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COMPENSATION CRISIS N.Y. Agents Blast Disclosure Rules
DIVERSIFIED BUSINESS Tips for Marketing to Minorities
PEANUT BUTTER CLAIMS The Hartford Sues Client
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Business owners shouldn’t be experts in everything. Applied Underwriters® gives them the tools to focus on what they know best: their business. Uniquely powerful products like SolutionOne® that combine payroll, casualty coverages and risk reduction services. And insurance carriers with an A.M. Best Rating of A (Excellent). The result? A client retention rate of over 90%. For more information call 1-877-234-4450 or visit www.applieduw.com.
©2007 Applied Underwriters, Inc. A Berkshire Hathaway Company.
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Steve Monahan, Structural Engineer & Business Owner. Builds foundations that support 100 tons. Doesn’t want to think twice about his insurance carrier’s stability.
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Inside This Issue
February 23, 2009 • Vol. 87, No. 4 • East Region
IDEA EXCHANGE
EAST COVERAGE 10 | Diversity Brings New Opportunities Changing Demographics Mean New Sales Strategies for Agents 42 | Growth Through Demutualization Pennsylvania-Based Donegal Pioneers Unusual Strategy 8
8
N6 SPECIAL REPORT:
Agency Salary Survey Agencies Trim Payrolls and Raises
8
| The Hartford Sues over Peanut Claims Salmonella in Peanut Butter Prompts Quick Lawsuit | New York Proposes Compensation Disclosure Rules Agents Irked But Brokers Applaud | Vermont Weighs Workers’ Comp Expansion Lawmaker Wants Coverage for Mental and Emotional Problems
NATIONAL COVERAGE
N10 | Budget-Friendly Ideas to Retain Your Top Performers Career Development, Mentors and Flexible Schedules Can Help 50 | Closing Quote: Implications of the 2008 Farm Bill Commissions Could Decrease, But New Coverages Could Emerge 43 | Certificates of Insurance and Agency Liability What Agents Need to Know 44 | Managing an Agency in A Troubled Economy Andrade’s Priority 3: Operational Efficiency N26 | Valuing the Deal: It’s What You Keep that Matters Hard Costs, Holdbacks and Soft Costs Impact Every Deal
N1 | The Relative Calm Industry Insiders Credit Risk Management for Minimizing Recession’s Impact
DEPARTMENTS
N2 | Reinsurers Seem Ready to Flex Muscles Predict Prices Should Increase by Double-Digits
50 N16 6 47
N4 | International Coverage Hope, Straight Talk and Despair Amid the Ruins
| | | |
Closing Quote MyNewMarkets Opening Note People
N6 | SPECIAL REPORT: Agency Salary Survey Agencies Trim Payrolls and Raises N12 | Spotlight: Agribusiness/Farm and Ranch Top 5 Insurance Issues for Farmers in a Soft Economy N19 | Closer Look: Boats and Marinas 5 Solutions for Marine Clients in Today’s Challenging Times N22 | Closer Look: Boats and Marinas Marine Broker, Carrier Share Views on the Market
4 | INSURANCE JOURNAL-EAST REGION February 23, 2009
8
10
The Hartford Sues over Peanut Claims Salmonella in Peanut Butter Prompts Quick Lawsuit
Diversity Brings New Opportunities Changing Demographics Mean New Sales Strategies for Agents
42 Growth Through Demutualization Pennsylvania-Based Donegal Pioneers Unusual Strategy
www.insurancejournal.com
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Who insures you doesn’t matter.
Until it does.
Financial Strength and Exceptional Claim Service Property | Liability | Executive Protection | Workers Compensation | Marine | Surety Homeowners | Auto | Yacht | Jewelry | Antiques | Accident & Health Chubb Group of Insurance Companies ("Chubb") is the marketing name used to refer to the insurance subsidiaries of The Chubb Corporation. For a list of these subsidiaries, please visit our website at www.chubb.com. Actual coverage is subject to the language of the policies as issued. Chubb, Box 1615, Warren, NJ 07061-1615
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Idea Exchange Opening Note
Ensuring Communities J
ournalists find cynicism comes easily. Nearly every day, we’re bombarded with a string of e-mails, press releases and clippings about different companies and individuals who have donated their time, money or both for something in their communities. “So what?” a former newspaper colleague once remarked to me about the practice. “That happens every day — it’s not news.” But given the economic times the country faces, I now question that logic — not an easy task for a newsman. How else am I to reconcile an inbox flooded every day with tales of a collapsing economy — layoffs, on-the-rise businesses and nonprofits struggling — with the string of press releases, announcements and mentions of community service and charity which continue to pepper my daily dish of bad news? Wait a minute. Maybe this is news. That realization dawned on me earlier this month as I sat in a meeting of the MetroHartford Alliance, the chamber of commerce for Connecticut’s capital. The meeting was about efforts to transform the region’s struggling school system. One of the first things anyone mentioned was an insurance company. Travelers — which has its property/casualty operations based a few blocks from that particular meeting — had just recently announced the commitment of $1 million to education reform in Hartford. That money, desperately needed, will go directly to support the reform agenda of the Hartford Public Schools. Plus, another $500,000 will go to organizations and programs that serve Hartford students. “As we battle threats of serious cuts in state education funding, it is gratifying to see Travelers put its faith and resources behind programs that work,” said Superintendent Steven J. Adamowski. “We hope that others will follow.” Across the region and the country, despite a soft market, difficult outlook and any other obstacle worth mentioning, insurance companies, brokerages and agents continue to ante up time, effort and money when it comes to being a part of their communities. What could be more newsworthy than that? Here’s a quick sample of some other efforts from around New England that have been sent to me recently:
Publisher Mark Wells Chief Executive Officer Mitch Dunford
EDITORIAL Editor-in-Chief Andrea Ortega-Wells | awells@insurancejournal V.P. Content/ and Interim Midwest/Southeast Editor Andrew Simpson | asimpson@insurancejournal.com East Editor Kenneth J. St. Onge | kstonge@insurancejournal.com South Central Editor Stephanie K. Jones | sjones@insurancejournal.com West Editor Patricia-Anne Tom | ptom@insurancejournal.com MyNewMarkets Associate Editor Chris Boggs | cboggs@insurancejournal.com International Editor Charles E. Boyle | cboyle@insurancejournal.com Columnists Susan Henry Contributing Writers Jerry Hillard, Ted Huntington, Chris Ohrenich, Curtis M. Pearsall, Alfonso Ventoso
SALES V.P., Sales & Marketing Julie Tinney (800) 897-9965 x148 jtinney@insurancejournal.com West Dena Kaplan (800) 897-9965 x115 dkaplan@insurancejournal.com South Central Eric Jeter (281) 655-0234 ejeter@insurancejournal.com
Midwest Lauren Knapp (800) 897-9965 x161 lknapp@insurancejournal.com Southeast Howard Simkin (800) 897-9965 x162 hsimkin@insurancejournal.com East Dave Molchan (800) 897-9965 x145 dmolchan@insurancejournal.com
MARKETING Marketing Administrator Gayle Wells | gwells@insurancejournal.com Advertising Coordinator Erin Burns | eburns@insurancejournal.com (619) 584-1100 x120 New Markets Sales Manager Kristine Honey | khoney@insurancejournal.com Classified and Ancillary Sales Manager Nicola Coghill | ncoghill@insurancejournal.com (619) 584-1100 x125 New Media Producer Chad Reese | creese@insurancejournal.com
DESIGN/WEB
— In Nov., The Concord Group Insurance Cos., which insures 35,000 houses and mobile homes in Maine, created an initiative to provide $500,000 in fuel assistance to Mainers. The state’s governor called the program “a unique initiative which will help many Mainers remain safe and warm as the weather grows colder.” — In October, a similar effort by Carey, Richmond & Viking Insurance agency of Portsmouth, R.I. and the Selective Insurance Company helped to raise $2,000 for Rhode Island Good Neighbor Energy Fund, a heating assistance program. — In Dec., Gowrie, an insurance brokerage based in Westbrook, Conn., matched donations up to $25,000 for those who contributed The Shoreline Soup Kitchens & Pantries. The result: Nearly $75,000 was raised. All these efforts, big and small, have meant a real impact for the communities these agents and companies serve. Countless others also make an impact every day, even if their tales never find their way into the pages of Insurance Journal. It’s easy to take community service for granted, but no one should. After all, ensuring communities is what this business is all about, right? Kenneth J. St. Onge East Editor kstonge@insurancejournal.com
Vice President/Design Guy Boccia | gboccia@insurancejournal.com Vice President/Technology Joshua Carlson | jcarlson@insurancejournal.com Graphic Designer Jamie Bethell | jbethell@insurancejournal.com Web Developer Jeff Cardrant | jcardrant@insurancejournal.com Web Developer Chris Thompson | cthompson@insurancejournal.com
A D M I N I ST R AT I O N Accounting Manager Megan Sinclair | msinclair@insurancejournal.com Admin./ Marketing Asst. Kristina Delavega | kdelavega@insurancejournal.com Cover designed by: Guy Boccia
Insurance Journal, The National Property/Casualty Magazine (ISSN: 00204714) is published semi-monthly by Wells Publishing, Inc., 3570 Camino del Rio North, Suite 200, San Diego, CA 92108-1747. Periodicals Postage Paid at San Diego, CA and at additional mailing offices. SUBSCRIPTION RATES: $7.95 per copy, $12.95 per special issue copy, $195 per year in the U.S., $295 per year all other countries. DISCLAIMER: While the information in this publication is derived from sources believed reliable and is subject to reasonable care in preparation and editing, it is not intended to be legal, accounting, tax, technical or other professional advice. Readers are advised to consult competent professionals for application to their particular situation. Copyright 2009 Wells Publishing, Inc. All Rights Reserved. Content may not be photocopied, reproduced or redistributed without written permission. Insurance Journal is a publication of Wells Publishing, Inc. POSTMASTER: Send change of address form to Insurance Journal, Circulation Department, PO Box 9049, Maple Shade, NJ 08052
6 | INSURANCE JOURNAL-EAST REGION February 23, 2009
FOR QUESTIONS REGARDING SUBSCRIPTIONS: please call 856-380-4176 or email subscribe@insurancejournal.com. You may subscribe or change your address online at insurancejournal.com/subscribe. ARTICLE REPRINTS: For reprints of articles in this issue, contact Rhonda Brown at 1-866-879-9144 ext. 194 or rbrown@fostereprints.com. Visit insurancejournal.com/reprints for more information.
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East Coverage Snapshot
New York Proposes Compensation Disclosure Rules for Agents By Kenneth J. St. Onge
D
espite earning praise from major insurance brokerages, a proposed new regimen of compensation disclosure rules for insurance producers has New York agents on edge. The draft regulations issued earlier this month include rules that establish “minimum disclosure requirements.” Those requirements include the nature and amount of compensation, as well as language that tells consumers an agent “may have incentives” to recommend a particular policy
“based on the amount of compensation paid.” It also includes a mechanism for clients to request information about producers’ compensation which was not known at the time of sale - in other words, contingent commissions. The department is submitting comments from insurance industry before finalizing the regulations. In the independent agency world, the proposal is being greeted with caution and worry. The Professional Insurance Agents of New York, in a statement, said “(t)hough the draft regulation rec-
The Hartford Sues Virginia Firm to Limit Salmonella Claims
T
he Hartford has filed a lawsuit to determine whether it must pay claims filed by victims of a nationwide salmonella outbreak traced to the Virginia peanut butter maker it insures. Hartford, Conn.-based Hartford Casualty Insurance Co. filed suit earlier this month against Peanut Corp. of America in federal court in Lynchburg, where the company is based. Peanut Corp.’s plant in Blakely, Ga., has been identified as the sole source of the salmonella outbreak that has sickened more than 550 people, eight of whom have died. Hartford asked the court to determine whether terms of the company’s policy exclude coverage for salmonella claims. The insurer cited two lawsuits filed by individuals against Peanut Corp. of America and claims by food product manufacturers for
expenses related to a nationwide recall of peanut butter, paste and other products sold by the company. It said it expected Peanut Corp. to receive a number of additional claims. Hartford spokesman David Snowden said the insurer was asking the court to determine the extent of its obligation to Peanut Corp. Peanut Corp. of America officials were not immediately available for comment. A criminal investigation is under way. The company has denied any wrongdoing and said Wednesday that its Blakely plant had received regular visits and inspections from state and federal authorities in 2008. IJ Copyright 2009 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
8 | INSURANCE JOURNAL-EAST REGION February 23, 2009
ognizes the legality of contingent commissions, there are, nonetheless, issues that we find troublesome.” The state’s other major agents’ trade group, The Independent Insurance Agents and Brokers of New York, Inc. said it “has some major concerns with the proposal. IIABNY has consistently supported voluntary disclosure when requested by the client and opposes any additional burdensome requirements on agents and brokers.” Both groups said they are in talks with the insurance department over details of the proposal. Major insurance brokerages, however, applauded the move. “Aon strongly supports Superintendent Eric Dinallo’s efforts to introduce more transparency into the insurance sector and to establish consistent rules for all producers who operate in New York,” said Gregory Case, president and chief executive officer or Aon Corp. “We believe that all brokers and agents
should, at a minimum, be willing to tell their clients who will pay them, how much they’ll make and the quotes insurers provide. This is the basic information every client deserves.” Brian Duperreault, president and chief executive officer of New York-based Marsh & McLennan Companies, Inc. (MMC) said his company “fully support(s) Superintendent Dinallo’s efforts to create a level playing field. We look forward to continuing to work closely with the New York authorities to establish an equitable regulatory landscape that serves the interests of all clients.” Willis Group Holdings, which was the first insurance brokerage to voluntarily end the practice of accepting contingent commissions, also applauded the move. The draft of rules follows a series of hearings held last year across the Empire State by officials from the insurance department as well as the New York Attorney General’s Office. IJ
Vermont Weighs Expansion of Workers’ Compensation Benefits
V
ermont lawmakers will consider a bill that would extend workers’ compensation to cover mental and emotional problems suffered on the job. But the proposal is getting a cool reception from the insurance industry. State Rep. Paul Poirier, who helped create the law establishing parity between mental health and physical health insurance coverage 12 years ago, is sponsoring the new bill. Poirier, D-Barre, says people who experience trauma on the
job and can’t continue working don’t have coverage. But John Hollar, a lobbyist for the American Insurance Association, says the bill would mean a dramatic expansion of workers’ compensation claims and says it’s the wrong time to increase costs for employers. IJ Copyright 2009 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed. www.insurancejournal.com
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It Figures
Declarations Siren Song
$210 Million Amount sought by a Baltimore man who alleges in a lawsuit that rogue police officers violated his civil rights in a public strip search. Thirty-five-year-old Navy veteran Daryl Martin is suing the city Police Department, former commissioner Leonard Hamm and several officers. Martin says he was held at gunpoint and stripped in front of about 30 onlookers after a traffic stop in April 2006. It’s the second federal lawsuit filed in less than a year alleging abuses by members of a police “Special Enforcement Team’’ that has since been dismantled.
$22 Million Federal grant given to Connecticut, New York and New Jersey that will help insurance and financial services workers who are losing their jobs because of the financial crisis on Wall Street. Governors of the states have predicted the region would lose about 160,000 financial sector jobs by the end of 2008 and 82,000 more by the end of 2009. The governors and senators from each state had originally sought a combined $48.2 million.
9.9 Million The number of Americans ensnared by identity theft in 2008, a 22 percent rise from 2007. The good news, however, is that the cost per incident — including unrecovered losses and legal fees — fell 31 percent to $496, according to Javelin Strategy & Research.
$250,000 Fine paid by Zurich American Insurance Co. to the state of New York for charging unfiled rates on its errors and omissions policy for veterinarians. The New York Insurance Department said Zurich entered into a stipulation agreement over the fine on Christmas Eve last year.
23 Minimum number of arsons that have struck the area of Coatesville, Pennsylvania over the last two months. The scourge of fires has prompted officials to declare an 8 p.m. curfew for those under 18. www.insurancejournal.com
“The fire department is going to be mad at me.” — A sung phrase recorded by Amanda Gessner, 19, in a Drexel Hill, Pa. convenience store surveillance camera – which led to her arrest for arson charges. Police say she started seven blazes in trash and brush between 3 a.m. and 5:45 a.m. one morning last month within blocks of where she lives in Upper Darby Township.
The Cost of Service “Why should we impede the ability to give customers the support they desire?” — Gary C. Rygiel, president of the Professional Insurance Agents of New Jersey, commenting on a Garden State proposal that would allow commercial-lines agents to charge fees for some services not directly linked to buying a policy. Current law prohibits agents from collecting these fees. Agents say the change would give clients more access to advisory services.
Dangerous Trucks “The size, weight, and height of these large pickups should help them ace the side tests just like the other large pickups we’ve tested. Not these three. They perform worse than many cars we’ve evaluated.” — David Zuby, vice president of The Insurance Institute for Highway Safety, commenting on the unusally low marks given to the 2009 versions of the Chevrolet Silverado 1500, Dodge Ram 1500 and Nissan Titan in side crash tests results this month. Despite higher seats, which normally lessen impact on car occupants, Zuby said the trucks fared poorly in tests.
Theory of Relativity “The property casualty industry did quite well last year on a relative basis, given the damage to balance sheets. I think it comes out with its model unbroken.” — Comment on the state of the p/c insurance industry in 2008 given by Vincent (V.J.) Dowling, managing partner of Dowling & Partners, a Connecticut-based institutional stock brokerage specializing in p/c and other lines of insurance. Dowling was one of a dozen panelists during last month’s Joint Industry Forum, an annual event put on by the Insurance Information Institute.
AIG Probe “They (AIG) are not under the same controls that other organizations that got (government) money are; but under a new bill that has been passed it will be more involved, what they can and can’t do, and we can look back.” — Rep. Paul Kanjorski, D-Pa., chairman of the House subcommittee on capital markets and insurance, who said he is concerned that American International Group Inc’s $150 billion federal bailout could be undermining the U.S. insurance market and he is digging into claims that the insurer is driving down prices to win business. Kanjorski also told Reuters that AIG’s pay practices could come under increasing scrutiny. February 23, 2009 INSURANCE JOURNAL-EAST REGION | 9
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East Coverage Marketing to Diverse Groups
Demographic Shift Offers Opportunity for Agents Minorities Destined to Become Majority by Mid-Century By Stephanie K. Jones
B
efore the 21st century reaches the halfway mark, more than 50 percent of the population of the United States will be represented by a vast cultural mix of people considered to be “minorities,” according to the U.S. Census Bureau. It’s a shift with tremendous business implications. Independent agents who wish to compete in this changing demographic environment would be wise to tap into cultural and ethnic markets that are perhaps different than their own. And a lot of agents are doing just that. William Pierson, assistant vice president of agent development at the Independent Insurance Agents and Brokers of America and a member of the association’s diversity task force, related the story of an enterprising young agent who reached out to a group of Korean fish vendors in Washington, D.C., with great success. The young man, a Caucasian, was trying to drum up business, Pierson ‘If you want said, so he went to your agency to the fish market area of D.C. where the grow … look at vendors are mostly of the populaKorean descent. He tions that are approached one of the vendors, who growing.’ said he didn’t have time to talk with the agent just then. If the agent wanted to talk about insurance he would have to come back at 4 a.m. when the vendor did his bookkeeping and other management tasks. “So this young guy got up and went down there the next morning,” Pierson said. The Korean man was so impressed that he gave the young agent his business and told all his friends and peers. The young agent
ended up writing the insurance for all of the ket,” Berrong said. Minority groups own a Korean fish vendors. large and growing number of businesses in That kind of initiative is a great way to the United States. “If people are missing break into a cultural group, Pierson said. embracing the change in ownership, then “The most effective way to expand into a culthey’re missing out on a lot of these accounts.” tural group is through word of mouth. It’s not Understand the Culture through advertising.” It’s an impressive effort to show up at a Ron Patterson of Ron Patterson Insurance local fish market at 4 a.m. in order to write a Agency in Richardson, Texas, would agree piece of business. But initiative only goes so with that. Patterson’s agency specializes in far. Agents who hope to the capture business writing insurance for churches, which he continued on page E46 said was a gateway for him into African American and Hispanic communities. “That opened the y midcentury, the U.S. population will be far more racially door to black churchand ethnically diverse than today, according to estimates by es,” Patterson said. “It’s the Census Bureau. Minorities currently represent about oneamazing how you can third of the U.S. population and are expected to become the cross racial barriers and majority in 2042, with the nation projected to be 54 percent lines when you get minority in 2050. By 2023, minorities will comprise more than involved with people half of all children, according to a report released by the Census that are involved with Bureau in August 2008. churches. It’s been a • By 2050, the minority population — everyone except for nonwonderful opportunity Hispanic, single-race whites — is projected to be 235.7 million to for us.” out of a total U.S. population of 439 million. Brad Berrong with • The non-Hispanic, single-race white population is projected to Ed Berrong Insurance be only slightly larger in 2050 (203.3 million) than in 2008 (199.8 Agency in Weatherford, million). This group is projected to comprise 46 percent of the Okla., also sees big total population in 2050, down from 66 percent in 2008. potential in ethnic mar- • The Hispanic population is projected to nearly triple, from kets. Speaking at a 46.7 million to 132.8 million during the 2008-2050 period. Its share presentation at the of the nation’s total population is projected to double, from 15 Independent Insurance percent to 30 percent. Agents of Texas confer- • The black population is projected to increase from 41.1 million, ence last June, Berrong or 14 percent of the population in 2008, to 65.7 million, or 15 persaid 15 to 20 percent of cent in 2050. the total premium vol• The Asian population is projected to climb from 15.5 million to ume of his agency — 40.6 million. Its share of the nation’s population is expected to which is located in rise from 5.1 percent to 9.2 percent. Western Oklahoma — • The American Indian and Alaska Native populations are procomes from the Asian jected to rise from 4.9 million to 8.6 million (or from 1.6 to 2 perIndian community. The cent of the total population). agency also writes a lot • The Native Hawaiian and Other Pacific Islander population is of business with expected to more than double, from 1.1 million to 2.6 million. Pakistani and Hispanic • The number of people who identify themselves as being of two communities as well. or more races is projected to more than triple, from 5.2 million to “It’s a very big mar16.2 million.
10 | INSURANCE JOURNAL-EAST REGION February 23, 2009
A More Diverse Nation
B
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National Coverage News & Markets
The Relative Calm At New York Forum, Industry Insiders Credit Risk Management for Minimizing Recession’s Impact By Kenneth J. St. Onge
T
o many, the insurance world seems to operate on its own theory of physics. And to the hundreds of high-powered industry execs who gathered on the third floor of the Waldorf-Astoria in New York earlier this year, there is a new way to explain — or, at least, describe — how it’s all working: The theory of “relativity.” “Property casualty did quite well last year on a relative basis, given the damage to balance sheets,” said Vincent (V.J.) Dowling, managing partner of Dowling & Partners, a Connecticut-based institutional stock brokerage specializing in P/C and other lines of insurance. “I think it comes out with its model unbroken.” To put it another way: Not as bad as the other industries hammered by recession, namely retail, automotive, Wall Street, real estate and manufacturing, to name a few battered sectors which have seen massive layoffs, losses and consolidation. So despite a year that saw the collapse of a bellwether company (AIG) and huge financial strains damaging others (The Hartford, for example), the industry actually did not perform too badly. Relatively. Dowling was one of six speakers during the first afternoon panel of the Insurance Information Institute’s annual Joint Industry Forum, a half-day
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gathering featuring two panels of executives, regulators and other industry watchers who tried to distill a year’s worth of challenges into some meaningful insight to the future of the industry. “Relative”-ity was a phrase oft-repeated. “Surplus is down $80 billion, and while significant, it’s not catastrophic,” said Michael Pritula, a director of McKinsey & Co.’s global insurance practice. “Retail, securities (and others) are down. Relative to those other groups, this is a relative calm. It was an OK 2008, all things considered.” For some, given the conditions, the industry’s performance in 2008 left a lot of reasons to applaud. “We had the double whammy in 2008,” said Charles (Chuck) Kavitsky, chairman, president and CEO of Allianz
‘The business model of the P/C industry remains strong, vital and proven yet again,’ said Michael S. McGavick, chief executive officer of XL Capital Ltd. of America Corp. “Between the catastrophe issues that we had to deal with as well as what was happening in the financial
markets, we had a pretty significant test and the industry did great.” Risky Business But why did the industry do great? According to panelists, the insurance world pulled through the storms of 2008 because of its
In the not too distant future, Connecticut Insurance Commissioner Thomas Sullivan predicted ‘we’ll see some systemic risk regulator in Washington.’ experience and insight into risk management. “The industry has weathered the storm,” said Thomas Sullivan, commissioner of insurance in Connecticut. “(Insurers) seem to be very good risk managers.” Pritula agreed, adding that the financial troubles faced by all insurers will create a new culture of back-to-basics risk management in a lot of companies — a move he applauded. “A crisis is a terrible thing to waste,” he joked. Pierre L. Ozendo, CEO of the Americas Division at Swiss Re, said the P/C industry is resilient because it is conserva-
tive in its risk management and focused on a strong business model “that has been proven over hundreds of years and continues to be proven today.” Michael S. McGavick, CEO of XL Capital Ltd. agreed. “The business model of the P/C industry remains strong, vital and proven yet again. We’re the survivor or beneficiary because we spend every moment focusing on the worst that can happen. Whenever we don’t start from there we put ourselves at risk of being the alternative outcome.” Changes Ahead? But Connecticut Commissioner Sullivan also credited regulation with helping to ensure the industry — which despite economic troubles saw no P/C insolvencies — handled the downturn as well as it has. “State-based regulation works. This has proven it.” But he also said that changes in the regulatory structure of insurance could be coming. In the not too distant future, Sullivan predicted “we’ll see some systemic risk regulator in Washington.” McKinsey’s Pritula agreed that some regulatory changes would probably place a greater oversight role in Washington, although he’s unsure of exactly what remains to be seen. Still, he said, “two years from now we will have something.” IJ
February 23, 2009 INSURANCE JOURNAL-NATIONAL REGION | N1
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National Coverage News & Markets
Reinsurers Seem Ready to Flex Muscles, Raise Prices by Double-Digits By Jonathan Gould
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crisis meant no outside capital was available to take on reinsurance risks as in the past. Reinsurers’ upbeat outlook has helped underpin their shares over the last six months, with Munich Re flat, world No. 5 player Scor down just 2 percent and No. 4 reinsurer Hannover Re down 8 percent, compared with a 43 percent drop in the DJ Stoxx European insurance index. “From an investor point of view, you have the feeling that reinsurance is a genuinely defensive sector,” said Collins Stewart insurance analyst Ben Cohen. Cohen pencilled in percentage price rises in the high single digits or low a price double digits in the next big reinsurance contract renewal in the talks in April and July.
einsurers’ tough talk about raising prices on the risk cover they sell to insurers may have rung hollow before, but this time the promise is credible. Reinsurance companies such as global leader Munich Re have been flexing their muscles, predicting the damage to insurers’ investment income and capital base from the financial crisis means they have to pay more for cover. “The turnaround has been achieved,” Torsten Jeworrek, Munich Re board member in charge of reinsurance, said this month, adding that the price fall of the last few years had been stopped. ‘I expect “There is a very strong increase expectation of further price increases during the course of teens in the Old Habits the year,” Jeworrek said. course of the Even so, there are still Munich Re was the first to some who doubt reinsurers’ predict a price surge, but other year. There are resolve in delivering a “hard reinsurers chimed in, with always excepmarket,” where reinsurers’ some forecasting double-digit prices and conditions percentage gains in premiums. tions, but this is improve relative to their Reinsurers have vowed discithe trend.’ insurance company clients. pline on pricing in the past, JP Morgan analyst Michael only to slide into competitive price wars to seize or defend market share, sac- Huttner said the damage to insurers’ balance sheets from the financial crisis might not be rificing profitability for volume. enough to allow for big price increases withThis time may be different, says industry out big natural catastrophes. observers. “Overall, we have seen very disci“We haven’t lost enough on large natural plined behaviour from reinsurers,” said Michael catastrophes to create the immediate surge in Handler, chairman for continental Europe at demand that you need to get into a full-blown reinsurance specialist Guy Carpenter, part of hard market cycle,” Huttner said. “Pricing will the world’s biggest insurance broker, Marsh. probably be flat for the next few months, until “I expect a price increase in the teens in the course of the year. There are always exceptions, we get a signal for more firming, and that signal would come from increased demand after but this is the trend.” a big nat. cat.” And tighter budgets may mean insurers buy Weak Capital Bases The financial market meltdown has prompt- less reinsurance, muddying the impact of higher prices on reinsurers’ bottom line. ed writedowns and drained investment “There is not a lot of excess reinsurance preincome at insurers, siphoning off some of their mium around,” said Guy Carpenter’s Handler. equity capital base and limiting their ability to underwrite risks without help from reinsurers. “People are retaining more risk and buying less “The financial strength of companies is a major reinsurance at higher prices,” he said. IJ issue at this stage, which it has not been for a Copyright 2009 Reuters. very long time,” Handler said, adding that the N2 | INSURANCE JOURNAL-NATIONAL REGION February 23, 2009
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REVIEW YOUR RISK
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International Coverage News & Markets
Hope, Straight Talk and Despair Amid the Ruins Obama to the Rescue; Hartwig on the Banks; Davos Devotees Duck He’s got plenty of help, so he’s not the ‘Lone Ranger;’ even if the world’s press freBlame for instigating the current eco- quently treats him as if he were. Barack Obama’s inauguration as America’s 44th nomic mess starts with the banks. President was greeted with an outpouring of Munich Re’s recent webinar gave Dr. Robert enthusiasm in the U.S. that was echoed P. Hartwig, president of the Insurance throughout the world. He is a symbol of Information Institute, a chance to point that hope in the mold of Roosevelt, Churchill and out and to describe the essential differences Kennedy. between banks and insurers, which put the Will he succeed in fulfilling the hopes that financial crisis in a much needed perspective. his election has created? Probably not, as he Hartwig ticked off a number of points as has acknowledged. That’s not the point, howproof that the insurance industry differs ever. Obama embodies the greatly from the banks. This ideal of equality, a better life means that insurers continue ‘Insurers in a better world, which to: 1) Pay claims — whereas always encouraged millions of 25 banks have gone under; 2) Europeans to emigrate to Renew existing policies — maintain a America. as banks are reducing and stake in the He’s not a scion of wealth eliminating lines of credit; 3) and privilege, but an outsider Write new policies — while business they of mixed race, who succeeded banks are turning away peounderwrite ...’ by dint of his intellect and his ple who want or need to borpassion. For those reasons row; 4) Develop new prodalone Europe and the world rejoiced at his ucts — while banks are scaling back the election. The fact that he might actually be products they offer. the right man for the almost impossible job He gave the following reasons: superior he’s taken on is an added bonus. (See IJ Web risk management model; low leverage; consite: www.insurancejournal.com/news/ servative investment philosophy; strong relainternational/2009/01/20/97084.htm). tionship between underwriting and risk bearing; tight regulation and greater transThen there’s the diminished Davos parency. debate, from which many of those remain“Insurers always maintain a stake in the ing masters of the universe are strangely business they underwrite, keeping ‘skin in absent. As reported by Reuters, the worst the game’ at all times,” Hartwig said, adding financial crisis since the Great Depression that “Insurers are more stringently regulated served to mute the enthusiasm of previous than banks, investment banks and hedge years as some 2,500 business and political funds.” leaders met in the Swiss Alps on Jan. 28 for Although he didn’t mention it, it’s fairly the World Economic Forum. certain Hartwig would agree that whenever Economist Stephen Roach gave a grim forethe world’s politicians get around to tackling cast for the global economic outlook, saying the problem of preventing the next generagrowth worldwide in 2009 was only likely to tion of “Masters of the Universe” from trashbe about 2.5 percent — what the Morgan ing the global economy with their innovative Stanley Asia chairman and longtime Davos products, they could do worse than follow attendee — termed a “near recession.” the trail already blazed by the insurance Underscoring the sober mood, some of the industry. glitz has been scaled back and previous (See IJ Web site: www.insurancejournal. celebrity guests such as Angelina Jolie, com/news/international/2009/01/16/97036. Sharon Stone and Bono are not attending. IJ htm). By Charles E. Boyle
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N4 | INSURANCE JOURNAL-NATIONAL REGION February 23, 2009
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SPECIAL REPORT Agency Salary Survey
By Andrea Wells
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ndependent insurance agencies remain reliable employers even in these rocky economic times, but even they have to cut back occasionally. Whether due to efficiencies from technology, the lingering soft market, the continuing economic downturn or all three of these, the number of agencies cutting staff rose in 2008 — and still more have plans to cut payroll in 2009. A quarter (25 percent) of all agencies reduced staff size in 2008, while 11 percent indicated they would downsize in 2009, according to the annual Insurance Journal Agency Salary Survey. The good news is that overall, far more agency jobs and paychecks are being spared than eliminated. More than half (54 percent) of all agencies’ staff sizes remained the same in 2008 and two-thirds (67 percent) plan to remain the same in 2009. (See charts on this page.) The IJ Agency Salary Survey generated 1,453 responses from independent insurance agencies nationwide, providing insight into who’s worth what in the independent agency system. Demotech Inc., IJ’s official research partner, provided analysis and input again on this year’s survey results. Julie Brown, founder and talent manager of San Diego Insurance Staffing (SDIS), has witnessed the effects of staff downsizing up close. “There are a lot more unemployed people than I have ever seen,” Brown said. “There’s been a lot of changes, some mergers and acquisitions in the industry, and so when you used to have one candidate for six openings, you now have six candidates for one job opening.” Service staff — including customer service
or even gone out of business. representatives (CSRs) and account executives The IIABA’s Agency Universe Study 2008 — appear to be bearing the brunt of staff reported that more agencies are experiencing reductions, according to Brown, who founded revenue reductions than in the past. More than SDIS 14 years ago to provide staff to southern half (57 percent) of agencies saw revenue California insurance organizations. increase from 2006 to 2007, while 23 percent As recently as a year ago, there were plenty reported decreases. That’s a big shift in reportof jobs and not enough candidates. Account ed revenue changes from 2004 to 2005, when executives were able to negotiate better com73 percent reported revenue increases and just pensation packages, including bonus options. 10 percent reported decreases, the study said. But that’s not always the case today, according to Brown. “Agencies still have some kind of continued on page N8 bonus or profit sharing in place, but CSRs are not demanding wages as Staff Size in 2008 high as they used to be because right now there are a lot of them unem54% 25% ployed,” she said “We’ve seen the Decreased 21% salaries come down a little bit Increased Stayed the Same because of the marketplace changes. Clients [employers] are feeling that they have a lot more choices today so they might be able to pay less.” Staff Size in 2009 The downsizing in 2008 comes as no surprise to Madelyn Flannagan, 67% 22% Plan to Stay the Same Independent Insurance Agents & 11% Plan to Decrease Brokers of America’s vice president Plan to Increase of education and research. Flannagan says agencies are feeling the effects of the economic Average CSR Salaries by Region recession and Personal Personal Commercial Commercial the soft marLines Lines Lines Lines ket, and some Region CSR High CSR Low CSR High CSR Low of their comEast $49,708 $32,331 $55,084 $41,939 mercial Midwest $38,861 $29,497 $44,053 $33,971 clients have South Central $38,540 $26,754 $47,285 $34,011 reduced their Southeast $40,877 $29,555 $53,494 $35,816 own payrolls West $43,716 $31,503 $53,895 $40,131
Average Agency Salaries by Region Average Agency Income President/CEO - Salary Office Manager - Salary Sales Manager - Salary Accounting Manager - Salary Personal Lines Manager - Salary Commercial Lines Manager - Salary Marketing Manager - Salary Average Years Experience - Personal Lines CSR Average Years Experience - Commercial Lines CSR Average Agency Raise - Management Average Agency Raise - Sales Average Agency Raise - Support Average Agency Size - Employees % believe recession has affected agency
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East $4,543,253 $250,425 $77,305 $112,941 $73,431 $62,949 $78,410 $89,375 9.6 10.7 2.6% 2.2% 2.8% 5.7 80.6%
Midwest $3,425,506 $186,294 $56,660 $110,913 $63,731 $48,235 $68,750 $74,872 9.0 9.3 2.6% 2.6% 2.8% 5.9 72.6%
South Central $4,438,567 $189,926 $61,572 $93,988 $62,123 $50,563 $64,053 $86,094 8.7 10.2 2.4% 2.8% 3.0% 5.1 65.0%
Southeast $3,303,283 $231,701 $63,827 $113,385 $58,333 $55,563 $76,620 $79,239 8.6 9.7 1.8% 2.5% 2.3% 6.0 90.3%
West $2,943,188 $192,083 $78,875 $94,578 $64,780 $55,081 $72,008 $71,563 8.5 9.4 1.6% 1.7% 2.5% 5.5 84.5%
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SPECIAL REPORT Agency Salary Survey Who’s Worth What?, continued from page N7
According to Flannagan, while smaller service staffs might suggest more work for each staff person, and higher salaries due to that workload, technology may be keeping this from happening. “We haven’t seen support staff salaries increase according to what is being perceived as an increase in workload because many agencies are really using technology to offset the decrease in staff sizes,” she said. “The workloads per employee, if you look at the number of accounts they are handling, they are going up but they are also able to use technology to service those clients, as well as [carrier] customer service centers, which have taken some of that everyday burden off support staff.” To Raise or Not to Raise Given declining commissions and the stark economic conditions, holding down costs is a top priority for agency managers. Since personnel is one of the biggest agency expenses, payroll is where agents are doing what they can to contain costs, the IJ Salary Survey shows. Nearly half (47 percent) of agencies postponed hiring in 2008 and 48 percent said they would postpone hiring in 2009. (See charts on page N9.)
Salary raises also suffered. Some 42 percent of agencies postponed salary raises in 2008 and 47 percent plan to postpone salary raises in 2009, the survey revealed. According to the IJ survey, more than half of agency employees in management (51 percent) and sales staff (52 percent) received no salary increase in 2008, while 30 percent of support staff received no salary increase last year. One survey respondent wrote, “Due to economic conditions, management has basically reduced staff and commissions. No raises but most salaries remain unchanged.” Another wrote that his agency “will give no raises in 2009” and will not replace lost positions or add new staff in 2009. IIABA’s Flannagan believes agencies are doing what they must to stay afloat. “I think a lot of people are making concessions to keep their employees, like asking them to take a smaller cut in order to keep their job,” she said. “Especially in small town America, where many of our members are, we’ll begin to see agencies looking for ways that they can keep their great support staff but maybe find ways to more creatively work with them. Everybody wants to keep their job,” she said. Flannagan said the Agency Universe Study
2008, which is produced by IIABA every two years, did not show a correlation in decreased revenues and decreased staff size, but she thinks 2010’s study may tell a different story. “I think in the 2010 study we will see a decrease in agency revenues, and probably a corresponding decrease in employees, and probably a decrease in their pay,” she said. Stagnant Salaries Not surprisingly, average salary increases in 2008 were minimal, according to this year’s IJ Agency Salary Survey. Average salary increases for those lucky enough to receive them were: 2.2 percent (management); 2.3 percent (sales staff); and 2.7 percent (support staff). (See chart on page N9.) Most salaries stayed the same in 2008 compared to 2007 (48 percent), while 26 percent reported lower salary increases and another 26 percent reported higher increases than the previous year. (See charts on N7 and N8 for average salaries by region and agency size.) Marty Murphy, senior vice president of The Jacobson Group, an insurance staffing and executive search firm, says salary increases will not be much better in 2009. “I am not sensing that companies are planning on giving
Average Salaries by Agency Premium Volume (Management) P/C Premium Volume
President/ CEO
Office Manager
Sales Manager
Accounting Manager
Personal Lines Mgr.
Commercial Lines Mgr.
Marketing Manager
Avg. Comm. and Fee Income
Under $1 million $1 million - $5 million $5 million - $10 million $10 million - $25 million $26 million - $50 million $50 million - $100 million $100 million or more
$102,646 $109,910 $180,431 $267,449 $398,333 $401,269 $643,367
$36,333 $46,334 $62,389 $76,285 $95,742 $106,009 $139,894
$131,029 $51,280 $81,758 $118,152 $135,982 $126,184 $224,342
$44,231 $38,356 $51,424 $60,546 $73,537 $86,094 $100,735
$33,088 $38,109 $51,658 $57,195 $68,100 $72,182 $94,679
$53,000 $50,064 $59,121 $70,736 $88,500 $89,461 $145,150
$60,556 $40,583 $71,442 $71,102 $90,975 $93,073 $123,295
$550,350 $500,410 $1,822,128 $3,403,229 $5,437,109 $9,872,423 $27,833,333
Average Salaries by Agency Premium Volume (Support Staff)
P/C Premium Volume
Personal Lines CSR Salary - High
Personal Lines CSR Salary - Low
Personal Lines Years of Experience
Commercial Lines CSR High
Commercial Lines CSR Low
Commercial Lines Years of Experience
Under $1 million $1 million - $5 million $5 million - $10 million $10 million - $25 million $26 million - $50 million $50 million - $100 million $100 million or more
$31,869 $37,906 $40,918 $43,881 $47,182 $62,103 $57,056
$22,100 $27,089 $30,865 $31,998 $33,739 $33,803 $36,606
7.6 8.2 9.5 10.2 8.8 8.6 8.3
$34,161 $43,392 $50,223 $54,610 $61,083 $67,581 $80,660
$17,134 $33,883 $42,030 $40,421 $41,125 $43,532 $44,146
6.4 9.0 11.4 11.2 10.3 10.4 8.6
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huge increases to individuals,” he said. “I think that what they are hoping for is that the general overall increase — whether it is incentive comps or other perks — will keep people happy at their positions. I think a lot of people are concerned about their jobs and whether or not they are going to have one in one, two or five months.” Murphy’s prediction is supported by the IJ survey, in which 48 percent of agents said they would postpone hiring in 2009 and 47 percent plan to postpone raises in 2009. Sales Staff Even when they may be reducing staff or postponing hiring in the service sector, agencies are always looking for good sales professionals. The Jacobson Group’s Murphy says there has been an uptick in firms looking for sales professionals. “We’re getting a lot of requests for that,” he said. “I would say we’ve probably had an increase in agencies in distribution organizations that are trying to find sales people.” Murphy suspects the uptick has to do with current market competition and the possibility of a firmer market in the near future. “They feel they need to grow because they are hoping the market is going to turn and in anticipation of firming they are able to capture up more market share,” Murphy predicts. On the west coast, SDIS’s Brown sees a similar trend. “There are a lot of agencies looking to hire people in the producer role because they are trying to build up a bigger book because the agency needs to grow,” Brown said. The tough marketplace may also be forcing agencies to reevaluate how non-owner producers are being compensated, at least in California, says Brown. A year and half ago, newer producers placed by SDIS could pick through offers that compensated via base pay for a few years. Now, Brown sees few agencies willing to offer new producers base pay at all. “I have one particular candidate where a year ago he was made an offer from one of my clients and they were looking to develop new producers in the agency, so they were willing to do a base pay for three years and eventually go full commission,” Brown. Such a structure afforded the new producer ample time to www.insurancejournal.com
build up a book of business. “But today that same client is saying, ‘I can’t. It’s got to be 100 Management 2.2% percent full commisSales Staff 2.3% sion. We’re not paying Support Staff 2.7% any bases because times are tough.’” IJ’s Agency Salary Strategies Agencies Implemented in 2008 Survey differs slightly from Brown’s perspective Cut Benefits 15% on non-owner producer compensation strucIncreased Benefits 5% tures. According to the Postponed Hiring 47% survey, 77 percent of Postponed Raises 42% agencies did not change Increased Hiring 10% their commission strucIncreased Compensation 14% ture, however 8 percent reported a change and 16 percent said they plan to Strategies Agencies Plan to Implement in 2009 change commission structures in 2009. Cut Benefits 13% Some 31 percent of agencies reported offerIncrease Benefits 3% ing salary plus commisPostpon Hiring 48% sion in the IJ survey, Postpon Raises 47% while 24 percent paid Increase Hiring 15% commission only; 12 perIncrease Compensation 13% cent paid a draw against commission and 15 perStrategies for the Future cent paid only a salary in 2008. The Jacobson Group’s Murphy said in times Premiums are down so commissions are down, Brown said. “Most of my clients looking like these, communication is critical. “What I think agencies need to do for their for producers right now are looking for somecurrent staff is to make sure that they’re comone who already has a book of business to municating very clearly with everybody inside bring over, or they are looking at commission only candidates. They are not looking at bases. the organization as to what is going on,” Murphy advised. They are even trying not to pay a draw if they The IIABA’s Flannagan advises agencies to don’t have to pay a draw,” she said. be creative in their cost-cutting efforts and to Murphy is somewhat surprised that despite rising unemployment, there has not been a sig- make sure to maximize the use of technologies. “Technology has done so much for agennificant increase in job applicants from the property/casualty industry. “I know there are a cies to help them be more efficient,” she said. While new hires will probably be few and lot of candidates on the street looking and far between and pay raises might be smaller, actively searching but I don’t think that has or non-existent, Flannagan feels confident dramatically increased over the last eight to 12 agencies will rebound once the market stabimonths,” he said. “I think we are getting more lizes again . calls from outside the P/C industry, on the life And even though times are tough right now, side and from the investment side.” Murphy says agents should remember “this P/C candidates could be taking a wait-andisn’t the first time we’ve gone through cycles see approach, even for those not pleased in like this” and as most agencies know, it will their current position. “Maybe they want to probably not be the last. IJ wait to see what happens next,” he added.
Average Salary Raise in 2008
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Idea Exchange HR Management
Budget-Friendly Ideas to Retain Your Top Performers Career Development, Mentors and Flexible Schedules Help Keep A-Level Talent Henry
By Susan Henry
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he current economy is causing many changes within the employment marketplace. Increased employee concerns and lowered morale are just a few reasons organizations should place greater focus on their retention strategies. Even at a time when many companies are facing lay-offs, retaining top talent should still be an essential part of your business plan. Increase your chances of retaining A-level performers with stand-out compensation packages. While you do not have to offer salaries at the highest end of the spectrum, monetary compensation is by no means irrelevant. Complement a competitive salary with exceptional non-monetary compensation to attract and retain the best talent available. Keep employees engaged through great benefits, company culture and development opportunities. With that in mind, below are a few budget-conscious ideas to explore. Career Development Programs Your top performers will not be satisfied in roles that lack advancement opportunities. Remain committed to career development pro-
grams, even if your organization is not growing. This allows employees to maintain control over their career paths despite difficult circumstances. Employees must understand how their personal goals and responsibilities roll up into the enterprise-wide objectives.
In addition, offer corporate or division-wide learning opportunities. This may include lunch and learns, external speakers or webinars. Encourage employees to become involved in the industry and promote attendance at association luncheons, meetings and networking events. If you cannot increase monetary compensation, provide them with special projects, along with greater responsibility and autonomy. Even at Encourage Mentorships Mentoring is a great way for less experienced employees to connect with company leaders who are not their immediate managers and to gain valuable insight into their fields and careers. Whether you introduce a formal program or encourage independent mentoring, these relationships provide employees with career direction in an open, friendly and encouraging environment.
a time when many companies are facing lay-offs, retaining top talent should still be an essential part of your business plan.
Offer Flexible Work Schedules It is likely that most of your employees have busy lives outside of the office. Whether they have a family, participate in volunteer programs or attend graduate courses, consider offering flexible work schedules. This could include telecommuting opportunities, the ability to work four 10-hour days in exchange for Friday off, or job sharing. If you are hesitant about offering unusual work hours, consider starting small. Offer an early release on Fridays for those who make up the hours Monday through Thursday. Alternatively, you could offer flexible work hours as a reward for employees who have surpassed set goals. Increase Recognition and Rewards In today’s economy, it is vital to depart from the traditional “no news is good news” approach. Do not let good work go unnoticed.
N10 | INSURANCE JOURNAL-NATIONAL REGION February 23, 2009
Create a culture that embraces positive feedback. Show employees your appreciation at the time it is deserved, not just at the holidays or quarter-end. This may include simple dayto-day recognition or even formal rewards programs. Let employees know they are valued by celebrating career milestones. Promote Team Building Historically, employee morale plummets along with the economy. Many companies are cutting morale programs from their budgets. It may make sense on paper, but employee morale programs are vital to withstanding an economic crisis. In fact, now is the time to improve your corporate culture.
Use the Hidden Paycheck Are there additional perks you can include in your employees’ compensation plans? Work with your human resources team to ensure you are offering the best health benefits possible. Focus on retirement plans and if your company is able, match your employees’ contributions to their 401(k). Offer casual Fridays, gym memberships or corporate sports teams. Additionally, support your employees’ commutes by offering reduced costs on parking and public transportation, or even setting up carpool programs. A-level employees are always in demand, no matter the state of the economy. Focus on your human capital investment. Keeping employees engaged, challenged and well-compensated will ensure your organization is best-positioned to come out ahead when the economy turns. IJ
Henry is senior vice president of Jacobson Solutions, the temporary staffing division of The Jacobson Group. Phone: 800-466-1578. E-mail: shenry@jacobsononline.com. www.insurancejournal.com
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We insure the printing industry from A to Z. Not to mention C, M, Y and K. Technology in the printing industry is constantly evolving. And so are the risks your clients face. From the breakdown of sophisticated equipment to errors and omissions in a customer’s order, the economic implications can be huge. That’s why Travelers has developed insightful insurance solutions that stay in-synch with printers’ needs, including a product that addresses the expense of replacing or recreating a customer’s lost files. Which is something we think you will find is well worth the paper it’s printed on. To find out more information, contact your local Travelers Commercial Accounts Representative. ©2009 The Travelers Companies, Inc. All rights reserved. The Travelers Indemnity Company and its property casualty affiliates. One Tower Square, Hartford, CT 06183
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Spotlight Agribusiness/Farm and Ranch
Top 5 Insurance Issues for Farmers in a Soft Economy Review Exposures, Values and Maximize Insurance Value to Ensure Satisfied Farm Customers By Jerry Hillard
Hillard
rebuild a storage barn because of today’s higher cost of materials. When is the last time you walked through the property and recalculated values for the farm’s or ranch’s assets? If the farm operation holds inventory, is that inventory insured to its true value considering commodity prices are still relatively high? Does the farmer have or need peak season coverage? If your farm policyholder has a loss and doesn’t have enough insurance coverage, it could be an unwelcome surprise weakening your credibility and effectiveness.
T
hanks in part to commodity prices that are still higher than average and, thankfully, less volatile than in 2008, the agricultural economy has not yet felt the same contractions the general economy is reeling from today. That’s not to say there haven’t been some challenges, including rising costs for equipment, fuel and fertilizer. As the U.S. economy continues to struggle — along with watching the stock market and other investment results — it’s a good idea for farmers to review their insurance policies with their agents. Here are the top five items agents may want to consider. 1. How well do you understand the exposures of the farm operations? As a farm’s profit margins are squeezed, farmers may look for ways to diversify farm income. This leads to farmers implementing new business ventures — retail, processing or agritourism — each with its own set of risks and liabilities. Each time you visit the farm, ask about any changes — new buildings or structures, new machinery and new activities. The more information an agent has about a farm’s operations, the more he or she can enhance their role as a trusted adviser.
On the other side of that coin — how well do you understand farming and agriculture? If you insure farms or ranches of any size, you know how complex they can be. Is this an area in which you’ve developed some expertise? Do you know what to look for, or what to ask about to ensure your farm policyholders are adequately protected? The relationship between agent and farm owner should be a partnership built on mutual trust. That’s the best way to ensure the security of the farms you insure for the long-term. Nationwide Agribusiness will roll out a new “Certified Farm Agent” training program in 2009. The program provides indepth education for agents who make a commitment to farms as part of their overall portfolio of protection.
3. Help farmers maximize their insurance investment. Farmers are always looking to lower input costs, including the costs of insurance. Agents should consider providing guidance on the use of deductibles, cause of loss selection, valuations and other means to control costs while still ensuring proper coverages. Helping a farmer save money on his insurance investments is a great way to gain a loyal customer, who could also become an advocate for you and your agency. Helping to prevent losses in the first place is the best way to save on insurance costs, as well as benefit your policyholders’ overall bottom lines. 4. Is the insurance company committed to the agriculture industry? Not all insurance companies that provide farm policies take the time or make the commitment to truly understand the unique risks and exposures the agricultural industry inherently faces. Nationwide Agribusiness and other insurance companies have roots in agriculture and don’t provide farm coverage as a division of an overall commercial or personal lines focus. A dedicated farm underwriting team
As a farm’s profit margins are squeezed, farmers may look for ways to diversify farm income.
2. Is the farm’s insurance up-to-date for today’s values? It may cost more to replace steel bins or
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Spotlight Agribusiness Soft Economy, continued from page N12
can provide the expertise and knowledge to augment your own. According to Doug Becker, associate director of farm underwriting for Nationwide Agribusiness, “It’s highly beneficial for farm customers if agents work with a team of trained underwriters who have developed expertise with specific aspects of farming.” Becker points out that a team approach allows an insurance company to spend time and resources understanding what’s involved, and can bring farmers innovative protection. “With knowledgeable people who know enough to ask about custom spraying or what to bring to the table when the operation hires outside employees, you have the basis for a real partnership and can get the best protection for each operation,” Becker added.
Helping a farmer save money on his insurance investments is a great way to gain a loyal customer, who could also become an advocate for you and your agency.
Insurance Programs for Security, Investigation and Electronic Security Companies Marc Katz I Principal mkatz@mechanicgroup.com 800 -214- 0207 Ext.105
Let us work for it. If your book of business includes private security, investigation, background screening or electronic security firms, we hope you will give us a chance to work for your business. We offer Broad Form programs with a wide range of coverage options: Commercial Liability Workers Compensation Commercial Umbrella/Excess Liability Third Party Fidelity (Employee Dishonesty) Contact us today to learn why hundreds of retail agencies already depend on us for comprehensive insurance products, expertise and competitive pricing. WE WORK FOR IT. Our exclusive programs utilize “A” or better A.M. Best rated insurers and are available in all 50 states.
www.mechanicgroup.com N14 | INSURANCE JOURNAL-NATIONAL REGION February 23, 2009
5. Is the insurance company growing, stagnant or declining? Just as farmers should examine the financial health of their suppliers, they should take a good look at their insurance companies’ health too. If the farm experienced a large loss — for example, a $1 million tornado or animal collision liability loss — would the farm’s insurance company have the capital to stand by the policy? Insurance companies’ financial ratings should be checked by various rating agencies. Although the farm economy may not be experiencing some of the same stresses as the national economy yet, now is a great time to get closer to your farm customers. It may be especially appropriate now to ensure you’re helping your farm customers protect the things that matter most to them! IJ Hillard is farm sales director with Nationwide Agribusiness Insurance in Des Moines, Iowa. Nationwide Agribusiness provides coverage for farms, commercial agribusinesses and related businesses. Web site: www.NationwideAgribusiness.com. www.insurancejournal.com
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New Markets The following markets were selected from the MyNewMarkets database of 25,000 coverages and programs. To find additional markets, or to submit markets, go to www.MyNewMarkets.com. Fire Protection Contractors Market Detail: McNeil & Co. (www.mcneil andcompany.com) brings agents the FireWatch Program. This is a comprehensive insurance and risk management program offering high quality, specialty insurance products to the complete fire protection market including firms that engage in the sales, service and installation of fire suppression systems, fire extinguishers, burglar and fire alarm systems, and those involved in selling or distributing fire equipment or emergency apparatus. Available Limits: As needed. Carriers: Arch Insurance Co. “A” rated by A.M. Best. Admitted. States: Alaska, Ariz., Ark., Calif., Colo., Conn., Del., Fla., Ga., Idaho, Ill., Ind., Iowa, Kan., Ky., La., Maine, Md., Mich., Minn., Miss., Mo., Mont., Neb., Nev., N.H., N.J., N.M., N.Y.,
N.C., N.D., Ohio, Okla., Ore., Pa., R.I., S.C., S.D., Tenn., Texas, Utah, Vt., Va., Wash., W. Va. and Wis. Contact: Shawn Yingling at 717-646-8886 or email syingling@mcneilandcompany.com.
Hard-to-Place Commercial Market Detail: Camford National Insurance Brokers LLC (www.camford national.com) offers a commercial package program for hard-to-place risks. Some target classes include: amusement park and device operators, apartments buildings, Chapter 11 risks, chemical manufacturing and storage operations, new ventures, student housing, manufacturing operations, water parks, resorts, restaurants, bars and taverns just to name a few. A deductible buyback program for wind, hail and earthquake is also available.
N16 | INSURANCE JOURNAL-NATIONAL REGION February 23, 2009
Minimum premiums begin at $50,000. Available Limits: As needed. Carriers: Multiple. Rated “A-” or better by A.M. Best. Admitted and non-admitted. States: All except N.D., S.D. and Wyo. Contact: David OKeeffe at 908 647-4900 or e-mail d.okeeffe@camfordnational.com.
Truckers Occupational Accident Market Detail: US Specialty Insurance Co. (www.ussic.com) provides occupational accident, contract and employers liability for independent owner operator truck drivers. Available Limits: As needed. Carriers: US Specialty Insurance Co. “A+” rated by A.M. Best. Admitted. States: Ala., Ariz., Ark., Calif., Del., Fla., Ga., Idaho, Ill., Ind., Iowa, Ky., Md., Mich., Miss., continued on page N18
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....with the Insurance Journal's help! Classifieds (Magazine ads & Website postings) Advertise; job openings, agencies for sale/wanted, services, training courses etc. Dedicated classified ad section in magazine and insurancejournal.com website. FREE classified print ad design service – email your ad text to receive a quote. Discounted rates for magazine/web combo ads and repeat advertising. Website ad postings can be submitted online 24/7 and are viewable instantly. Submit and pay for web postings at:
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My New Markets, continued from page N16
Mo., Mont., Neb., N.M., N.D., Ohio, Okla., Pa., S.C., S.D., Tenn., Texas, Utah, Va. and Wis. Contact: Ruth Young at 713-996-1204 or e-mail ryoung@ussic.com.
Environmental Consultants Market Detail: Victor O. Schinnerer & Co.
Inc. (www.PlanetENV.com) offers environmental consultants a broad range of coverages to meet the complex exposures faced by environmental engineers and consultants. Directors and officers, fiduciary liability, employment practices liability and commercial package coverage are all available for eligible
firms. Risk management educational service is included in coverage. Minimum premiums and minimum deductibles begin at $1,000. Available Limits: Up to $20 million. Carriers: CNA. “A” rated by A.M. Best. Admitted. States: All. Contact: Matt McWilliams at 301-961-9833 or e-mail matthew.mcwilliams@schinnerer.com.
Hard-to-Place Marine Risks Market Detail: Capacity Marine Corp. (www.capacitymarine.com) specializes in hard-to-place marine business. Eligible classes range from complete port operations to single vessel owners. The safety and loss control division will work independently as a loss control and safety program design, management and survey report provider to insurance carriers, insurance brokers and marine clients. Minimum premiums begin at $2,500. Available Limits: As required. Carriers: Not disclosed. “A” rated by A.M. Best. Admitted and non-admitted. States: All. Contact: Walter Wynne at 800-222-2425 or email wwynne@capacitymarine.com.
Marine Cargo Market Detail: Chopra Insurance Brokerage Inc. (www.choprainsurance.com) offers coverage for ocean-going domestic transit for many types of commodities. Policy provides all risk including war coverage. Coverage can extend to cover domestic air, rail, truck and warehouse to warehouse coverage with an extension to cover goods stored in warehouses. Minimum premiums begin at $1,500 and the minimum deductible is $500. Available Limits: $1 million to $15 million. Carriers: Unable to disclose. “A” rated by A.M. Best. Admitted. States: Ala., Ariz., Ark., Calif., Colo., Ga., Idaho, Ill., Ind., Iowa, Kan., Ky., La., Maine, Md., Mass., Mich., Mo., Mont., Neb., Nev., N.H., N.M., N.C., N.D., Ohio, Okla., Ore., S.C., S.D., Tenn., Utah, Vt., Va., Wash., W.Va. and Wis. Contact: John Upchurch at 818-551-4588 or email Jupchurch@choprainsurance.com. IJ Submit your company’s property/casualty markets to the industry’s leading searchable database at www.mynewmarkets.com. N18 | INSURANCE JOURNAL-NATIONAL REGION February 23, 2009
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Closer Look Boats and Marinas
Retail Marine Business Meet Darwinism in 2009 – The Strong Do Survive 5 Possible Solutions to Today’s Challenging Times By Chris Ohrenich
T
he year 2009 has begun and our nation’s business communities have their backs against the wall. No segment of the economy is without its worries and perils. Daily the mass populous decides how to spend their hard earned dollars. Specific retail segments are hardest hit. One standout is the recreation industry and one even more targeted — the retail boating or marine industry. With fuel prices “the gremlin” of the marine industry in 2008, precious lessons were learned. Those lessons have helped wary, prudent and entrepreneurially minded marinas and boat dealers For all agents out cope with what there with marine is poised to be businesses as clients, another challenging year. use this time of Marinas, boat hardship to promote dealers and a stronger undermarine service companies come standing of your in many shapes client’s business. and sizes, from small “mom and pops” to multi-location boating businesses owned and run by national organizations. These organizational differences are the predicate upon which their business plans have been established. Irrespective of these differences, certain trends, both negative and positive, continue to pervade the declining and most successful marine businesses. Here is a short list of five current economic realities faced by marine businesses and what may be possible solutions that some business leaders can utilizing to combat recessionary pressures.
Ohrenich
businesses. It is no different in the marine industry. However, businesses that find opportunity in crisis also develop processes that lead to increasing sales. For example, treating every customer as if they are your only customer — while maybe not the reality — the effort helps promote a true solutionoriented focus. Discovering new ways to uniquely set your business apart from the rest is simple, tried and truly results-oriented. 2. Boat Service Requests Decline. Negative mindsets transcend to customers during repair conversations. This can be in the form of verbal communication as well as attitudinal demeanors, resulting in decreased numbers of service requests by
clients, and reductions in the size of the service ticket requested. The best professional service managers explain necessary service needs in detail. This most often results in positive discussions, up-selling and increased service receipts. Training is paramount to continue this form of discussion at all levels of business. 3. Layoffs Top the List of Solutions. Layoffs become one of the first reactions a business owner considers, when a business’ receipts take a significant tumble. While seemingly obvious, it is relatively impossible to increase business revenue, when there are not enough employees to complete the continued on page N20
1. Scarcity Mentality Prevails. A scarcity mentality is prevalent in those businesses with declining sales. We hear it and feel it in our discussions with most www.insurancejournal.com
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Closer Look Boats and Marinas Retail Marine, continued from page N19
necessary tasks required by customers. When an average service or warranty request turnaround time increases, from two days to four days, not only does a boat owner become irritated, future income decreases and customers can be lost forever. Locating, hiring and developing the most talented sales professionals and service technicians, especially in an economic downturn, is the reaction most successful marine businesses turn to as a best practices tool to increase sales or service ticket size. When the economy turns, these businesses are poised for immediate growth. 4. Budget Cuts and Expense Sharpening. Tight budgets and realistic expenses are the hallmark of a successful marine business. Often as a result of scarcity, broad sweeping cuts dig into business development areas such as marketing and business protection areas, such as insurance. It is a simple known fact that marketing produces sales and sales produces income. Yet marketing is the frequently jettisoned, seemingly unnecessary piece of luggage. Marketing should be considered as important as your carry-on — always by your side, available for emergencies and an ace in the hole when crisis rears its ugly recessionary head. 5. Endangered Loss Leaders. Loss leaders when used correctly bring buyers to your business. Fueling at marinas, albeit an expensive loss leader, has often been used to draw boaters to a marina, and promote others sales, whether in the form of boating supplies, bait, tackle, service or others. To stop offering this service and reduce its related expenses may show an immediate response to a bottom line. Before this or any final decision, think twice, and at least once get creative, very creative! For example, offering a raffle or drawing to customers, up playing higher fuel prices, and providing a particular amount of free fuel can be the creative draw that adds to a business’s positive mindN20 | INSURANCE JOURNAL-NATIONAL REGION February 23, 2009
ed culture, leading to better and greater business results and happy return customers. Transfer of Risk Many marine business owners are turning to their insurance agents for advice as to how to decrease insurance premiums to lower that expense line item. We as agents know as
sales and payrolls decrease, premiums correspondingly decrease, yet never enough to the liking of a sinking business. This is when a marine business can appreciate the work of an insurance professional specializing in the marine industry. Knowing policy forms, manuscripting capabilities, which carriers offer the strongest remedies, etc., demonstrates a marine insurance agent’s true worth. For all agents out there with marine businesses as clients, use this time of hardship to promote a stronger understanding of your client’s business. Relationship building is crucial and knowing the ins and outs of a niche business, in the end, results in a trusting business relationship. Use this article, pass it out to your clients, engage them in business building provoking thought. They will appreciate your service all the more at the end of the day and at renewal time. IJ Ohrenich is an insurance broker with the John B Wright Agency, in Manasquan N.J., specializing in the marine industry since 1987. He also participates as a board director for the Marine Trades Association/N.J. Phone: 609-513-0355. E-mail: cohrenich@johnbwright.com. www.insurancejournal.com
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Closer Look Boats and Marinas
Eye on Boats and Marinas Marine Broker Shares Views on the Current State of the Market marine insurance as the agency’s primary niche market. “We had many boat owners as he marina and boat industry is a clients and started attending all of the boat natural fit for John Harvey, founder shows in Texas and the surrounding states,” and president of Harvey said. “We decided Voyager to start marketing nationInsurance Services in ally and are now licensed Frisco, Texas. Harvey has in 40 states.” been in the insurance The marine insurance business for 50 years and industry has changed like has been a boat enthusiast many other insurance since his childhood. markets. Even so, Harvey says it continues to be an “I grew up enjoying excellent niche for his boating as a child with my agency. family and have had a boat “We have a full brokerage since I was in high department to help retail school,” Harvey said. agents looking for boat Since 1958, Voyager has John Harvey markets for their clients. served its community as a We also work closely with boat dealers and full-lines independent insurance agency, but provide insurance binders for their new made the decision in the late 1980s to target
By Andrea Wells
T
N22 | INSURANCE JOURNAL-NATIONAL REGION February 23, 2009
clients purchasing a boat,” he added. Insurance Journal asked Harvey his views on the current state of the market for marinas and boats. Here’s what the marine specialist and life-long boater had to say. How is the economy affecting the marine industry? Harvey: We work with many new boat dealers who report that their industry has been severely impacted. There have been a number of boat dealers that have filed for bankruptcy and left a very large inventory of mostly 2008 boats sitting unsold. Many dealers are buying this inventory rather than ordering new boats because the inventory is deeply discounted. Another issue affecting their sales is their floor plan financing companies’ refusal to lend the full amount of their credit line and controlling how much inventory they can buy. Dealers report that getting a customer
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approved for financing has become quite difficult with several national banks exiting the boat financing market. Those left have severely curtailed their lending except to the very highest credit scores. Boat dealers advise that this is an excellent time for the consumer to buy due to the deep discounts being offered; however, many consumers cannot qualify. Boat dealers also advise that their customers who usually pay cash are holding back to see what happens with the economy. Attendance at the winter boat shows was down dramatically. The Dallas Boat Show actually closed for Monday, Tuesday and Wednesday nights due to poor attendance. However, dealers reported the people who did attend the show were there to purchase. Our marina clients report much of the same. They find slip rentals have dropped significantly and many see people canceling their slip rental and taking their boats into dry storage or putting the boat back on a trailer. While fuel has dropped significantly, the consumer is too fearful of returning to $6 to $7 per gallon gas [prices], so many large boats are on the market. Again, credit is very tight with almost no movement in financing for large boats, even with excellent credit.
Are you a boater as well? Harvey: I have been boating since childhood with my family. I built my first boat in my high school woodshop class. My mother always used to shudder as she talked about watching her entire family pull away from the dock in that homemade boat, hoping and praying everyone returned to her safe. My wife and I have owned a number of boats but we have
developed a passion for old wooden boats. I purchased my first wooden boat in 1985 and still have that boat, a 1952 Chris Craft Custom Sedan named “Unforgettable” (Golden Pond boat with a hardtop). ... My wife and I have become very involved in the “International Antique and Classic Boat Society” where I served as president in 1999 and 2000. continued on page N24
Today’s Economy Tough on Boat Owners, Marinas
R
obert Merluza, underwriting consultant for CNA’s marine division, says times are tough for the marina and boat industry. Merluza, an expert in marine coverage for boat dealers cover, marine operators and boat owners, says many boat owners are getting rid of their boats or not using them as frequently, which is hurting marina operators and the boat industry nationwide. Below, Merluza offers some key underwriting considerations brokers should be aware of in today’s market. How is the economy affecting the marina and boat industry? The economy definitely is impacting boat owners. It’s expensive to keep a boat. For people that can’t fit their boats on their drive ways, they keep their boats at marinas but to keep a boat there — to store it, to fuel it, to keep it in shape — it definitely costs money. continued on page N24 www.insurancejournal.com
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Closer Look Boats and Marinas Today’s Economy, continued from page N23
Eye on Boats, continued from page N23
What’s your best claims story? Unfortunately, there have been many claims stories. I don’t have a best, but I will say that Hurricane Ike was absolutely devastating to our boating clients on the Texas coast and very little has been reported. We have many people who have still not found their boats and are trying to get their claims settled. Our marine
companies responded quickly and were able to get most claims handled within a week to 10 days. Considering the circumstances, we were very pleased with our insurance companies’ responses. IJ Voyager offers full online quoting for any size boat for insurance brokers at: http://agent.voyagermarine.com.
Boats are luxury items. If someone is going to cut something out it’s going to be their boat. So boat owners are looking for an insurance market where they can lower their insurance costs. Price is a big issue these days. A lot of boat owners are getting rid of their boats; asking boat dealers to help sell them. There’s still a number of people that do go out and buy boats, but it is a much shorter list. From an insurance standpoint we are not seeing a lot of new business come our way. Dealers are not selling as many boats as they did in the past. In addition, if boaters aren’t fueling their boats because they are not using them that often, that impacts the marina and the bottom line. What are the key things you consider when underwriting marinas and boats in today’s market? Most obviously is the maintenance of the facility. Is the marina keeping everything in good working condition? We want to make sure that they are not cutting corners with safety or housekeeping. Another concern is storage. Depending on where the boats are located you will find a lot of boats out of the water, either on racks or even indoors. If rack storage is not done properly you could have boats topple over or collapse inside a building damaging the boats. We also look at the other operations the marina does in addition to slip rentals. Do they provide fueling? With fueling operations, obviously fire would be a concern. … In addition, some marinas provide other related services — restaurants, parties, entertainment. That can be a concern especially if you are talking about liquor, so safety would be a big issue. When marina operators aren’t getting the income from gasoline sales and rent slippage then they are going to promote their entertainment, restaurants and bars more, which therefore could increase that exposure. Another thing, if marinas are not selling boats then they are going to try to sell other things — maybe ATVs, fire arms or sporting goods. They might even sell motorcycles or other things that are not as expensive as boats just to keep their businesses running. Those are again things we look at from an underwriting standpoint. IJ
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Idea Exchange Agency Management
Valuing the Deal: It’s What You Keep That Matters By Alfonso Ventoso
W
e talk with clients all the time about the mergers and acquisitions (M&A) marketplace, advising owners on positioning their businesses for the best exit whether they are three months or three years away from transitioning out. Once fit has been determined and price is settled, clients may think the work is over. It is true that once the timing is right for a client to go to market, we spend much of our energy analyzing and negotiating deal pricing to get the best results. We haggle with buyers over pro forma earnings before interest, taxes, depreciation and amortization (EBITDA), and we go back to them to make the case for why higher EBITDA multiples are justified. We negotiate structure: guaranteed proceeds versus earn-out, stock sale versus asset sale, and many other facets. Ultimately, three components must align in order for a deal to close: culture, pricing/structure and terms. As advisors, we will typically justify our fee several times over through our impact on pricing and structure alone. However, more deals unravel over terms than anything else. We will focus on the terms that generate various kinds of hard costs, holdbacks and soft costs that are the frictional costs of selling a private business and impact every deal. These often come as surprises to our clients who are selling their businesses. Getting our minds around these issues early in the process avoids loss of momentum later. As clients get comfortable with these costs, the resulting net number they should expect is revised to a realistic level. Let’s use an example of an agency with $10 million in net commission revenues, and pro forma EBITDA of $3 million or 30 percent. After negotiations, the parties agree on pricing of 7.0 times EBITDA guaranteed (most now, some later), plus an earn-out potential of another 1.0 times EBITDA. The many ways earn-outs can be structured have been the subject of many an article, and will not be repeated here. This example implies a potential gross value to the seller of $24 million. While there is some kind of target to be hit over a two- to four-year timeframe to achieve the $3 million earnout component, it is the maximum number, in this case $24 million, that typically becomes the “anchor” number in the seller’s head. It is important to note this will be the gross amount the buyer is willing to pay for the earnings power N26 | INSURANCE JOURNAL-NATIONAL REGION February 23, 2009
of the business represented on the income statement. Now for a walk through the hard and soft costs that will erode this number significantly. Hard Cost 1: Balance Sheet and Working Capital Balance sheet adjustments can include the removal of intangible assets resulting from acquisitions (the buyer can’t count them twice, as the earnings power represented by these assets is already being paid for as a multiple of the income stream). Producer vesting or deferred compensation liabilities can also be significant and often leave balance sheets neutral or even negative. Let’s say our agency has the following simplified balance sheet: All amounts in Cash Receivables Intangibles Total Assets
$000 $200 $300 $1,000 $1,500
Payables Equity
$300 $1,200
Since the buyer is paying for the earnings power of intangibles that are already flowing through the income statement, these are removed and the pro forma equity (tangible net worth) is now $200,000. Our agency’s pro forma expenses of $7 million per year imply average operating expenditures of $580,000 a month. A buyer does not want to pay you $24 million for your business and then have to inject more money into the business during the first month in order to keep the lights on and make payroll. This is why a working capital holdback is customary. A 30-day working capital requirement in this case would result in a $580,000 deduction from proceeds. Some buyers start by asking for 60 days, which would be almost $1.2 million. The seasonality of revenues, the margins, and the likeliness that revenues will recur all drive a buyer’s comfort level as to how low a requirement they will accept. We find that 30 to 45 days is reasonable in most cases. Using 30 days in this example, recall there is $200,000 of tangible equity in the business and a working capital requirement of $580,000. Though the mechanics are different in a purchase of stock versus a purchase of assets, in continued on page N28 www.insurancejournal.com
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Insurance Industry Charitable Foundation presents the
5th Annual
Club100 Dinner The Club100 Dinner is an intimate gathering of the top 100 insurance professionals and their guests from California and the West Coast. Enjoy a social evening of fine wine and food in a unique setting that reflects the beauty of the Southern California region. Proceeds will benefit local community nonprofit agencies.
Event Sponsor: Chubb & Son Thursday, March 12, 2009 6:30pm – 10:00pm Cicada Restaurant 617 S. Olive Street Los Angeles, CA Register by March 6th at www.iicf.com/events Contact Mary Reynolds at 925-280-8009 mreynolds@iicf.com
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Idea Exchange Agency Management Valuing the Deal, continued from page N26
price as a range, though prior to our negotiations it might be more like 5 percent to 15 percent. Twelve to 18 months is a typical timeframe. In 99 percent of cases, the seller recovers this, with interest. Buyers need this cushHard Cost 2: E&O Tail Insurance ion to true-up the working capital Sellers are responsible for securing their own errors and Ultimately, three and make sure they’ve bought the asset that was represented. Still, omissions liability for incicomponents there is a small risk some or all of dents taking place after closthis amount could be forfeited. ing. A typical coverage period must align in would be three years. A preorder for a deal Soft Cost 2: Indemnification, mium in the range of $50,000 to close: culture, Representations, Warranties to $100,000 for this size busipricing/structure Seller clients often ask us why ness is a small price to pay the buyer wants more than just rather than suffer a claim that and terms. their word that the accounts, relacould jeopardize the entire tionships, and the entire business pot. being transferred are above board. Anyone paying $24 million for someone’s business would Hard Cost 3: Other Closing Costs want reassurance that Hiring competent advisors for the transacpotential skeletons in tion along with legal and tax representation the closet were vetwill provide instant return on investment ted. Buyers put themwhile also dramatically increasing the likeliselves at the highest hood that a deal gets done at all. A working risk when they buy assumption might be 3 percent to 7 percent of the stock of the sellthe total purchase price, depending on the ing corporation. Since complexity of the transaction and the way the most agencies are Sagreements are structured. corporations, most deals are transacted as Hard Cost 4: Capital Gains Tax Most deals are structured so that sellers cap- asset purchases which mitigates these risks ture capital gains rates above their cost basis. for buyers. In an asset deal, a buyer will allocate this Wrongful terminaamount between intangible assets (which are tion claims, sexual amortizable and provide a tax shield) and harassment claims, goodwill, which is not. Capital gains taxes are currently at an all time low of 15 percent at the ERISA non-compliance, tax liabilities, and slip and fall claims are federal level. The best case is that the rate stays at its current level, with the fallback that just some examples of time bombs that can come back to bite a buyer. What if an error is it reverts back to 20 percent in 2011. With the discovered by accountants or tax authorities new administration, it is a good bet the rate post deal? Consider knowledge in the legal will increase to as much as 25 percent or even 28 percent. No matter where it ends up, it will context: what if it is alleged the seller knew at always be the biggest item reducing the seller’s the time of sale that two or three of the top accounts would be non-renewing? Whether take-home proceeds. groundless or not, costs would be incurred in defending these claims. If action were to be Soft Cost 1: Escrow This holdback is one of the least understood taken just after a transaction, the buyer and seller would likely both be named. by sellers. In fact, many become personally What is normal as far as indemnification? offended at the implications of this customary For more than one of the public buyers, it is inconvenience. Our favorite answer to the 100 percent of purchase price paid, jointly and question of “what is normal?” is “it depends.” severally shared among all shareholders. An Let’s use 2.5 percent to 7.5 percent of purchase either case the buyer will reduce the purchase price received by the seller by a net of $380,000 to have sufficient working capital.
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honest seller negotiating in good faith should be able to sleep at night with these terms. However, soft costs can keep even the most ethical seller awake at night until everything is collected and all related agreements have expired. So, what is left for shareholder(s) after this sample transaction? In this example below, 20 percent of the total purchase price is lost to adjustments. Obviously the vast majority is lost to taxes, but even so these other items in this example clip several percentage points and several hundred thousand dollars from the deal proceeds. Bear in mind when you hear “so and so sold for 8 times EBITDA” that perhaps 6 times or 7 times of that was guaranteed, and the rest had to be earned after the closing. Further, realize that every seller incurs some combination and
magnitude of the above costs and holdbacks which make up the accumulated frictional costs of selling a privately-held business. Being informed about all of these components will help you set a more accurate and realistic goal when you try to decide what your net number is. Terms are at least as important as price. Good advisors can easily pay for themselves yet again by negotiating the most favorable terms once price has been settled. IJ Ventoso is a vice president with Hales & Co., located in Hales’ Hartford, Conn., office. He advises agents and brokers on valuation, perpetuation and transaction matters. Email: aventoso@halesgroup.com. Phone: 860-487-9722. Web site: www.halesgroup.com. www.insurancejournal.com
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East Coverage News & Markets Swimming Downstream: How a Regional Insurer Buy Others Through Demutualization Donegal Group’s Strategy Has Helped It Grow From Writing in 1 State to 19 in 20 Years By Ted Huntington
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ven in a good economy, mutual insurers face challenges trying to raise the capital they need to grow since they don’t have any stock to sell. But one insurer has figured out a way to overcome this disadvantage. Donegal Group Inc. is a Marietta, Pennsylvania-based insurance holding company that owns Donegal Mutual and several other subsidiaries writing property/ casualty in the Mid-Atlantic, Southeastern and Midwestern regions. Donegal executives have been using their own success as a mutual that formed a downstream holding company to gobble up smaller, sometimes troubled regional mutual insurers. The strategy unfolds in two steps: first it affiliates with the targeted mutual; then it begins the process of demutualizing it. The strategy has worked a half dozen times in the past 20 years. It all began in 1986, when Donegal Mutual saw other mutual companies were forming downstream holding companies. It formed Donegal Group Inc. and completed a stock offering, with Donegal Mutual retaining a majority interest. In the same year, it formed Atlantic States Insurance Co. as a wholly-owned subsidiary. Atlantic States and Donegal Mutual then agreed to pool their premiums, losses and expenses with each company allocated a given percentage of the combined underwriting results. The pooling produces more stable underwriting results for each company and spreads the risk of loss. Each company has at its disposal the capacity of the entire pool, rather than only what its own surplus would permit. The concept worked so well, Donegal Group decided to see how it might work for other mutuals in need. According to Jeffrey D. Miller, chief financial officer for Donegal, a number of its acquisitions have involved demutualizations: Southern Insurance Co. of Virginia (1988); Pioneer Insurance Co. of Ohio (demutualized in 1993 and subsequently merged into another subsidiary); Delaware Atlantic Insurance Co. (demutualized in 1994 and subsequently merged into another subsidiary); Pioneer Insurance Co. of New York (demutualized in 1998 and subsequently merged into another subsidiary) and Le Mars Insurance Co. (2004).
be compensated for the sale of the company to Now one more can be added to the list. Donegal and Wisconsin regulators had never Donegal’s most recent acquisition in Wisconsin dealt with a demutualization. provides a glimpse into how the strategy is The Sheboygan Falls case illustrates one of implemented. the drawbacks of the demutualization Sheboygan Falls Mutual Insurance was process— it’s not quick. “For example, in founded in 1899, the same year Donegal was, Wisconsin, the insurance department never and has been writing mostly personal lines in experienced a demutualization. The statutes Wisconsin since then. In 2007, it wrote direct premium of $9.2 million. While the rural insurer weren’t clear and the regulators had a number of questions about what we will do – or not do had survived a long time, the board of directors – for Sheboygan Falls. It turned into a lengthy recognized that the company faced problems. negotiation that lasted over two years,” recalled Its automation systems were antiquated; it Fred Dreher of the Philadelphia-based law firm lacked a clear line of succession for senior manDuane Morris LLP. For agement, and it was not as its transactions, Donegal efficient as it should be. Worst has relied upon Dreher, of all, it lacked access to capione of the leading demutal to fix its problems. tualizations lawyers. The insurer needed help Initially, Wisconsin regand it just so happened that ulators were leery of the there was an insurer interesttransaction but, accorded in helping. But in ing to Dreher, they exchange, Sheboygan Falls became more comfortwould have to give up its able after speaking with identity as an insurer owned other states and coming by its policyholders. to understand Donegal’s In late 2006, Sheboygan track record. Falls welcomed the offer of Sheboygan Falls was evena pooling arrangement with First Donegal tually valued at $7.2 million, Donegal Mutual similar to which translated into about $300 the one with Atlantic affiliates with for each policyholder. “It’s not a States. This first step fortune but it is found money for buoyed Sheboygan Falls but the targeted the insureds,” Dreher said. Donegal made it known mutual; then it On Nov. 11, 2008, Wisconsin that the affiliation would be begins the Insurance Commissioner Sean terminated unless Dilweg gave final approval to the Sheboygan Falls converted process of conversion. About a month later, from a mutual to a stock demutualizing it. Donegal Group Inc. bought all of company, with all of its the capital stock of Sheboygan stock purchased by Donegal Falls for about $12 million, a sum that included Mutual. An independent appraiser warned that a surplus contribution of $8.5 million to support if it lost its affiliation with Donegal this “could the future premium growth of Sheboygan Falls. reasonably be expected to have significant In the end, according to Dreher, the demutuadverse consequences for the financial health of, alization saved a company that may have been and future prospects for, Sheboygan Falls.” headed for conservatorship or liquidation; someSo the process moved forward. Donegal thing no insurance department wanted to face. gained control of the insurer on June 7, and also When it’s scouting for new acquisitions, bought a $3.5 million surplus note issued by Donegal looks only at independent agency sysSheboygan. In April 2008, the company decided tem insurers. Dreher says this is because to pursue demutualization. Donegal is committed to the independent There were a few obstacles, however. Since it agency distribution channel. IJ was a mutual, all policyholders would have to
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Closer Look Errors & Omissions
Certificates of Insurance and Agency Liability: What Agents Should Know Pearsall
By Curtis M. Pearsall
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common practice by insurance carriers is to inform their agents that they should not send the company copies of certificates of insurance when they are issued. This is most likely the result of mail-flow issues with the underwriting departments, many of which are now becoming “paperless” … not to mention that the task of naming and filing certificates into a computer system is cumbersome! That leaves the agent with the responsibility of issuing and filing certificates. However, if a copy is never sent to the carrier, the carrier can hide behind a “shield of ignorance” if a problem arises by stating that it knew nothing about the certificate. In effect, the practice of refusing certificates can place a carrier in a better defense posture when a claim is made based on misrepresentations on a certificate. At the same time, the defense of an agency can be weakened when a carrier claims ignorance. Certificates of insurance can and will be the basis of claims against agencies. Even though there is language present on a cerwww.insurancejournal.com
tificate that in effect states the certificate does not constitute a contract between the parties – nor does it amend, extend or alter coverage under the policies listed – claims are made and suits are filed based on representations present on certificates. A common pattern involves an entity (who is not party to an insurance contract) that receives a certificate of insurance from an agency’s client as a condition before business is conducted with the agency’s client. If the information stated on the certificate is incorrect, it leads the party doing business with an agency’s client to believe that there is coverage. However, when it is discovered there is no coverage – and the party must pay for, or suffers, a loss – a claim can be made against the agent based on the theory of detrimental reliance. It will be claimed that had the party known there was no coverage, it would not have done business with the agency’s client and, therefore, would not have suffered a loss. Consider, for example, a claim by a bank that loaned money to a golf course for the purchase of GPS devices to be used in golf carts. The bank wanted proof that there was coverage for the GPS devices under the golf course’s policy. The agency’s CSR who handled the client’s request to provide proof of coverage actually misunderstood the request, thinking she was being asked to provide proof of coverage for the carts. A fire occurred at the course’s main storage facility resulting in the loss of all of the golf carts and GPS devices. The carrier paid for the carts, but paid nothing for the GPS devices because they were not covered. The bank sued the agency, alleging that it would not have loaned the money had it known there would be no coverage for the GPS devices. The claim against the agency was settled for about $50,000. Agencies should be aware of the pitfalls involved in sending out certificates of insur-
ance that are inaccurate. For example, if an agency is sending a certificate to a client that lists another party as an additional insured, the agency must be certain that the party is listed on the policy. If this requires a change endorsement to be sent to the carrier, send it. Even if the carrier is sent a copy of a certificate, do not expect them to add a party without a specific request to do so. Simply stated, a certificate is not the proper vehicle for the request. Agencies also need to be familiar with certain types of vendor’s coverage or blanket additional-insured endorsements before stating a party is an additional insured. Not all parties or actions will trigger coverage under either a vendor’s endorsement or an additional-insured endorsement. If in doubt, call the carrier for an interpretation before a certificate is issued. It is important, too, to never issue a certificate as a Send copies of favor to an insured certificates to the without knowing carrier, regardless for certain that of whether the the information stated on the cer- carrier wants tificate is accurate. them. When a lawsuit ensues as a result of inaccurate information on a certificate, all fingers will be pointed directly at the agency, especially if the carrier knows nothing of the certificate. Finally, it is advisable to send copies of certificates to the carrier, regardless of whether the carrier wants them. Once receipt of the copies has been confirmed, a carrier cannot claim ignorance – and the agency might have an additional avenue for recovery should a claim arise. IJ A former independent agent, Pearsall is vice president with Utica National Insurance Group, where he is Director of Special Programs and Director of the Utica Errors & Omissions operation. This is reprinted with permission from Utica’s E&O Communique.
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Idea Exchange Managing and Agency in a Troubled Economy
Operational Efficiency Should Be Priority No. 3 for Agency Managers
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anaging an independent insurfocus on sales, which is really making sure Web Resource: ance agency in today’s economy that they are taking every single minute that This is the third installment in an and soft market forces agents to they can to be as sales-oriented as possible. Insurance Journal interview with The set priorities. Juan Andrade, It’s a great time to be looking at your Hartford’s Juan Andrade. View the entire executive vice-president for sales and distriprocesses within the agency, streamlining Insurance Journal video series, “Managing bution at The Hartford, who oversees his things that you do, and frankly being very an Agency in a Troubled Economy,” at company’s agency management consulting introspective in asking yourself questions www.insurancejournal.tv. arm, Business Management about should we continue to do Group, previously identified these types of things and making second after personnel costs there really are customer retention as priority your own business plan and decigoing to be those fixed costs. It’s a great time No. 1 (see Insurance Journal’s sions based on that. to be negotiating with your vendors at this Jan. 26, 2009, West region issue, point in time. page 120). Next he explained Insurance Journal: Are hiring I know certainly as a company we do priority No. 2 as maintaining a freezes or salary freezes a that; leasing particularly your space, taking disciplined and systematic good idea? advantage of the housing market [and] the approach to sales (see Andrade: It really depends on commercial real estate market and which Insurance Journal’s Feb. 9, 2009, where you are from an agency way it’s gone. There’s got to be some better West region issue, page 46). perspective. If you are at a place deals out there. where your top line may be Of course, there is more to Ask yourself questions. Do you really need Juan Andrade shrinking and you’re seeing costs successful management in diffito be in a Class A space, or is it OK to be in continue to increase, you may ultimately be cult times than managing and growing reva Class B space? Those are decisions the forced with having to make those decisions, enues. It’s also a time to take a hard look at principal will have to make based on the because again it goes back to 60 percent of costs. Operational efficiency is priority No. 3. image he wants to represent for his particuyour cost will be people related. Andrade said that while agents right now are lar agency. But there are a number of things that you wise to take a holistic approach to manageBut [with] vendors, whether it’s office supcan do before you get there. Changing the ment, the expense picture has to be brought plies, staples, etc., this is a great time to be way you do things within the agency, changinto clear focus. looking at your costs with a great level of ing processes, making sure that you’re more Insurance Journal’s Andrew Simpson asked detail. If you haven’t done that, you ought to focused on the art of sellAndrade where agencies might look for operstart right now in making ing, on the science of ational efficiencies during a time like this. sure that you have a lot of After personnel selling, if you will, that transparency as to where you are bringing in leads, costs are fixed Andrade: Looking at it from an expense peryour money is going. you are actively working costs, it’s a great spective, this really is an opportunity to look the portfolio, managing at your margins, particularly with a top line Insurance Journal: How time to be renegoti- does an agency know it’s your retention. that may be declining or may be flat. This is Those are all the the time when you may want to defer certain ating with vendors. operating efficiently? things I would be looktypes of activities. … Travel … may be one. What metrics might they ing at to increase productivity before I You may look at, maybe, self-funding your look at to feel good about how they are would be going down the line of layoff or an own investments that you are making within doing? impact of that sort on the employees. It realyour agency as opposed to adding incremenAndrade: There are a number of metrics ly all depends on an individual situation of tal cost to the agency at this point in time. that we can look at. Revenue per employee where [you] are today. It’s always important to realize that 55 is one. Commissions per employee; new percent to 60 percent of all the cost within business commissions per producer; these Insurance Journal: How about renegotiany given agency is going to be personnel are all productivity measures that we could ating leases or supplier contracts from cost. The key here is making sure that your look at and say, “Okay, am I really maximizvendors? people, your employees are being as producing the use of my personnel? Are we really Andrade: That’s actually another huge area tive as they can, particularly given the marfocusing them on the right thing?” of opportunity. Because I would think that ket situation right now. So, that’s back to the Those type of flow metrics, whether it’s 44 | INSURANCE JOURNAL-EAST REGION February 23, 2009
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new commission, new production, those are very important things to be looking at. Insurance Journal: We talked about efficiencies and how that sometimes involves layoffs as well as changing relationships with vendors or suppliers. Do you have any advice for communicating the process of these decisions to what, in some cases, affects long time employees or long-time suppliers? Andrade: My approach has always been open and honest, and frankly that’s the best way to be with anyone who has to manage people in these times. The most important thing is making sure people are well-grounded in the context that the business is operating in, making sure people understand the current economic situation, making sure that people understand that really the business margins that we are trying to operate with, that they understand what the company, the business, the agency is focused on doing at this particular time to make sure that we keep a viable enterprise within that agency. But if it comes to making tough decisions, the open and honest philosophy is always the best, which is really letting people understand why the action has to take place. If it is because the agency is not meeting particular profit margins that need to be met, that the top line is not growing as fast as it needs to be met, it is important to be very open and honest with people at that time. Part of that is also sharing with folks what your strategy is and how you are planning to manage all of this, so laying it out. Have a business plan for 2009 that … says if I can reach these goals from a top line perspective, if I can reach these revenue goals from a commission standpoint, this is where I need to keep my expenses at. And in order to do that, we need to do the following things on the commission side, maybe working with our company partners. I need to do the following things to generate new business or keep business that I already have in the books, and these are the following things that we are doing with the bookkeeper, the accountant, etc., within the agency to make sure that we manage those costs. Being able to lay all of that plainly to people so they understand [it] is very important. The other thing that enables you to do is it www.insurancejournal.com
engages them in the plan. It engages them from the perspective that if they know what targets you need to hit, to stay viable, to continue to grow, people can be very motivated by that. Insurance Journal: This is a time when insurance agents must be monitoring their financial situation very closely. What are some indicators they should be looking for and maintaining? Andrade: There are a number of things that they ought to be looking at. Their pro forma earnings before tax is going to be a critical measure that they ought to be looking at. They ought to be looking at their liquidity ratios, how much cash on hand do they have. They ought to be looking and assessing their debt. How leveraged is the agency at that point in time? To me, it really does come down to liquidity type measures of cash on hand, ability to meet payrolls, etc.,, but also the amount of debt that [you] currently have within that particular agency, how leveraged are you. It goes back to the question you asked on leasing for example. I mean a big part of it is the building: Do you own it? Do you pay a mortgage on it? All of that comes into play. And so those are very wise things for all of us, frankly, to be looking at these days. Insurance Journal: You speak with agents across the country and I assume the suggestions you have now are the same ones that you might have even in a good economy. But are agents are listening more now? Andrade: I think so. I think everyone is listening more these days. I think you are right. A lot of what we have been talking about, whether it is a focus on retention, a focus on sales, a focus on your operating efficiencies, well that just applies across the board, and that’s just a good way to run a business regardless. But right now, boy, we have to be a lot more vigilant, because the stakes have been raised and it is dangerous out there from an economic perspective. So I do find that the people that I am talking to across the country — and I spend probably four days out of every week traveling, meeting with our agents — are basically listening and they are acting. IJ February 23, 2009 INSURANCE JOURNAL-EAST REGION | 45
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East Coverage Marketing to Diverse Groups Changing Demographics, continued from page E10
Rico’s transportation clients are mostly Insurance, which is headquartered in El Paso long-haul truckers and they are “99.9 perbut also has an office in San Antonio. “It’s cent” Hispanic. “They have trucking comone thing to know the product that you are panies and they are working at it hard,” he selling and it’s another thing to know who said. When a new client comes to them, you are going to selling it to.” it’s almost always the case He says his agency, which where they were referred specializes in trucking by another client, and transportation, “people that know does advertise us and know we that they speak • 1.6 million - Number of Hispanic-owned businesses do a good job.” Spanish. “A in 2002 (the latest year for which statistics are available). lot of folks The rate of growth of Hispanic-owned businesses between 1997 here in El and 2002 was 31 percent, compared with the national average of 10 Patterson, who’s been Paso feel percent for all businesses. in the more com• 1.2 million - Number of black-owned businesses in 2002. Blackfortable owned firms accounted for 5 percent of all nonfarm businesses in the insurance business for with that. United States. They are • 1.1 million - Number of businesses owned by Asian-Americans in nearly 30 bilingual 2002; up 24 percent from 1997. The rate of increase in the number years, also says most of but they feel of Asian-owned businesses was about twice that of the his business more comfortnational average for all businesses. comes through able speaking • 201,387 - Number of American Indian- and referrals. “When you with somebody in Alaska Native-owned businesses in 2002. treat people with their own language.” Source: U.S. Census Bureau respect and honor, they honor you with their business. They Referrals, Referrals return that and they share with their When it comes to expanding an agency’s friends. When they are treated well … it market share in a particular community, comes back to you tenfold.” Patterson, Berrong, Saenz, Rico and Pierson agreed. “Cultural groups that Pierson all agreed: It’s all about referrals. are outside the mainstream, that maybe don’t speak English that well, are truly UTO ERVICE AND EPAIR going to rely on referrals of people similar PROPERTY/IM/GARAGE LIABILITY to themselves,” he said. “Referral, word of GKLL mouth, is the way to do it. It’s that classic thing, if you do something good they’ll tell people.” Ethnic communities in many ways are closed communities, Berrong explained. “What I mean by that is they’re talking to each other more than they’re speaking to their banker. They talk to each other. [They’re saying] who can I get that will solve my problems, and hopefully that’s where a lot of our referrals come from.” Pierson warned, however, if you do a bad job, “they will tell even more people.” Patterson concurred. “People will go where they are invited but they return to places where they are well-treated. And the contrary is the same. If you mistreat somebody … they’re going to tell an awful lot of folks.” IJ
of a diverse community need to try to understand the culture of the group they aim to serve. Agents should “look at what they don’t know,” the IIABA’s Pierson said. “Look at your operation from the eyes of diverse people. … If you want your agency to grow you need to look at the populations that are growing.” The Hispanic population is the fastest growing minority group in the United States; it’s expected to triple between 2008 and 2050. But Hispanics already represent around 80 percent of the population of El Paso, Texas. There, agents say tapping into the Hispanic market is essential, even for non-Hispanics. But it still takes a lot of work, according to George Saenz Sr., owner of Cielo Vista Insurance Agency in El Paso. Commercial business represents 70 percent of his total premium volume, and Saenz works with a lot of small businesses and a lot of start ups. Most of his business comes from referrals, but Saenz says he aalso does a lot of marketing by joining professional organizations like chambers of commerce. Customers want to know he’s part of the community, he said. “You have to know the culture,” advised Luis Rico, vice president of Desert West
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Business by the Numbers
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East Coverage People
Andrew Fotopulos
Maya Cruz
Bob Drohan
Gary Grindle
Mike Cassidy
Andrew Fotopulos has joined Starkweather & Shepley Insurance Brokerage Inc. in Providence, Rhode Island as senior vice president. Fotopulos will lead the brokerage’s financial institutional practice. He will focus on providing specialized risk coverage designed for insuring financial institutions and personnel. He most recently worked with Theodore Liftman Insurance, a financial institutional risk specialist firm in Boston. Crump Insurance Services’ Tri-City Brokerage has hired James Baettcher as senior vice president-national property director. The 25-year veteran of the property and casualty industry has served his entire career on the retail side of the business. Baettcher, who will be based in New York City, joins Crump from Integro Insurance Brokers, where he served as a managing principal of its property practice. Prior to Integro, he was chief operating officer Aon’s national property practice, and served in senior level roles with Frenkel, and with Alexander & Alexander. Corinne R. Simon has joined McAuley Woods and Associates in its Charlottesville, Virginia office as legal counsel and producer for the firm. Most recently, Corinne worked as an attorney for Holland & Knight, where she specialized in civil litigation. Prior to law school, she worked as a media consultant for a boutique crisis management firm in Washington, DC. McAuley Woods is a national wholesale insurance brokerage firm headquartered in West Palm Beach, Florida. The Professional Insurance Wholesalers Association of New York State Inc. has appointed Maya Cruz to its board of directors. Cruz, who is vice president of All Risk/CESI LLC in New York City, has served on a number of professional committees and boards including the New Jersey Chartered Property/Casualty Underwriters, New Jersey Surplus Lines Association and the New Jersey Young Insurance Professionals. The Hartford, Connecticut office of Colemont Insurance Brokers has assigned new management responsibilities for several key members of its personnel. Michael O’Brien, vice president, has been named Financial Services Team Leader. He will oversee the office’s team of brokers and coordinate its Broker Development Program. Bob Drohan, assistant vice president, has been named Financial Services Marketing Manager. He will coordinate the carrier relationships for the Hartford office’s financial services team, managing the team’s new and renewal marketing process and developing new programs and facilities for the office. Gary Grindle, vice president, has been named sales manager. He will oversee sales activities for all brokers and will also serve as National Retailer Coordinator, working
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to oversee the development and maintenance of the Hartford office’s relationships between national retail agents and Colemont’s brokers. Mike Cassidy, senior vice president, will coordinate the office’s casualty market relationships, and Larry Kessler, broker, will coordinate the office’s property market relationships. JoEllen Flatt, assistant vice president—manager, operations and administration, will take on the responsibility of coordinating the office’s involvement with industry associations and government entities. Property-casualty insurance company Zenith National Insurance Corp. said board member Leon Panetta has resigned to become director of the U.S. Central Intelligence Agency. President Barack Obama chose Panetta, a former chief of staff to President Bill Clinton and a former Democratic congressman from California, to head the agency. Panetta had served as a member of Zenith’s audit committee and its nominating and corporate governance committee. Zenith named Jerome L. Coben, a partner at Zeughauser Group, as Panetta’s replacement. Coben will serve on the audit committee and the health care committee. San Francisco-based Wells Fargo & Co. announced its management team for the combined insurance businesses of Wells Fargo and Wachovia Corp. Reporting to Dave Zuercher, group head of International and Insurance Services, are Neal Aton, head of Wells Fargo Insurance Inc.; Randy Tronnes, head of Rural Community Insurance Services; Bruce Basso, vice chair of Wells Fargo Insurance Services Inc.; Fred de Grosz, vice chair of Wells Fargo Insurance Services Inc.; and John Cay, Wachovia Insurance Services Inc. Zuercher continues in his role as chairman of each insurance entity, and as head of Wells Fargo Insurance Services Inc. Reporting to Zuercher from Wells Fargo Insurance Services are Anne Doss, head of sales strategy and partnerships; Scott Isaacson, chief marketing officer; Deb Broderick, operating officer; Andy Paterno, head of the company’s third-party administration businesses and head of the new brokerage delivery team; Kevin Kenny, head of the brokerage’s Eastern Area; H. David Wood, head of the brokerage’s Western Area; and Dan Goldapp, head of mergers and acquisitions. Brad Gow has joined Zurich North America as head of the insurer’s E&O group, part of its Specialities business unit. He will lead a nationwide team delivering professional liability protection to markets including engineering, media, technology and real estate. The 20-year industry veteran most recently served as vice president of professional liability insurance at ACE Insurance. February 23, 2009 INSURANCE JOURNAL-EAST REGION | 47
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Classifieds Insurance Journal East • 3570 Camino del Rio North, Ste. 200 • San Diego, CA 92108-1747 Fax: 619/584-1200 • Phone: 800/897-9965 x125 • classifieds@insurancejournal.com For Ad Rate and Information
NOTICES
February 23, 2009
February 23, 2009
February 23, 2009
American Alternative Insurance Company 555 College Road East Princeton, NJ 08543
Preserver Insurance Company 95 Route 17 South Paramus, NJ 07653-0931
Utica National Assurance Company 180 Genesee Street New Hartford, NY 13413
The above company has made application to the Division of Insurance to amend their Foreign Company License to transact Property and Casualty insurance in the Commonwealth of Massachusetts.
The above company has made application to the Division of Insurance to obtain a Foreign Company License to transact Property and Casualty insurance in the Commonwealth of Massachusetts.
The above company has made application to the Division of Insurance to obtain a Foreign Company License to transact Property and Casualty insurance in the Commonwealth of Massachusetts.
Any person having any information regarding the company which relates to its suitability for the license or authority the applicant has requested is asked to notify the Division by personal letter to the Commissioner of Insurance, One South Station, Boston MA 02110, Attn: Financial Surveillance and Company Licensing within 14 days of the date of this notice.
Any person having any information regarding the company which relates to its suitability for the license or authority the applicant has requested is asked to notify the Division by personal letter to the Commissioner of Insurance, One South Station, Boston MA 02110, Attn: Financial Surveillance and Company Licensing within 14 days of the date of this notice.
Any person having any information regarding the company which relates to its suitability for the license or authority the applicant has requested is asked to notify the Division by personal letter to the Commissioner of Insurance, One South Station, Boston MA 02110, Attn: Financial Surveillance and Company Licensing within 14 days of the date of this notice.
February 23, 2009
February 23, 2009
February 23, 2009
State Auto Property and Casualty Insurance Co. 1300 Woodland Avenue West Des Moines, IA 50265
State Automobile Mutual Insurance Company 518 East Broad Street Columbus, OH 43215
Meridian Citizens Mutual Insurance Company 2955 North Meridian Street Indianapolis, IN 46208
The above company has made application to the Division of Insurance to obtain a Foreign Company License to transact Property and Casualty insurance in the Commonwealth of Massachusetts.
The above company has made application to the Division of Insurance to obtain a Foreign Company License to transact Property and Casualty insurance in the Commonwealth of Massachusetts.
The above company has made application to the Division of Insurance to obtain a Foreign Company License to transact Property and Casualty insurance in the Commonwealth of Massachusetts.
Any person having any information regarding the company which relates to its suitability for the license or authority the applicant has requested is asked to notify the Division by personal letter to the Commissioner of Insurance, One South Station, Boston MA 02110, Attn: Financial Surveillance and Company Licensing within 14 days of the date of this notice.
Any person having any information regarding the company which relates to its suitability for the license or authority the applicant has requested is asked to notify the Division by personal letter to the Commissioner of Insurance, One South Station, Boston MA 02110, Attn: Financial Surveillance and Company Licensing within 14 days of the date of this notice.
Any person having any information regarding the company which relates to its suitability for the license or authority the applicant has requested is asked to notify the Division by personal letter to the Commissioner of Insurance, One South Station, Boston MA 02110, Attn: Financial Surveillance and Company Licensing within 14 days of the date of this notice.
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Idea Exchange Closing Quote
Implications of the 2008 Farm Bill Could Reduce Agent Commissions, But Create New Insurance Categories By Christopher Leliaert Leliaert
T
he Food, Conservation and Energy Act of 2008 (the Farm Bill) authorizes farm programs for the next five years. The Act’s provisions encompass a range of issues, including commodity price supports, conservation, trade, bio-energy, rural development, crop insurance and commodity futures regulation. Title XII of the Act also has important implications for crop insurers and agents. Title XII was introduced, at least in part, because of pressure to find cost savings that could be used to fund other provisions of the Act. Key provisions of the Act will result in direct taxpayer savings and mandate development of new insurance products and enhancements to existing products. Multiple Peril Crop Insurance (MPCI) programs are administered by private insurance companies that are regulated by the Risk Management Agency (RMA) of the U.S. Department of Agriculture. These insurers are authorized to conduct MPCI sales and servicing through the Standard Reinsurance Agreement (SRA). To ensure the SRA’s contractual stability, the Act extends the SRA for the next five years. RMA will only be allowed to renegotiate the SRA under extraordinary circumstances as outlined in the provision. The private crop insurance industry has grown significantly in the past several years. Gross written premium grew to $9.856 billion in 2008, driven by record commodity prices and farmers’ increased participation and coverage. The Act reduces the rate that insurers’ administrative and operating (A&O) expenses are reimbursed by the RMA by 2.3 percent. A&O covers the administrative cost of the providing crop insurance to farmers. Agents’ commissions are a significant part of the expense. The reduction will result in the loss of about $225 million in annual income for private crop insurers, which will put pressure on insurance company operating expenses. It could also result in reduced agent commissions, particularly in locations where underwriting profits are limited. Another important provision of the Act is the introduction of the Average Crop Revenue Election (ACRE) program, an alternative to the current price counter-cyclical program. The ACRE program is not an insurance policy; however, payments under this program are triggered if a state’s realized revenue is
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less than the target revenue. To be eligible for an ACRE payment, a farmer’s actual revenue for a crop must be less than the farm’s ACRE benchmark revenue for the crop. The ACRE program may be complementary to MPCI programs. Selection of the proper MPCI insurance program by the agent and farmers is key to the farmer’s overall risk management program. The Act introduces the implementation of the Supplemental Revenue Assistance Program (SURE), a whole farm disaster assistance program. If the whole farm actual revenue is less than the SURE guarantees, the farm receives a SURE payment equal to 60 percent of the difference. SURE requires a declared disaster in the farmer’s county or contiguous county and mandates the farmer purchase MPCI or NAP (Noninsured Crop Disaster Assistance Program) policies for all crops. This program, like ACRE, is another farm management tool intended to work in conjunction with crop insurance. The biggest change is farmers must insure and sign up all crops, including minor crops such as hay that were previously uninsured. The Act also mandates the FCIC to offer or improve coverage for organic crops, dedicated energy crops, aquaculture, poultry, beekeeper and nursery crops. Many of these crops or crop categories enjoy growing consumer demand, and expansion of coverage for them could benefit the insurance industry. The Act has a new provision that prohibits farmers from setting up insurance agencies to collect commissions and payments on their own policies, except when less than 30 percent of commissions derive from their own policies, family policies or policies they otherwise control. This ensures the program will be administered by professional crop insurance agents. MPCI insurance policies and rates are the same for all private crop insurers. Although the Federal Crop Insurance Act allowed insurers, with FCIC approval, to sell crop insurance at a reduced premium, that provision has been eliminated. This change offers protection for insurance agents and allows companies to compete only on service and commissions to agents. The Act also authorizes changes in government premium subsidy to farmers that will likely change the mix of business in insurers’ portfolios. A reduction in the subsidy in the Group Risk Plan and an increase in the Enterprise Unit discount will cause a shift toward individual crop insurance products. It’s important to understand the changing crop farm management products. Their implication won’t be known until later in 2009, as the Act is fully implemented. IJ Leliaert is vice president at Towers Perrin (www.towersperrin.com) based in Chicago, responsible for the firm’s Agricultural Reinsurance business. He will discuss this topic at the 22nd Annual Agribusiness Conference. www.insurancejournal.com
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