetuation plan,” says Jim Caragher, managing partner at career consulting firm CIB Group Services LLC. A bundle of new producers with the right strategy, a strong investment and an early start can help agencies make the inevitable transition a smooth one. Independent agency INSURICA has recognized the problem it its own organization—and is addressing it head on. Michael Ross, president & CEO, says his 26-branch location agency has hired 10-15 new producers every year—nearly 85% millennials—since implementing a new strategic recruiting, hiring and assimilation plan about five years ago.
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The “global plan is that as we do our succession planning and identify leaders and producers that will be retiring,” Ross says. That way, “we will get out in front of that and present opportunity and bring in new producers to make a seamless transition in taking that over and therefore being able to perpetuate those relationships.” Five years later, Ross says his agency is just now realizing what could have happened without proper preparation. Currently, a few recently hired millennial employees are already preparing to take on management and leadership opportunities. For agencies striving for independence or internal perpetuation paths, “you have absolutely no choice—you have to hire young people,” says Kevin Stipe, president at Reagan Consulting. For firms that say that they want to remain independent and perpetuate but don’t go out and hire that next generation—they’re kidding themselves. It can’t happen.”
Because many agencies’ organizational structure is top-heavy, focusing on millennial hires is the path to a successful future. “That’s not to say that the older generation isn’t important or shouldn’t be honored or appreciated, because they should be,” Stipe says. “But they aren’t the ones to take an agency through continual independence. You have to have the next generation step up and do that.”
In order to make an internal perpetuation work, you need to continually invest in talent and be able to buy out the ones who are retiring. “Hiring new producers and hiring them in the millennial generation is a big part of a plan in internally perpetuating an agency,” Caragher agrees. “In order to make an internal perpetuation work, you need to continually invest in talent and be able to buy out the ones who are retiring.”
Planning to buy or sell? An external transaction is no different. Caragher explains that even agencies fairly late in the perpetuation game— with principals in the 50-60 age range and a deficiency of 20-40 year-olds—can benefit from hiring and growing successful, validated producers in younger generations. “At the very least, it helps stabilize the agency and make it more valuable for an external perpetuation,” Caragher says. “That’s what buyers want to see: Agencies that have growth capacity and have producers who are not all 60 years old.” Independent agency M3 Insurance, with locations throughout Wisconsin, is already on the right track. Tim Cleary, director of sales in property and casualty, says the agency takes a diligent approach to effective perpetuation: Focusing on revenue per relationship enables leadership to evaluate book of business growth and capacity potential to migrate accounts as senior producers start to transition out. “Whether it’s perpetuation of the ownership of the agency or books of business or technical expertise or even stories of successes and failures— unlocking all of that information gives our people a sense of team and a sense of protecting what’s ours,” Cleary says. “That can be a motivating factor for a lot of people.” Morgan Smith is IA assistant editor.
InsurBanc has many custom products designed to underwrite your sucess. Acquisition/Perpetuation Loans Producer Development • Debt Refinancing MUCH more Call 1-866-467-2262 or visit www.insurbanc.com for more infrmation www.iiak.org | March/April 2016 | 13
Good Risk Management is More than By: Rick Pitts Just an Insurance Policy “Heresy” is defined as, “a belief or opinion that does not agree with the official belief or opinion of a particular religion,” according to MerriamWebster. This month’s column starts off with an insurance agency heresy...well, maybe just a little of it. The heretical statement is this: insurance producers have to embrace, rather than deny, the role of risk manager for their clients. That statement violates the “dogma” that we should minimize, if not outright bar, our advice-giving and counseling to our insureds. We should stick to just the policies. From an errors and omissions perspective, it’s hard to disagree with that. But sometimes, serving our clients well means communicating a hard, but necessary, point: risk management is more than just insurance, and loss prevention matters, too. The reason why we’re discussing this is a case that illustrates the point, called Peerless Indemnity Insurance Co. v. Moshe & Stimson, LLP. It’s a case that gives us a pair of lessons, the latter of which is this risk management point. As for the case itself, the background facts are pretty simple. Sarah Moshe and Justin Stimson had a law practice together. In 2011, Moshe told Stimson that she was going to leave the firm. Things went from bad to worse, it appears. Moshe alleged that Stimson took over control of the firm’s assets; wouldn’t pay her; and, wouldn’t turn over client files and other 14 | www.iiak.org | March/April 2016
personal items she claimed were hers. Moshe also alleged that Stimson had made accusations about “personal integrity” and “professional competence.” After Moshe sued the law firm and her former partner, Stimson had the case turned over to the firm’s general liability carrier, Peerless. Peerless denied coverage, relying on the exclusion that carves out bodily injury or personal and advertising injury to, “[a] person arising out of any termination of [a] person’s employment or employment-related practices.” Stimson’s argument for coverage was in two parts. First, he said, Moshe was not an “employee,” of the firm and so there couldn’t be an applicable exclusion for “employment” or “employmentrelated” practices. Second, Stimson argued, even if Moshe could be considered to be an employee, his alleged slander occurred after her business relationship to the firm had ended. Therefore, the exclusion couldn’t apply. The Indiana Court of Appeals disagreed. To the appellate court, the question wasn’t whether Moshe was an employee or a partner. Rather, the question was whether the alleged defamation was sufficiently “employment-related” to trigger the exclusion. Stimson said the phrase was ambiguous and should be construed against Peerless. The Court of Appeals again disagreed. “Employment” means “being employed” or “having a paying job,” and the word “related” means simply “connected in some way.” These are plain, ordinary definitions and, when they are applied to this case, it is clear that Moshe’s claims against Stimson “relate to her job.” This is enough, the
Court of Appeals says, to trigger the exclusion and bar coverage. The alleged slander arose out of or was in connection with an employmentrelated situation, so the timing of the statements did not matter as well.
or disparages a person’s or organization’s goods, products or services” The upshot? The exclusion is being applied properly, but also broadly, to eliminate the duty to defend for Peerless as the CGL or BOP carrier.
So, we arrive at the first of the two lessons: the coverage question. It might seem common-sense or obvious that a BOP or a CGL wouldn’t cover an employment-related dispute. In fact, that’s the result that occurs here.
The Court of Appeals concludes as much, saying, “The policy at issue was designed to protect the siblings in suits brought by third parties – it was not meant to protect one against the other in a suit between the two.”
It is, however, a closer question than first appears, probably because of the slander and/or defamation allegations. One of the key definitions of “personal and advertising injury” is: “Oral or written publication, in any manner, of material that slanders or libels a person or organization
From this concept, it isn’t too far of a leap to conclude that even corporations or partnerships with few or no employees still have employmentrelated risks. As a result of this case, we’re now certain that the general liability carrier won’t have to defend or indemnify “intra-party” disputes that arise out of working together, based on the “employment-related” language in the exclusion in most policies.
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How does all this play out in practicality? Imagine a small professional practice with a handful of people who are both employees and shareholders. They work in the office every day. Business disputes arise, and the practice decides to terminate its relationship with one of the shareholder/ employees. In response, the terminated person claims slander, or perhaps an improper discriminatory intent or effect to the termination. Based on the outcome of the Peerless case, a general liability carrier would be likely justified in turning down (refusing to defend) any aspect of the claim as it is “employment-related,” and that would remain the case even if there were core allegations that fit within the typical framework of a personal and advertising injury. That, in turn, leads to the second lesson, the painful and obvious one. This is the “heresy” mentioned at the beginning: managing the risk of an enterprise isn’t solely about its insurance policies and overall program. The company’s or partnership’s organizational and employment documents matter, too. How will ownership disputes be resolved? Are there any exit ramps off the highway to the courtroom, such as alternative dispute resolution (arbitration or mediation)? Are www.iiak.org | March/April 2016 | 15
there disincentives to difficult, protracted shareholder or partner or owner battles? These are the sorts of questions that good risk management practices demand be asked. In my view, it’s more than just “ok” for insurance producers to ask them. As for the answers to the questions, well, that’s up to the insured. The agreements won’t prevent all disputes, but they sure help in at least two ways. First, the discussions necessary to achieve thoughtful agreements between owners are themselves illuminating. What are we doing with the business? Where are we going to be in three, five or seven years? Negotiating the terms and conditions can be healthy and can lead to some important revelations for the owners. It tends to eliminate surprise. It can also eliminate disappointment over unexpressed and unmet expectations. Second, the resulting agreements themselves can, as mentioned, head off all-out warfare via litigation. Many smaller organizations with just a few equity owners (including insurance agencies) think they are exempt from this requirement. That’s especially true in family-owned companies (including insurance agencies). But those companies shouldn’t rely on longstanding business relationships or even family ties (especially insurance agencies) as a substitute for appropriate risk management in the form of good partnership agreements, shareholder agreements, or employment agreements. Why this point about family? Moshe and Stimson had a law practice together, but they’re also brother and sister. Richard S. Pitts, IIAK’s General Counsel is also part of our newest member benefit, First Call Free Legal. Members receive up to a 30 minute phone consultation on an insurance or agency-related matter once a year at no charge. Contact IIAK for more information.
Thank You 2016 Industry Partners (as of 3/14/16) Premier
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Gold Acuity Grange Insurance Company KEMI MAPFRE Insurance Risk Placement Services, Inc. Silver AFCO Amerisafe Kentucky National Insurance Company Keystone Insurers Group Motorists Insurance Group Secura Insurance State Auto Insurance Company
Bronze Alexander J. Wayne & Associates Anthem Blue Cross & Blue Shield Auto-Owners Insurance Company BITCO Insurance Companies Columbia Insurance Group Countryway Insurance Company FCCI Insurance Group FFVA Mutual Insurance Company InsurBanc
16 | www.iiak.org | March/April 2016
J.M. Wilson KESA KY Associated General Contractors Market Finders Insurance Corporation Midwestern Insurance Alliance Prime Insurance Companies Summit Swiss Re Corporate Solutions Westfield Insurance
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Getting to Know
Neel Ford 2015-16 Young Agent Chair
Job Title Commercial Lines Manager & Partner What does your position entail? My role is to make sure the Commercial Lines Department is running smoothly and efficiently while providing our clients with the best service possible. I am always looking for ways to improve our business and our customer experience. We also want to continually look for areas of growth and try and provide a fun and enjoyable place to work. What do you enjoy most about your job? I enjoy getting to know our clients and becoming a valued partner of their business. When we can help solve a problem or make a client feel more comfortable by taking the worry of insurance off of the their shoulders, that is a good feeling. Biggest influence My Dad and Granddad were always and continue to be big influences on me. I also enjoy reading and following both John C. Maxwell and Jon Gordon. What’s something unique about yourself? I’m a 4th generation agent.
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What personal accomplishment are you most proud of? Hopefully being a great dad to my two kids! Pet Peeve When you let someone go in front of you while driving and they don’t wave or acknowledge the kind gesture. Farthest place you’ve traveled Hawaii Favorite TV show Everybody Loves Raymond Favorite music/band Dave Matthews Band Favorite restaurant in Owensboro Famous Bistro Something others would be surprised to know about you? I have always loved horses and did an internship on a horse farm just out of college thinking I might end up working in the thoroughbred industry. I was a page in the US Senate one summer in high school. What’s something that you’re really bad at that you would love to be great at? Public speaking and playing the piano
Age and hometown: 34, Owensboro, KY Education: BS in Ag Economics from University of Kentucky Family: Married to my wife Sarah and we have two kids. Daughter Sutton, 2, and son, Wynn, who is 1. Pets? No, We skipped pets and went straight to kids! I am sure we will be adding a dog to our family soon though! Hobbies: Spending time with my wife and kids is what I enjoy the most. I also enjoy playing golf, going to the lake, attending UK sporting events, and reading! Bad habit: Craving chocolate after most meals excluding breakfast. First job Worked for a home building company mowing yards.
Become an IIAK Young Agent The future of the industry
What is a Young Agent? The Young Agents Committee of Kentucky serve as the unified voice for all young agents in Kentucky. We foster the professional development needs of our members in the state to perpetuate the future of the independent insurance agency system. Young Agents are vital to the success of our membership and our association. They are the individuals who will become the future leaders of the association, their businesses and their communities.
Do YOU qualify? To qualify as a Young Agent, you must: • Belong to an IIAK member agency or associate member company/vendor • Be less than 40 years old and/or • Have less than five years experience in insurance
Want more information? Contact Katie Freshley, Education & Events Director at: 502-245-5432 or via email at kfreshley@iiak.org
UPCOMING YA EVENTS Big “I” Sales & Leadership Conference June 8 & 9 Bowling Green
Young Agents Day at Keeneland October - TBD Lexington
2015-2016 YOUNG AGENT COMMITTEE
Chair
Chair-Elect
Vice Chair
NEEL FORD, AU, CPIA E.M. Ford & Company Owensboro Email: nford@emford.com
ERIC HARDEN
Insuramax, Inc. Louisville Email: erich@insuramax.com
DANNY NEELY
Immediate Past Chair
Board Liaison
Committee Member
ADAM MURPHY, CIC, CISR, CPIA
MICHAEL G. JOHNSON, CIC
LOGAN EDELEN
Lake Barkley Insurance Agency Cadiz Email: amurphy@lbinsurance.net
20 | www.iiak.org | March/April 2016
Al Torstrick Insurance Agency, Inc. Lexington Email: mjohnson@altorstrick.com
Neely & Wade Insurance Agency, LLC Winchester Email: danny@neelyandwade.com
Roeding Insurance Lexington Email: ledelen@roeding.com
Committee Member
Committee Member
Committee Member
TRIPP HUMSTON, CIC
QUIN LYNCH
DIANA NORWOOD, CIC, CPIW, DAE
Committee Member
Committee Member
Committee Member
LINDSEY PRUITT
JARED PURSLEY
NICHOLAS ROLF
Secura Insurance Company Versailles Email: tripp_humston@secura.net
Risk Placement Services, Inc. Lexington Email: lindsey_pruitt@rpsins.com
Greer Insurance, Inc. Brandenburg Email: quin.lynch@greer-ins.com
Pedigo-Lessenberry Insurance Agency, Inc. Glasgow Email: jpursley@plinsurance.com
Liberty Mutual Insurance Lexington Email: diana.norwood@libertymutual.com
Gross Insurance Agency, LLC Ft. Thomas Email: nicholas.rolf@gross-ins.com
Pitchin’ for PAC Corn Hole Tournament Sign up today for the Pitchin’ for PAC Corn Hole Tournment on June 8 during the Big “I” Sales & Leadership Conference.
Staff Liaison KATIE FRESHLEY
Independent Insurance Agents of Kentucky Louisville Email: kfreshley@iiak.org
The Young Agents are sponsoring the event and all proceeds go to benefit InsurPAC. Visit www.iiak.org for details. www.iiak.org | March/April 2016 | 21
Relax...
You’ve offered each of your clients a personal umbrella policy.
Right? It might not be quite as relaxing as a day at the beach, but knowing you’ve done everything in your power to protect the customers who trust you to help them will go a long way towards easing your mind. Offering each and every client an umbrella not only protects those who choose to purchase the coverage. It protects your agency from liability. And it protects your book of business, since studies show that customers who have multiple policies are less likely to move their business elsewhere. As a Big “I” member, you have access to a stand alone personal umbrella program from A+ rated carrier RLI, featuring: Limits up to $5 million available Excess UM/UIM available in all states You can keep your current homeowner/auto insurer New drivers accepted - no age limit on drivers Up to one DWI/DUI per household allowed Auto limits as low as 100/300/50 in certain cases
Competitive, low premiums for increased limits of liability Simple, self-underwriting application that lets you know immediately if the insured is accepted E-signature and credit card payment options Immediate coverage available in all 50 states plus D.C.
So cover your clients... protect your agency... and profit from umbrella sales!
Contact Jennifer Hopper, your RLI Administrator at: Email: jhopper@arlingtonroe.com Tollf Free: (800) 878-9891, ext. 8639 Local Fax: (317) 554-8551 Toll Free Fax: (888) 552-9891
Work with an insurance company that’s right in your own backyard — EMC Insurance Companies. With a fully staffed office in Cincinnati, EMC offers more than 100 years of experience in commercial insurance, plus local people who understand you and your markets. Local responsive service is just one reason agents in your area Count on EMC ®. MEGAN REYNOLDS Commercial Lines Underwriter EMC Cincinnati Branch
WE’RE RIGHT IN YOUR
OWN BACKYARD. CINCINNATI BRANCH OFFICE Phone: 800-732-5595 | Home Office: Des Moines, IA
www.emcins.com © Copyright Employers Mutual Casualty Company 2016. All rights reserved.
Selling Your Agency May Be Hazardous to Your (Financial) Health By: Robert J. Pettinicchi An Economic Case for Internal Perpetuation If you just sold your agency to one of the many private equity backed brokerage firms, congratulations, but you may want to flip this page. Now that the former agency principal has moved on to the next article, I would like to tell you why I believe there is a good reason for you to strongly consider perpetuation for your agency. Our agency seller colleague, who is now reading the next article, may regret having sold the agency his or her family built over the last three generations. There is a sound and understandable economic justification that suggests that there is as much value to be realized over time by retaining and investing in your agency. After doing the math, you may find that a perpetuation is potentially more attractive than an outright sale, even given the recent frothy deal valuations. Consider what happens when you completely sell your agency to a third party. In exchange, for likely a very tidy sum, you give up all of the future cash flows of the agency, and all of the clients you and your family have amassed. Chances are that the guaranteed portion of the sale is all that may be realized because there is risk of achieving the full earn-out beyond your control. Also, since you no longer own the shares, you cannot enjoy any future appreciation in the value of the stock. When you take the sale proceeds, besides purchasing a sailboat, you will need to make investments in other assets, such as securities, which will probably not produce a yield as great as the return from running and owning a good performing agency. You will certainly not be able to duplicate the return you would receive from owning the agency with any alternative investment approaching a similar risk profile. If you perpetuate 24 | www.iiak.org | March/April 2016
your agency, even if you sell a small share to employees, chances are that you will have a more valuable agency in the coming years such that your (smaller) ownership share is worth more down the road than the full share would be worth today. Here is a brief description of the math exercise you may wish to attempt. The impact of taxes will not be considered. If one assumes an agency with commission revenue of $5.0 million with relatively good performance delivering a 22.5 percent EBITDA (earnings before interest, taxes, depreciation and amortization) margin, the value on an outright sale may be $9.5 million. Conversely, the value for an internal sale, of less than a full interest, would be $5.6 million. The EBITDA valuation multiples used are conservative — 8.5 and 5.0 times, respectively.
Now assume that you sell 30 percent of the shares of your agency to your best producers. Because you were able to retain your best people with an equity stake, they are even more productive and your agency revenue records organic growth of 5 percent per year and grows to $6.4 million revenue in five years. At the 22.5 percent EBITDA margin and same 5.0 multiple, the agency is now worth $7.2 million and your 70 percent interest is worth $5.0 million. But, over the same period, you received annual cash flows from your 70 percent stake totaling $4.5 million. Add the cash flows received
to the projected value and your “total investment” is worth approximately $9.5 million. While the numbers are simplified and ignore taxes and the time value of money, a case can be made that perpetuation can be very attractive since modest growth and retention of cash flows yields a similar value after five years. The best part is that you can continue to do this serially for as long as you care to bring on additional owners or allow the widened group of owners to increase their shares. In addition, you always have the ability to sell out in total, should you want to. This is the equivalent of having the best of both worlds. Naturally, you would need sound legal advice to craft the share purchase and redemption agreements.
“Consider approaching perpetuation candidates at an earlier age by offering equity ownership in your business. It has been said that talent flows to equity.”
Attractive Choice
Here is another thought worth considering but I can’t model it out for you. Why are agencies so attractive? Besides the fact that there is a lot of capital in search of a return hoping to tap into your reliable and recurring cash flow stream, agencies own something that lends great value to the cash flow. Agencies are in the enviable position of “owning the customer.” The ability to own the customer is exactly what is driving entrants such as Google into your industry.
of driving to Walgreens to purchase deodorant, but simply orders it online from Amazon over their tablet and it is delivered to their door, with free shipping. Being the distributor is the preferred, and far less risky, place to be than being the manufacturer or producer of the product. Clients are satisfied when given wide choices, with excellent guidance and support, preferring to repeatedly purchase through a single point of sale. Does this sound familiar to your business?
Perpetuation Scenarios
There are a variety of perpetuation scenarios that are available. I will focus on the simplest and easiest to implement.
They desperately want a piece of the insurance distribution space. Google is not setting out to be an insurance carrier since that risk is too great. Don’t be afraid of Google entering your industry but ask yourself why they are entering and you will realize that you have something very special. That is why they want a part of it. Think next for a moment of the Amazon model. Amazon is doing all it can do to become the distributor of choice to the consumer for all types of goods. The ultimate value of, and success of, Amazon will be realized when one no longer thinks
Consider approaching perpetuation candidates at an earlier age by offering equity ownership in your business. It has been said that talent flows to equity. I would advise you that the opportunity to purchase equity in your business only be extended to those individuals that have demonstrated that they are high performers. Those who are able to produce business, manage relationships and exhibit the same passion you have for your business and want to be part of its future. Those who are willing to devote some of their financial resources to buy into your business. Equity ownership is a proven way to attract and retain the best talent. Those potential owners are encouraged to obtain www.iiak.org | March/April 2016 | 25
“Crafting and implementing a perpetuation strategy cements your chance for a solid financial future...” a loan from a specialty lender such as InsurBanc secured by the stock purchased. As a seller, you want the purchasers to actually “buy” the equity. This places the exercise of financial discipline on the part of the buyers and readies them for greater financial responsibilities in the future. To facilitate the financing, as a seller, you would agree to the bank that you would repurchase the shares to regain control of the stock, likely at a discount, in the event that one of the minority principals defaulted on their loan. The downside risk to you as a seller is therefore greatly diminished. Now, you may ask, “What is the best way to start the process of planning for and implementing a perpetuation based on a sale of stock to your future leaders?” The agency principal who is considering what I have discussed will need to have a very good assessment of the current value of their agency and a projection of the value of the agency several years from now after the implementation of the perpetuation plan and making appropriate investments in the business. We would be very pleased to provide some advice to you and provide referrals for qualified valuation consultants. Always seek accounting and legal advice from the best qualified professionals.
Robert Pettinicchi is executive vice president, chief lending officer, at InsurBanc. Contact him via email at rpettinicchi@InsurBanc.com or call 866-467-2262.
63
of J.M. Wilson underwriters play a musical instrument
of combined underwriting experience
KNOWLEDGE MORE THAN JUST A PRETTY FACE
1 in 2
We have all been reminded repeatedly of the challenges facing the industry. Crafting and implementing a perpetuation strategy cements your chance for a solid financial future by widening ownership in your agency and diversifying the ages of the owners, while giving you the best options to maximize your investment.
J.M. Wilson associates have earned an insurance designation
MGA and E&S Broker since 1920
(800) 666-5692 | JMWILSON.COM 26 | www.iiak.org | March/April 2016
40%
DECADES
SURETY TRANSPORTATION PROPERTY & CASUALTY PERSONAL LINES BROKERAGE / PROFESSIONAL
Member Spotlight: Marnitz & Associates Insurance Established: January 1, 1984 Location: Lexington, Ky Number of Employees: 5 Member of IIAK since: 1984 Agency Overview We are a niche writer of all equine related insurance products from commercial and personal horse breeding to riding instruction and cattle. We also service other risks involving grain, field crops, berries, fruits, nuts, sheep, dairy, nurseries, cotton and citrus. We are licensed in all states in the U.S. except Alaska. Our distribution center is made up of independent insurance agents around the country and we use only A+ rated carriers. What’s it like insuring horses in the Horse Capital of the World? It’s actually really tough doing this type of insurance here in Lexington, for that exact reason. There are a number of agents that specialize in selling these same products, so the competition is very high. Many farms here are very high end and very well known, so everyone wants to be the one associated with them. However, it is amazing to see all of the beautiful horse farms all over the bluegrass and experience the culture with the Keeneland Race Track just down the street. This area definitely keeps the standards high. What’s the most bizarre thing you’ve ever insured? One time, way back in the day when we were placing all of our mortality coverage with Lloyds of London, we had a risk come in that was a chicken farm and they wanted a per chicken deductible on the policy.
What are 3 business tips you share with others? Service, Service, Service. In our world we have nothing to give to our clients in the form of a tangible product. The best way to separate yourself from the competition is to service the heck out of your accounts; that’s what we focus on most. We take great pride in our clients and our reputation across the country. Biggest challenge you have faced in business and how did you overcome? I think the biggest challenge has been finding new outlets that will provide growth for the agency. Over the last 30 years, things have changed quite a bit in regards to the industry standards, the economy, people wanting to sell their properties, children taking over family farms, etc. We are always trying to grow and adapt to fit the needs of our clientele and sometimes that change is really hard when you are used to doing something a certain way. Being open to change and always searching for new outlets has been the best way to overcome this challenge. What advice do you have for emerging talent in our industry? The best advice I can give to someone coming into the business is to find a niche/specialty and be the best at one thing.
Want YOUR agency in the spotlight? Contact Nikki Robins at nrobins@iiak.org or call 502-245-5432 www.iiak.org | March/April 2016 | 27
You’re an independent agent.
Do you trust your pit crew?
The Big “I” Professional Liability Program Protect. Prosper. Prevent. Our risk management resources keep your agency from making common preventable mistakes.
Our superior coverage and expert claims teams are in your corner in the event of a claim.
When you know you have the best E&O protection, you can focus on growing your most important asset–your business.
The Big “I” and Swiss Re are jointly committed to providing IIABA members with leading edge agency E&O products and services. The IIABA and its federation of 51 state associations endorse Swiss Re’s comprehensive professional liability program.
www.independentagent.com/EO
Insurance products underwritten by Westport Insurance Corporation, Overland Park, Kansas. Westport is a member of the Swiss Re group of companies and is licensed in all 50 states and the District of Columbia. ©2014 Swiss Re Corporate Solutions
28 | www.iiak.org | March/April 2016
YOU DON’T GET A SECOND CHANCE TO MAKE A FIRST IMPRESSION. That’s why Motorists builds strong relationships with its independent agents right from the start. With a dynamic operating model that includes district sales managers with authority to make decisions, we are looking to partner with growing agencies focused on commercial business. Our one-stop-shop solutions allow us to fulfill all your clients’ needs and make the right impression every time.
Join our team – call us today! Megan Rettig Regional Recruiting Manager 614-225-8389 megan.rettig@motoristsgroup.com
Auto • Home • Business • Life
www.motoristsgroup.com Motorists Mutual Insurance Company Motorists Life Insurance Company Broad Street Brokerage MICO Insurance Company
Iowa Mutual Insurance Company Iowa American Insurance Company Wilson Mutual Insurance Company Phenix Mutual Fire Insurance Company
Motorists Commercial Mutual Insurance Company MCM Insurance Agency, Inc. Consumers Insurance USA, Inc.
www.iiak.org | March/April 2016 | 29
Find these and more at bigimarkets.com
Flood Your Association With Support!
Please consider supporting your association by placing at least some of your ϐlood business with the Big “I” Flood program and Selective each year. You don’t have to move your whole book - just part of it! In doing so you help fund IIABA’s advocacy efforts while enjoying superior service from Selective. Visit www.iiaba.net/Flood to connect with the Selective Flood specialist for your state.
Have You Considered Your Retirement Options? When it comes to retirement planning your association is here to help.
Let us show you how much our new Big “I” MEP 401(k) Plan can benefit your employees while limiting your fiduciary exposure with our state of the art features and low investment expenses.
30 | www.iiak.org | March/April 2016
Contact Christine M. Muñoz, Vice President, Big “I” Retirement Services, LLC at 800-848-4401 or christine.munoz@iiaba.net.
How RISKY is it?
By: Eric Moberg
Kentucky IA magazine enlisted the help of Eric Moberg from The Moberg Group to present various scenarios and E&O exposures.
...not to establish a value for an agency using a professional consultant with valuation experience?
...not to have an agency perpetuation plan?
Although there are several ways to value an agency, most professional consultants will use more than one method to make sure they are looking all the possible variables. Is this simply a book of business sale, or is this a going concern sale including staff, equipment and possibly the building? Values can be significantly impacted by the terms of the sale. A cash payout will generally be less than if the owner carries a note.
Many agency principals think the only time a perpetuation agreement is important is when they begin planning to sell or transfer ownership within the agency. This is the worst time to plan for perpetuation. In many cases the timing requires the owner to plan more quickly than they should. This can lead to being unprepared for all the possible alternatives, and possibly reduce the return for the sale. Perpetuation plans should be done when there is no pressure from an ownership transfer with the thought that the perpetuation plan is a living document that needs to be reviewed at least annually. The plan should be influenced by the long term plans for the owners.
Each scenario has it’s own list of considerations in determining value. One thing that is common is that the seller thinks the amount is too low, and the buyer thinks it is too high. Having a professional valuation by an agreed upon consultant can help find that middle ground.
Somewhat Risky
Can be Very Risky (and costly)
www.iiak.org | March/April 2016 | 31
...not to take the time to evaluate your agency and make sure it looks its best at the time of sale?
...not to have a training plan and process in place for young agents you bring into your agency?
Just like selling a home or a car the value can be improved by “cleaning” things up. Is the agency housekeeping make the agency attractive. Is the automation system up to date? Do you have your receivables under control? Is your database complete with good data and client contact information? Is your staff well trained and desirable to a buyer? Does the agency have a good reputation with the clients and the community? How is the agency perpetuation?
The growth of Risk Management programs at the college level is growing; however only a small share of those graduating end up in an independent agency. Most are hired by carriers for underwriting other trainee positions. If we are to compete for these graduates we must provide a method to attract them to agencies. This will necessitate providing training and a career path.
All of these things have a significant impact on the value of an agency. Taking the time to prepare the agency for sale can have a major effect on value. This is another great reason to look at agency perpetuation long before it’s time to sell as some of the things necessary to improve value can take a long time to put into place.
Somewhat Risky
As we retire large numbers of staff from the independent agency system attracting new blood is more important than ever. Now is the time to assess how your agency hires and trains new people and look for a more aggressive way to attract and keep new young employees.
Not too Risky, but important!
Eric Moberg is President/CEO of The Moberg Group, Inc. (TMG), an insurance consulting firm. IIAK recommends The Moberg Group for Westport E&O policyholders interested in risk management auditing. The Moberg Group, a management consulting firm specializing in the operational analysis of insurance agencies, provides all Risk Management Audits for the E&O SwissRe/Westport program. SwissRe/Westport offers a five year 10% premium credit for completion and compliance with the Moberg Review Program. This credit is in addition to any other educational credits earned by the agency. IIAK members will receive a FREE Agency Operations and Procedures Manual (a $250 value) just by completing an audit with TMG. ALL IIAK members are eligible for a FREE 1-hour consultation with TMG per member/per year.
.®
.
There can be no doubt that all our knowledge begins with experience. – Immanuel Kant
www.summitholdings.com
Policies are underwritten by Bridgefield Casualty Insurance Company and Bridgefield Employers Insurance Company, authorized insurers in AL, AR, FL, GA, IN, KY, LA, MS, NC, SC, TN and TX; BusinessFirst Insurance Company, authorized in FL, GA, KY, NC, SC and TN. ©2016 Summit Consulting LLC | 2310 Commerce Point Drive, Lakeland, FL 33801
32 | www.iiak.org | March/April 2016
4 Ways to Get New Talent, Vets to Work By: Dax Craig Together There’s a real and palpable talent crisis in the industry that is causing tension between the old guard of the insurance industry and millennials, the fastest-growing consumer base and workforce. If the recent tech industry boom has taught us anything, it’s that young people will work long hours at high-pressure jobs—but they must be passionate about what it is they do and receive mentorship that helps keep them engaged.
3. Highlight opportunities for growth It is imperative to show not only how your company plans to innovate and evolve as the industry changes, but also that it offers competitive salaries. Additionally, employers should give a clear idea that there will be regular reviews and feedback, as well as encouraging horizontal opportunities at the company. This will help combat the job-hopping that is apparent with Gen Y.
At this year’s Valen Analytics Summit, presenters including Rob Darby, president of Berkshire Hathaway, and Martin Welch, CEO of Hawaii Employers’ Mutual Insurance Co., discussed how to attract millennials and utilize their skills—along with industry veterans—to create a more modern and competitive insurance company. Here are a few things that help them when screening potential candidates:
4. Let millennials have a voice Allocate time within your company for two different kinds of meetings—those run by millennials and those run by tenured insurance professionals. Meetings hosted by experienced staff should share industry knowledge and insights, and help newbies understand the insurance ecosystem. Meetings run by the younger talent in the organization can focus on strategies to help improve the company’s customer engagement through online and social platforms, as well as share insights or discuss initiatives into how to recruit more millennial talent.
1. Look for analytic aptitude Candidates need to demonstrate an ability to solve hypothetical business problems and have a core knowledge base of analytic tools and methods, especially as the use of predictive analytics becomes more widespread for insurers. This is especially important as many current employees may not have that skill set, so making sure each group can learn from one another will be important in creating a balanced dynamic.
Dax Craig is the co-founder, president, and CEO of Valen Analytics. Based in Denver, Valen is a provider of proprietary data, analytics and predictive modeling to help all insurance carriers manage and drive underwriting profitability. Learn more at www.valen.com Originally published in National Underwriter Property & Casualty. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
2. The issues that matter Millennials value certain things about company culture, including work-life balance and flexibility. In addition, a survey from The Institutes found that more than 30% of millennials value working in teams, signifying that cooperation and mentorship is extremely important to them. Insurers already have built-in mentors in their organization in the form of their current employees, and need to embrace this new responsibility to help the two groups click and learn from each other. www.iiak.org | March/April 2016 | 33
Classifieds Acquisitions
Established Louisville agency interested in acquiring insurance agencies in Jefferson and surrounding counties. If you are interested in selling, merging, or need assistance with perpetuation, we would like to talk with you in confidence. Call R. Alex Rankin, CPCU or Steve B. Thompson, CPCU, at Sterling G. Thompson, Co. at 502585-3277
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SOCIAL MEDIA
NO? THEN YOU ’ RE MISSING OUT ON IMPORTANT NEWS &
EVENTS!
Find all our links at our homepage: www.iiak.org Or, use your smartphone to scan the QR codes below:
Looking for Producers
Independent with top best markets looking to expand presence in Jefferson, Oldham or Shelby counties. Wanting Personal lines, Producer or book of business to move or purchase. All arrangements possible, in strict confidence. Please send inquiries to Turner Insurance Agency, 2460 Shelbyville Road, Shelbyville, KY 40065 or call Kurt Turner, CPCU at 502-633-6060.
IIAK
Young Agents
Ad Index Big “I” Markets Bolton & Company EMC Insurance FCCI Guard Insurance J.M. Wilson Kentucky Retail Federation KESA Motorists Mutual RLI Personal Umbrella Secura Summit Consulting Swiss Re Professional Liability West Bend Mutual Insurance
30 OBC 23 15 9 26 IBC IFC 29 22 6 32 28 10
For classified ads or to advertise in the Kentucky IA, contact: Nikki Robins, Communications Director at 502-245-5432 or nrobins@iiak.org
34 | www.iiak.org | March/April 2016
Whitepages ID
Cost: Free Rating: ««««« Learn more: https://www.whitepages.com/ Whitepages allows you to know who’s calling. You can avoid unwanted calls with real-time spam detection, fast reverse phone lookup, and a spam checker dialer that warns you if you’re calling a number that’s associated with a spammer or fraud. Whitepages indentifies scams and spam by monitoring billions of calls and texts ever month. It combines this information with user reports of suspicious calls and texts to create a database of phone numbers associated with scams and spam. - Steve Anderson
Slips, Trips and Falls, Oh MY!
© SECURA Insurance
Slips and trips on the same level are the second leading cause for workplace injuries resulting in workers’ compensation claims. Falling from a different level is in the top ten. As the workers’ compensation self-insured fund for The Kentucky Retail Federation, KFRSIF is familiar with and understands the potential dangers associated with slips, trips and falls. We offer our members on-site loss control evaluations, training and other prevention services for FREE!!
It’s All About Stability
Our Members are Fully Supported Kentucky Retail Federation Self Insurers fund (KRFSIF) is specifically designed for Kentucky retailers, by Kentucky retailers. 4 Third party administrator, CCMSI, is SAS 70 accredited in both Type 1 and Type 2 categories. 4 CCMSI services 60+ funds across the U.S. (www.ccmsi.com). 4 We have extensive experience in servicing grocery stores, convenience stores, restaurants, auto body shops and physicians’ offices. 4 With KFRSIF there are no hidden surprises – IBNR reserves are developed for those claims that have not yet been reported and for claims with unforeseen development. These reserves meet all state and actuarial requirements for future loss development.
| Traditional insurance companies come and go – We are here to stay! We have over 20 years of servicing your clients workers’ compensation needs. | Get the best of both worlds: the benefits management services provided by CCMSI, the country’s largest independent TPA while enjoying personalized local claims management services. | Our claims adjusters and loss control consultant are Kentucky based and dedicated to servicing our members. | KFRSIF is governed by a Board that is elected by our members, not appointed – Let’s make sure they always dig what they do. ensuring that decision-making is to the best benefit of our members. | Our members receive the benefits associated with membership in the Kentucky Retail Federation. Log onto www.kyretail.com for more information.
To join KRF visit www.krfsif.org or email krfsif@ccmsi.com.
Building working relationships since 1900 Commercial • Personal • Farm-Ag • Specialty
New Partnership
KFRSIF has partnered with the Kentucky Grocers Association.
When you partner with SECURA, you’re Watch: secura.net/partners Call us at family. 502-394-3018
www.iiak.org | March/April 2016 | 35
Having trouble writing vacant homes? Call us today! If your clients are going on an extended vacation or have moved into a new house and still have the old one up for sale, vacant home insurance can be hard to get. Vacant homes are an easy target for thieves, vandals or even homeless people. • Coverage to $4,000,000 • Buildings undergoing improvements also eligible • Very competitive rates
Don’t put your clients at risk. Vacant homes are a specialty at Bolton & Company. We have a program especially designed for this market. Call us today and let your clients rest easy.
• Policy terms of 3, 6 or 12 months available • Online rating at our website: www.boltonmga.com
2400 Waterfront Plaza • 325 West Main Street • Louisville, Kentucky 40202 Telephone 502 583.8361 • 800 292.6597 • Fax 502 584.6131 • www.boltonmga.com