Insurance Journal West 2019-02-18 by Insurance Journal

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February 18, 2019 • Vol. 97 No. 4

Contents

News & Markets

Special Report

Idea Exchange

Really? Using Hands-Free Devices While Driving Not So Risky?

Special Report: 9 Tales from the Trenches of Agency Start-Ups

Agency Merger & Acquisition Deals Hit All Time High, Again

Spotlight: Insurers Seek to Deny Boat Owner’s Claim in R.I. Case

The Wedge: From Barely Scraping By to Saving $65,000 a Year

12 Insurers with Best Service Win More Business from Independent Agents

16 Affluent Market Rivals Not Making Much of a Dent in Chubb’s Business

Insurance Linked Securities Market Grows to $93B in 2018: WillisRe

Age Bias Law Protects Current Employees But Not Job Applicants

24 31

Closer Look: The Original Family Business – The Family Farm

39 Spotlight: USC’s New Risk Management Program

Special Report: 2019 Agency Salary Survey Employees Have Upper Hand in Today's Job Market

50 58

Show Them the Money to Win the War for Talent

Minding Your Business: How to Conduct an Agency E&O Self Audit

Things to Consider When Charging Broker Fees

Closing Quote: The Myth of Agency Multiples

Drone Report: Reducing Accidents at Crash Sites

5 Reasons Autonomous Cars Won’t Be Available Anytime Soon

Departments 14 Declarations

4 | INSURANCE JOURNAL | FEBRUARY 18, 2019

14 Figures

20 People

22 Business Moves

56 My New Markets

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Opening Note Write the Editor: awells@insurancejournal.com

Automation and Workers of the Future

utomation won’t replacing the entire workforce but about one-quarter of U.S. jobs could be severely disrupted as artificial intelligence (AI) takes hold in the near future.

According to a new Brookings Institution report, roughly 36 million Americans hold jobs with “high exposure” to automation – meaning at least 70 percent of their tasks could soon be performed by machines using current technology. Almost no occupation will be unaffected by technological change in the AI era. Some of the most vulnerable jobs are those in office administration, production, transportation, and food preparation. Such jobs are deemed to face “high risk” with over 70 percent of their tasks potentially automatable. All of these either involve routine, physical labor or information collection and processing activities. The Brookings Metropolitan Policy Program examined data focused on a mix of industries, geographies and demographic groups across the United States. The report, Automation and Artificial Intelligence: How machines are affecting people and places, offers projections for how automation and artificial intelligence will impact the American economy over the next few decades.

Key Findings

Demographic variation: Young people, men, and underrepresented groups, particularly Hispanics and blacks, will face pronounced difficulties as a result of automation’s disruptions— an underexplored viewpoint in current coverage of automation. Geographic unevenness: Some places will do much better than others in dealing with the coming transitions. Places such as Las Vegas, Louisville, Ky., and Toledo, Ohio are among the most susceptible to the automation of job tasks, while the list of least susceptible places includes coastal Almost no occupation will be giants such as Washington, D.C., the Bay Area, New York City, and Boston. unaffected by technological Varying levels of occupational change in the AI era. susceptibility: By 2030, some 25 percent of U.S. employment will have experienced high exposure to automation, while another 36 percent of U.S. employment will experience medium exposure, and another 39 percent will experience low exposure. Education helps combat automation: Occupations not requiring a bachelor’s degree are 229 percent more susceptible to automation compared to occupations requiring at least a bachelor’s degree. Just 6 percent of workers with a four-year degree or more are in jobs with a high potential for automation.

Publisher Mark Wells | mwells@wellsmedia.com Chief Executive Officer Joshua Carlson | jcarlson@insurancejournal.com

ADMINISTRATION / CIRCULATION

Chief Financial Officer Mark Wooster | mwooster@wellsmedia.com Circulation Manager Elizabeth Duffy | eduffy@wellsmedia.com Staff Accountant Sarah Kersbergen | mwooster@wellsmedia.com

EDITORIAL

Chief Content Officer Andrew Simpson | asimpson@insurancejournal.com Editor-in-Chief Andrea Wells | awells@insurancejournal.com East Editor Elizabeth Blosfield | eblosfield@insurancejournal.com Southeast Editor/MyNewMarkets Amy O’Connor | aoconnor@insurancejournal.com South Central Editor/Midwest Editor Stephanie K. Jones | sjones@insurancejournal.com West Editor Don Jergler | djergler@insurancejournal.com International Editor L.S. Howard | lhoward@insurancejournal.com Columnists & Contributors Chris Burand, Mary Newgard, Bill Wilson, Tony Cañas, John Dickson, Steve Discher, Saad Gul, Ray Mazzotta, Michael E. Slipsky, Kristoffer Tique, Jason Walker

SALES / MARKETING

Chief Marketing Officer Julie Tinney | jtinney@insurancejournal.com West Sales Dena Kaplan | dkaplan@insurancejournal.com Romeo Valdez rvaldez@insurancejournal.com South Central Sales Mindy Trammell | mtrammell@insurancejournal.com Southeast and East Sales (except for NY, PA, CT) Howard Simkin | hsimkin@insurancejournal.com Midwest Sales Lisa Whalen | (800) 897-9965 x180 East Sales (NY, PA and CT only) Dave Molchan | (800) 897-9965 x145 Classifieds, Jobs, Agencies Wanted/For Sale Ashley Berg | aberg@insurancejournal.com Advertising Coordinator Erin Burns | eburns@insurancejournal.com Insurance Markets Manager Kristine Honey | khoney@insurancejournal.com Senior Strategist Pam Simpson | psimpson@insurancejournal.com Social Media Manager Ly Short | Lshort@insurancejournal.com Marketing Administrator Gayle Wells | gwells@insurancejournal.com Marketing Director Derence Walk | dwalk@insurancejournal.com

DESIGN / WEB / VIDEO

V.P. of Design Guy Boccia | gboccia@insurancejournal.com V.P. of Technology Chris Thompson | cthompson@insurancejournal.com Ad Ops Specialist Jeff Cardrant | jcardrant@insurancejournal.com Web Developer Terrance Woest | twoest@wellsmedia.com Web Developer Ryan Kleshinski | rkleshinski@wellsmedia.com New Media Producer Bobbie Dodge | bdodge@insurancejournal.com Videographer/Editor Ashley Waldrop | awaldrop@insurancejournal.com

ACADEMY OF INSURANCE

Director Patrick Wraight | pwraight@ijacademy.com Online Training Coordinator Nathan Granitz | ngranitz@ijacademy.com

SUBSCRIPTIONS:

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Insurance Journal, The National Property/Casualty Magazine (ISSN: 00204714) is published semi-monthly by Wells Media Group, 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 2019 Wells Media Group, Inc. All Rights Reserved. Content may not be photocopied, reproduced or redistributed without written permission. Insurance Journal is a publication of Wells Media Group, Inc. POSTMASTER: Send change of address form to Insurance Journal, Circulation Dept, PO Box 708, Northbrook, IL 60065-9967

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News & Markets Really? Using Hands-Free Devices While Driving Not So Risky?

ew research suggests that drivers who use hands-free electronic devices, as opposed to handheld ones, are not increasing their risk of getting into a crash.

According to the research from Virginia Tech Transportation Institute, with hands-free technology, drivers can make calls and perform a variety of other tasks while still keeping their hands on the wheel and eyes on the road. “Any activity that places either visual or manual demands on the driver — texting, browsing or dialing a hand-held phone, for instance — substantially increases crash risk. However, our recent study has found that the primarily cognitive secondary task of talking on a hands-free device does not appear to have any detrimental effects,” said Tom Dingus, the principal investigator of the study. The researchers sought to determine the extent to which crash risk could be affected by primarily mental behaviors, known as cognitive distractions. Cognitive distractions occupy the mind but do not require the driver to look away from the road or remove his or

8 | INSURANCE JOURNAL | FEBRUARY 18, 2019

her hands from the wheel. Examples include interacting with a passenger, singing in the car, talking on a handsfree cellphone, and dialing on a handsfree phone via voice-activated software. Dingus and the research team analyzed video footage of 3,454 drivers, 905 crashes and 19,732 control periods of “normal driving” for instances of cognitive distraction. For comparison, they also studied examples of drivers performing visual and manual activities, such as texting on a hand-held phone or adjusting the radio. They used video and other sensor data from the Second Strategic Highway Research Program naturalistic driving study, the largest light-vehicle study of its kind ever conducted. Drivers who used a hand-held phone increased their crash risk by 2 to 3.5 times compared to model drivers, defined as being alert, attentive and sober. When a combination of cognitive secondary tasks was observed, the crash risk also went up, although not to nearly the same degree. In some cases, handsfree cell phone use was associated with a lower crash rate than the control

group. None of the 275 more serious property damage and injury crashes analyzed were associated with the use of hands-free systems. “There are a number of reasons why using a hands-free device could keep drivers more engaged and focused in certain situations,” said Dingus. “One is that the driver looks forward more during the conversation. Although engaging in the conversation could cause a small amount of delay in cognitive processing, the driver is still more likely to be looking in the direction of a precipitating event, such as another car stopping or darting in front suddenly. The phone conversation could also serve as a countermeasure to fatigue on longer road trips. Perhaps most importantly, a driver who is talking on a hands-free phone is less likely to engage in manual texting/browsing/dialing and other much higher-risk behaviors.” He said VTTI’s research has shown consistently that activities requiring a driver to take his or her eyes off of the forward roadway, such as texting or dialing on a handheld phone, pose the greatest risk. INSURANCEJOURNAL.COM

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News & Markets Insurers with Best Service Win More Business from Independent Agents have focused on regional success, while others have emphasized price or service,” said Tom Super, director, Property/Casualty Insurance Practice at J.D. Power. “What they all share is a common understanding of the linkage between agent satisfaction and improved business outcomes — recognizing what drives agent satisfaction, then being laser-focused on getting that right.”

Carrier Rankings

‘What they all share is a common understanding of the linkage between agent satisfaction and improved business outcomes — recognizing what drives agent satisfaction, then being laser-focused on getting that right.’

t may be obvious to those in the industry that the more satisfied independent insurance agents are with an insurance carrier, the more business they will conduct with that carrier. But the message may not be getting through to some carriers judging from a survey showing that agent satisfaction with the service they receive from insurers is among the lowest of business relationships measured by J.D. Power.

The second annual J.D. Power 2019 U.S. Independent Insurance Agent Satisfaction Study, developed in alliance with the Independent Insurance Agents & Brokers of America (IIABA), evaluates the independent P/C insurance agent’s business outlook, management strategy and satisfaction with personal lines and commercial lines insurers in the U.S. 12 | INSURANCE JOURNAL | FEBRUARY 18, 2019

The survey shows a strong relationship between higher levels of independent agent satisfaction and a greater number of business relationships with insurers. Likewise, independent agents that are more satisfied with the service they receive from insurers are more likely to recommend that carrier and place a greater number of products with that insurer. Overall independent agent satisfaction with personal lines insurers is 733 (on a 1,000-point scale). For commercial lines, the score falls to 720. These are among the lowest overall satisfaction scores in any business study currently conducted by J.D. Power. “Each of the highest performing carriers in our study have taken different approaches to the market — some

In the survey, Auto-Owners Insurance ranked highest among personal lines for the second straight year, with an overall satisfaction score of 800. Progressive (762) ranks second while Safeco and Travelers rank third in a tie with 737. Liberty Mutual performed highest among commercial lines for the second straight year, with an overall satisfaction score of 749. Chubb and The Hartford ranked second in a tie with 720. Support, communication in personal lines and quoting in commercial lines are the keys to agent satisfaction and areas for insurers to increase satisfaction, according to J.D. Power. “A strong partnership between Trusted Choice independent insurance agents and their carriers is critical to achieving a great consumer experience,” said Bob Rusbuldt, president and CEO of the IIABA. “Carriers that focus on ease of doing business achieve high satisfaction scores from agents. Ultimately, carriers that invest in their agent platforms benefit from a distribution force that has more time to spend providing value-added service to customers rather than back-end administrative tasks.” The study was fielded from September through November 2018. It surveyed 1,466 P/C insurance independent agents for a total of 1,561 evaluations of personal lines insurers and 1,193 evaluations of commercial lines insurers that they had placed policies with in the prior 12 months. INSURANCEJOURNAL.COM

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Business Auto

Figures

$10 Million The amount for which two relatives of a woman killed when she was struck by an autonomous Uber vehicle have filed a claim against the Phoenix, Ariz., suburb where the incident occurred in March. The previously undisclosed claim filed last fall against Tempe seeks $5 million each for the husband and daughter of 49-year-old Elaine Herzberg. Such claim notices are a required precursor to possible lawsuits.

Declarations Paltrow Ski Suit

“I would like to be vindicated. I would like my truth to be told.” Retired optometrist Terry Sanderson, 72, said he’s suing Actress Gwyneth Paltrow for breaking his ribs and leaving him with a concussion when she smashed into him from behind while skiing at a Utah ski resort in 2016.

Virtual Hearings

“This will help injured workers not just here in New York, but in other parts of the country as well, by removing the burden of travel…” — The New York State Workers’ Compensation Board Chair Clarissa M. Rodriguez in a press release announcing its newly launched virtual hearings tool that aims to make it easier for injured workers, attorneys and other participants to attend workers’ compensation hearings remotely.

4th

Louisiana’s ranking on a list of the most dangerous states for pedestrian fatalities. A report released by Smart Growth America shows that in Louisiana, 1,047 walkers were hit and killed by drivers from 2008 through 2017, an average of 2.25 for every 100,000 people.

The number of days Florida will be reimbursed for Hurricane Michael cleanup by the federal government. The number was expanded from five at the end of January after Gov. Ron DeSantis met with President Donald Trump. The storm left about 25 million cubic yards of debris when it hit the Florida Panhandle in October.

Not Very Good Drivers

Difficult Enforcement

“What’s in the books right now, it’s good in spirit, but the reality is, it’s very difficult to enforce and most people know that.” — Republican Rep. Doug Barthel, one of the sponsors of a South Dakota bill that would ban most people from using mobile devices while driving. Currently, it’s illegal to text and drive in South Dakota but drivers must be pulled over for a different violation for the law to be enforced. HB 1088 would change that.

INSURANCEJOURNAL.COM

“We’re not very good drivers in our state. We need to learn to put the phone down.” — South Carolina Director of Insurance Ray Farmer comments on the state’s increase in auto insurance premiums in recent years. South Carolina lawmakers are currently looking at a bill that would fine drivers $200 for holding a cellphone or other electronic device in their hands.

FEBRUARY 18, 2019 INSURANCE JOURNAL | 15

News & Markets Affluent Market Rivals Not Making Much of a Dent in Chubb’s Business By Mark Hollmer

hubb’s high-net-worth personal lines insurance business may have some new competition, but Chairman and CEO Evan Greenberg and a key executive say those rivals haven’t made much of a dent.

“From my point of view we don’t see a change of any consequence in the competitive environment over the last year. You get new entrants who come in and they are particularly in the mass-affluent category and not the true high-networth,” Greenberg said during Chubb’s Q4 2018 earnings call. “They don’t have coverage and services and capabilities to really manage the market.” Paul Krump, executive vice president at Chubb and president, North America Commercial and Personal Insurance, said that turnover in its high-net-worth personal lines business has been next to nothing. “Our retention in the homeowners [high net worth market] is 96 percent,” Krump said during the call. “We do lose

a couple of customers through death … and maybe on two hands can count the number of accounts we lost [due to] new entrants in the last few months.” Long-time competitors in the personal lines high-net-worth space include American International Group. W.R. Berkley Corp. is one of the newer rivals, having launched its high-net-worth personal lines brand Berkley One in late 2016. In January, Berkley One expanded into more states and launched its flood insurance cover in new markets. In April, a number of ex-AIG executives

debuted new high-net-worth insurer Vault in Florida, whose majority owner is Allied World. Chubb itself has continued to expand its high-networth operations in other countries and to expand and modernize service options. Greenberg said the company has continued to improve its high-net-worth operations as a matter of course. “We are not arrogant about it. It is like everything else in the world. Standards of service must constantly improve. Coverages must constantly improve. You have to be able to introduce more choice to customers and you have got to be able to do this in a digital world, with customer service and experience that represents that,” Greenberg said. Greenberg added: “We are continuing to iterate and crank up our capabilities in all of those areas, because we think there is, and remains, a large opportunity in this marketplace.” This article was originally published by CarrierManagement.com.

Insurance Linked Securities Market Grows to $93B in 2018: Willis Re

rowth of the insurance linked securities (ILS) market reached $93 billion in 2018, up from $88 billion during the prior year, according to the new ILS Market Update from Willis Re, the reinsurance division of Willis Towers Watson.

In the face of multiple smaller catastrophic events in 2018 and a meaningful series of catastrophes in 2017, nonlife cat bond issuance remained strong with about $9.2 billion of new capital delivered, said the report, defining cat bonds as ILS transactions with meaningful liquidity. Willis Re noted that 2018 marked the second-most active calendar year for cat

16 | INSURANCE JOURNAL | FEBRUARY 18, 2019

bond issuance after 2017’s record of $9.7 billion. Of $535 million in bonds issued during the fourth quarter of 2018, $125 million of capacity will provide protection from California wildfire liability, $200 million will provide peak multiperil protection, and $210 million will provide U.S. earthquake (workers’ compensation) protection. Lines of demarcation within the ILS space are blurring, according to the report, as ceding companies and intermediaries look to the range of cat bonds, sidecars, and other collateralized ILS, to identify the best tools to meet specific challenges, continue to develop new

solutions, and refine existing structures. “We are seeing the convergence of convergence,” says William Dubinsky, managing director & head of ILS at Willis Towers Watson Securities. “The overall ILS figure is today a much more meaningful measurement of market size than focusing on cat bond and sidecar issuance alone,” he said. “ILS capacity and products are growing organically and dynamically as gaps between different products and subsectors fill in, and innovation and market necessity create new capacity and products. Our confidence in the speed that new solutions will emerge gives us a favorable outlook for ILS in 2019.” INSURANCEJOURNAL.COM

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total in-force premium

$690 million

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News & Markets Age Bias Law Protects Current Employees But Not Job Applicants Court Says Only Congress Can Extend the ADEA in Ruling Involving 58 Year Old Law Firm Job Seeker

By Jonathan Stempel

divided U.S. appeals court has dealt a setback to older job applicants, saying they cannot invoke a federal law against age bias in employment to challenge hiring policies they believe have a discriminatory impact.

In an 8-4 decision, the 7th U.S. Circuit Court of Appeals in Chicago said the “plain language” of the Age Discrimination in Employment Act (ADEA), which forbids discrimination against people 40 and older, showed that Congress intended that law to cover current employees, not outside job applicants. The decision reversed a 2-1 ruling last April by a panel of the same court. It also reinstated a federal district judge’s dismissal of Illinois resident Dale Kleber’s disparate impact claim against CareFusion Corp., a unit of medical device maker Becton Dickinson and Co.

18 | INSURANCE JOURNAL | FEBRUARY 18, 2019

Kleber claimed in his lawsuit that CareFusion decided not to interview him after he applied for a job as a lawyer in 2014, when he was 58 years old, and instead hired a less qualified candidate who was only 29. The job description required that applicants have “no more than 7 years” of relevant experience, less than Kleber had. Lawyers for AARP Foundation Litigation, which represented Kleber, did not immediately respond to requests for comment. Becton Dickinson spokeswoman Kristen Cardillo said the company was pleased with the decision and is “deeply committed to providing equal employment opportunities and a workplace free from discrimination.” People 55 or older comprised 22.4 percent of U.S. workers in 2016, up from 11.9 percent in 1996, and may account for close to one-fourth of the labor force

by 2022, according to the Bureau of Labor Statistics. The majority opinion was written by Circuit Judge Michael Scudder, an appointee of President Donald Trump. Scudder distinguished the ADEA from Title VII of the Civil Rights Act of 1964, which Congress has amended to cover job applicants. He said that body remained free to similarly extend the ADEA, which “the judiciary cannot” do. Circuit Judge David Hamilton, an appointee of President Barack Obama, dissented, saying extending ADEA protections to job applicants tracked the U.S. Supreme Court’s view of Title VII. Hamilton also faulted the majority for offering no plausible policy reasons to ignore the “more sensible and less arbitrary” interpretation of the ADEA. The case is Kleber v. CareFusion Corp., 7th U.S. Circuit Court of Appeals, No. 17-1206. Copyright 2019 Reuters

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News & Markets NICB: Alaska Tops List for Snowmobile Thefts

hree areas in Alaska topped the list of most reports of snowmobile thefts in the U.S., according to an analysis of national crime figures. The analysis by the National Insurance Crime Bureau shows Alaska recorded 128 snowmobile thefts from 2015 to 2017, about 8 percent of all reported snowmobile thefts from across the country. Anchorage recorded the most thefts in the U.S. with 46, followed by the Fairbanks North Star Borough with 44. The Matanuska-Susitna Borough recorded 23, tying for third with Anoka County outside Minneapolis, Minnesota. The Illinois-based bureau has tracked thefts of other vehicles, but this is the first report on snowmobiles, said

Frank Scafidi, the nonprofit’s director of public affairs. “We wanted to see what would happen if we looked at snowmobiles,” Scafidi said. “Would we find anything weird, like a bunch of thefts reported in Florida?” The results were as expected: Snowmobiles were mostly reported stolen in places where they are typically used. Following Alaska, Minnesota, Michigan, Wisconsin and Washington had the highest numbers of snowmobiles reported stolen, according to the report. Law enforcement agencies took at least one snowmobile report in 32 states, including Texas. The report did not have 2018 numbers, but Anchorage police said Alaska’s biggest city had five reports of stolen snowmo-

biles last year. “I think we have a huge percentage of people that own snowmobiles, and as a consequence, there’s a demand for not just used sleds but for parts,” said Tim Cook, president of the Anchorage Snowmobile Club.

Snowmobiles are not required to have titles in Alaska. They are required to be registered with the state, but “unfortunately we don’t register as many sleds as we should,” Cook said. Copyright 2018 Associated Press. All rights reserved.

Thousands of Lawsuits Demanding PG&E Pay for Damages from Wildfires

Aetna to Pay $935K in HIV-Related Privacy Breach in California

ome 1,000 lawsuits have been filed since late 2017 demanding Pacific Gas & Electric Corporation pay for damages caused by wildfires. The lawsuits represent thousands of people, companies, cities and counties affected by fires. They range from a rancher’s $3,000 small claims complaint to insurance companies’ demands for billions of dollars to reimburse their payouts to policyholders. Cities and counties are suing PG&E for destroyed schools, parks and other public property in addition to the cost of responding to the fires.

etna will pay $935,000 after one of its vendors sent letters to California patients that revealed via a window on the envelopes that the recipients were taking HIV-related medications. California Attorney General Xavier Becerra said that the settlement resolves allegations that Aetna violated state health privacy laws. Aetna says in a statement that it has implemented measures to help ensure such a breach never happens again. The Connecticut-based insurance giant says its committed to protecting sensitive health information.

PG&E lawyers have filed denials of responsibility in the courts. But when the corporation filed for bankruptcy protection in early February, it said these and other lawsuits could ultimately cost it $30 billion. PG&E’s chief executive says bankruptcy will help settle the litigation in an orderly and fair manner. Copyright 2018 Associated Press. All rights reserved.

W2 | INSURANCE JOURNAL | WEST FEBRUARY 18, 2019

Officials say nearly 2,000 Californians, and 12,000 people nationwide, received the revealing letters in 2017. Under the settlement, Aetna must complete an annual privacy risk assessment for three years. The victims have received over $17 million in compensation through a private class action settlement. Copyright 2018 Associated Press. All rights reserved.

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News & Markets Former Washington Agents Charged with Fraud, Writing Fake Policies

hree Pierce County, Wash., residents were charged in early February with crimes related to insurance fraud in Pierce County Superior Court. The charges follow investigations by Insurance Commissioner Mike Kreidler’s Criminal Investigations Unit. All three were charged by the Washington state Attorney General’s Office and are scheduled to appear for arraignments on Feb. 8. Former insurance agent Abu Ameena Ward, of Lakewood, was charged with one count of first-degree theft. According to the investigation, Ward illegally collected more than $32,904 in commissions from Farmers

Insurance after writing 51 fake renter’s insurance policies from 2013 through 2016. Former insurance agent Lilibeth Brulotte, of Gig Harbor, was charged with second-degree theft. According to the investigation, Brulotte wrote comprehensive-only auto insurance policies for fake vehicles on existing Farmers Insurance policies from 2013 through 2015. She reportedly wrote the policies to give clients a multi-car discount and collected $4,668 in payments and caused $3,420 in lost premiums to Farmers, for a total loss of $8,088. Jamar E. Glenn, of Tacoma, was charged with one count of filing a false insurance claim.

According to the investigation, Glenn filed a $5,795 claim with Progressive Insurance in 2017, stating that his 2006 Nissan Maxima had been stolen. The next day, law enforcement found the car at a different res-

idence. Progressive’s investigators reportedly found a record showing Glenn paid to have the car towed there. The insurer denied the claim and referred the case to Kreidler’s investigators, as required by state law.

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News & Markets Accidents Could Ground Drone Industry, House Committee Chair Warns

By David Shepardson

he commercial drone industry could be torpedoed if there were a serious accident involving a drone and a commercial aircraft, the chairman of the U.S. House Transportation and Infrastructure Committee warned. Representative Peter DeFazio, a Democrat, said in a speech in Washington in early February that regulators had to take the threat seriously. “This is really serious when these things are flying around and it could kill the commercial drone industry,” DeFazio said, adding that if a toy drone “takes down a plane” there would be public outcry to ground the devices. The issue of threats by drones to commercial air traffic came to the fore after London’s second busiest airport, Gatwick Airport, was disrupted in December when drones were sighted on three consecutive days. Last month, 43 flights into New Jersey’s Newark Liberty International Airport were required to hold after drone sightings at a nearby airport, while nine

flights were diverted. U.S. Transportation Secretary Elaine Chao has proposed rules to allow drones to operate over populated areas and help speed their commercial use. There are nearly 1.3 million registered drones in the United States and more than 116,000 registered drone operators. Officials say there are hundreds of thousands of additional drones that are not registered. DeFazio added the government should also facilitate the growth of the drone industry, because the benefits are “potentially phenomenal.” “We’re worried about the 2 million people who bought or got toy drones for Christmas the last couple of years who are regularly flying in violation of the law,” DeFazio said. The FBI said authorities confiscated six drones that violated a temporary order not to fly the devices in the area ahead of the NFL’s Super Bowl. Alphabet Inc. and Amazon.com Inc. are among a growing number of companies hoping to make package delivery by drones a reality.

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The Federal Aviation Administration is also working on rules to set remote identification requirements for drones for tracking them. The FAA noted that some drones can fly at 10,000 feet or more and accelerate from 0 to 60 miles per hour in less than one second and it is assessing “possible performance limitations, such as airspeed and altitude, to mitigate potential hazards.” Congress last year gave the Department of Justice and Department of Homeland Security new powers to disable or destroy threatening drones after officials raised concerns about the use of drones as potential weapons. “We’re not certain yet what the best technology is,” DeFazio said. “We’ve got to get a handle on those who are operating improperly and then we also have to facilitate the growth of the (commercial drone) industry itself, because the benefits are potentially phenomenal.” (Reporting by Shepardson; Editing by David Gregorio) Copyright 2018 Associated Press. All rights reserved. INSURANCEJOURNAL.COM

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News & Markets Allstate Q4 Catastrophe Loss Tempered by Higher Premiums, Reduced Auto Claims

he Allstate Corp. lost $312 million in its 2018 fourth quarter, which the company attributed to higher catastrophe losses, lower investment income and a pension settlement charge. Catastrophe losses hit $963 million, versus just under $600 million in Q4 2017, according to Allstate. However, the insurer said that higher premiums earned and reduced auto insurance accident frequency partially offset its Q4 financial hits. According to Tom Wilson, Allstate chairman, president and CEO, the insurer has otherwise strong operating results and continues to generate progress on long-term plans. “Allstate continues to deliver strong operating results while building the future,” Wilson said in a statement. “The strategy to grow market share in personal protection is working with growth in auto and home insurance, workplace benefits and protection plans. We also expanded identity protection by acquir-

ing InfoArmor.” In the fourth quarter, net income was $1.2 billion. The property liability combined ratio was 97, compared to 91 in the same quarter last year, according to the carrier. Net investment income reached $786 million for Q4, down from $913 million in the 2017 fourth quarter and a nearly 14 percent drop. The company’s reported full-year revenues grew to $40.7 billion. Policies in force also increased. Here are other Q4 and year-end results: • Consolidated revenues for the quarter were $9.5 billion, down from $10 billion in Q4 2017. • Q4 consolidated P/C insurance premiums written surpassed $8.85 billion, versus $8.1 billion in Q4 2017. • Net written premiums grew for Allstate, as well as its Esurance and Encompass brands. • Esurance saw its combined ratio

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inch higher to 101.8 (1.6 points higher than the previous year) due to increased claims severity, higher catastrophe losses and more advertising spending. Encompass booked a 102 combined ratio in Q4, 4.4 points better than Q4 2017. • Allstate’s Q4 property liability insurance premiums grew by 5.7 percent, and its service business revenue jumped 27 percent. Realized capital losses reduced revenues by $894 million. For the full year, Allstate booked $39.8 billion in consolidated revenues, slightly higher than the $39.4 billion reported in 2017. Allstate’s consolidated P/C insurance premiums written for 2018 were nearly $35 billion compared to $32.7 billion in 2017. 2018 consolidated net income was $2.1 billion, down from $3 billion in 2017. The 2018 consolidated property combined ratio was 93.6, on par with 2017.

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News & Markets Drone Research Report Reducing Accidents at Crash Sites

dling in a long highway line of slowed or stopped traffic on a busy highway can be more than an inconvenience for drivers and highway safety officers. It is one of the most vulnerable times for “secondary accidents,” which often can be worse than an original source of the slowdown, according to the Federal Highway Administration, which reports that secondary crashes go up by a factor of almost 24 during the time that highway safety officials are assessing and documenting the crash site.

In 2016, there were more than 7 million police-reported traffic crashes in which 37,461 people were killed and an estimated 3,144,000 were injured, according to the National Highway Traffic Safety Administration. Researchers at Purdue University say these crash assessments could be safer, faster and more accurate if responders used a drone technology they have developed.

Predicting Path of Spreading Wildfires

University of Missouri researcher is teaming up with scholars in Kansas and Georgia to develop drone technology to monitor and potentially predict the spread of wildfires. The $1.2 million project will use drones to collect real-time data and send it to firefighters to help them contain wildfires, the Columbia Missourian reported.

“Currently, the (nation’s) firefighting, or fire management system, is not very effective and efficient,” said professor Ming Xin. “One of the main issues is we cannot predict where fires spread.” Xin is working with University of Kansas professor Haiyang Chao and Georgia State University professor

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“It’s the people at the back of the queue where you have traffic stopped who are most vulnerable and an approaching inattentive driver doesn’t recognize that traffic is stopped or moving very slowly until it is too late,” said Darcy Bullock, Purdue professor of Civil Engineering and Joint Transportation Research Program director. “The occurrence of these secondary crashes can be reduced by finding ways to safely expedite the clearance time of the original crash.” Conventional mapping of a severe crash can take two to three hours, according to Bullock. “Our procedure for data collection using a drone can map a scene in five to eight minutes, allowing public safety officers to open the roads much quicker after an acciXiaolin Hu in the wake of nearly 56,000 wildfires across the country last year. The Department of Agriculture and National Science Foundation are sponsoring the project. Xin said the drones follow a simulation that can precisely predict where a fire will spread for the next 10 to 30 minutes. The drones collect real-time data with thermal imaging cameras and sensors that help estimate the wind field. The most significant factors affecting the spread of a wildfire are an area’s terrain, vegetation and weather, Xin said. While information on an area’s terrain and vegetation can be collected from a geological survey, the area’s weather patterns are more difficult to determine. Xin hopes the technology will help firefighters see the scene of a fire on a larger scale. The researchers plan to launch test flights this summer.

dent,” said Ayman Habib, the Purdue professor of Civil Engineering who developed the procedures. The technology is already in use. The Tippecanoe County, Indiana sheriff’s office used drones to map crash scenes 20 times in 2018 and another 15 times in the same year to support specialty law enforcement teams. “Overall, it can cut 60 percent off the down time for traffic flow following a crash,” said Capt. Robert Hainje of the Tippecanoe County sheriff’s office. Hainje said the drones can also help with search and rescue, aerial support for search teams over water or in wooded areas and for fugitive apprehension. John Bullock, a student in the School of Mechanical Engineering, worked with public safety colleagues to develop procedures for processing images that illustrate the position of vehicles, infrastructure and general terrain adjacent to the crash site. The drones record about 100 photos in two-second intervals. This data is used to develop an accurate scale map that with photos at the scene provides enough data to create a 3D print of the scene. “The technology is so much faster than traditional ground-based measurements and provides a much better comprehensive documentation that it opens up all different kinds of research,” Habib said. “It can provide high-quality maps, imagery, and models for post-crash investigation by engineers and public safety officials. FEBRUARY 18, 2019 INSURANCE JOURNAL | 19

People

Janet Ruiz

National

MetLife has named Darla Finchum as head of the

company’s U.S. property/ casualty business, MetLife Auto & Home. Finchum had been serving in this role on an interim basis since last August. She will be responsible for growth and management of the company’s personal and small commercial lines as well as transforming the business to serve technology-focused consumers. She will report directly to Michel Khalaf, president of the U.S. business and join the U.S. business senior leadership team. Prior to taking on the interim leadership role, Finchum served as chief claims officer. She joined MetLife in 2000 through the acquisition of St. Paul Companies. The New York-based

Insurance Information Institute has added two com-

munications professionals to the organization. Janet Ruiz, an I.I.I. consultant for the past four years, is now the I.I.I.’s director of Strategic Communication, based in the San Francisco area. She will continue to work with California media, insurers and regulators on behalf of the I.I.I. Ruiz previously worked at Fireman’s Fund and State Farm. Scott Holeman joins the I.I.I. as director of Media

Scott Holeman

Greg Soden

Relations. Based in Kansas City, Missouri, he will work with national media and serve as a spokesman on commercial insurance, disaster preparedness, innovation and cybersecurity. Prior to joining I.I.I., Holeman was the communications director for the National Association of Insurance Commissioners. He also has worked as news director, anchor and reporter for television stations in Kansas and Missouri.

East

Satellite Agency Network Group, a national alliance of independent insurance agencies, has hired Mike Terry as regional vice president. He will be responsible for membership service, business development and insurance company relations for all SAN Group member agencies in his territory of Southern/ Eastern Connecticut and Rhode Island. Terry most recently served as an insurance advisor for Liberty Mutual.

Optisure Risk Partners, a Manchester, N.H.-based provider of risk management and insurance, has hired Greg Soden as vice president of revenue development, Soden will work as part of the executive leadership team to develop strategies for revenue growth for Optisure. Soden brings to this position

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Charles Venus

20 years of experience in human resources outsourcing and consulting, as well as property, casualty and employee benefits. He also owned and managed an insurance agency for a number of years.

The Iroquois Group, an

Allegany, N.Y.-headquartered network of independent insurance agencies, has hired Charles Venus as its vice president of Middle Market & Specialty. Venus is based in Northern Virginia. The former commercial lines producer for Brown & Brown of Virginia will help Iroquois members develop middle market and specialty insurance business. Prior to Brown & Brown, Venus worked at Travelers and The Hartford.

Southeast

Alliant Insurance Services has made two personnel additions to its private client team in South Florida. Karen Chanin has joined Alliant as vice president and will focus on the company’s private client growth strategy, which has been enhanced by its recent acquisition of Crystal & Co. Chanin has 30 years of personal insurance experience in southern California and south Florida. Prior to joining Alliant, Chanin was vice president with Marsh Private Client Services group. The company also hired

Vance Williams

Melinda Meissner Barham as

senior vice president. She will consult for high-net-worth individuals in the Southeast. Barham will also work in business development within this region. Barham has 20 years of personal insurance experience. Prior to joining Alliant, she was senior vice president with the Marsh Private Client Services group. Lucas Aloisi has opened a Brightway Insurance Agency in Parkland, Fla. Brightway, Florida, native Aloisi comes to Brightway from MassMutual, where he worked in financial planning and insurance for the past two years.

Midwest

Peoria, Illinois-based RLI Corp. has promoted Bob Kirk and Brian Schick within its

surety group. Kirk, assistant vice president, Commercial Surety, is now vice president, Commercial Surety. Kirk succeeds Martha Weissbaum, who recently retired from RLI after 18 years with the company. In his new role, Kirk will assume responsibility for RLI’s Commercial Surety product strategy and underwriting. He joined RLI in 2000 as regional manager, Commercial Surety, and was promoted to assistant vice president in 2008. Prior to joining RLI, he was a regional manager at AmWest INSURANCEJOURNAL.COM

Mike Jones

Surety. Kirk has 28 years of insurance industry experience. Schick, assistant vice president, Contract Surety, has been promoted to vice president, Contract Surety, and will assume responsibility for product strategy and underwriting operations. He joined RLI|CBIC in 1994 as manager, Underwriting. He was promoted to director, Underwriting, in 2012 and assistant vice president, Contract Surety, in 2013. Schick has 24 years of insurance experience.

Vance Williams and Mike Jones have joined Leavitt Recreation & Hospitality Insurance in Sturgis, S.D.

Both Williams and Jones will focus on commercial insurance for the recreational industry, including RV parks, campgrounds, trailer parks, hunting preserves, and lodges. Williams has four years of sales experience working in the industrial supply and automobile industries. Prior to joining the agency, Jones worked for 19 years in the steel industry as an electrical craneman. He also has experience working in customer services and the hospitality industry. LRHI is part of the Leavitt Group.

Cannasure Insurance Services, a managing general

agent and wholesale broker for the cannabis and hemp INSURANCEJOURNAL.COM

Bryan Shofner

industries, has hired Jay Dharia as client service director in the group’s Cleveland, Ohio, corporate office. Dharia will be responsible for the group’s service and support staff, overseeing account and service performance, enhanced service and efficiency ratios. Dharia has spent the past five years with AMICA Insurance in the Midwest and Texas. He also worked with under-performing offices in Arizona, Connecticut and Washington to restore them to the AMICA performance standards. Cannasure provides insurance for U.S. cannabis and hemp businesses.

South Central

Bryan Shofner has joined Houston-based wholesale insurance broker and managing general agency, LP Risk, as director of operations. Shofner’s previous roles include senior vice president of Marsh McLennan Agency and president and CEO of Shofner & Associates Insurance Agency. Shofner serves on the board of directors of the Texas Windstorm Insurance Association. He previously served as president of the Independent Insurance Agents of Texas. Houston-based Delta General Agency Corp. hired Sean Buchtler as manager of

Personal Lines. Buchtler has

Travis Brashear

Ricardo Lara

many years of underwriting and sales experience with a career focus in personal lines. He will be looking to expand Delta’s brokerage capabilities and carrier relationships and strengthen its agency partnerships. Iowa-based Holmes Murphy is expanding into the Houston and Central Texas markets and has added Travis Brashear to lead the initiative. Brashear will lead Holmes Murphy’s Houston team as vice president/ market leader for South and Central Texas, to expand the employee benefits division. Brashear, an attorney and expert in employee benefits, brings 22 years of experience, including with divisions of Cigna. He has also served in a consulting role for Willis Towers Watson. Most recently, he was chief growth officer for Imagine Health.

West

Phoenix-based CopperPoint Insurance Cos. has named Rachel Davis-Schultz senior vice president and chief human resources officer. Davis-Schultz has 21 years of experience. For the past 10 years, she has been with Express Scripts, a pharmacy benefit manager. CopperPoint is a multi-line commercial insurance company with additional offices in Westlake Village, Calif.

California Insurance Commissioner Ricardo Lara announced new members of his executive team at the California Department of Insurance. Chief Deputy

Catalina Hayes-Bautista

joins after serving as deputy legislative affairs secretary for Gov. Jerry Brown. Senior Deputy Commissioner and Legislative Director Michael Martinez rejoins the CDI, where he was deputy insurance commissioner and legislative director for Commissioner Dave Jones. He was previously a deputy legislative affairs secretary for Brown. Michael Peterson will serve as deputy commissioner for climate and sustainability, believed to be the nation’s first such executive-level position. He previously served as legislative consultant to Lara. Director of Community Outreach Julia Juarez will lead the CDI’s engagement with California communities. She previously served as a district director for Lara. Special Assistant David Green joins the department after serving in the Capitol office of Senator Lara. Michael Soller will serve as deputy commissioner for communications and press relations in Northern California. He previously served as communications director to Lara and as communications director for the state Democratic Party.

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Business Moves N.Y., The Rubin Group specializes in real estate, retail, construction and transportation.

Hilb, Aloisio Associates, D’Camera Group

National AmWINS, The Flood Agency

Specialty insurance broker AmWINS Group has agreed to acquire The Flood Insurance Agency, a Florida-based managing general agency that specializes in private market flood insurance. The Flood Insurance Agency, operating as a program administrator for surplus lines carrier Lexington Insurance Co., provides access to a private market alternative to the government-run National Flood Insurance Program. Evan Hecht is founder and chief executive officer. According to the MGA, its program insures more than $4.5 billion of property in 37 states. More than 3,000 agencies are registered to use the program.

Generali Global, A. J. Gallagher

Generali Global Assistance has acquired Trip Mate from Arthur J. Gallagher. Trip Mate is incorporated in Kansas and domiciled in Missouri. It is licensed in all states. Its plans are underwritten by United States Fire Insurance Co., Nationwide Mutual Insurance Co. and Arch Insurance Co. GGA said Trip Mate will continue to trade under its current brand but is now under the umbrella of GGA companies in the U.S.

SunTrust, BB&T Corp.

SunTrust Banks and BB&T Corp. have agreed to merge in an all-stock merger of equals valued at approximately $66 billion. The combined company will 22 | INSURANCE JOURNAL | FEBRUARY 18, 2019

be the sixth-largest U.S. bank based on assets and deposits. The pro forma company will have approximately $442 billion in assets, $301 billion in loans, and $324 billion in deposits serving more than 10 million households. The combined company will operate under a new name and brand. A new corporate headquarters will be established in Charlotte, N.C. BB&T shareholders will own approximately 57 percent and SunTrust shareholders will own approximately 43 percent of the combined company. BB&T Insurance Holdings, a wholly owned subsidiary of BB&T Corp., is the fifth largest insurance broker.

East Solutions Insurance, Gloron Agency

Solutions Insurance & Financial Services of Fairfield, N.J., has joined personal and commercial lines insurance agency Gloron Agency Inc. of New York, N.Y. The headquarters for the newly combined firm will remain in Manhattan, and the Fairfield, N.J., office will continue to operate. Solutions President Jon Maizel brings 25 years of agency ownership to Gloron.

Hub, Rubin Group

Hub International Limited has acquired the assets of The Rubin Group Inc. President Michael Rubin, along with his team, will join Hub International Northeast. Headquartered in New York,

The Hilb Group has acquired Rhode Island-based Aloisio Insurance Associates, a property/casualty insurance agency located in North Providence. AIA and its associates will join THG’s regional operations in New England following the acquisition. The Hilb Group has also acquired D’Camera Group in Annapolis, Md., a property/casualty agency serving the Mid-Atlantic region. DG Agency President Dean D’Camera and his associates will join THG’s Mid-Atlantic operations following the acquisition.

Kaplansky, KW Insurance

Kaplansky Insurance in Massachusetts has acquired KW Insurance, an agency with locations in Dedham and Cambridge, Mass. The KW Dedham location will merge with Kaplanky’s corporate headquarters in Needham. The KW Cambridge location will continue to operate under the Kaplansky name. Kaplansky currently operates 13 locations throughout Massachusetts.

XPT Group, SVA Underwriting

XPT Group has acquired New York City-based SVA Underwriting Services, a trucking and transportation MGA and Lloyd’s coverholder that specializes in physical damage and cargo cover. The firm was founded in 2013 by Steven Vallejo. SVA Underwriting will continue to operate under its established brand name. This is XPT’s third investment preceded by Western Security Surplus and WE Love & Associates.

Ensurise, Reese, Yeatman

Independent insurance agency Ensurise has merged with the property/ casualty insurance brokerage operations of Reese, Yeatman & Associates. Reese Yeatman will continue to operate as Reese Yeatman Insurance from its Bethesda, Md., location. Founded by INSURANCEJOURNAL.COM

Michael G. Reese Sr., Reese Yeatman is in its second generation of leadership under Michael Reese Jr. and Thomas Riley. Ensurise partners with insurance agencies in the Washington, D.C. area.

Ryan Specialty, Boston Specialists

Ryan Specialty Group has acquired the assets and operations of Boston Insurance Specialists, a wholesale insurance brokerage with offices in Mansfield and Westfield, Mass. The BIS team is now a part of R-T Specialty, the wholesale brokerage unit of RSG. BIS is a family-owned business led by founders Debbie Murphy and Peggy Giancola.

Midwest Greenlight Capital Re, AccuRisk

Reinsurer Greenlight Capital Re is again investing in the Chicago-based managing general underwriter AccuRisk Solutions. Greenlight Re made an initial investment in AccuRisk in 2017. With the new investment, Greenlight is the largest shareholder in AccuRisk. The new investment will enable AccuRisk, which is focused on employee benefits, to expand through acquisitions.

Sichko Agency, Smith & Leavitt

Ohio-based David Sichko Agency has affiliated with Smith & Leavitt Insurance Services and will now do business as Leavitt Group Midwest-Smith, Molino & Sichko. The agency will continue to offer Nationwide products. The same personnel will continue to serve clients from the office in Columbus.

K2 Insurance, Mid-America Managers

K2 Insurance Services has acquired the assets and operations of MidAmerica Risk Managers, a Nebraskabased farm and agricultural specialty general agency that is one of the largest program managers of coverage for Center Pivot Irrigation Sprinklers in the U.S. It underwrites on behalf of members of Great American, Travelers and Century. Paul Friskopp will continue as INSURANCEJOURNAL.COM

president of MARM going forward. Kerry Besnia, formerly of Great American Insurance, has joined MARM to help facilitate future growth of this program. This acquisition complements other acquisitions in the agricultural industry by K2, a holding company in San Diego.

South Central A.J. Gallagher, Interstate Insurance

Global insurance broker Arthur J. Gallagher has acquired Shreveport, Louisiana-based Interstate Insurance Underwriters. Founded in 1963, Interstate Insurance Underwriters is a managing general agency with a focus on general liability, property, garage and inland marine risks. Lawrence, Taylor and Logan Calhoun and their associates will remain in their current location as a satellite of Risk Placement’s Covington, Louisiana, office, operating under the direction of Joel Stinson, head of RPS’s South Central region.

A.J. Gallagher, Chapman Group

Global insurance broker Arthur J. Gallagher has acquired Baton Rouge, Louisiana-based The Chapman Group, an employee benefit consultant and retail property/casualty broker. Bill and Will Chapman and their associates will continue to operate from their current location under the direction of Robby White, head of Gallagher’s South Central region, and Bumpy Triche, head of Gallagher’s Mid-South region retail property/casualty brokerage operations.

Hub, US Insurance Source

Insurance broker Hub International has bought the assets of US Insurance Source and certain affiliates. Based in Spring, Texas, USIS is a commercial independent insurance agency specializing in trucking coverages. Mark Walton, owner of USIS, will join Hub Transportation and report to Jerry Gillikin, executive vice president of Hub Transportation.

Southeast Marsh & McLennan, Bouchard Insurance

The middle market agency subsidiary of Marsh has agreed to acquire Clearwater, Fla.-based Bouchard Insurance, an independent agency in Florida. Bouchard has 260 colleagues in its Clearwater, Fort Myers, Kissimmee, Maitland, Sarasota, and Tampa, Florida offices. The firm specializes in agribusiness, community associations, construction, education, healthcare, hospitality, staffing and social services industries. Bouchard will maintain its office locations and operate as Bouchard Insurance, a Marsh & McLennan Agency company. Doug Bishop, who has served as CEO of Bouchard since 2009, will continue to lead the operation.

Hub, Fortenberry McNamara

Hub International has acquired a book of business from Fortenberry McNamara of Jackson, Miss., an affiliate of Executive Planning Group, an employee benefits consulting firm. William McNamara, one of the owners, will join Hub Gulf South. H. Larry Fortenberry will continue to operate Executive Planning Group’s wealth management and individual insurance operations.

West Alliant, Public Sector Pension Board

Newport Beach, Calif.-based Alliant Insurance Services Inc. announced that a Canadian pension investment manager has invested in the firm. The investment by the Public Sector Pension Investment Board is joined by an additional investment from funds managed by Stone Point Capital. Following the transaction, funds managed by Stone Point will remain Alliant’s largest institutional shareholders while the company’s management and producers will continue to own the majority of the firm. Alliant provides property/ casualty and employee benefits products. FEBRUARY 18, 2019 INSURANCE JOURNAL | 23

Special Report: Agency Start-Ups

9 Tales from the Trenches of Agency Start-Ups

hat motivates people to take a risk in an industry dedicated to managing risk? New independent agencies are born of various circumstances. Sometimes it’s about seizing an opportunity that comes along; other times, it’s about creating something out of necessity. Sometimes it’s about being at the right place at the right time. Some new owners are familiar with the insurance business, even with the agency side, while others are complete rookies.

Those who have recently ventured out on their own offer advice and encouragement for those thinking of following in their footsteps. Owners should have a plan and plan to work hard. They should invest their money and time wisely — in technology and sales instead of a storefront or staffing. They should emphasize relationships and customer service. They should not expect to make a lot of money at first. Most of all, if the opportunity or interest is there, just do it. In their willingness to share their stories, start-up principals are like veteran agents. What follows are tales from nine start-ups across the country — why and how they took a risk for success.

INSURANCEJOURNAL.COM

Brandon Thompson and Matthew Phillips Millennium Brokers Springfield, Missouri

Brandon Thompson didn’t have a background in insurance when he decided to open his own agency. A teacher and a coach, he had just finished his master’s degree in education leadership, but he was looking for something else. He’d always wanted to start his own business and felt like insurance would be a good fit. After all, “a lot of what we do is just educating clients on the different risks that things propose and helping them select the right coverages,” he says. Thompson had saved what he felt was enough to give his plan a go. Within two weeks after telling his wife he wanted to open his own agency, he’d passed his agent licensing exams. It was time to go into business, but he didn’t go into it alone. He teamed up with Matthew Phillips, who did have insurance experience. “He worked for an independent agent for a few years and then decided, ‘Hey, I’m ready to go out on my own. I’m sitting here building someone else’s book of business,’” Thompson said. They didn’t know each other; they met through shared contacts. Thompson conceded that most people who open businesses together know each other at the outset. But, he says, “we’ve been very, very lucky.” The pair opened Millennium Brokers in Springfield, Mo., in early 2017. Their primary focus is personal lines although they do have some commercial accounts. So far, they’ve secured appointments with national carriers State Auto, Safeco, Travelers, Nationwide and Progressive, as well as Missouri-based Meramec Valley Mutual Insurance, to name a few. Phillips previously had worked with some of those carriers, but they were also helped in securing appointments through membership in Valley Insurance Agency Alliance, a St. Louisbased affiliate of the national agency INSURANCEJOURNAL.COM

partnership organization, SIAA. Currently Thompson and Phillips are Millennium’s only employees. “We’ve found a way to automate the agency where we haven’t really had to take as much overhead with employees yet, but we’re looking at adding some in the near future,” Thompson says. Their website vendor worked with them to automate their processes, understand and utilize search engine optimization, and take advantage of Google resources for getting leads.

‘It feels like you are eating an elephant, but you just have to do it one bite at a time.’ “We focused on creating a customer experience that was like no other agency. We do a lot of our business over the phone and we very rarely meet with our customers, so we understood that we had to map out our customer experience,” Thompson said. “Over time, building that customer experience has helped us. We went from having zero reviews, in two years, I think we’re at 56 or 57 Google reviews right now. We’ve created an experience that we’re able to translate over to Google and we get so many calls now just based on someone going online and seeing the reviews we have,” he said. Thompson had several suggestions for those considering launching their own agencies: One, realize it’s a marathon, not a sprint — new owners are not going to make a lot of money right off the bat. Two, don’t waste money on an expensive storefront. He originally thought a good storefront location would attract a lot of walk-in traffic. “We found that we don’t. We actually switched locations after our first year.” Three, owners should do as much as they can instead of paying a vendor because “the costs will start to creep up.” Finally, invest money at first in marketing or developing lead sources, not on the latest technology. — S. Jones

Mike Iverson MD Iverson Group Fairburn, Georgia Mike Iverson had been with a large agency for 20 years before he decided to start his new agency in April 2017. The retirement of that firm’s CEO gave him the opportunity to purchase his book of business and sell stock options so he could fund his new agency. “The opportunity came for me to build my own brand and do business the way I really wanted to do business — be a small firm that packs a big punch,” he said. That’s what he’s doing. “For us, it starts with the prospects — everyone isn’t going to fit. We aren’t trying to be all things to everyone. We are very honest with what we do and how we do it and have people drawn to us for that.” Iverson and his staff of six concentrate on larger, privately-held companies and not-for-profits, but they also write personal lines as well. Key decisions before launching included choosing the right IT system, designing a website, setting up a commissions structure, and making sure employees commit to providing the client experience his company promised. “All of these things and the messaging that goes with it and how it represents you and your brand, requires you to wear a lot of hats in a short period of time,” he said. “It’s exciting, but also like drinking from a firehose. It feels like you are eating an elephant, but you just have to do it one bite at a time.” He said he also learned a lesson about attracting new business. “Over the years I’ve considered myself ... client centric and never asked for things, but I think I missed out on the opportunity for them to contribute. Clients want to help us succeed if we have helped them succeed,” he said. His advice for others is to have a game plan, build a network, get involved with the Big “I” and be true to what you want for your company. — A. O’Connor

continued on page 26

FEBRUARY 18, 2019 INSURANCE JOURNAL | 25

Special Report: Agency Start-Ups continued from page 25 Deirdre Rushin Imperial Insurance and Financial Solutions Durham, North Carolina When the opportunity to start her own independent insurance agency came knocking, Deirdre Rushin quickly opened the door and got to work. Now, just six months later, she is pleasantly surprised by the “overwhelming” response from clients and the number of referrals they are sending to her. She is already looking to add staff. Rushin’s opportunity came when the life insurance-focused carrier she was working for decided to stop writing property/casualty insurance business after trying to do so for two years. Rushin was asked if she would like to purchase the P/C book of business. She used all of her savings to get her business — Imperial Insurance and Financial Solutions — going and began operations in September 2017 offering life, short-term medical, financial planning as well personal and commercial lines insurance. Rushin started as a State Farm agent and has been in the industry more than 10 years, including her stint with her previous carrier. She said that because she already had relationships with carriers from previ-

ous roles, she had no problem securing contracts and switching her policies over. “I am really excited now to be the CEO and running my own business and doing what I love, which is helping people meet their needs through insurance,” Rushin said. The biggest expenses for her were acquiring office space, obtaining the necessary insurance for her company and the agency management system. She said she is being conscientious about how her customers want to communicate and offering multiple options. “You have to be flexible and meet your customer where they are. You can’t do one fix for everyone,” she said. — A. O’Connor

Jake Holehouse HH Insurance St. Petersburg, Florida

Jake Holehouse decided to start his own independent insurance agency after his family’s nearly 40-year old agency located in Florida sold to a national firm back in 2015. He stayed on with the national firm for a year, then spent a year and a half with Florida insurer Heritage Insurance when he realized there was an opportunity to “do something different.” “I looked at a lot of agencies across Florida and the Southeast and saw an opportunity at rethinking

the independent model,” he said. “A lot of agencies just aren’t competing for new business like we are.” He opened HH Insurance last June and has already moved into an office in St. Petersburg and hired 12 employees who focus on specialty markets, personal lines and coastal businesses. The planning was intense. He spent several hours every night with his father, with whom he started the new agency, for about a year and a half, figuring out how they would do things differently. They came up with a 200page business plan and then invested in hiring and training staff. They also invested heavily in technology, including giving up on the first management system they used after six weeks in favor of something better. Holehouse said the agency has grown thanks to its business model, which focuses on customer service, customizing policies and educating clients. “We are taking the time to understand the insured and taking the time to have a thorough conversation with them, but at the same time we are still being time sensitive and meeting the time needs people have in the 21st century,” Holehouse said. “The challenges change by the day. Take how much you think it’s going to cost and double it because things pop up and you don’t want to skimp,” he said. — A. O’Connor

Daniel Rohrbaugh Raleigh Insurance Group Raleigh, North Carolina Daniel Rohrbaugh started his career as a State Farm agent but realized after nine years that going independent was a better option. So he connected with the Independent Insurance Agents of North Carolina (Big “I”) and began conversations about how to start an agency. The big day came on March 1, 2018, when Raleigh Insurance Group opened. “I didn’t go to the bank. I borrowed from myself and took baby steps and kept on producing and grinding,” he said. He is writing all the business himself without any staff. The agency's 250 customers thus far break down as 80 percent personal, 20 percent commercial. It has taken him awhile to figure out the independent agency system, the getting of carriers and placing of business. “With State Farm I was in a bubble,” he said. “That learning curve was very steep. I had so much to learn, but now that I am finally getting settled and learning the independent model we are really taking off.” He’s proud he has done it all without “taking out a lick of debt. He has been pleasantly surprised by how much other independent agents have helped him. “We are all just business owners trying to serve our customers and write business. You don’t realize how much the independent space helps one another,” he said. He said others starting an agency need to know what they are good at. “If they are a salesperson, they need to be the main salesperson for the organization. They need to find resources or outsource the things they aren’t so good at [and] focus on what got them there — they don’t have to be great at everything,” he said. He expects to double his business in the next year and eventually have a full staff. — A.O’Connor

Greg Varypatakis White Birch Insurance Chicopee, Massachusetts

“ “There’s something that is very liberating about working for yourself that allows the passion for what you do to come out in every aspect of your work,” said Greg Varypatakis, partner at Chicopee, Mass.-based White Birch Insurance. Varypatakis opened White Birch in 2017 with a partner after working for three years as a captive agent. “Along with my partner, we began researching our target markets and the insurance carriers that allowed us to be versatile and competitive with the majority of prospects,” he said. The agency is self-financed and sells auto, home, life and commercial lines. It currently has five employees. Its carriers include Plymouth Rock, Mapfre, Quincy Mutual, Safety, MetLife Auto & Home, Preferred Mutual, Foremost and a few flood insurance options. “I have ideas of where the company will be in five years, but I think the wisest thing to do would be to keep paying attention to the industry and do our best to get ahead of certain trends that will allow us to be competitive in any type of market,” Varypatakis said. The agency is taking advantage of technology. “We felt as though it was wise to invest in great software, knowing we’d be grateful for it in the future,” he explained.

Start-up agencies must remain available to customers when needed. “I think with any business, your hours are 24/7, at least initially,” Varypatakis said. “Our stated hours are Monday-Friday from 9-5, but you can find someone in our office working at almost all hours of each day.” Varypatakis emphasized the rewards of owning an agency. “There’s never a great time to make the plunge if you are comfortable where you are,” he said. “If you thrive on being uncomfortable, you likely won’t ever regret taking the reins by yourself and having final say in the direction of your business.” — E. Blosfield

‘Take how much you think it’s going to cost and double it because things pop up and you don’t want to skimp.’ Michael Cooper Omega Insurance Group Lincoln, Nebraska

One of the first things Michael Cooper did when he launched his independent agency, Omega Insurance Group in Lincoln, Neb., in September 2018 was to invest in technology. That was the opposite of what other new agency owners he had talked with had done, but while other startups

Special Report: Agency Start-Ups continued from page 27 concentrated on just trying to make money at the outset, Cooper felt it was important to get the agency set up with automated systems, a website and other appropriate technology from the get-go. He concedes he may have overspent but believes that the investment will prove to be worthwhile. “Everything we’re doing right now will make it easier for us three years from now,” he says. Cooper is not new to the insurance industry. He began his career as a Farmers agent in 2006 and spent seven and a half years on the captive side of the agency system. Then, after working four years at an independent agency, he was encouraged to go out on his own. The independent agency he worked for had been housed at a credit union, which referred business to the agency. When the former agency owner and the credit union decided to part ways, the credit union asked Cooper to open his own agency. While he continues to get customer referrals from the credit union, Cooper also kept some former clients as well. He also has relationships with other mortgage companies that refer business and is active in networking groups. The agency concentrates on home, auto and life insurance, and some commercial. In addition to Cooper, there is one part-time customer service representative. Plus, “I’ve brought on four other producers with me, as well, that work under my umbrella,” he says. The group represents Travelers and Progressive, companies Cooper worked with before. It also writes business with AAA, MAX Mutual, Battle Creek Mutual, Grinnell Mutual, among others. Cooper believes the relationships he maintained throughout his career helped him get appointments with carriers. “I’ve written a lot of Travelers business so getting that contract was fairly easy,” he says. “Honestly, I think, I’ve been in the business now for 13 years. I call these people up and I just say, ‘Hey, here’s where I’ve been and here’s what I have to offer you. Here’s what I know 28 | INSURANCE JOURNAL | FEBRUARY 18, 2019

is going to happen, and here’s what I’ve done so far.’ And I just think people were willing to take a chance on me.” Cooper and his wife were prepared for him to not bring home any money for the first few months. “She’s been supportive the whole time and so that’s probably has been what’s made [the transition] the easiest so far,” he said. He and his team have taken pay cuts but feel they will be better for it in the long run. — S. Jones

Zachary Patten Oak Grove Insurance Canton, Massachusetts For Zachary Patten, the biggest challenge to starting his agency was transitioning from serving in an operations role throughout the beginning of his career into a business development role in owning his own agency. “I have to go out and get people on board with providing referrals and bringing business through the door,” he said. With this in mind, his advice for new agency owners is to never be afraid to ask for help. “You have to really understand what your strengths are and where it is that you need help, because no one is great at everything,” he said. “Wherever it is that you need help, there will be resources or other folks in the industry that can help you with that, so just start reaching out.” Patten is the sole owner and operator of Oak Grove Insurance, which opened in 2018 and provides home, auto, motorcycle and boat insurance. “We have standard business hours of 9-5, but I find that a lot of transactions occur outside of that time frame — mostly in the evenings — because some of the folks that we work with are busy professionals, and they need that assistance at a different time of day,” he said. In the next five years, he is aiming to establish a retail space, build a staff and grow in personal lines while adding commercial lines. — E. Blosfield

Aaron Levine LG Insurance Group Long Branch, New Jersey

Aaron Levine, founder and CEO of LG Insurance Group in Long Branch, N.J., opened his agency in 2009. The agency has since grown to seven employees, serving many other local towns throughout Monmouth County, including Asbury Park, Eatontown, Little Silver, Middletown, Ocean Township, Red Bank, Rumson and Shrewsbury, as well as Long Island, N.Y., and the Greater New York City area. Although the agency is working to increase its automated correspondence and its use of technology to make standard business procedures easier, Levine cautioned against relying too much on technology. “People do business with other people for two reasons: 1. Ease of use and 2. They have to like who they’re doing business with,” he said. “We try to make it easy for our customers and our prospects to do business with us, and we also try to make sure that they’re happy doing business with us. But at the same time, we’re moving back to some more traditional marketing methods.” According to Levine, this means returning to mailing hand-written letters, thank yous and birthday cards, as he believes personal touch is going to be the key to standing out in an increasingly automated insurance world. Indeed, Levine emphasized the importance of relationship building and community involvement for new agents. “I think the role of the independent agent moving forward into the next couple of years is going to be community-based, relationship-based,” he said. His advice for new agents is to “stay in your community, really research and do whatever you can to help people out. New agents will find success, albeit slow, if they really stay focused on who they can work with.” Levine added: “Understand what you’re talking about, and if you don’t know, ask somebody and somebody will be able to help you.” — E. Blosfield INSURANCEJOURNAL.COM

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Spotlight: Boats Insurers Seek to Deny Boat Owner’s Claim in Rhode Island Case

By Elizabeth Blosfield

he National Liability & Fire Insurance Co. and the Boat Owners Association of the United States are suing a Vermont man in federal court in Rhode Island and are seeking to deny his claim on an $85,000 policy for his boat after it sank near Cape Cod, Mass., during a 2016 trip with his mother.

After Nathan Carman’s boat, the Chicken Pox, sank, he survived for a week on a life raft, while his mother, Linda Carman, disappeared and has since been presumed dead. The two insurance companies argued that criminal wrongdoing bars Carman’s insurance claim, as he allegedly made faulty repairs to the boat the day before it sank and knew it was unseaworthy, according to the Associated Press. Carman has previously said he believed his boat was safe.

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In a separate action, The AP reported Carman’s family filed a lawsuit in New Hampshire accusing him of killing his mother as well as his grandfather years earlier to collect an inheritance. In the New Hampshire lawsuit, Carman is accused of being responsible for the 2013 shooting death of his 87-year-old grandfather, John Chakalos, a nursing home administrator and real estate developer, according to the AP. The National Liability & Fire Insurance Co. has suggested that Carman may have thrown the gun used to kill his grandfather into the ocean. The Boston Globe reported the company said in a filing that Carman and the rifle were “criminally involved” in his grandfather’s murder, and the weapon “lies at the bottom of the sea.” In a Jan. 29, 2019, hearing, The Providence Journal reported that U.S. District Court Magistrate Judge Patricia

A. Sullivan agreed to allow Carman’s testimony from the New Hampshire case to be used in court proceedings over whether Carman’s insurance claim on his boat must be paid. Sullivan allowed National Liability & Fire Insurance Co. and the Boat Owners Association of The United States to receive Carman’s sworn statements in that case as well as a Windsor, Conn., police investigation into the unsolved shooting death of Chakalos, the Providence Journal reported. Carman has denied claims of wrongdoing and has never been charged with the death of his mother or grandfather. National Liability and Fire Insurance Company is a Stamford, Conn.-based provider of P/C insurance and a wholly owned subsidiary of Berkshire Hathaway Group. Boat Owners Assoc. of the United States is a marine insurer based in Springfield, Va. FEBRUARY 18, 2019 INSURANCE JOURNAL | 31

Closer Look: Farms The Original

FAMILY BUSINESS Why Family Farms Dance Between the Line of Personal and Commercial Coverage

32 | INSURANCE JOURNAL | FEBRUARY 18, 2019

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By Patrick Wraight

owhere is insurance more complicated than when you mix two exposures that don’t “traditionally” go together, like business and personal exposures.

The original family business is the family farm. This is the ultimate in mixing business and personal exposures. The family lives on the land that they work. The house isn’t just a house, it’s a farmhouse. The truck that takes the family from the house out to the field to plant or pick is the same truck that drives them to town to shop.

Special Policies

Farms need special insurance policies to cover all exposures. An ISO HO-3 won’t handle it. Besides that, when you tell the homeowners’ carrier that the house is on a working farm, they’ll tell you that it is uninsurable in their homeowners’ program. When you hear that, the

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next word that anyone says will be, “Why?” In this case, why is a simple question to answer. • Farms have more buildings than an ISO (or ISO derived) HO-3 anticipates. Remember that an ISO HO-3 covers a dwelling (the house) and other structures, the limit for other structures is always a function of the dwelling limit. With all of the buildings and structures on a typical farm, the HO-3 Other Structures limit would be woefully low.

Farms need special insurance policies to cover all exposures. •

Farms have liability exposures that an ISO HO-3 doesn’t anticipate. The HO-3 anticipates that the insured will have a family living in the house, that there might be

• •

parties where guests come to the house, that there might be times when the family rents a pavilion at the park. It doesn’t anticipate large farm equipment that move around, doing farm work, and carrying with them the risks that are inherent with large mobile equipment. Farms may have animals that the HO-3 doesn’t anticipate. Homeowners carriers think about dogs, cats, and snakes (and alligators in Florida). They don’t think about cows, horses, goats, chickens, and the clowder of cats that hang out in and around the barn. Farms often have work shops that the HO-3 doesn’t anticipate. A home shop might have some power tools, maybe a table saw, or even a big band saw if someone is an aspiring woodworker.

continued on page 34

FEBRUARY 18, 2019 INSURANCE JOURNAL | 33

Closer Look: Farms continued from page 33

Farms have wood shops, metal shops, welding gear, and just about every lubricant a machine could want. You may not realize it but the definition of farmer actually includes carpenter, vehicle mechanic, welder, crane operator, land management technician, water distribution expert and person who plants and tries to grow things.

Policy Review

In reading a farm policy, I came across this very interesting coverage (that couldn’t be written on a homeowners’ or personal auto policy). I’m reading from an AAIS FO-6. (Note: The copy of the form that I found is in use by a carrier but does have a copyright date of 1994 and is still being used.) Coverage F – Scheduled Farm Personal Property “We” cover the classes or items of farm personal property for which a “limit” is shown on the “declarations”. Coverage applies while property is on the “insured premises”. Unless otherwise specified, coverage for property while away from the “insured premises” is limited to 10% of the applicable “limit” for such property. This does not increase the “limit”. 1. Described Machinery – “We” cover specifically scheduled items of mobile farm machinery and equipment for which a “limit” is shown on the “declarations”. The “limits” shown on the “declarations” apply to covered property while on or

away from the “insured premises”.

There is already an interesting twist in this coverage. The form makes the blanket statement that unless specified, property off premises is limited to 10 percent of the applicable limit for that class of property. Then the next statement is that specifically described machinery does not fall under that limitation. Farmers can and will take their mobile equipment off premises. Sometimes, it’s because they have to transport from one parcel of land to another one that isn’t connected to the main farm lot. Knowing that a farmer is also a mechanic, one might realize that they often try to keep their equipment working long after their effective life cycle. Haven’t you seen a tractor running down the road that looked like it rolled out of the Real McCoys? That’s why there’s the next paragraph. a. Replacement Items – “We” cover mobile farm machinery and equipment “you” acquire during the policy period to replace specific items that are scheduled on the

“declarations”. “You” must provide “us” with a complete description of each replacement item and pay any additional premium within 30 days of acquisition. Any premium due will be charged from the date “you” acquire the property. The most “we” will pay under this coverage is the smaller of the following: 1) The “limit” shown on the “declarations” for the specific item replaced plus an additional amount up to $50,000 per occurrence; or 2) The actual cash value of the item. This coverage applies for 30 days after “you” acquire a replacement item or until “you” report it to “us”, whichever occurs first. This coverage does not extend past the end of the policy period. If “you” do not report a replacement item to “us” within the 30-day period and pay the additional premium, the most that “we” will pay is the “limit” shown for the item replaced.

The ability to replace equipment without worrying about having a gap in insurance is a big deal for any business (or person for that matter). When the farmer finally decides that the 50-year old equipment just cannot be held together anymore, it’s a big decision to go out and buy newer equipment. This provision allows them to take their time to report that replacement equipment. The policy recognizes that newer equipment may have a higher actual cash value (which this policy uses) so during the 30-day initial period, the policy allows for additional limit for this newer equipment. The problem only arises if the farmer neglects (forgets) to report the new equipment until after 30 days. Even if the newer equipment carries a higher actual cash value, the farmer will only receive the ACV of the old equipment. It then becomes critical that this be explained and explained again to the farmer because all busy business people forget things like this. The farmer just has longer office hours than most. I’m not done reading the policy (of course, I’m reading the whole policy). When I am, I’m convinced already that it will dance between the areas of personal and commercial insurance, just like farmers have lived with a mix of family and family business for generations. Wraight, CIC, CRM, CISR, AU, AINS, is the director of Insurance Journal’s Academy of Insurance. Email: pwraight@ijacademy.com. Website: IJAcademy.com

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Claims Journal 5 Reasons Autonomous Cars Won’t Be Available Anytime Soon

Chevrolet Bolt EV autonomous test vehicles are assembled at General Motors Orion Assembly in Orion Township, Mich. Photo by Jeffrey Sauger for General Motors. By Tom Krisher

n the world of autonomous vehicles, Pittsburgh and Silicon Valley are bustling hubs of development and testing. But ask those involved in self-driving vehicles when they might actually be seen carrying passengers in every city, the almost universal answer is: Not anytime soon.

An optimistic assessment is 10 years. Many others say decades as researchers try to conquer a number of obstacles. The vehicles themselves will debut in limited, wellmapped areas within cities and spread outward. The fatal crash in Arizona involving an Uber auton-

omous vehicle last March slowed progress, largely because it hurt the public’s perception of the safety of vehicles. Companies slowed research to be more careful. Google’s Waymo, for instance, decided not to launch a fully autonomous ride-hailing service in the Phoenix area and will rely on human backup drivers to ferry passengers, at least for now. Below are five problems that researchers must overcome to start giving rides without humans behind the wheel.

Snow and Weather

When it’s heavy enough to

36 | INSURANCE JOURNAL | FEBRUARY 18, 2019

cover the pavement, snow blocks the view of lane lines that vehicle cameras use to find their way. Researchers so far haven’t figured out a way around this. That’s why much of the testing is done in warm-weather climates such as Arizona and California. Heavy snow, rain, fog and sandstorms can obstruct the view of cameras. Light beams sent out by laser sensors can bounce off snowflakes and think they are obstacles. Radar can see through the weather, but it doesn’t show the shape of an object needed for computers to figure out what it is. “It’s like losing part of your vision,” says Raj Rajkumar, an

electrical and computer engineering professor at Carnegie Mellon University. Researchers are working on laser sensors that use a different light beam wavelength to see through snowflakes, said Greg McGuire, director of the MCity autonomous vehicle testing lab at the University of Michigan. Software also is being developed so vehicles can differentiate between real obstacles and snowflakes, rain, fog, and other conditions. But many companies are still trying to master the difficult task of driving on a clear day with steady traction. “Once we are able to have a system reliably perform INSURANCEJOURNAL.COM

in those, then we’ll start working toward expanding to those more challenging conditions,” said Noah Zych, Uber’s head of system safety for self-driving cars.

Pavement Lines and Curbs

Across the globe, roadway marking lines are different, or they may not even exist. Lane lines aren’t standardized, so vehicles have to learn how to drive differently in each city. Sometimes there aren’t any curbs to help vehicles judge lane width. For instance, in Pittsburgh’s industrial “Strip District,” where many self-driving vehicles are tested, the city draws lines across the narrow lanes to mark where vehicles should stop for stop signs. Sometimes the lines are so far back and buildings are so close to the street that autonomous cars can’t see traffic on the cross street if they stop at the line. One workaround is to program vehicles to stop for the line and creep forward. “Is it better to do a double stop?” asked Pete Rander, president of Argo AI, an autonomous vehicle company in which Ford has invested heavily. “Since intersections vary, it’s not that easy.”

humans who don’t always play by the rules. They double-park or walk in front of cars. Recently in Pittsburgh, an Argo backup driver had to take over when his car stopped during a right turn, blocking an intersection when it couldn’t immediately decide whether to go around a double-parked delivery truck.

For many years, autonomous vehicles will have to deal with humans who don’t always play by the rules. “Even if the car might eventually figure something out, it’s shared space, and it’s socially unacceptable” to block traffic, Rander said. Humans also make eye contact with other drivers to make sure they’re looking in the right direction, something still being developed for autonomous vehicles. Add to that the antagonism that some feel toward robots. People have reportedly been harassing Waymo’s autonomous test vehicles near Phoenix. The Arizona Republic

reported in December that police in suburban Chandler have documented at least 21 cases in the past two years, including a man waiving a gun at a Waymo van and people who slashed tires and threw rocks. One Jeep forced the vans off the road six times.

Left Turns

Deciding when to turn left in front of oncoming traffic without a green arrow is one of the more difficult tasks for human drivers and one that causes many crashes. Autonomous vehicles have the same trouble. Waymo CEO John Krafcik said in a recent interview that his company’s vehicles are still encountering occasional problems at intersections. “I think the things that humans have challenges with, we’re challenged with as well,” he said. “So sometimes unprotected lefts are super challenging for a human, sometimes they’re super challenging for us.”

Consumer Acceptance

The fatal Uber crash near

Phoenix last year did more than push the pause button on testing. It also rattled consumers who someday will be asked to ride in self-driving vehicles. Surveys taken after the Uber crash showed that drivers are reluctant to give up control to a computer. One by AAA found that 73 percent of American drivers would be too fearful to ride in a fully self-driving vehicle. That’s up from 63 percent in late 2017. Autonomous vehicle companies are showing test passengers information on screens about where the vehicles are headed and what its sensors are seeing. The more people ride, the more they trust the vehicles, says Waymo’s Krafcik. “After they become more and more confident, they rarely look at the screens, and they’re on their phones or relaxing or sleeping,” he said. Copyright 2019 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Dealing with Human Drivers For many years, autonomous vehicles will have to deal with

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FEBRUARY 18, 2019 INSURANCE JOURNAL | 37

Spotlight: Education USC’s New Risk Management Program

Draws Students Looking for Mentors

‘We teach them the first step in the risk management process, which is identifying risk.’ Advisory Council member Ryan Montes, Marsh, speaking with USC senior Sara Akavan at the Oct. 3, 2018, Meet the Risk Management Professionals event. By Don Jergler

risten Jaconi can hardly contain her excitement when discussing the topic of risk management.

It’s clearly a passion for Jaconi, who spends much of her time passing on her knowledge to students in the new Risk Management Program at University of Southern California’s Marshall School of Business. The program is only two years old, but it has grown from only a handful of students declaring their minor in the program to 28 students currently enrolled, according to Jaconi, who was appointed the pro-

gram’s director in 2018. The program was kickstarted with support from Steve Wilder, vice president of risk management for the Walt Disney Co., and John Barrett, an executive vice president at Aon. The program is also supported by an advisory council of over 15 companies, including insurers, brokerage firms and public companies. The council is packed with well-recognized names in the insurance industry, such as Alliant, Allianz, Berkshire Hathaway, Integro, Arthur J. Gallagher, R-T Specialty, Lockton, Worldwide Facilities and Marsh. Lindsay Moore, a broker with Worldwide Facilities

38 | INSURANCE JOURNAL | FEBRUARY 18, 2019

LLC, is one of those involved with the program. She said USC’s new program not only fills “a significant geographic need for our industry” in the Western region, but it seeds new risk management graduates from a leading, nationally recognized university. “This is a win-win opportunity for USC graduates and for organizations like Worldwide Facilities,” Moore said. The stated goal of the program is to educate the next generation of risk management leaders for an increasingly complex business environment through a curriculum focused on stim-

ulating critical thinking and sharpening analytical skills.

‘This is a win-win opportunity for USC graduates and for organizations like Worldwide Facilities.’ The minor requires 20 units of course work. Two required courses are Introduction to Enterprise Risk Management, and Introduction to Risk Management and Insurance. Electives are available to be taken in a number of disciplines within USC’s various schools. Over a dozen available electives include courses INSURANCEJOURNAL.COM

like cyber law, behavioral economics, project management, digital forensics, financial derivatives and games and economics. “We are taking the view that risk management is multidisciplinary,” Jaconi explained. Jaconi teaches the Introduction to Enterprise Risk Management course, and Ward Ching, a managing director for Aon’s Western region, teaches Introduction to Risk Management and Insurance. Jaconi, who also teaches a new elective in the minor, Risk Management in Entertainment, Sports, and the Arts, has a background as a securities attorney. She also formerly worked for Promontory Financial Group, an IBM company, and was a senior policy adviser with the U.S. Department of Treasury from 2007 to 2009. In her Introduction to Enterprise Risk Management course, she has students follow public companies and examine the risk factor section in their 10K filings. Students are also asked to draft mock risk assessments for the companies. “We teach them the first step in the risk management process, which is identifying risk,” she said. There have been no graduates yet since the program is so young, but the school expects to graduate its first Risk Management minors in May 2020. According to Jaconi, the majority of those enrolled in the program are business majors. Other majors enrolled in the Risk Management program include majors in INSURANCEJOURNAL.COM

international relations, economics, mathematics, urban studies and planning. The program is designed for enrolled USC students, so it’s not currently open to professionals seeking continuing education courses, however, Jaconi does encourage those in the industry who want to be involved in the program to contact her to discuss being part of the council. Her email is kjaconi@marshall.usc.edu. “We would welcome new members,” Jaconi added. The program emphasizes professional development through internships and mentorships. Mentorships is one aspect of the program that Jaconi believes is driving student interest. “We promised to those minoring in Risk Management a mentor from the risk man-

agement profession,” she said. “The appeal of the Risk Management minor is due in significant part to that mentorship program.” Mentors have signed up for the program from many of the advisory council members, including Aon, USI, Chubb, Marsh, Worldwide and Keenan. The mentorship program pairs students with risk management professionals for the academic year. It requires students to create an independent development plan with goals and action steps, and it requires mentors and mentees to meet at least twice a semester, as well as to participate in a shadowing day at the mentor’s firm. Jaconi believes the Risk Management program will provide a boost to the industry by funneling qualified

people into an aging sector where numerous leaders are poised to retire.

‘We are taking the view that risk management is multidisciplinary.’ And, as stated on the program’s website, managing risk is of paramount importance to the business community as a whole: “To be successful, businesses must be able to manage their risks, that is, identify, analyze, mitigate, and communicate their risks. Risk management enables businesses to protect their balance sheets, income, employees, customers, and society from adverse events, such as natural disasters and product failures.”

Advisory Board member Vincent Monastersky, Risk Management at Fox Entertainment Group, speaking with risk management minor Austin Gumins at the Oct. 3, 2018, Meet the Risk Management Professionals event. FEBRUARY 18, 2019 INSURANCE JOURNAL | 39

Special Report: Agency Salary Survey Employees Have Upper Hand in Todayâ&#x20AC;&#x2122;s

AGENCY JOB MARKET

Owners Must Show Them the Money, Culture and Other Perks

Agency Compensation Satisfaction Index* 2018

2017

2016

Management/Agency Owner/Agency Principal 3.67 3.70 3.61 Producer/Sales 3.31 3.23 3.02 Support Staff/CSR/Account Executive 3.12 3.08 2.97 5 = Most Satisfied; 1 = Least Satisfied

2015

3.63 2.97 2.84

Average Agency Total Income Change* Management/Agency Owner/Agency Principal Producer/Sales Support Staff/CSR/Account Executive

*Includes all income changes in year

2018

5.5% 6.0% 2.9%

2017

6.3% 6.2% 3.9%

2016

5.5% 6.6% 3.1%

2015

5.7% 4.7% 3.0%

Average Agency Salary Adjustment Management/Agency Owner/Agency Principal Producer/Sales Support Staff/CSR/Account Executive 40 | INSURANCE JOURNAL | FEBRUARY 18, 2019

2018

3.80% 4.20% 3.10%

2017

5.3% 3.5% 3.3%

2016

4.4% 4.5% 2.9%

2015

3.8% 2.1% 3.5% INSURANCEJOURNAL.COM

By Andrea Wells

s the insurance industry unemployment rate continues to hover at 1.7 percent, which is lower than the national average of 3.9 percent, insurance agencies face stiff competition in the war over talent. This means employee satisfaction is more critical than ever.

Everything counts in todayâ&#x20AC;&#x2122;s competitive insurance industry workforce â&#x20AC;&#x201D; satisfaction with salary, employee benefits, organizational culture, co-workers and more.

continued on page 42

Employee Benefits Satisfaction Index* Satisfaction When Offered

Satisfaction Index When Not Offered

Profit Sharing 3.75 Pension Plan 4.03 Education reimbursement 3.65 Group life/disability 3.55 401(k) 3.43 IRAs 3.59 Group health insurance 3.53 Health Savings Account 3.51 Stock Options 3.27 ESOP 3.34 Dental 3.51 Flexible Savings Account 3.44 Child care/Day care 3.55 Paid Family Leave 3.65 Pet Insurance 3.43 5 = Most Satisfied; 1 = Least Satisfied

What Benefits Agencies Offer Group Health Insurance Health Savings Account Dental Group Life/Disability 401(k) Profit Sharing IRAs Pension Plan ESOP Stock Options Flexible Savings Account Education Reimbursement Childcare/Daycare Paid Family Leave Pet Insurance No Benefits Provided

2018

79.5% 45.1% 60.6% 60.7% 69.2% 20.6% 11.5% 4.9% 4.4% 6.7% 31.2% 30.6% 5.3% 25.6% 6.7% 8.7%

2017

75.4% 36.5% 56.7% 54.4% 61.4% 19.4% 10.5% 5.3% 4.8% 4.9% 26.7% 28.2% 3.2% NA NA 12.1%

2016

2015

3.40 3.44 3.39 3.36 3.49 3.46 3.23 3.44 3.49 3.48 3.44 3.49 3.47 3.41 3.47

2014

75.8% 35.8% 55.0% 53.7% 59.4% 18.1% 9.9% 6.4% 3.6% 4.8% 25.2% 32.2% 2.6%

75.4% 37.7% 56.3% 55.6% 60.0% 17.5% 11.2% 5.9% 4.8% 5.3% 28.2% 30.5% 3.2%

80.6% 38.3% 57.2% 56.6% 63.4% 18.9% 8.4% 6.0% 4.4% 4.9% 29.3% 32.8% 2.2%

12.8%

13.7%

10.5%

Average Management Salaries by Gender

President/CEO Agency Owner/Principal Financial Officer Commercial Lines Manager Personal Lines Manager Office Manager Marketing Manager Accounting Manager INSURANCEJOURNAL.COM

Male

Female

$221,008 $148,076 $212,250 $177,143 $116,000 $112,944

$105,881 $105,195 $130,000 $89,352 $86,782 $80,882 $70,800 $90,000

Men Make this % More than Women

101% 41% 63% 98% 68%

Women Occupy this position this % of the time the time.

11% 20% 33% 74% Equal # of men v. women 87% 82% 86%

FEBRUARY 18, 2019 INSURANCE JOURNAL | 41

Special Report: Agency Salary Survey continued from page 41

Mary Newgard, partner and senior search consultant for Capstone Search Group, a national recruiting firm for the insurance industry, says today’s job market favors employees and applicants. “Don’t kid yourself thinking that you don’t have competition,” Newgard said. “It’s a candidate’s market.” Agencies right now can struggle to find as few as five solid candidates to interview for a position. I think they are lucky to find two (good ones),” she said. “And if you find two, you better be willing to make a decision quick because those two candidates will each have three offers going at once.” That’s the reality she sees in today’s agency job market.

It’s not just finding people that keeps agency owners awake at night, said Al Diamond, founder of the Agency Consulting Group Inc., a consulting firm for independent agents. “Agency owners lose sleep over whether they’re going to keep the employees they have, or not,” Diamond said. While money is certainly an important factor in job satisfaction, culture, feeling appreciated and a sense of fairness from management can be just as valuable, according to Diamond. For one, employees do not like agencies where “everybody gets the same raise,” he says, “no matter how small or large the agency is.” Employees are looking for a well-rounded compensation

Average Management Salaries President/CEO Agency Owner/Principal Commercial Lines Manager Personal Lines Manager Office Manager Marketing Manager Accounting Manager Technology Officer

Average Salary (2018) $200,490 $142,078 $118,615 $97,739 $90,623 $70,800 $62,500 $75,000

Salary (2017)

$204,206 $136,427 $104,091 $74,333 $82,057 $96,400 $70,900 $50,000

Average Producer Salaries by Line Commercial Producers Personal Producers

$89,648 $45,058

Average Producer Salaries by Region East Midwest South Central Southeast West

Personal Lines Producers

$69,000 $35,213 $35,000 $43,333 $15,000

42 | INSURANCE JOURNAL | FEBRUARY 18, 2019

Commercial Lines Producers $106,580 $64,167 $95,750 $39,400 $94,924

program that includes fair pay, solid benefits and other non-monetary perks. But what that is can vary from business to business. “One of the things I’ve learned is that compensation plans really aren’t off the shelf,” said Eric Hallinan, vice president at MarshBerry, an insurance industry merger and acquisition and management advisory firm. Compensation should be a mixture of several key factors, all working together. What works for an account executive in one agency might not work in another, he said.

'One of the things I've learned is that compensation plans really aren't off the shelf.' The same might be true for producer compensation and commission structures. “You might have something that works really well in one firm but doesn’t work very well at another firm,” Hallinan said. Agency culture or other non-monetary factors also influence the level of employee satisfaction, Hallinan said. “People need to like who they work with and they need to enjoy their day-to-day tasks,” he said. Employees need positive recognition and want to work toward meaningful goals. “Goals that are beyond just the things they’re doing within the organization,” Hallinan said.

While some of these factors may be hard to quantify, they can be just as valuable to a top employee as competitive financial compensation.

Show Them the Money

While non-monetary benefits matter so, of course, does the money. Newgard, says top candidates aren’t the least bit shy about demanding higher pay upfront. Higher pay is a fundamental reason employees might stay in a job or decide to change jobs, she said. And they’re not apologetic about it at all, she adds. “That doesn’t mean that every time you interview a candidate, or every time we speak with a job seeker, that the very first word out of their mouth is, ‘I want more money.’” But it does mean that if an agency wants to maintain a high success rate in recruiting and employee retention, then the “absolute, number one thing that is going to seal the deal” is money. The hurdle for hiring managers has changed, too, she says. “Companies used to say, ‘How can I get away with paying the least amount to accomplish my goal, to accomplish my retention, or for my new hire strategy?’ They can’t do that anymore. Now what they have to say is, ‘What is it going to take for me to accomplish my goal and what kind of financial investment will that take?’” Agencies are always looking for the best talent, but

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in today’s candidate market, they are lucky to find any “talent,” she said. “There’s such a shortage of talent, that talent at this point is talent.” Time is money when it comes to hiring. The time it takes to fill critical service roles is increasing, leaving some agencies to hire wherever they can, Newgard said. Only a few years ago, agencies could fill an account crease manager or CSR role in 30 ecrease to 40 days. But today, agenay the samecies are struggling to fill a $50,000 to $65,000 client service role in four months. “That’s a substantial hike in time to fill,” she said. “What they’re doing now is they’re saying, ‘OK, if I find somebody who is good or crease excellent, I’m not differenecrease tiating those when it comes ayed the same in 2018 to money. I’m going to pay mpared to 2017 what it takes to get them.’” There’s been a shift from money being just another hurdle for hiring managers to overcome to money being the primary mechanism that hanged in 2018 ensures agencies accomill change inplish 2019goals in hiring new o changes service talent, according to Newgard. “In order to get what they want, agencies have to pay for it,” she said.

icipated Agency Staff e in 2019

ducer Commissions 018

encies’ Plans to Change mmission Structure

Producer Pay ducer Compensation On average, producer d Fees commission structures have

remained stable, according oducer receives % of fee to MarshBerry. oducer receives of fee at our own “Inall looking oducer doesn’t receive fee survey, the compensation average rates across the country showed that 40 percent commission on new business was fairly standard and 33 percent commission

ducer Bonus for eeding Sales Goal

s o

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on renewal business was the average,” Hallinan said. However, he added there is more variation around renewal commission rates than new commission rates. “Most of the largest firms and the big brokers and the ones that are doing a lot of the acquisitions, tend to utilize a 20 percent or 25 percent renewal rate,” he said. That may seem low in comparison to what traditional independent agencies are giving producers, but the trade-off in large firms is usually more service and service people, or even higher qualified service people helping producers. “That way, producers can focus on sales activities and not be bogged down by service activities.” Hallinan warns that while higher renewal rates may entice a producer to take a job with another agency, that extra compensation cost could impact the agency’s profitability and possibly make it more difficult for agencies to invest in new resources or new people. “So there is some logic to having lower renewal rates, but it has to be in balance,” he said. “You can’t have weaker service and weaker profitability.” Hallinan has been watch-

ing how agencies are handing the cost of value-added services in their compensation. “It’s a trend that’s becoming more and more common, especially among employee benefits-related insurance firms,” he said. “Does the company just

absorb those costs as part of the ability to get the clients? Or do they try to adjust the amount that might be paid to the producer based on what’s being spent in terms of value-added services?” he asked.

continued on page 44

How Often Agencies Review Compensation Structures Every year Every two years Every three years Not within past three years Never reviews

1.4 7.7

8.6

4.3

78.1

Average Agency Salaries By Experience Less than 3 years 3-5 years 6-10 years 11-20 years 21-30 years More than 30 years

Producers

$45,000 $50,880 $127,380 $143,413 $102,944 $158,008

Staff

$39,400 $50,263 $56,748 $61,263 $70,203 $76,510

Average Agency Salaries by Region East Midwest South Central Southeast West

Producers $97,632 $50,175 $84,500 $43,500 $81,189

Staff

$60,205 $59,180 $63,423 $50,061 $85,561

How Agencies Base Compensation Incentive Plans Agency profits Productivity Revenue growth Contingent commissions Individual performance No incentive plan Other

2018

38.4% 26.7% 30.1% 17.4% 40.8% 22.9% 5.6%

2017

36.2% 28.3% 29.9% 18.0% 41.0% 24.1% 5.0%

2016 34.7% 29.4% 27.6% 18.9% 41.5% 22.2% 5.0%

FEBRUARY 18, 2019 INSURANCE JOURNAL | 43

Special Report: Agency Salary Survey continued from page 43

Changes to Health Insurance Plan in Past Year Increased employee contribution Increased deductible limits Implement higher co-pays for participants Reduced drug benefit Reduced other benefits

45.4% 61.4% 36.9% 10.6% 7.1%

Health Insurance: % Paid by Agency for Employee Under $1 million in premium $1 million - $5 million $5 million- $10 million $10 million - $15 million $15 million - $20 million $20 million - $25 million $25 million or more

61.0% 73.8% 77.0% 63.1% 77.7% 62.4% 62.2%

Health Insurance: % Paid by Agency for Employee East Midwest South Central Southeast West

54.0% 47.0% 55.0% 42.0% 61.0%

What Strategies Agencies Implemented in 2018 Cut benefits Shift health plan costs to employees Increase benefits Force reduction of employees Postpone hiring Postpone raises Increase hiring Increase compensation

2018

4.0% 8.8% 16.2% 6.1% 19.3% 12.7% 38.2% 48.3%

What Strategies Agencies Plan to Implement in 2019 Cut benefits Shift health plan costs to employees Increase benefits Force reduction of employees Postpone hiring Postpone raises Increase hiring Increase compensation

44 | INSURANCE JOURNAL | FEBRUARY 18, 2019

2019

0.89% 7.59% 12.95% 3.57% 15.18% 6.25% 52.68% 45.54%

Hallinan sees agencies trying to figure out how to solve that cost. “Maybe they take the gross commissions received and subtract the value-added services and then use that to calculate what the producer would earn on their new business or renewal rate.” Those types of formulas are entering producer compensation more than in the past, he says.

Incentive Compensation

Hallinan, Diamond and Newgard all tend to agree that the best agency compensation structures have some element of incentive compensation for employees outside of production roles. “Compensation plans that include incentives that are all in alignment with the agency’s goals, or at least they try to be in alignment, and where you see things like producers and service people when their compensation incentives all wind up with the growth in the book of business…that tends to create an environment where the culture and everything is a little bit more aligned on those broader strategic initiatives and broader growth initiatives for the agency,” Hallinan said. “When I see that, I like that. It’s a little bit easier to work with.” But that structure hasn’t made its way across the entire independent agency landscape, yet. “Lots of agencies don’t have that,” Hallinan said. “Lots of

agencies still have incentive programs that are totally discretionary and that’s harder for an employee to know what their bonus might be; what it’s based on.” It’s better when bonuses are tied to the success of the agency. Diamond, who has been an advocate for incentive-based compensation for non-producer employees for many years, says he has seen increased demand for it today. “The programs that we find most in demand for us are producer acquisition and compensation, and incentive compensation for non-producer employees, which is very much in demand,” Diamond said. However, he admits that many agencies “pay lip service” to incentive compensation. “Owners still try to control it (compensation) and that doesn’t work anymore,” he said. “Employees are too smart; they know they have other places to go.” The best agencies, in Diamond’s opinion, are those that pay people on a productivity basis, not on a longevity basis. “Their producers are supported, instead of having to go out and find their own business. The agency does all the marketing, and they tell their producers we will give you all the prospects you can possibly handle.” If the agency is growing, then the compensation of staff should be growing as well, Diamond said. “So, if I’m a customer service rep, and last year, I serviced a

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book of business that was $250,000, and this year, I’m servicing a book of business that’s $350,000, I am more valuable. I am helping the agency generate more revenue without hiring more people, and I should be paid more,” Diamond said. “That’s what our incentive compensation program is based on. It’s based on productivity, not longevity, and that’s where employees feel cheated most.” Don’t be shy about outof-the-box compensation perks, either, Newgard recommends. “Anytime that you can take something that employees already have to pay for out-of-pocket and roll that up as a perk,” consider it as a mechanism in compensation plans. It can be anything from paying for highway tolls to paying for their cell phone, she said. Little things like commuter benefits, even paying for business attire or making charitable donations can make a huge difference in satisfaction, she said. Hallinan equates agency compensation plans to that of solving a jigsaw puzzle — every piece counts just as much as the next, but knowing where to fit each piece is the real challenge. To win, agency owners must understand what their employees want and need, and ask them. “Find out what motivates your employees and structure your compensation plans around that to retain the best talent,” he said.

continued on page 46

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CSR No. of Accounts and Premium Commercial lines CSR Personal lines CSR Support staff average

Average Number of Accounts 228.5 832.4 121.5

Average Workload Premium $4,137,801 $1,302,812 $3,321,667

Average CSR Salaries by Region East Midwest South Central Southeast West

Account Exec/ Personal lines CSR $45,500 $43,273 $52,575 $44,167 $76,667

Support Staff $47,000 $68,217 $50,110 $44,185 $60,786

Average CSR Salaries by Gender

Female Male

Account Exec/ Commercial Lines CSR

Account Exec/ Personal lines CSR

Support Staff

$50,315 $44,200

$52,207 $45,750

Managers/Owners

Producers

Staff $64,597 $62,925 $(1,672) -3%

$68,345 $74,932

Average Salaries by Gender Female Male Difference Pay Gap

$96,237 $164,752 $68,515 71%

$61,190 $82,879 $21,689 35%

Average Salary and Total Compensation Adjustments by Region EAST MIDWEST

Average Salary Raise - Staff Average Total Compensation Raise - Staff Average Salary Raise - Producer Average Total Compensation Raise Producer Average Salary Raise - Management Average Total Compensation Raise Management Average Agency Salary Adjustment Average Agency Total Compensation Adjustment Average No. of Agency Employees

4.0% 2.6% 4.4% 7.6%

1.9% 2.0% 0.4% 2.2%

3.7% 4.6%

SOUTH SOUTHEAST CENTRAL

WEST

3.2% 3.4% 5.6% 8.3%

2.8% 2.7% 3.8% 4.7%

3.6% 3.7% 6.0% 6.3%

2.8% 5.4%

3.9% 5.4%

3.4% 6.0%

4.6% 5.7%

3.8% 4.5%

2.2% 3.9%

4.0% 5.3%

3.3% 4.9%

4.6% 5.3%

85.9

69.6

147.5

90.0

79.6

FEBRUARY 18, 2019 INSURANCE JOURNAL | 45

Position

Special Report: Agency Salary Survey Management/Agency Owner Agency Principal Producer/Sales

Support Staff/CSR/

Account Executive continued from page 45

Total Compensation and Salaries Growing, But at a Slower Pace Employee Satisfaction with Compensation on the Rise

otal compensation and Gender

salary adjustments on average fell slightly in Male Femaleresponding to the agencies 2019 Agency Salary Survey, but that trend has had little effect when it comes to employee satisfaction. On average, employee sat-

isfaction with compensation overall rose again in 2018. Satisfaction over agency compensation has steadily improved in recent years and ticked up for both producers/ sales and support staff in 2019, while management/ owners saw a slight drop.

Agency Salary Survey Demographics Age 21 to 30 years old 31 to 40 years old 41 to 50 years old 51 to 60 years old 61 to 70 years old Older than 70 years old

7.4%

5.2% 14.5%

21.5% 17.0% 34.4%

(See Agency Compensation Satisfaction Index chart on page 40): • Management/agency owners/agency principals reported a compensation satisfaction score of 3.67 in the 2019 survey, down slightly from 3.7 in the 2018 survey, based on a scale of 1-to-5 where “5” equaled “most satisfied.” • Producers/sales reported satisfaction of 3.31 in the 2019 survey, up from 3.23 in the 2018 survey. • And support staff/CSR/ account executives reported a satisfaction score of 3.12 in the 2019 survey, up slightly from 3.08 in the 2018 survey.

Overall compensation satisfaction scored higher when agencies offered employee benefits, both hard benefits such has group health, dental coverage, profit sharing, pension plans, IRAs and flexible savings accounts, and soft benefits such as childcare/ day care, education reimbursement and paid family leave. (see Employee Benefit Satisfaction Index, page 41). Employee benefit satisfaction ranked highest in the survey when agencies offered added benefits such as a pension plan (4.03), profit sharing (3.75), education reimbursement (3.65), and paid family leave (3.65). The survey found that in

continued on page 48

Position

Education Graduated from high school Some college completed Graduated from college Some graduate school completed Completed graduate school

7.9%

9.1%

Management/Agency Owner Agency Principal

7.0%

Producer/Sales

29.2%

Support Staff/CSR/ Account Executive

45.2%

58.4% 15.1%

Gender

Ethnicity American Indian or Alaskan Native Asian/Pacific Islander Black or African American Hispanic White/Caucasian Multiple ethnicity/Other

26.5%

2.6% 87.3%

46 | INSURANCE JOURNAL | FEBRUARY 18, 2019

Male Female

1.2% 1.0% 1.9% 5.9%

48.1%

Age

51.6%

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Agency Annual Cost of Living Increase Yes No Not Sure

Agency Gives Year End Bonus

8.1% 37.4%

All agency staff Management and sales producers only Management, plus all support staff (CSRs) Other Options N/A

Agencies’ Plans to Change Payroll Expense in 2019 Reduce payroll expense Increase payroll expense Keep the same Not sure

29.9%

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Increase Decrease Stayed the same in 2018 compared to 2017

9.6%

Agencies’ Plans to Change Commission Structure

24.8% 51.2%

13.0% 6.9% 4.2%

5.1% 4.0%

52.4%

42.3%

51.3%

Changed in 2018 Will change in 2019 No changes

Producer Compensation and Fees Producer receives % of fee Producer receives all of fee Producer doesn’t receive fee

7.5% 10.8% 81.7%

41.2%

56.0%

2.9%

Producer Bonus for Exceeding Sales Goal

26.3% 73.7%

6.5%

Yes No

Owners Thinking About Selling the Agency

Agency Staff Size in 2018 Increase Decrease Stayed the same

46.0%

44.4% 65.9%

Agency Salary Increases in 2018 Higher than 2017 Lower than 2017 Same in 2018 compared to 2017

2.8%

Producer Commissions in 2018

4.2%

38.5%

44.7%

52.5%

Increase Decrease Stay the same

54.5%

Yes No Not Sure

What Employees Receive Year End Bonus

Anticipated Agency Staff Size in 2019

7.2%

6.6%

44.2%

46.4% 9.4%

Yes No Not applicable

86.2%

FEBRUARY 18, 2019 INSURANCE JOURNAL | 47

Special Report: Agency Salary Survey Non-Owner Producer Compensation 17.0% Salary Only 35.9% Salary plus commission 23.3% Commission only 8.3% Draw against commission 4.1% Other 11.5% N/A

How Agencies Determine Fees 32.1% As a % of Premium 73.3% Flat fee based on account type

How Agencies Charge Fees 64.0%

Fees are charged in addition to commissions

36.0%

Fees are charged in lieu of commissions

Incentives for Non-Owner Producers 32.2% No Incentive 14.8% Trips 19.6% Contests 6.8% Club memberships 29.6% Education 49.5% Cash bonus 6.1% Car

How Bonus for Producer is Determined

continued from page 47 two-thirds of the employee benefit categories queried, employees showed more satisfaction with overall compensation when those benefits were offered. The survey also revealed a slight downward trend in total compensation. Insurance agency management, owners, principals and support staff continued to show raises in total compensation in 2018, but at a lower pace than the previous year. According to the 2019 Agency Salary Survey, based on responses from about 800 respondents nationwide, total income changes, which includes salary plus additional compensation such as profit sharing, bonuses and other income, were: • Agency owners, principals and management

Overall salaries increased as well but also at a slower pace than the previous year, except for producers/sales, according to this year’s survey results. • Salaries for agency owners, principals and management went up 3.8 percent in 2018 compared How Incentive Compensation for CSRs to a 5.3 percent jump is Determined in 2017. 12.9% No. of policies sold • Producers/sales reported average 29.0% New business commissions increases in salary 11.4% Renewal commissions of 4.2 percent in 9.6% Set dollar amount 2018 compared to 41.0% Do not offer incentive comp 3.5 percent in 2017. • Salaries for agency 15.0% Other support staff went up 3.1 percent on average in 2018, Workload in 2018 which was slightly Compared to 5 Years Ago lower than the 3.3 percent raise they 33.9% Higher today than ever before got in 2017.

27.1%

Discretionary

13.4%

Retention

13.3% Increases only slightly each year

16.5%

Profit

6.5% Steadily decreasing

21.7%

Net book growth

4.2% Less today than ever before

25.6%

Personal production

8.2% Same today compared to 5 years ago

48 | INSURANCE JOURNAL | FEBRUARY 18, 2019

reported a rise in total income for 2018, which revealed a 5.5 percent increase in total income compared to a 6.3 percent increase in total income for 2017. • Producers/sales total income revealed a 6.0 percent increase for 2018, compared to a 6.2 percent increase in 2017. • Agency support staff total income rose the least on average to a 2.9 percent increase for 2018, compared to a 3.9 percent increase in 2017.

33.9% Steadily increasing

Insurance Journal’s official research partner, Demotech Inc., assisted with analysis of the 2019 Agency Salary Survey.

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Idea Exchange: M&A Review Agency Merger & Acquisition Deals Hit All Time High, Again

year of 2018 brought an allBy Sarah Lucas time high of merger and acquisition (M&A) activity to the insurance industry. Consolidation of firms, both at a local level with M&A by independent agents and brokers, and acquisitions by larger, publicly-traded and privately-held firms, outpaced all prior years on record through the fourth quarter of 2018. While the economy started to see some headwinds with interest rate hikes and a shaky stock market performance in late 2018, valuation and deal activ-

ity around independently-held insurance firms held strong. The insurance distribution industry is truly a gem in the eye of an investor. Many insurance distribution firms are capable of high levels of profitability, high rates of recurring revenue, and low requirements for capital expenditures and reinvestment. That’s why interest for acquisitions in this marketplace continues at a high rate. Combined with the overwhelmingly baby boomer ownership demographic and the lack of internal perpetuation plans in place at many firms, and you have the most active M&A market this industry has ever seen.

Another Record M&A Year

While some 2018 announce-

ments trickle in late, we have the total number of announced 2018 transactions at 580, up from 557 in 2017. For half of the top 10 buyers in 2018, the fourth quarter was the busiest, in terms of the number of deal closings. Larger, privately backed firms (mostly private equity-backed) continued to dominate the M&A activity and deal announcements in 2018, with roughly 60 percent of all deals. Independent agents and brokers across the country, as buyers, closed and announced 20 percent of the total deals. Publicly traded brokers closed 10 percent of the transactions. The remaining 10 percent of announced deals were completed by banks/ thrifts (3 percent), insurance

carriers (3 percent) and the remaining deals (4 percent) had other types of acquirers, such as private equity (PE) groups, underwriters, insurtech firms, specialty lenders, etc.

Top Buyers

The top buyer in 2018 was Acrisure LLC with 65 announced transactions. Acrisure is a PE backed firm, with investors including Blackstone Management Group, ABRY Partners, Veronis Suhler Stevenson, and Genstar Capital. BroadStreet Partners Inc. was the second most active with 37 announced transactions. BroadStreet’s primary investors are Ontario Teachers’ Pension Plan and Century Equity Partners.

Announced Deals (U.S. Transactions)

Note: All transactions in this presentation are announced deals involving public companies, private equity backed brokers, private companies, banks, insurtech companies (2017-2018 only) as well as others including private equity groups, underwriters, specialty lenders, etc. All in scope prior years are static as of 12/31 of given year. YTD 2018 data is as of July 31, 2018. All targets are U.S. only. This data displays a snapshot at a particular point in time and has not been updated to reflect subsequent changes in prior years, if any. MarshBerry estimates that only 15%-30% of all transactions are actually made public. Past performance is not necessarily indicative of future results. Source: S&P Global Market Intelligence, Insurance Journal, and other publicly available sources

50 | INSURANCE JOURNAL | FEBRUARY 18, 2019

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AssuredPartners, backed by Apax Partners, closed 34 deals in 2018, as did Alera Group, backed by Genstar Capital. Arthur J. Gallagher & Co., a publicly traded firm, rounded out the top five, with 30 announced closed transactions. These top five firms completed slightly more than one-third of all announced transactions in 2018. Most of these firms were also in the top five of buyers in 2017, indicating that their voracious appetite for insurance firm acquisitions has continued. The next five, to round out the top 10, were Hub International Limited (PE backed) with 28 transactions,

Brown & Brown Inc. (publicly traded) with 24 deals, NFP Corp. (PE backed) with 18 deals, Seeman Holtz Property and Casualty Inc. (PE backed) with 17 deals, and OneDigital Insurance (PE backed) with 16 deals. In total, the top 10 acquirers of 2018 completed just over half of all the deals announced for 2018.

Move to National

The acquired firms (the sellers) were located across the country, but nearly half of deals occurred with agencies located in California, Texas, Florida, Massachusetts, and New York. This isnâ&#x20AC;&#x2122;t surprising

given the population and number of firms in those states. Acquirers are aggressively seeking to build out their organizations across the country. While many began with a regional approach, most have moved to a national reach and are now making acquisitions across the country from New York to California to Florida. In 2018, 53 percent of the seller firms were property/casualty insurance agency/brokerage firms, 22 percent were employee benefit focused firms, and 25 percent were multiline firms (writing both P/C and employee benefits). This trend held consistent with the percentages from 2017.

Merger Announced and Acquisition Activity Date Buyer Announced Date

7/2/18 7/2/18 7/2/18 7/2/18 7/3/18 7/3/18 7/5/18 7/6/18 7/9/18 7/9/18 7/10/18 7/11/18 7/12/18 7/13/18 7/13/18 7/16/18 7/17/18 7/17/18 7/18/18 7/18/18 7/18/18 7/20/18 7/23/18 7/27/18 7/27/18 7/29/18 7/30/18 7/30/18 7/30/18 7/30/18 7/31/18 7/31/18 8/1/18 8/1/18

Buyer

Brown & Brown, Inc. Holmes Murphy & Associates U.S. Employee Benefits Services Group, LLC World Insurance Associates, LLC AssuredPartners, Inc. Hub International Limited AssuredPartners, Inc. DOXA Insurance Holdings LLC Alliant Insurance Services Tokio Marine HCC Balsiger Insurance AssuredPartners, Inc. Digital Insurance, Inc. Brown & Brown, Inc. Digital Insurance, Inc. Arthur J. Gallagher & Co. Core Assurance Partners, Inc. Risk Strategies Company, LLC Integrity Marketing Group LLC Seeman Holtz Property and Casualty, Inc. Prime Risk Partners, Inc. Seeman Holtz Property and Casualty, Inc. Seeman Holtz Property and Casualty, Inc. ACE Financial Higginbotham & Associates, Inc. AssuredPartners, Inc. Exchange Underwriters, Inc. Investor Group Lovell Minnick Holdings LLC Ryan Specialty Group, LLC Crest Insurance Group, LLC FBinsure, LLC Acrisure, LLC Acrisure, LLC

Source: S&P Global Market Intelligence, Insurance Journal, other publicly available sources and MarshBerry proprietary databases Disclosure: All deal count metrics are inclusive of completed deals with U.S. targets only.

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In addition, there does not appear to be any shift in the types of firms buyers are looking to acquire as their strategic/target acquisitions. They continue to focus on growing firms, with professional staff, infrastructure, proven profitability, a next generation of leadership and sales/producer talent. As 2018 wrapped up, the market showed no signs of a slowdown. Instead, there is a robust pipeline of deal activity underway for a busy start to 2019. Lucas is a senior vice president at MarshBerry. Email: Sarah.Lucas@ MarshBerry.com. Phone: 616-7238375.

July 2, 2018 31, 2018 - Dec. Seller Seller

Health Special Risk Inc. Cobb Strecker Dunphy & Zimmermann, Inc. BenTec Workplace Solutions Northern Insurance Group/Worldwide Risk Management, Inc. Safeguard Insurance Woodward Insurance Group Kincel & Company, Ltd. Chatham Insurance Services, Inc. CLS Partners, LLC WNC Insurance Services Inc. Branch of CKH Financial Insurance Agency Hutson Insurance Group Texas Financial Group, Inc. Coffman-Standridge Incorporated Beneflex Insurance Services, Inc. Jack Nebel Companies, Inc. E. L. Creech & Co., Inc Oxford Risk Management Group National Independent Brokers, Inc. Central Insurance Advisors LLC Joseph P. Price Agency, Inc. Transway Insurance Agency, LLC Lakes Insurance Group, Corp. Coastal Brokers Sellers-Patterson Insurance Southern Jewelry Insurance Beynon Insurance Agency PMC Home & Auto Insurance Agency, LLC National Auto Care Corporation ARC Specialty Brokerage Colorado Restaurant Insurance Agency, Inc. Jose S. Castelo Insurance Agency, Inc. Undisclosed Insurance Agency Undisclosed Insurance Agency

chart continued on page 52 FEBRUARY 18, 2019 INSURANCE JOURNAL | 51

Idea Exchange: M&A Review Merger Announced and Acquisition Activity Date Buyer Announced Date

8/1/18 8/1/18 8/1/18 8/1/18 8/1/18 8/1/18 8/1/18 8/1/18 8/1/18 8/1/18 8/1/18 8/2/18 8/3/18 8/3/18 8/6/18 8/7/18 8/8/18 8/9/18 8/9/18 8/9/18 8/10/18 8/13/18 8/14/18 8/14/18 8/14/18 8/16/18 8/17/18 8/20/18 8/20/18 8/21/18 8/22/18 8/22/18 8/28/18 8/28/18 8/29/18 8/31/18 8/31/18 8/31/18 8/31/18 9/1/18 9/1/18 9/1/18 9/1/18 9/1/18 9/1/18 9/1/18 9/1/18 9/1/18 9/1/18 9/1/18 9/1/18 9/1/18 9/1/18 9/1/18 9/1/18 9/1/18 9/1/18 9/4/18 9/4/18 9/5/18

Buyer

July 2, 2019 31, 2018 - Dec. Seller Seller

Armfield, Harrison & Thomas, Inc. Saul & Associates Baldwin Risk Partners Montoya & Associates BroadStreet Partners, Inc. Certain Insurance Assets BroadStreet Partners, Inc. Certain Insurance Assets Leavitt Group Enterprises, Inc. ComTech Specialty Group NFP Corp. Specialty Insurance Consultants LLC North Risk Partners LLC Benefit Solutions Inc. Partners Group, LTD. Mcdonald Insurance Group, Inc. Baldwin Risk Partners Atlas Insurance Marketing Brown & Brown, Inc. Brindley Insurance Agency Brown & Brown, Inc. J. P. Perry Insurance Seeman Holtz Property and Casualty, Inc. Jem Insurance Services, Inc. M.J. Hall & Company, Inc. Wholesale Connection Insurance Services' policy renewal rights Seeman Holtz Property and Casualty, Inc. Asenbrenner Insurance Agency Inc. Hub International Limited Assets of Ward Agency Norman-Spencer Agency, Inc. American Insurance Professionals, LLC Massachusetts Mutual Life Insurance Company Quilt Insurance Agency, LLC Bregal Sagemount Align Financial Group, LLC Higginbotham & Associates, Inc. Colt Risk Management Services, LLC Hub International Limited Kilbride & Harris Insurance Services, LLC Liberty Company Insurance Brokers Mitchell & Mitchell Insurance Agency, Inc. Higginbotham & Associates, Inc. Hull Agency Insurance Alera Group, Inc. Barnes Insurance and Financial Services, LLC Kaplansky Insurance Agency, Inc. Lit-Flynn Insurance Agency TrueNorth Companies LLC Jewell Insurance Associates, Inc. Seeman Holtz Property and Casualty, Inc. Merchants Preferred Insurance Services, Inc. Foundation Risk Partners, Corp. Undisclosed Insurance Agency Huron Capital Partners, LLC Peterson McGregor & Associates LLC BroadStreet Partners, Inc. Book of Business Keystone Insurers Group, Inc. Coverra Insurance Services, Inc. Brown & Brown, Inc. Burke Group, Inc. Central Ohio Financial Services, INC Hopkins Insurance Agency, Inc. Arthur J. Gallagher & Co. International Employee Benefits Solutions, Inc. Countybank B. A. Bennett & Co Seeman Holtz Property and Casualty, Inc. Ritman & Associates, Inc. Foundation Risk Partners, Corp. Gallo-American-Calder Insurance Agency Alera Group, Inc. Champion Benefits Holman Insurance Services, LLC Murray Insurance Agency Inc. USI Holdings Corporation The Gaudreau Group, Inc. Acrisure, LLC Undisclosed Insurance Agency Acrisure, LLC Undisclosed Insurance Agency Acrisure, LLC Undisclosed Insurance Agency Acrisure, LLC Undisclosed Insurance Agency Acrisure, LLC Undisclosed Insurance Agency Alera Group, Inc. Assets of VantagePoint BroadStreet Partners, Inc. Certain Insurance Assets BroadStreet Partners, Inc. Certain Insurance Assets Easley Hedrick Insurance & Financial Brandon Scearce Insurance Agency Easley Hedrick Insurance & Financial Eric Arthur Jr. Insurance Services Inc. Easley Hedrick Insurance & Financial Moncure Insurance Agency Inc. Easley Hedrick Insurance & Financial Roy R Yeatts Jr. Easley Hedrick Insurance & Financial Sam Nichols Hub International Limited Cash & Associates, Inc. Insgroup, Inc. Fred Brown & Companies Vizance, Inc. Sparks Insurance, Inc. Brown & Brown, Inc. Gold Circle Benefits Brown & Brown, Inc. AC&S Financial Services Arthur J. Gallagher & Co. Wheatman Insurance Services LLC Digital Insurance, Inc. Marder Benefits, Inc. AssuredPartners, Inc. Ranew Insurance Agency, Inc.

52 | INSURANCE JOURNAL | FEBRUARY 18, 2019

chart continued on page 53 INSURANCEJOURNAL.COM

Merger Announced and Acquisition Activity Date Buyer Announced Date

9/5/18 9/5/18 9/5/18 9/5/18 9/6/18 9/6/18 9/6/18 9/10/18 9/10/18 9/10/18 9/12/18 9/13/18 9/13/18 9/14/18 9/17/18 9/17/18 9/18/18 9/18/18 9/18/18 9/19/18 9/20/18 9/21/18 9/21/18 9/24/18 9/25/18 9/26/18 9/27/18 9/28/18 9/30/18 10/1/18 10/1/18 10/1/18 10/1/18 10/1/18 10/1/18 10/1/18 10/1/18 10/1/18 10/1/18 10/1/18 10/1/18 10/2/18 10/2/18 10/2/18 10/3/18 10/3/18 10/5/18 10/8/18 10/8/18 10/9/18 10/11/18 10/11/18 10/11/18 10/15/18 10/15/18 10/16/18 10/16/18 10/18/18 10/18/18 10/19/18

Buyer

Brown & Brown, Inc. Hub International Limited NSI Insurance Group Digital Insurance, Inc. Arthur J. Gallagher & Co. Alliant Insurance Services Digital Insurance, Inc. AssuredPartners, Inc. AssuredPartners, Inc. Digital Insurance, Inc. Alera Group, Inc. AssuredPartners, Inc. EPIC (Edgewood Partners Insurance Center) Arthur J. Gallagher & Co. AssuredPartners, Inc. Kinney Pike Insurance Inc. Brown & Brown, Inc. Next Generation Holdings Ltd Worldwide Facilities, Inc. Bankers Insurance, LLC AssuredPartners, Inc. World Insurance Associates, LLC American International Group, Inc. Houston International Insurance Group Risk Strategies Company, LLC Risk Strategies Company, LLC A W Welt Ambrisco Insurance AssuredPartners, Inc. Acrisure, LLC Acrisure, LLC Acrisure, LLC Acrisure, LLC Alera Group, Inc. Alera Group, Inc. Baldwin Risk Partners BroadStreet Partners, Inc. BroadStreet Partners, Inc. Hilb Group LLC Hub International Limited J. Edwards Agency Seeman Holtz Property and Casualty, Inc. Alliant Insurance Services Sunstar Insurance Group, LLC Worldwide Facilities, Inc. Marsh & McLennan Companies, Inc. Sharpline Insurance Brokerages, LLC Acrisure, LLC Brown & Brown, Inc. Kapnick & Company, Inc Seeman Holtz Property and Casualty, Inc. Arthur J. Gallagher & Co. EPIC (Edgewood Partners Insurance Center) American Financial Group, Inc. BroadStreet Partners, Inc. Otterstedt Insurance Agency Arthur J. Gallagher & Co. Hub International Limited Seeman Holtz Property and Casualty, Inc. Digital Insurance, Inc. Private Investor - Bo Bittle

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July 2, 2018 31, 2018 - Dec. Seller Seller

Finance & Insurance Resources, Inc. Harman Agency, LLC Weinstein Insurance Services, LLC LMG International United Dealer Services, L.L.C. Harbor Group Consulting, LLC Tomorrow's Employment Concepts, LLC Roemer Insurance, Inc. Sunforest Transportation Insurance Group Inc. TDC Virginia Benefits & Risk Management, Inc. Burnham Benefit Advisors Winding Way Holdings Inc. Vanbridge LLC Rogers & Young Insurance Services, LLC Employee Benefits Business Parker Agency Vandroff Insurance Agency, Inc. Zodiac Insurance Services, Inc. McClelland and Hine Trucking Underwriters Inusurance agency assets Evolve Consulting Group Inc. Insure.net, LLC Glatfelter Insurance Group Creative Risk Underwriters Select Insurance Markets, LLP Preferred Personal Insurance Agency, LLP Fisher Insurance Agency Regal Aviation Insurance Undisclosed Insurance Agency Undisclosed Insurance Agency Undisclosed Insurance Agency Undisclosed Insurance Agency Distinctive Insurance GLB Insurance Group of Nevada S.S. Nesbitt & Company, Inc. Undisclosed Insurance Agency Undisclosed Insurance Agency DBR Group, Inc. New Gate Insurance Services The Johanson Agency Spencer Insurance Agency LLC Zande Group GIG of Missouri Draco Insurance Solutions Eustis Insurance &Benefits Genesis Asset Protection Undisclosed Insurance Agency FNI Management Group A. E. Mourad Agency, Inc. Allstar Insurance Wellington Associates, Inc. Total Management Corporation ABA Insurance Services Undisclosed insurance agency Sasco Insurance Services, Inc. Tyler Insurance Agency Jones Retirement Redel Insurance Agency Paradigm Group LLC Armstrong-Hailer Insurance Company

chart continued on page 54 FEBRUARY 18, 2019 INSURANCE JOURNAL | 53

Idea Exchange: M&A Review Merger Announced and Acquisition Activity Date Buyer Announced Date

10/22/18 10/22/18 10/22/18 10/22/18 10/22/18 10/23/18 10/24/18 10/24/18 10/25/18 10/25/18 10/25/18 10/29/18 10/30/18 10/30/18 10/30/18 10/30/18 10/31/18 10/31/18 10/31/18 11/1/18 11/1/18 11/1/18 11/1/18 11/1/18 11/1/18 11/1/18 11/1/18 11/1/18 11/1/18 11/1/18 11/1/18 11/1/18 11/1/18 11/1/18 11/1/18 11/1/18 11/1/18 11/1/18 11/1/18 11/1/18 11/2/18 11/6/18 11/6/18 11/7/18 11/7/18 11/8/18 11/12/18 11/14/18 11/15/18 11/20/18 11/20/18 11/26/18 11/26/18 11/26/18 11/27/18 11/27/18 11/27/18 12/1/18 12/1/18 12/1/18

Buyer

Arthur J. Gallagher & Co. Brown & Brown, Inc. NFP Corp. Digital Insurance, Inc. USI Holdings Corporation Hilb Group LLC Cross Insurance Gemspring Capital, LLC Ethos Media Network, Inc. Ethos Media Network, Inc. INSURICA Insurance Management Network Meadowbrook Insurance Group, Inc. Horace Mann Educators Corporation Reliance Global Group, Inc. Risk Strategies Company, LLC Leavitt Group Enterprises, Inc. Acrisure, LLC Hilb Group LLC Lee Equity Partners, LLC Ladenburg Thalmann Financial Services Inc. Acrisure, LLC Acrisure, LLC Acrisure, LLC Acrisure, LLC Alera Group, Inc. Arch Capital Group Ltd. Arthur J. Gallagher & Co. Ash Financial Holdings Group, Inc. BroadStreet Partners, Inc. BroadStreet Partners, Inc. BroadStreet Partners, Inc. BroadStreet Partners, Inc. BroadStreet Partners, Inc. BroadStreet Partners, Inc. First Bucks, LLC Foundation Risk Partners, Corp. Hub International Limited NFP Corp. NFP Corp. World Insurance Associates, LLC Arthur J. Gallagher & Co. Hub International Limited NFP Corp. AssuredPartners, Inc. DMS Insurance Holdings, LLC Alera Group, Inc. Brown & Brown, Inc. INSURICA Insurance Management Network Alera Group, Inc. Alera Group, Inc. Arthur J. Gallagher & Co. Alera Group, Inc. Arthur J. Gallagher & Co. Arthur J. Gallagher & Co. EPIC (Edgewood Partners Insurance Center) Integrity Marketing Group LLC CalNonprofits Insurance Center, Inc. Acrisure, LLC Acrisure, LLC Acrisure, LLC

54 | INSURANCE JOURNAL | FEBRUARY 18, 2019

July 2, 2018 31, 2018 - Dec. Seller Seller

Richter International Consulting LLC Hays Companies Cambridge Consulting Group, LLC Assurance Benefits Group, LLC Beneficial Insurance Services LLC Burns & Eustice Insurance Agency, Inc. Provider Insurance Group Fiesta Insurance Franchise Corporation EBS Insurance Brokers, Inc. U.S. Benefits Alliance Commercial Insurance.NET LLC Carol P. Rummel Insurance Agency Benefits Consultants Group, Inc. Commercial Solutions of Insurance Agency, LLC Arkin Yougentbob Associates, LLC Cascade Insurance Eastern Insurors LLC Aloisio Insurance Associates, Inc. McLarens, Inc. Certain assets of Four Seasons Financial, Group. Brier Payne Meade Insurance Inc. Undisclosed insurance agency Undisclosed insurance agency Undisclosed insurance agency Crisp Insurance Advisors, LLC McNeil & Co. Inc. Walsh Agency, Inc. Target Insurance Services, Inc. Book of Business Book of Business Book of Business Certain insurance Assets Certain insurance Assets Undisclosed insurance Agency Superior Benefit Plans, LLC Undisclosed insurance Agency Insurance Management Associates, Inc. Annette Willis Insurance Agency, LLC Benefit Administration Group, Inc. Amato Insurance Agency, LLC John R. Sharry, Inc. TAMRAC Group Inc. Fullerton Insurance Service, Inc. J.S. Clark Agency Inc. Assets of ANBTX Insurance Services Inc. Lively Insurance Brokerage Inc. Rodman Insurance Agency, Inc. McNeil & Co. Inc. Perspective Financial Group, LLC Orion Risk Management Insurance Services Inc. JP Tech Insurance Services Inc. Loretz Insurance Llc. Buckman Mitchell Inc. R.T. Beers & Company Insurance Services Inc. Book of Business Scott Riddle Agency, LLC Book of Business American Casualty Insurance Agency Undisclosed Insurance Agency Undisclosed Insurance Agency

chart continued on page 55 INSURANCEJOURNAL.COM

Merger Announced and Acquisition Activity Date Buyer Announced Date

12/1/18 12/1/18 12/1/18 12/1/18 12/1/18 12/1/18 12/1/18 12/1/18 12/1/18 12/1/18 12/1/18 12/1/18 12/1/18 12/1/18 12/1/18 12/1/18 12/1/18 12/1/18 12/1/18 12/1/18 12/1/18 12/3/18 12/3/18 12/5/18 12/7/18 12/7/18 12/7/18 12/10/18 12/11/18 12/11/18 12/11/18 12/11/18 12/11/18 12/12/18 12/12/18 12/12/18 12/12/18 12/12/18 12/12/18 12/13/18 12/14/18 12/14/18 12/17/18 12/17/18 12/18/18 12/19/18 12/20/18 12/20/18 12/24/18 12/26/18 12/31/18 12/31/18 12/31/18 12/31/18 12/31/18 12/31/18 12/31/18 12/31/18 12/31/18 12/31/18

Buyer

Acrisure, LLC Acrisure, LLC Acrisure, LLC Acrisure, LLC Acrisure, LLC Acrisure, LLC Acrisure, LLC Acrisure, LLC Acrisure, LLC Acrisure, LLC Acrisure, LLC Alera Group, Inc. Alera Group, Inc. BroadStreet Partners, Inc. BroadStreet Partners, Inc. Carlisle Insurance Agency, Inc. Dean & Draper Insurance Agency, LP Dean & Draper Insurance Agency, LP Hilb Group LLC Stahl & Associates Insurance, Inc. Brown & Brown, Inc. Hartford Financial Services Group, Inc. White Mountains Insurance Group, Ltd. AssuredPartners, Inc. Brown & Brown, Inc. Acrisure, LLC AssuredPartners, Inc. Arthur J. Gallagher & Co. Hilb Group LLC Hub International Limited Kaplansky Insurance Agency, Inc. Marsh & McLennan Companies, Inc. Risk Strategies Company, LLC Alera Group, Inc. Confie Seguros Insurance Services Confie Seguros Insurance Services Confie Seguros Insurance Services Confie Seguros Insurance Services Hub International Limited Hub International Limited Hub International Limited Ballator Insurance Group, Inc. Alera Group, Inc. Arthur J. Gallagher & Co. Hilb Group LLC Arthur J. Gallagher & Co. LM Funding America, Inc. TowerBrook Capital Partners L.P. NFP Corp. Hilb Group LLC Acrisure, LLC Acrisure, LLC Acrisure, LLC Acrisure, LLC Acrisure, LLC Acrisure, LLC AssuredPartners, Inc. AssuredPartners, Inc. AssuredPartners, Inc. FBinsure, LLC

July 2, 2018 31, 2018 - Dec. Seller Seller

Undisclosed Insurance Agency Undisclosed Insurance Agency Undisclosed Insurance Agency Undisclosed Insurance Agency Undisclosed Insurance Agency Undisclosed Insurance Agency Undisclosed Insurance Agency Undisclosed Insurance Agency Undisclosed Insurance Agency Undisclosed Insurance Agency Undisclosed Insurance Agency Bailey & Company Benefits Group, Inc. C.M. Smith Financial, Inc. Book of Business Book of Business Risk Innovations, LLC Bill Vawter & Company Painter Reichman & Co., Inc. Mackintire Insurance Agency, Inc. Morse Insurance Agency, Inc. Primm Associates Y-Risk, LLC KBK Insurance Group, Inc. Carriage Insurance Agency, Inc. Dealer Associates Inc. Undisclosed insurance agency Aviation book of business Captive Insurance Company Design and Operations Huckaby & Associates Nolen Associates Albert Burak Insurance Otis-Magie Insurance Agency RiskPro Global Partners Bailey & Company Affiliated Insurance Services Just Insurance & Tags Inc. Torres Insurance Texas Auto Insurance Agency Dadgar Insurance Agency G.P. Barich Insurance Agency Apex Insurance Benefits LLC Libertate Insurance, LLC The Avon-Dixon Agency Preston-Patterson Co., Inc. Bruce Crohn, LLC Pointer Insurance Agency, Inc. IIU, Inc. Orchid Underwriters Agency, Inc. Wright Insurance Agency H.J. Knight International Insurance Agency, Inc. Undisclosed Independent Insurance Agency Undisclosed insurance agency Undisclosed Insurance Agency Undisclosed Insurance Agency Undisclosed Insurance Agency Undisclosed Insurance Agency Darton & Company, Inc. Golden, O'Neill & Gebhardt, Inc. Torres Insurance Agency, Inc. Reid-Hoffman Insurance Agency Corp.

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FEBRUARY 18, 2019 INSURANCE JOURNAL | 55

My New Markets Accidental Death and Dismemberment

Market Detail: Charity First (www.

charityfirst.com) offers coverage for volunteers and/or participants of nonprofit organizations while participating in approved and supervised activities. Pays for ER visits, hospitalization, recovery period for the injury and more. Products are subject to availability and qualifications by state. Available limits: As needed Carrier: AIG States: All states Contact: Frank Tarantino at 415-5364037 or e-mail: frank_tarantino@charityfirst.com

Household Goods Movers - Cargo

Market Detail: TCB Insurance Programs

(www.tcbinspro.com) is a wholesale insurance broker with a market for household goods movers and motor truck cargo coverage. No appointment required. Available limits: Minimum $5,000, maximum $50,000 Carrier: Unable to disclose, non-admitted States: All states Contact: Thomas Bradshaw at 574-5838661 or e-mail: thom@tcbinspro.com

Labor Unions

Market Detail: laborinsurance.com is a

division of the NGL Group that specifically addresses the needs and concerns of officers and directors of labor unions, and the millions of working men

and woman across the U.S. Partners Jeffrey Greenfield and Ken Hehir, along with the management team, combine more than 200 years of insurance and financial experience to provide guidance, leadership, and options. Available limits: As needed Carrier: Call for more information States: All states except Alaska and Ks. Contact: Ken Hehir at 516-599-1100 or e-mail: kenh@nglgroup.com

For-Hire, Commercial Auto

Market Detail: Helios Protection (www.

heliosprotection.com) offers coverage for taxi cab, limos, black cars, commercial fleets. Helios Protection Inc. (Helios) is a rapidly growing reinsurance platform specializing in commercial auto, trucking and specialized niche program business. It focuses on middle-market businesses ($100 million to $500 million in revenue) that are spending more than $1 million a year insuring their business against unexpected losses. Available limits: Minimum $30,000, maximum $1 million Carrier: Worth, admitted States: Texas only Contact: Luke Sweetser at 214-725-7314 or e-mail: lms@helioscoverage.com

Pizzerias and Delivery

Market Detail: Koele Inc. (ww.mypizzainsurance.net) offers a full suite of insurance products dedicated solely to pizzerias and pizza delivery stores. Available limits: As needed Carrier: Unable to disclose States: All states except Alaska and Hawaii Contact: Chris Kelley at 712-441-1366 or e-mail: chris@koeleinc.com

Miscellaneous Professional Liability Market Detail: Cooper & McCloskey

(www.cmiprorisk.com) offers miscellaneous professional liability coverage for: answering services; auctioneers; business managers; collection agents; consultants; escrow agents; franchisors; mortgage brokers; printers; public relations firms; training consultants; and more. Available limits: As needed Carrier: Unable to disclose States: Alaska, Ariz., Calif., Colo., Hawaii, Ill., Nev., N.Y., Ohio, Ore., Texas and Wash. Contact: Customer service at 414-4337700

Smoke Shops

Market Detail: Calco Commercial

Insurancesâ&#x20AC;&#x2122; (www.calcoinsurance.com) smoke shop insurance coverage features low annual premiums and coverage for theft included. Target accounts include: new ventures; existing accounts; claims history; smoke shops; hookah lounges; vape shops and vape lounges. Coverage includes: general liability; building coverage; business personal property; business income and extra expense; contingent business income; theft coverage; sign and glass coverage. Available limits: Minimum $500,000, maximum $2 million Carrier: Unable to disclose States: All states except Ala., Miss., and W. Va. Contact: Customer service at 800-8772525

This section brought to you by Insurance Journal's sister website:

Environmental Consultants

Market Detail: UCPM Environmental (www.ucpm.com) Insurance specializes in securing the broadest coverage. Available limits: As needed Carrier: Unable to disclose States: All states Contact: Customer service at 800-685-8185

www.mynewmarkets.com

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Idea Exchange: The Wedge From Barely Scraping By to Saving $65,000 a Year

rowing up in a small town in West Texas, I never thought it would be possible to be a millionaire.

My family lived By Randy Schwantz on a small 20-acre farm just north of Lubbock, Texas. Dad was a territory sales rep, selling automobile glass to body shops in the surrounding small towns. That wasn’t a very lucrative job, and I can assure you, he had no aspirations to be a millionaire. His only goal was to provide for his family. After I turned 23 years old, I left the farm and moved to Dallas. Dallas was an interesting place then. It had the Dallas Cowboys, with Tom Landry, a TV show named in its honor (Dallas) and one of the best college football teams in the country (SMU). It was an exciting place to be, especially for a young country boy like myself. I met my wife, Lori, in Dallas. I had a decent job, but soon after we got married, the savings and loan scandal brought down the real estate industry, collapsed the economy and put me out of work. Times were tough.

But, like most people, I scraped together enough jobs to pay our mortgage, put food on the table and go to an occasional movie. However, after a couple of years of marriage, my wife laid on some truth that rocked my world. She said, “I’m not having kids with you. I don’t think you can support them.” I convinced her that if we had kids, I would figure out a way to support them. Over the next six years, we had four daughters. I still had no clue how much money I needed to make, or save, to really provide for my family. Like most, I was just doing the best I could to get by. So, one day I decided to meet with a financial planner to finally figure out how much it would take to support my wife and kids. I told him I wanted to prepare in advance to pay for four cars, four college tuitions, four weddings and one retirement. He did his calculations for what felt like the longest 20 minutes of my life. And then he told me I needed to save $65,000 each year, for the next 20 years, if I wanted to do all that. I was blown away. At that time, I could only save $6,500 a year after all our expenses were paid and even that was a challenge.

Fortunately, around this time in my life, I ran into a guy who was starting a little mastermind group. We studied the book, Think and Grow Rich, together and a few of the key ideas stuck with me, like: • If you think you are beaten, you are. • If you think you dare not, you don’t. • Life’s battles don’t always go to the stronger or faster man, but sooner or later the man who wins is the man who thinks he can. Before I met with the financial planner, the only real money-related “goal,” (if you can even call it a goal), was to just provide for my family. It was the same goal my dad had. And it’s the same goal that many hard-working producers have. However, now that I had quantified that goal, I had to face reality. Saving $65,000 a year was 10 times more than my current savings level. I ran the numbers and found I’d have to earn an extra $100,000 gross to net $65,000 after taxes. As I thought about this, I wrestled between two competing thoughts: a) I could continue making excuses as to why I couldn’t do this… I’m an outsider… I have no college degree...

I have no mentor. Or... b) I could act on the principles I learned in my mastermind group and just do it. The thought of having to one day look in the eyes of my daughters and say, “I’m sorry, honey. I don’t have money to send you to college or to pay for a nice wedding,” motivated me. Fast forward 20 years, and I’m happy to report that I accomplished all the things I set out to do for my family back then… well, almost. There haven’t been four weddings yet. But I did pay for four cars, four college tuitions, our retirement is fully funded, and I’ve paid for one wedding so far. The reason I share this story with you is because I realized my story is not that unique. I’ve gotten to know a lot of producers over the past 25 years, and I see many have the same mindset I had. They tell me, “I just want to provide for my family.” But they haven’t taken the time to look at the numbers to figure out how much they should really be saving.

Financial advisors say we need 22 times our annual expense in our retirement account when we hang it up. That means that if you want a $100,000 lifestyle in retirement, you need $2.2 million in your retirement account. To reach that goal, all you have to do is save $50,000 a year for 20 years at 6 percent

and you’ll retire with $2,165,000. You can do it. Schwantz is founder of The Wedge Group. Phone: 214-446-3209. Website: www.thewedge.net. To learn more about a three-day Million Dollar Producer Masterclass in Cary, N.C., April 23-25, 2019, visit: April2019Event.com.

WHY MAKE RISK RISKIER? WSIA members are experts. When you need a custom solution to a nonstandard risk, look for help and choose a WSIA member to craft cost-effective, innovative solutions for your specialty and nonstandard risks. A recent Conning, Inc. analysis concluded that wholesale distribution does not increase the cost of the transaction to the insured, and you deliver an expertly tailored solution. No surprises.

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1/30/19 6/12/18 8:59 1:46 AM PM

FEBRUARY 18, 2019 INSURANCE JOURNAL | 59

Idea Exchange: Talent

Show Them the Money To Win the War for Talent I

n todayâ&#x20AC;&#x2122;s passive, candidate-driven market, employers do not have the upper hand in the recruitment process. Despite the rising By David E. Coons rate of retirement among experienced professionals, which is forcing organizations to increase their hiring efforts, real wages have remained virtually stagnant. According to the Bureau of Labor Statistics, average real hourly earnings increased by only 0.7 percent for insurance employees between December 2017 and December 2018, compared to 1.3 percent for the general economy. As a result, professionals today feel more and more inclined to switch jobs for higher salaries.

The problem is only going to intensify. With industry unemployment virtually nonexistent and organizational plans to increase staff this year, the insurance talent marketplace will become even more candidate driven as demand continues to outpace supply. It is crucial that the insurance industry start proactively revising its

compensation plans in order to gain a competitive position in the talent marketplace. Yet, many insurance organizations are unprepared to compete. Some still try to hire new employees without offering an increase in salary; however, lateral compensation is simply not motivating for candidates. Neither are minimal salary increases. In fact, candidates usually demand a 15-30 percent pay raise to even consider an offer. Often companies look inward for a cost-effective solution, utilizing their in-house resources and making internal promotions. But as the war for talent intensifies and the retirement rate increases, there may not be enough qualified candidates on those internal benches. Many companies also make a practice of counteroffering when their employees resign in favor of another job offer. They believe by providing higher salaries, employees will not only stay but will be more

motivated and show more productivity. Although this strategy may work some of the time, contrary to popular belief, counteroffers are rarely effective. A survey also shows more than half of all employees who accept counteroffers eventually change

employers within the following two years.

Cost of Vacancy

The cost of vacancy needs to be considered as well. When a position goes unfilled, employers are at risk of shifting workloads and INSURANCEJOURNAL.COM

compromising morale, while losing competitiveness and market share. The burden increases once organizations consider the additional cost of recruiting, onboarding and training new hires as replacements. Depending on the position, it may take up to a full year for new hires to fully adjust and fill the shoes of their predecessors.

It is important to remember adjusted salary levels should be aligned not only with industry competitors, but also with the general economy.

Competitive pay allows insurance organizations to retain their employees and avoid the burden of vacancy. Attractive compensation will also help organizations draw interest from more qualified candidates in less time, ensuring those roles are not left vacant for long. Salaries must be high enough to entice passive individuals to not only leave their current jobs but also to motivate current employees to stay in their positions. It is critical to view wage increases from a long-term perspective, as it may eventually be inevitable to maintaining their workforces.

and information. Some organizations rely on their competitorsâ&#x20AC;&#x2122; online jobs postings. But keep in mind there are no set standards in providing salary information for job postings. Advertised salaries are sometimes inflated with sign-on bonuses, anticipated commissions and other benefits. While they are a good place to start, they cannot be the ultimate resource for compensation research. Thankfully, many industry associations and research firms regularly conduct compensation surveys and provide the results to participants for a minimal fee. These can be valuable and accurate tools for employers to benchmark salary levels with that of their competitors. In addition, insurance organizations can gain substantial insight into compensation by establishing a relationship with a professional recruiting firm. The nature of their profession requires recruiters to have a deep understanding

of the labor market and its up-to-date trends. Partner firms can offer guidance on how to develop competitive compensation packages that will allow carriers to stand apart from the competition.

Revisit Compensation Strategies

In the rapidly evolving talent marketplace, it is important to revisit compensation strategies to attract and retain top professionals. The war for talent is only going to continue and only those who are willing to pay the right price for top talent will have access to them. To meet the expectations of their candidates and employees, organizations need to offer enticing salaries and thereby have a better chance of outperforming the competition for years to come.

Coons is senior vice president of The Jacobson Group, a provider of talent to the insurance industry. Phone: 800-466-1578. Email: dcoons@jacobsononline.com.

The Future of Work

It is important to remember adjusted salary levels should be aligned not only with industry competitors, but also with the general economy. The future of work will increasingly blur the lines between industries, prompting non-insurance organizations to attract insurance talent with transferable skills. It is best to adjust salary levels appropriately to ensure professionals are not inclined to leave the industry altogether. Unfortunately, organizations are often faced with making critical compensation decisions with limited resources USA12044.indd 1

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Idea Exchange: Minding Your Business

How to Conduct an E&O Self Audit

istakes happen. After all, we are human. That is why insurance agencies have agency errors and omissions (E&O) coverage.

Perform a Self-Audit

By Catherine Oak and

Even with the support of E&O coverage, an E&O claim can take its toll on the people involved and the agency. Dealing with an E&O claim will Bill Schoeffler take weeks to collect the information, meetings with lawyers, days of depositions, weeks of court time and perhaps a year or two of calendar time. The financial burden can also be a huge blow to the health of the agency. Individuals involved will face tremendous stress, which can impact the morale of the agency. That is why it is imperative for agencies to perform their best to avoid the devastation of an E&O claim. But how does an agency know if it is performing well? The best approach is to hire an outside consultant to conduct an E&O audit of the agency. Some E&O carriers will provide a 5 percent to 10 percent premium discount for a few years to agencies that perform such an audit. A consultant performing an effective audit will dive deep into the current agency procedures, culture, work habits and results to determine the relative E&O risk exposure for the agency. This audit could include benchmarking and recommendations for improvement. A good audit will not only be helpful to determine E&O risk exposure, but also provide insight to agency operations and industry standards so the agency can become a better business. 62 | INSURANCE JOURNAL | FEBRUARY 18, 2019

The next best approach is to conduct a self-audit. This should be done annually and can be a supplement to hiring an outside consultant. The agency would follow some of the major steps an outside auditor would perform. The downside with a self-audit is it loses an outside perspective as well as the tendency to overlook some bad habits because “that is the way we always do it here.”

The first step to a self-audit is to discuss the plan with the employees. They need to be fully engaged and understand the importance of transparency. The first step to a self-audit is to discuss the plan with the employees. They must be fully engaged and understand the importance of transparency. Let them know the purpose is to discover the good, the bad and the ugly. It is both an E&O audit, as well as a review to improve agency performance. Next, have all of the employees fill out an audit questionnaire, which asks questions to understand the employees’ perception of workflow, procedures, documentation and communication. The results will show the agency culture toward risk avoidance, as well as what the agency does well and what it does poorly. Next, perform a random audit on client files, proposals and company correspondence. There are a few ways to do this part. One can follow the documentation trail from the initial risk assessment phase, through the quoting and proposal phase into the binding of coverage, client service, policy changes and then renewal. Another approach is to just audit ran-

dom files for each of the phases of the client life cycle.

Audit Questions

The audit is to find that proper documentation occurred, communications were recorded and the procedure is consistent within the agency as well as industry standards. Questions during the audit should include: • Did the producer use a checklist with the client, which includes coverage offered and what was declined? • Did the client sign the checklist? • Does it appear the producer offered the correct coverage based on the client’s needs? Who completed the application and was it filled out correctly? • Did the client sign the application? • What markets were approached for insurance coverage and was that per agency procedures? • When was the policy issued and when was it sent to the client? • Were all communications with the client recorded? Were the proper codes used in the agency management system to record the communications. • How was the renewal process handled? Was the client consult- ed or was it renewed without discussing any changes? • When a claim is made, how did the agency handle it? Who contacted the insurance company? Was a suspense created for follow up? What were the communications? • Are clients that get notices of cancellation from direct bill carriers also notified by the agency? If so, is that everyone, all the time, or just select customers? • How are policy changes recorded? Are they confirmed in writing from the customer? INSURANCEJOURNAL.COM

• • •

Does the agency make changes to certificates to meet the client’s request? (Don’t do that) Are policies always reviewed and verified against the application? Is a checklist used? Is the agency in compliance with regulatory bodies and insurance company expectations?

Once an audit is complete, everyone must review the results and discuss how to improve workflow and steps to improve risk avoidance. The agency procedures should then be revised to incorporate the changes. Performing an in-house self-audit is helpful to agency owners and managers to get a better feel for what is happening in the trenches. Backlogs, time constraints and organizational structure are often at the root cause of E&O claims. There will be problems, so approach them as a learning experience. This is an exercise to improve the agency.

Summary

Be open to new ideas. Use outside resources to improve operations and risk avoidance. For example, IRMI has software to help evaluate a client’s gaps as well as checklists for producers. Contact Oak & Associates for a self-audit checklist for a nominal fee. Chrysalis Advisory Group can also perform an in-depth onsite E&O audit and provide an analysis that may allow a discount on your E&O premium. Oak is the founder of Oak & Associates and Schoeffler is an associate of the firm. The firm has offices in Bend, Ore., and Sonoma, Calif., and specializes in financial and management consulting for independent insurance agencies, including valuations, mergers acquisitions, clusters, sales and marketing planning as well as perpetuation planning. Phone: 707-935-6565. Email: catoak@gmail.com. FEBRUARY 18, 2019 INSURANCE JOURNAL | 63

Idea Exchange: Agency Management

Things to Consider When Charging Broker Fees

broker fee is a fee in addition to premium and commission that is charged by retail and wholesale insurance By Richard A. Brown and brokers and that ultimately is paid by the insurance buyer. Such fees are subject to two overriding rules: (1) they must be fully disclosed to the insurance buyer Jeffrey M. Klein and (2) they must be reasonable. In addition, broker fees may be subject to specific state insurance regulatory restrictions. For example, Florida caps retail broker fees at $35, whether admitted or non-admitted. In the surplus lines market, some states like

Minnesota treat broker fees as surplus lines premium and subject those fees to surplus lines premium tax. (The authors assume that the retailer has a “broker fee agreement” with the insurance buyer making full disclosure of all charges for all services, along the lines of “broker fee agreements” discussed in two previous Insurance Journal articles that address rebating.)

Retailers

Retail producers are busy people. A retail firm can get itself in trouble if no experienced broker is tasked with reviewing the firm’s existing broker fee agreements at least annually. Not only do regulatory requirements change over time, it is surprising how many inconsistencies, poor wording, and other glitches one will find that can give rise to consumer complaints, market conduct exams, other regulatory action or litigation because no one was

really paying attention.

Disclosure

Retailers bear the main burden of disclosure of fees and any other charges because they directly interface with the insurance buyer. Disclosure means full disclosure. Any retailer that tries to hide the ball by lumping commissions, broker fees, inspection fees or other charges together for the insurance buyer is setting itself up for regulatory scrutiny, as well as detailed audits, substantial refunds, fines and penalties. As a retail producer knowledgeable in the insurance business, what would you expect for broker fees and other fee disclosures if you were the insurance buyer? Do unto others what you would want them to do for you and you are probably home free. Consumer complaints to insurance regulators about failure to fully disclose

fees are serious and costly business. They also affect the brand and reputation of the producer. In addition to complaints lodged by the insurance buyer, such complaints can also be made by or stimulated by competitors. These complaints can tarnish a retailer’s otherwise sterling reputation in the marketplace, so the retailer almost certainly will require services of outside counsel. Not fun.

Reasonableness of the Fee

As an example, regarding inspection fees associated with inspections of the subject property, if the insurer requires an inspection, the retailer can charge a reasonable markup over the actual cost of the inspection. Charging the insurance buyer $1,000 for an inspection that cost $125 would be way off the mark. As a broker one should charge an amount you would consider to be reasonable if you were paying it. Some states may claim that there is a going “market rate” for inspections. That is not always true, but a reasonable “markup” should be in order. That markup may be somewhat higher if we are talking about cat-prone risks or other risks requiring a greater degree of underwriting. Applying common sense to such charges goes a long way. If the retailer pushes the envelope on charging unreasonably excessive fees, that eventually will come to the attention of insurance regulators. Remediation of a compliance issue will cost a lot more to fix than the value of the inspection or similar fees, plus the retailer will also have to refund those amounts. The retailer typically is not directly placing complex risks. Instead, retailers turn to wholesale brokers for market access and underwriting expertise.

Wholesaler Fees

Where retailers are not equipped to vet a specialty risk, they turn to wholesale brokers. The wholesaler is a specialist that knows how to package a risk so that it is suitable for insurance underwriters. Generally, the wholesaler does the bulk of the work to ensure that underwriters are provided with the appropriate information. And wholesalers are entitled to charge a wholesale broker fee for their underwriting efforts as well as access to insurance markets likely to entertain the risk. The retailer is primarily responsible for disclosure to the insurance buyer of wholesaler fees and charges. But, if the retailer fails to properly disclose, the wholesaler may be at risk for the retailer’s failure to disclose. In practice, most states are satisfied if the wholesaler fully discloses its fees and charges to the retailer. See, e.g., California Insurance Code Section 1623. There are few constraints on wholesale broker fees so long as they are not outrageous. But if the wholesaler charges exorbitant fees, it likely will lose retailer clients to the competition. In conclusion, lest you not be misled, states have varying regulations concerning broker and related fees. They also February 18, 2019 U.S. Specialty Insurance Company 13403 Northwest Freeway Houstoon, TX 77040 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. 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, 1000 Washington Street, Suite 810, Boston, MA 02118-6200, Attn: Financial Surveillance and Company Licensing within 14 days of the date of this notice.

vary on whether these fees are subject to premium tax. States also have differing regulations regarding stamping office fees and whether these also are subject to premium tax. Brown is an insurance regulatory attorney specializing in surplus lines matters for brokers and other industry participants. Website: www.InsuRegulatory. com. Email: RAB@InsuRegulatory.com. Klein is an insurance regulatory lawyer whose practice focuses on regulatory and government affairs matters for insurer, broker and banking clients. Email: JMKRegulatory@gmail.com. Website: www.JMKRegulatory.com

Advertisers Index Abram Interstate www.abraminterstate.com W4 Access Home Insurance www.accesshomeinsurance.com SC6 Applied Underwriters www.auw.com 2, 3, 68 Brecht & Associates www.brechtassoc.com SC4 California Earthquake Authority mvp.earthquakeauthority.com W1 EZLynx www.ezlynx.com 29 Foremost Insurance Group www.foremoststar.com 9 Golden Bear Insurance Company www.goldenbear.com 30 Hastings Mutual Insurance Company www.hastingsmutual.com M4 JM Wilson www.jmwilson.com S2, M2 Lighthouse Holdings, LLC www.lighthousepropertyins.com SC5 Louisiana Commerce & Trade Assoc. www.lctacomp.com SC7, S1 M.J. Hall & Company www.mjhallandcompany.com W8 Midlands Management Corporation www.midlandsmgmt.com SC2 Monarch E&S Insurance Services www.monarchexcess.com W7 Nationwide E&S www.wearenownationwide.com 5 Nautilus Insurance Company www.nautilusinsgroup.com 35 PSIC - Pacific Specialty Insurance Co. www.wwfi.com W3 Ryan Specialty Group www.ryansg.com 10, 11 Ryan Turner Specialty www.rtspecialty.com 7 SIAA www.siaa.net 17 Smart Choice Agents Program www.smartchoiceagents.com 67 Texas Mutual www.texasmutual.com SC1 The Hartford Insurance Group www.thehartford.com 13 United Fire Group www.ufgsolutions.com E1 Universal Service Agency, Inc. www.universalbonds.com 61 WSIA- Wholesale & Specialty Ins. Assoc. www.wsia.org 59

FEBRUARY 18, 2019 INSURANCE JOURNAL | 65

Closing Quote The Myth of Agency Multiples

W By David W. Tralka

As we start a new year, let’s all resolve to more fully appreciate what creates agency value and how markets determine price.

henever agency principals get together, the topic of agency valuations is sure to come up. Someone will start talking about an agency that sold at an unbelievably high multiple. Pretty soon, everyone’s nodding their head and saying there’s a killing to be made selling your agency. These types of discussions tend to be long on conjecture and short on facts. They remind me of the stories fishermen tell about the big one that got away. Rarely does anyone know the actual price that was paid for an agency. And even if they do, that doesn’t mean yours will sell for the same amount.

As we start a new year, let’s all resolve to more fully appreciate what creates agency value and how markets determine price. Mergers and acquisitions may still be going strong, but the steady increase in interest rates is likely to act as a governor on prices going forward. So if you really want top dollar for your agency when it’s time to sell, you need to realistically take stock of your firm and not let those dollar signs go to your head. There are different ways to look at value. Some buyers pay attention to revenue multiples, essentially commission income. Others look at EBITDA (earnings before interest, tax, depreciation and amortization), or cash flow. I’ve always felt the

revenue approach is flawed because it doesn’t take into account the cost of generating income. If you’re spending a dollar to make a dollar, that’s not a very efficient operation. The cash-flow model is a better indicator of the quality of an agency’s earning power. That is, your agency’s value comes from your ability to drive sustained cash flow over time. Regardless of how you measure value, higher-performing agencies will always sell for a premium. It’s no different than when the best maintained house in the neighborhood goes on the market. You know it’s going to sell for top dollar. Which brings me to another point: The market is the price at which a buyer is willing to pay a seller. You may think your fixer-upper agency is worth a lot more, but if no one wants it at that price — well, it’s not really worth that, is it? Those high prices you keep hearing about are usually when a large strategic buyer has purchased an agency because it folds nicely into its portfolio. They may not apply to your situation. So how do you increase value so you will get the highest price possible? Here are six tips:

1. Find out what your agency is really worth. Hire a pro-

fessional to help you assess your firm’s value. This will give you an objective starting point for improving your agency.

2. Build value in your agency.

Invest in new office systems

and improved servicing. Hire top talent; add producers. This is called organic growth, or sweat equity, and it’s the best way to increase the value of your firm. 3. Buy something. You can also grow inorganically by acquiring a book of business or merging with a smaller agency. Look for opportunities that make strategic sense and that you can afford. 4. Become more efficient. Not every revenue dollar is equal. Look for income streams that don’t cost as much to support. Consider ways to automate processes and streamline marketing and servicing. Reduce unneeded expenses. With each business decision, ask yourself: “How does this affect my cash flow?”

5. Groom your successor.

Have a plan for how you will transfer ownership. 6. Don’t wait. Time is a big factor in creating value. The more time you have, the more value you can create. Ten years is a good window. Don’t wait until you’re ready to retire. Country-club multiples, as I like to call them, are fun to talk about — but they should never form the basis for determining the value of your agency. Resolve to get real about the worth of your agency in 2019. Don’t let opportunity slip away because you failed to build value in your firm. Tralka is the president and CEO of InsurBanc, a division of Connecticut Community Bank, N.A. INSURANCEJOURNAL.COM

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