WWW.INSURANCEBUSINESS.CA ISSUE 2.5 | $6.95
N O S R E C U D O R P
s A G M Canada’s producers speak out on MGA performance
LEADING AVIVA SHARON LUDLOW ON STAYING ONE STEP AHEAD OF RISK
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ROUNDTABLE IGNORE TECHNOLOGY AT YOUR PERIL, SAY THE EXPERTS
SELLING YOUR BUSINESS TOP STRATEGIES FOR MAXIMIZING YOUR SELLING PRICE
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CONTENTS
Contents 8
October 2014
PROFILE
Sharon Ludlow, Aviva Aviva Canada’s Sharon Ludlow talks about the importance of being ready for emerging risks
22
ROUNDTABLE
Leading the technological revolution A high-level roundtable of brokers and industry experts provides key insights on how the industry can capitalize on emerging technology
12
COVER FEATURE
Producers on MGAs Producers weigh in on what they’re looking for in an MGA – and how their MGAs stack up
FEATURES 6 | Case study: Frank Cowan How the move to paperless documentation revolutionized one MGA’s workflow 20 | Continuity planning RiskAssist’s Diane Baker offers guidance for preparing your clients for the unthinkable
REGULARS 4 | Statistics What your SME clients need 46 | Favourite things Suzanne Pountney, London Insurance Brokers Association 48 | Expert advice Helping small businesses
BROKER ADVICE 30 | Succession planning Find out what the major insurance firms are looking for in an acquisition 36 | Leadership This Navy SEAL’s insights on mental toughness can help you overcome any business obstacle 40 | Marketing: 7 deadly sins Are you at risk of committing one of these big no-nos of business marketing? Here’s how to steer well clear 44 | Getting the best price for your brokerage Start planning now and you’ll reap the rewards when it’s time to sell OCTOBER 2014 | 1
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EDITOR’S LETTER
COPY & FEATURES SENIOR EDITOR Vernon Clement Jones ASSOCIATE EDITOR Donald Horne JOURNALISTS Caitlin Bronson, Brent Harrison, Tim Garratt, Maryvonne Gray, Ryan Smith CONTRIBUTORS Diane Baker, Julie Pingree, Jamie Thomas, Craig West COPY EDITOR Clare Alexander
ART & PRODUCTION ART DIRECTOR Daniel Williams SENIOR GRAPHIC DESIGNER Joenel Salvador GRAPHIC DESIGNERS Marla Morelos, Kat Vargas, Loiza Caguiat
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CORPORATE PRESIDENT & CEO Tim Duce OFFICE/TRAFFIC MANAGER Marni Parker EVENTS AND CONFERENCE MANAGER Chris Davis DATABASE MANAGER Gabriel Toledo CIO Colin Chan COO George Walmsley GLOBAL CEO Mike Shipley
Editorial enquiries tel: 416 644 8740 • Ext: 231 donald.horne@kmimedia.ca Advertising enquiries tel: 416 644 8740 • Ext: 244 eric.langille@kmimedia.ca Subscriptions tel: 416 644 8740 • fax: 416 203 8940 subscriptions@kmimedia.ca KMI Publishing 312 Adelaide Street West, Suite 800 Toronto, Ontario M5V 1R2 insurancebusiness.ca The Insurance Business brand represents the best in B2B publishing for the insurance industry across Canada, the US, Australia and New Zealand, in print and online. International offices Sydney, Australia Editorial: tim.garratt@keymedia.com.au Advertising: sophie.knight@keymedia.com.au Denver, USA Editorial: brent.harrison@keymedia.com Advertising: james.donnellan@keymedia.com
MGAs ignore technology at their peril Managing general agents may be worrying that as technology evolves, they’ll get pushed out of business between the carriers and brokers. A recent groundbreaking survey of producers conducted by Insurance Business Canada would suggest MGAs are on safe ground for the time being. Indeed, brokers were vociferous on how important the role played by MGAs still is, particularly with regard to niche markets. Responses frequently noted, unsurprisingly, that MGAs represent a vital access point to specialized or nonstandard offerings that complement brokers’ own markets. Also unsurprisingly, when asked what they rate as most important in their relationship with MGAs, brokers most commonly named claims handling and underwriting relationships as key criteria, and MGAs – albeit to varying degrees – were found to be performing reasonably well in these areas. Much more surprising – perhaps worryingly so – was both parties’ apparent lack of concern with that same question of technology. Brokers rated technology as the least important of seven MGA criteria presented to them, and performance of MGAs in the area of technology also ranked right at the bottom of the pile – seventh out of seven. Yes, MGAs certainly need to have knowledgeable underwriters and be quick and responsive when it comes to quotes, binders and claims, but is your MGA playing its part on the technology front to make its partnership with you live up to its potential? The Insurance Business Canada survey – turn to page 12 of this issue for the important findings – is just the latest among many signals to insurance providers that if they want to succeed in today’s market, they must focus on providing a quick, streamlined approach to claims and underwriting. And in today’s interconnected world of tablets and 4G, that’s probably going to mean technology. So now is a great time for you to ask your MGA what technology is out there and how well they’re implementing it. Do that and act on the answers, and no one will be finding themselves pushed out of business any time soon. The team at Insurance Business Canada
Auckland, NZ Editorial: maryvonne.gray@keymedia.co.nz Advertising: sophie.knight@keymedia.com.au Copyright is reserved throughout. No part of this publication can be reproduced in whole or in part without the express permission of the editor. Contributions are invited, but copies of work should be kept, as IB magazine can accept no responsibility for loss.
CONNECT
Contact the editorial team:
donald.horne@keymedia.com
2 | OCTOBER 2014
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Smart Solutions for Knowledge-Based Industries
Think Creechurch Intelligent Insurance
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WHAT SMALL TO MEDIUM-SIZE CLIENTS NEED
Y t 1 e i
BUSINESS INTERRUPTIONS: Technology is identified as the trigger for business disruption.
23
19
%Keeping up with
%
Network, broadband or computer issues
8
12
%Staff absenteeism
%
WHAT
YOU CAN DO
4 2
new technology
Water-related damage to business property
Business interruptions are hard to predict or prevent. Help clients deal with the sudden loss of productivity with a risk-management plan that stresses the role of issuance in minimizing the impact of disruptive events on business continuity (22% plan to increase insurance coverage and 8% plan to obtain business-interruption insurance).
CRIME: About 3 out of every 10 small to medium-size businesses have been affected by a criminal activity. Many plan to boost tech security as a deterrent.
18 % 15% 15% 14 %
Credit card or cheque fraud
Employee misuse of assets
Theft or burglary by non-employees
Vandalism
WHAT
YOU CAN DO
04-05_Stats.indd 6
To help limit or negate the financial impact of a security breach, support clients with a mitigation strategy that includes credit card and cheque-fraud insurance (12% plan to increase insurance coverage).
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Your small to medium-size business clients know they face key risks now and in the future, according to RSA’s recent Small Business Analysis Research. But only 1% of decision-makers look to you, the insurance broker, for support. Help entrepreneurs move beyond profit and productivity concerns by showing how insurance plays a key role in business continuity.
KEY REGULATORY AND COMPLIANCE COSTS: Tax administration tops the list of the regulatory and compliance issues leading to the biggest unforeseen costs for small businesses.
42% 28
8% 8
%
WHAT
%
Tax, GST or HST administration
Customs and excise
Health and safety
YOU CAN DO
Financial regulations and reporting requirements
Become a loyal ally and differentiate yourself by building a network of solution providers outside of your expertise who can help your small to medium-size clients.
TALENT MANAGEMENT: Key findings about talent management and succession planning uncover ways brokers can either help their clients directly or through strategic partnerships with experts in relevant areas.
WHAT
79 65% 59% %
Provide training and development for staff
Provide employee education
YOU CAN DO
Investigate new recruitment tactics
Talk to your clients about specific risk-management measures and insurance options that address the challenges of attraction and retention (4% plan to implement succession planning).
FINANCIAL FACTORS: The majority of small to medium-size
businesses face financial factors that are impacting their businesses.
80 67 % 35
%
%
WHAT
YOU CAN DO
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say the primary impacts of increased competition include reduced profit margins, while 64% cite constrained business growth have been impacted by at least one financial factor over the past 12 months of those affected by at least one financial factor identified increased competition as the most serious
By teaming up with experts such as a tax lawyer or an estate planner, brokers can become better sources for specialist advice and play a greater role in their clients’ financial lives. Collaborative networks present greater opportunities for sharing business prospects through referrals and recommendations.
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CASE STUDY / ELECTRONIC MANAGEMENT SYSTEMS
Getting productive by going
PAPERLESS
By administering underwriting documents electronically to streamline endorsement processing, this municipal and specialty insurance MGA has improved internal workflow Underwriting documents are the lifeblood of any insurer, but prior to installing an electronic document management system, Frank Cowan Company made room for row upon row of filing bays containing tens of thousands of files. Space was at a premium; documents were difficult to locate; and the hybrid of email, printed documents and those on a central server resulted in significant tracking and retrieval challenges and delays. At any time, up to 25 underwriters from separate teams in two office locations could be trying to access correspondence, rate sheets and risk management details. In addition, auditors would need occasional access to the material, requiring a time-consuming effort to review accounts, pull documents, and organize paper files up to six inches thick. “We were basically in the dark ages,” says Denise Blake, intermediate underwriter for the company’s public entity division. So the company selected Synergize by Microdea Inc. for its electronic document management system – a decision that was based in part on the success that a sister insurance firm had experienced with the same product since
implementing it in 2004, says Blake. Using Synergize, Frank Cowan Company stores scanned images of underwriting documents in the secure document repository, providing staff with shared real-time access to the files and full tracking ability. Blake and her team identified four different workflows – unique silos with particular sets of business processes – consisting of endorsements, renewals, new business and cancellations. By automating the route that documents must take through predefined processes via the appropriate department, they can see at a glance the status of any of 11 different document types and 20 document sub-types, says Blake. Add-in buttons inside Microsoft Word, Excel and Outlook mean that with one click on the ‘Save to Synergize’ button, a document, spreadsheet or email message is automatically saved to the system with indexing information included. A unique requirement of Frank Cowan Company was the ability to use a ‘split queue’ to push a single document through to two different places at the same time – for example, to Property and Casualty.
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Plans for the future include an automatic email notification, says Blake, so that if a document is sitting without action for a predetermined time period, an email is sent to query. But just being able to access the underwriting documents electronically has resulted in big process improvements for Frank Cowan Company. “It’s quick and easy to put a document into Synergize, and we have streamlined endorsements processing,” says Blake. “We can process a greater volume of quotes more quickly with the same number of underwriters, and customer service is much more efficient because in Synergize I can find everything instantaneously.” By using Synergize, documents don’t get misplaced, more of the account detail is captured, and auditors can look at a snapshot of the entire term of the policy, says Blake. A key result for the company has been improvement to their own internal workflows; backlogs are identified early, and procedures are adjusted as required. And as for the rows of filing cabinets? “Now we don’t have hordes of paper files,” says Blake.
“We can process a greater volume of quotes more quickly with the same number of underwriters, and customer service is much more efficient because in Synergize I can find everything instantaneously”
Frank Cowan Company is a leader in providing specialized insurance programs, including risk management and claims services for municipalities and public service, healthcare, education, community, children’s and social service organizations across Canada. Founded in 1927, Frank Cowan Company is a Managing General Agent (MGA) with the authority to write business on behalf of specific strategic insurers.
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PEOPLE / SHARON LUDLOW
THE RISK FOREFRONT
Being on the cutting edge of risk for things like driverless cars, cyber risk and today’s rapidly changing technologies is a key challenge for the industry, says Aviva Canada’s Sharon Ludlow
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Insurance Business: There is a push for brokers to embrace paperless solutions, one of those being cloud technologies. What are the potential dangers out there? Sharon Ludlow: We need to be careful with what comes with that technology. As we’ve seen in the news recently, there are probably more issues with cloud computing and cloud storage than we might have considered before. And as companies start to use the cloud for storing data, we need to be mindful of what that looks like. Technology can be used to drive us forward incredibly fast, but we need to be mindful of the new risks that pop up as we zoom down that road. We as an industry have to be on the right side of privacy laws in every jurisdiction we operate, and we need to be very mindful of our customers – not just their rights, but their tolerance for sharing of information. We need to have that top of mind.
In the world in which we operate, clearly the decisions and consumer preferences are in the hands of the customers, and we need to look through that lens to provide those services in the same manner.
IB: Is the internet where these decisions are being made? SL: Many organizations before us have used the internet, or have an online presence or use social media. At Aviva, we have been very good at using social media for the Aviva Community Fund (ACF), which has a phenomenal outreach to customers across Canada. Last year, the community rallied around that, and the ACF was phenomenally successful in doing that through social media. And once you have those customers, you have them for life. The next question is: How do we broaden that and maximize it to its greatest potential?
IB: What can a broker’s commercial clients learn
IB: Last year you were at the forefront beating the
from this? SL: There is a famous quote – it isn’t mine, but I will try to paraphrase it here: There are two types of companies out there – those that have been breached, and those that have been and don’t know it. Clearly the underlining sentiment is that we have to remain vigilant and keep looking for those risks.
drum for a nationwide overland flood policy. Where does that sit now? SL: I remain as a director on the board of the IBC [Insurance Bureau of Canada], and in that capacity I remain as vigilant as ever in trying to develop an appropriate flood policy for Canada. Nothing has stopped there. In fact, we continue to make progress. There are still some of what I call ‘foundational pieces’ that need to be put together. There is a fair amount of activity and progress that is being made as an industry with other stakeholders like governments – so I think that is very much a positive. We saw the federal government earmark some funding earlier this year in its budget, so clearly that is a signal in the right direction, that they’re willing to listen and work with the industry to develop this framework.
IB: Let’s get to the question everyone is asking: Why the move from Swiss Re to Aviva? SL: Let me start by saying I think both of the organizations have very powerful brands. Very different organizations, clearly, but there are very interesting opportunities at Aviva. My background is quite varied in insurance, including life, commercial, P&C and reinsurance. At Aviva, there is a very large personal lines operation – so there is a lot of opportunity for me to learn, but a lot of value and expertise that I can bring to the table from my background and prior experience.
IB: Where do you want to take Aviva in the next decade? SL: We talk about taking Aviva to the next level. Operationally and fundamentally, the metrics are very good in this organization. We’re looking globally at what our offering is to customers: Are we being as customer-centric as we can be? How can we do things a little bit better and with a little more customer insight?
“Technology can be used to drive us forward incredibly fast, but we need to be mindful of the new risks that pop up as we zoom down that road”
IB: How important is it for all levels of government to step up to make sure insurance companies aren’t left on the hook? SL: It is incredibly important for governments, as a general concern for society, and in respect to their own balance sheets. The more governments get involved in preventative measures, the more they will find themselves in a much better position should a catastrophe occur. There are statistics out there on the amounts of disaster fund payments that have been paid from the OCTOBER 2014 | 9
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PEOPLE / SHARON LUDLOW
“I know full well that when you submit a claim within hours of the policy effecting, the first thing it raises is an issue”
federal to provincial governments, and those have been astronomical through the years. So clearly, becoming involved early and setting out all the right preventative measures to protect their own balance sheet is in everyone’s best interest.
IB: Do you see yourself as a role model – not just for young women entering the industry, but for everyone? SL: I guess I’m somewhat humbled to be considered as such. If ‘role model’ is defined as someone who worked hard, wasn’t afraid to take on new challenges or is willing to move laterally – I guess by definition I fit that mold. There isn’t one single recipe for anyone who is looking to progress in this industry, or in his or her career generally.
IB: Many elite brokers have identified strong mentors in their past as crucial to their success. Do you have any mentors or influential figures who have made you the woman you are today? SL: I think there may be too many to list. I’ve been in both the Life and the P&C industries and in Reinsurance, and there have been individuals and groups of people who have been very influential in my life. Without naming all the names – because I’m sure I would offend someone by leaving them out – I would say there are a number of individuals from whom I’ve learned some strengths, and I’ve also learned by observation some things that don’t work so well, that you take away and consider. Whether they were teachers or colleagues, I’ve learned to take on something new through life. It doesn’t always have to be a vertical ladder; it can be a lateral move, and absolutely work hard and don’t be afraid to learn something new along the way.
IB: Where should the insurance industry be looking to draw new talent? SL: I think you can start as early as you want. My son, who is a teenager, is actually quite fascinated by the industry – mostly because he hears me talking about so many interesting things related to my work. I think that we shouldn’t let today’s generation bypass this industry by allowing them to think that insurance is something mandatory, boring or benign – can’t see it, feel it or touch it. In fact, we should be promoting all of the benefits of an interesting and complex business that services virtually every industry and individual. I think if we colour that picture in a way that shows the integrated nature of insurance in our everyday life and in our industry, then we might be able to tap into the interest level of those kids at the high school level, and nurture that through their higher education. My son Jonathan has just started Grade 11, and he’s about to become a licensed driver. So laughingly in my household we say that driverless cars can’t come soon enough.
IB: Companies like Desjardins have made some bold moves to better position themselves in the Canadian market. What is Aviva looking to do in the future? SL: I think I said earlier that Aviva has a very strong foundation and metrics and performance to date. As we look forward, we are looking at what the right answer is for us; that could be things that include more organic growth, or it could be widening and broadening our customer outreach –how we reach our customers and the products we offer them. What we want to be is top of mind and relevant to the customer.
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We will always explore any kind of opportunity that there is in the marketplace.
IB: Mike George of Trisura had a great story about being a chicken catcher as a teenager. What was your first job? SL: My first summer job wasn’t terribly exciting. It was making pizzas at the local pizza parlour in Toronto – standing there, flipping the dough in the heat of a 40º Celsius kitchen. It had a dozen tables, a small little place – not a chain restaurant. A cute spot – good pizza!
IB: How about an interesting claim? SL: The interesting insurance claim was something more recent; in my family we had a new auto policy and ended up with a claim within hours of the policy going into effect. It was an interesting adventure to see that play out, and it was a phenomenal customer experience. I know full well that when you submit a claim
within hours of the policy effecting, the first thing it raises is an issue. That’s why I sort of smirked when it happened – but only from an insurance point of view.
IB: What challenges does the industry face as a whole today? SL: I’ve spoken on this issue a couple of times in the last few years. As an industry, we absolutely need to be at the forefront of risk. We need to know what they are, to be able to predict what those risks are. I’ve talked about driverless cars, cyber risk. Back then, they were emerging. Now you could argue they are here. We need to be at the forefront so we understand the complexities of risk, and we can put together appropriate insurance risk products for our customers. I used the word ‘relevant’ earlier. We need to be relevant for customers, and doing that means we need to be at the forefront of risk, particularly as technology continues to change so rapidly.
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COVER STORY / MGA SURVEY
PRODUCERS SPEAK OUT ABOUT
MGAs
Agents and brokers shared with us what they love – and what they hate – about the current state of MGAs in Canada
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Fast claims and underwriting turnaround and a high level of responsiveness are what producers look for in a managing general agency relationship, according to a new survey conducted by Insurance Business Canada. Hundreds of producers participated in the survey, which asked them to rate the importance of key aspects they look for in an MGA, including premium pricing, automation, underwriting turnaround/responsiveness, reputation, marketing support, claim turnaround/responsiveness and range of carriers. The recent survey, conducted via an online questionnaire, also asked producers to rate the performance of MGAs and provided them an opportunity to give specific details as to how they think their MGAs could improve their service and offerings. Respondents certainly weren’t shy about letting us know what they thought. Interestingly, the responses were fairly spread out, with some commenters praising their MGAs and expressing satisfaction, while at the same time several survey respondents took the opportunity to let us know where they felt MGAs are coming up short. In terms of general trends, differentiation was a point brought up by several respondents – as one detailed, “each MGA has different strengths.” Reputation was also highlighted, as many believed dealing with ‘A’ rated MGAs really enhanced the process across the board. “I am personally very pleased with the experience levels of the MGAs that we work with and that their knowledge of their own product lines provides good insight at the early stages of solicitation of accounts as to potential for satisfactory closure,” stated one positive respondent. Conversely, concerns were raised in relation to product offerings, with some MGAs broadcasting too many lines of business, resulting in quote failures on top of time and effort wasted. Regardless, MGAs do have a fundamental role in placing risks that are usually hard to obtain, and they play an important part in the industry for general business and sorting out challenges with carriers. Two primary themes emerged from our analysis. First, producers value responsiveness, whether it’s for underwriting or claims. Moreover, producers want to have strong relationships with underwriters and claims managers. Anything pertaining to faster and more responsive MGAs was seen as both important, and an area in need of improvement. “The best MGAs are the ones that give fast turnaround times
(it seems everyone is always in a hurry),” explained one enthused participant. While underwriting responsiveness/turnaround ranked highest, with an average importance rating of 8.21, claim responsiveness/turnaround was not far behind at 7.91. Despite underwriting responsiveness/turnaround being the most important, producers thought their MGAs were performing better, on average, in reputation (7.02) and premium prices (6.59). MGAs received an average rating of 6.57 for underwriting responsiveness/turnaround. Furthermore, although claim responsiveness/turnaround ranked second for importance, producers thought their MGAs really faltered here, ranking 5th (out of 7) with an average MGA rating of 6.37; the range of carriers offered preceded it in the rankings (6.49). Oddly enough, automation ranked second to last in both importance (6.73) and average MGA rating (6.24). Marketing ranked last in both surveys with an importance rating of 6.57 and an average MGA rating of 6.08.
UNDERWRITING RELATIONSHIP IS KEY According to the survey, the most important component of an MGA’s role for producers is underwriting responsiveness and turnaround time. This was the only category that over 50% of respondents (58.9%) gave a rating of 9 on a scale of 1-9, indicating how strongly producers feel about this function. An additional 26.37% rated it an 8, meaning that more than 8 out of 10 respondents rated it an 8 or higher.
RANKING: CLAIM RESPONSIVENESS/ TURNAROUND TIMES Importance: 2nd
MGA performance: 5th
8.21 OUT OF 9 Importance rating agents placed on underwriting responsiveness and turnaround time from MGAs. Agents in our survey rated it as the single most important quality to look for in an MGA, one third point higher than claims responsiveness and turnaround time, which ranked second.
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COVER STORY / MGA SURVEY
Many producers expressed the sentiment that it is crucial to have an underwriter who knows the products and markets he or she represents, and it’s equally crucial that they get back to you with a quote or confirmation in a timely manner. Positively, one of MGAs’ greatest assets is underwriting, which is particularly lacking with many insurers. Notwithstanding, while some MGAs are excellent in their turnaround and policy issuance, others tend to be extremely slow at both. If you have established a good communicative relationship with an underwriter who is also responsive, creative and experienced, you’ve hit a home run and should do everything you can to maintain that advantage.
“Claims handling will ultimately tell the broker which MGA is best” Survey respondent CLAIMS RESPONSIVENESS While underwriting responsiveness and turnaround times was of the utmost importance in the survey, claim responsiveness and turnaround times ranked second by only 0.3 points in terms of the most important things producers look for in a MGA. A little less than 50% (47.28%) gave claim responsiveness and turnaround times a rating of 9, while an additional 29.93% gave it a rating of 8. Aggregately, this means that more than three-quarters of respondents rated it an 8 or higher. Perhaps no other trait can set an MGA apart from its competition better than how – and how quickly – it handles a claim. Producers said some MGAs drop the ball by failing to send them claim acknowledgements and claim closing notes. This sentiment was summed up nicely in a comment from a producer: “Claims handling will ultimately tell the broker which MGA is best.” On the other hand, some found MGAs’ claims
RANKING: MGA REPUTATION Importance: 3rd
MGA performance: 1st
service to be lacking and limited. As one respondent put it: “Service has to be good and fast. It took me 10 years to find that kind of MGA.” Some producers did express frustration that representatives from their MGAs made little effort to make contact with them or to attempt to understand their unique needs, targets and aspirations.
AUTOMATION AND MARKETING SUPPORT FALTER While the topic of automation ranked higher than only marketing support both in terms of importance and MGA performance, they both received plenty of attention from commenters. Based on their experiences with other industries, today’s consumers expect a high level of automation capabilities when dealing with insurance needs. Many producers feel the industry is underperforming in both automation and marketing support. This directly relates to MGAs having an adequate supporting staff. For instance, “there are some MGAs that are so slow to respond that, despite their marketing, technology, etc., I will not deal with them. It’s not worth my time,” explained one disgruntled producer.
THE IMPORTANCE OF NICHE MARKETS Most producers have noticed that MGAs are increasingly specializing in certain niches in an effort to differentiate themselves from competitors. Specialization was by far the hottest topic mentioned in the comments section of our survey, and usually as a positive. For example, MGAs represent an important access to specialized or nonstandard offerings that complement producers’ own markets. Producers also emphasized the importance of MGAs providing coverages in niche markets but thought some needed more specialty products for tough-to-place industries. “I personally feel that without MGAs, we may not be able to write some of the ‘special risk’ policies,” stated one survey participant. Nevertheless, concerns were raised regarding MGAs overstretching their reach and providing programs beyond their niche. Another respondent echoed the former’s sentiments by stating, “MGAs play an important role in my business. I use them increasingly for risks the regular market can’t accommodate. If the MGA market was not available to me, I would sell a lot less commercial risks.”
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On a scale of 1-9, how important are the following aspects of what an MGA offers? UNDERWRITING RESPONSIVENESS/ TURNAROUND TIMES
8.21
CLAIM RESPONSIVENESS/ TURNAROUND TIMES
7.91
MGA REPUTATION
7.91
PREMIUM PRICING
7.15
RANGE OF CARRIERS OFFERED
7.14
AUTOMATION
6.73
MARKETING SUPPORT
6.57 0
2
4
6
8
10
On a scale of 1-9, how would you rate your MGAs in the following areas? MGA REPUTATION
7.02
PREMIUM PRICING
6.59
UNDERWRITING RESPONSIVENESS/ TURNAROUND TIMES
6.57
RANGE OF CARRIERS OFFERED
6.49
CLAIM RESPONSIVENESS/ TURNAROUND TIMES
6.37
AUTOMATION
6.24
MARKETING SUPPORT
6.08 0
2
4
6
8
10
RANKING: UNDERWRITING RESPONSIVENESS/TURNAROUND TIMES Importance: 1st
MGA performance: 3rd
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COVER STORY / MGA SURVEY
RANKING: AUTOMATION Importance: 6th MGA performance: 6th
The Good, the Bad and the Ugly THE GOOD
RANKING: MARKETING SUPPORT Importance: 7th MGA performance: 7th
Lynn Zimmerman, Vancouver producer “I personally feel that without MGAs we may not be able to write some of the ‘special risk’ policies.” Karen Purvis, Manitoba producer “They are great to have available when you need them. They have niche markets at times when you really need them.” Dave Barr, Ontario producer “I am personally very pleased with the experience levels of the MGAs that we work with, and that their knowledge of their own product lines provides good insight at the early stages of solicitation of accounts as to potential for satisfactory closure.” Shawn Wasylenko, Saskatchewan producer “They are a vital part in our business, and as an independent broker, it offers us alternative markets we otherwise don’t have access to.” Patti Christie, Ontario producer “Totten Group are amazing.” Neil McKendry, Ontario producer “My best experience has been with SUM Insurance – very fast responses to emails and phone calls, and they are willing to work with us on price. Always thinking outside the box.”
THE BAD Anonymous producer “The problem with most MGAs: They provide programs beyond their niche.” Manitoba producer “Need quicker turnaround times, better pricing and an easier streamlined approach.”
THE UGLY Montreal producer “MGAs should be more clear about product offering. They broadcast many lines of business, but often when accounts are submitted, they cannot offer a quote – resulting in lost time and effort. Again, not all, but a few MGAS are shooting too large in product offering.” Nova Scotia producer “There are some MGAs that are so slow to respond that, despite their marketing, technology, etc., I will not deal with them. It’s not worth my time.”
THE GOOD, THE BAD AND THE UGLY! Ontario producer “MGAs are putting in systems to track quotes. That slows the whole process down! Best quote turnaround came from Burns & Wilcox Canada, Ottawa office – 10 minutes.” Vancouver producer “Some are excellent in their turnaround and policy issuance. Some are slow at both. Their best asset is underwriting – something lacking with insurers.”
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Service Excellence.
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MGAs IN THE NEW MILLENNIUM The industry is evolving, and MGAs are changing the way they do business We’ve heard from the producers – now it’s time to hear from an MGA. “I think MGAs continue to do extremely well at insuring difficult or unique risks that would not be well served by larger insurance companies,” says Phil Baker, president of Creechurch. “By all accounts, the service levels of Canadian MGAs are excellent. However, I do think MGAs could work better as a group to improve capabilities in such areas as cross-border business, education and technology, all of which would only strengthen the MGA value proposition.” It is the large insurers that MGAs like Creechurch, Totten Insurance Group, A.M. Fredericks Underwriting Management, Frank Cowan Company, South Western Group and Elliott Special Risks are going toe-to-toe with. For Baker, insurers could do themselves a favour by sticking to what they do best, and leaving the specialty niche market to companies that fully understand the underwriting. “Large insurers excel at using analytics to price their products, and they sell those products through extensive distribution channels,” says Baker. “However, when growth opportunity is limited, the large insurers enter the specialty market directly. What we find is that price on the specialty business then gets driven down to unprofitable levels for all players. As an MGA, we generally have to wait this out until those newer players realize they can’t apply their analytic models to this business and they retract due to lower-than-expected margins. “My advice, perhaps self-serving, would be to maintain discipline in the regular market and leave the specialty market to those underwriters who possess the unique knowledge to assess and price specialty business.” A frequent piece of advice that comes from insurers – and a few brokers – is that MGAs be regulated along the same lines as they are. “I do not feel any regulatory oversight for property and casualty MGAs is necessary,” Baker says. “MGAs are generally required to be licensed by each provincial insurance broker licensing body. MGAs distribute products through brokers that are also provincially licensed. Further, MGAs represent insurers that are either federally or provincially regulated, subject to various insurance statutes and regulations, and to oversight by these regulatory bodies.” Baker points out that each of Creechurch’s insurers, whether it be Lloyd’s, Lloyd’s managing agents or other insurers, “are extremely diligent in auditing
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RANKING: PREMIUM PRICING Importance: 4th
MGA performance: 2nd
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COVER STORY / MGA SURVEY
“My advice, perhaps self-serving, would be to maintain discipline in the regular market and leave the specialty market to those underwriters who possess the unique knowledge to assess and price specialty business” Phil Baker, President, Creechurch
RANKING: RANGE OF CARRIERS OFFERED Importance: 5th MGA performance: 4th
and ensuring various levels of compliance for their MGA partners.” According to Baker, Creechurch has its own internal compliance in place, which includes self-assessment, contingency planning, and peer review. “Additional regulatory oversight would only serve to increase our costs and thus the premiums that we charge our customers,” Baker points out. One producer survey comment suggested that MGAs shouldn’t have retail arms, a point on which Baker wholeheartedly agrees – on one condition. “I strongly agree that MGAs should not have retail arms, and of course, that retail brokerages should not have MGA arms,” he says. “Creechurch has always only done business through independent retail insurance brokers, as we believe that this model is the most efficient and in the best interest of both our clients and our insurer partners, and helps to avoid conflict-of-interest issues.” The issue of compensation was a bit of a sore point for the producers we surveyed – a delicate point that Baker is aware of, and which may lead to some decisions for the company in regard to policy fees. “Compensation is a big issue for brokers, insurers and MGAs,” says Baker. “I have always felt that commission is and should be an important part of the quote negotiation; however, with ongoing downward pressure on rates, it is increasingly difficult for intermediaries to maintain sustainable margins. “MGAs too are on commission, and so any additional commission paid to retail brokers generally comes out of the pocket of the MGA,” Baker points out. “Creechurch has historically resisted charging
policy fees. However, with brokerages demanding higher levels of commission sometimes under the threat of moving business, it is something we will have to consider. This is unfortunate, as it will increase costs for insurance buyers.” Producers expressed not just their appreciation, but their love for MGAs in being able to underwrite policies that otherwise would never have seen the light of day. For Baker, it’s a relationship that MGAs don’t take for granted, and work at daily to ensure they don’t fall into the trap of what he describes as the ‘cookie-cutter approach’ towards clients. “We can create a new product, rate guidelines, wordings and educational support all within a month or two, whereas large insurance companies can take several months or even years to release a new product!” says Baker. “We find that our brokers do business with us because we are easy to work with, are more flexible and less intimidating than some of the large insurers. We often partner with our brokers to work directly with consumers to educate them on the unique exposures that many of them face and how we can mitigate those exposures. I think this might be unrealistic for large insurance companies, who often must take a cookiecutter approach to their clients.” Although different animals, MGAs and large insurers do share one common denominator – expand or die. However, for MGAs, this can pose a potential conflict. “We have seen several MGAs get acquired by retail brokers or by insurers in the past few years,” Baker says. “In both cases, there is an inherent conflict, which limits choice for brokers and insurance buyers. MGAs owned by insurers then become just an extension of that insurer. Those owed by retail brokerages may conceivably not act truly independent.” However, Baker does concede that consolidation can be a good thing. “Creechurch is always considering opportunities to acquire other top MGAs,” he says. “If we can expand our size and scope yet still remain independent from insurers and retail brokers, then we can continue to be flexible, quickly respond to market needs, offer a wider array of products and do so with a broader reach throughout the country – and that is good for our customers and our insurer partners.”
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9/10/2014 3:07:46 AMAM 27/03/2014 1:03:56
CONTINUITY PLANNING
CONTINUITY
What does it mean for you?
Business operations are running smoothly, and by all appearances, things are fine. But then... When the sun is shining and your business is firing on all cylinders, continuity planning may seem like a luxury. But things happen – and a lot of times, they’re things that are out of your clients’ control, such as: > Your CEO is convicted and sent to jail (Martha Stewart) > Your country suffers an earthquake and tsunami (Japan, 2008) > Your company’s founder decides to leave, producing a 2% drop in stock (Larry Ellison, ORACLE) > You are faced with a growing pandemic (Ebola, now) > Your country is plunged into a SARS outbreak (Canada, 2002) Having a continuity plan in place before disaster strikes is crucial. How will the principals be bought out? Not everyone has a buyer waiting in the wings with a big bag of cash. Situations like these each present different threats to a company, and they fall under three general categories: emerging risks (like cyber attacks and terrorism), natural disasters (tsunami and earthquakes); and acts of God (sudden sinkholes or the
death of an employee). Would your client survive any one of these events? How quickly could a recovery plan be in place? Better yet, who would manage it and where would the funds to pay for it come from? Are your clients in a position to identify key people, essential equipment, alternate sites or strategic partners in the event a major catastrophe were to occur? Your client needs to build a succession plan, or at least a framework for such a plan – identifying key financial resources, including insurance policies and bankers – in order to have an effective response. Ultimately, key stakeholders will be reassured that their interests and those of the employees are in place. Part of building that plan involves: > Analysis of needs in the event of any identified scenario > Design of a plan > Implementation and rehearsal of the stages of the plan > Validation of the design and all of its elements A loosely defined set of plans, preparations and related moves that are intended to ensure that all critical functions will continue to operate following a serious incident or a disaster should include:
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> Redundancy > Spare capacity > Recovering or restoring operations > Capability and readiness to cope with the major incident or disaster This is not a task for the CFO or the comptroller. They each have a full-time job and serious responsibilities. The implementation of risk management as a separate, distinct process within the organization will result in many benefits to the corporation, including a continuity plan. With the assistance of all departments – legal, HR, IT, finance and management (including the board of directors to a degree) – your corporation will achieve its resiliency to withstand and survive a catastrophe. The 2008 financial bailout of AIG came at a cost of $182 billion. For its part, AIG – under the guidance of Bob Benmosche – has paid the money back with
interest, but the resulting articles and analyses highlight the lack of understanding and planning within corporations of their obligations to society. Bailing out AIG effectively meant rescuing Goldman Sachs, Morgan Stanley, Bank of America and Merrill Lynch (as well as a dozens of European banks) from huge losses. Those financial institutions played the derivatives game with AIG, the esoteric practice of placing financial bets on future events. AIG lost its bets, which led to its collapse. But other gamblers — the counterparties in AIG’s derivative deals — were made whole on their bets, paid off 100 cents on the dollar. And U.S. taxpayers got stuck with the bill. For your business clients, poor planning can’t be overcome by a government bailout. At RiskAssist Consultants, we have pre-designed continuity planning through our partners at ClearRisk Manager and SI Advisors.
Diane S. Baker, BA FRM FIIC, is the president of RiskAssist Consulting Inc. For more, visit www.riskassistconsulting.ca.
®
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SPECIAL REPORT / BROKER TOOLS ROUNDTABLE
(l-r) Tim Currie, Hans Gantzkow, Rick Dresher, Adam Mitchell, Bill Morris and Bryan Mo
INSURANCE BUSINESS EXCLUSIVE
LEADING THE TECHNOLOGICAL REVOLUTION brought to you by
Can brokers compete effectively with direct insurers? Do brokers have to reinvent themselves and their businesses, or are there tools available right now to improve efficiencies? Our Insurance Business roundtable – sponsored by RSA – takes up these questions
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Technology is racing ahead at breakneck speed, and brokers need to update not only how they do business with customers, but also how they record, store and access information once the client is secured. Do brokers have the tools to compete on what is no longer a community scale, but a national one? The good news is that the Internet has opened the door to scores of potential customers – but the downside is that the small independents are now going toe-to-toe with the big directs, who also have some very deep pockets and products lines. This second Insurance Business roundtable, sponsored by RSA, focuses on the importance of new broker tools and the drive to improve efficiencies. What is needed? What are brokers asking for, and, more important, what is available? USING TECHNOLOGY WISELY Key takeaways Brokers not only need to be more proactive in adopting new technologies, but also work with the insurers and their respective associations to choose the best technologies available, and find common systems and software to smooth out the underwriting process. Rick Dresher: We hear from brokers, “We’ve got a ton of information in our BMS, but getting it out is the critical part.” You’d think to be able to download a spreadsheet that had all of our customer information line by line would be easy, but it’s not. Bill Morris: I feel your pain. I can tell you that some of the new generation of products in that area are addressing those things. Sometimes a simple solution is you just get it out of there and just put it into another database, and then there are other solutions, including CRM, Rebel, Agent’s Revolution Solution. So there are potential workarounds. Are they overly elegant right now? No. But are they going to get there? Yes. Hans Gantzkow: One challenge that’s on our radar in the near-term for CSIO is Z-codes. If you want to mine your data, look for clients with a certain set of endorsements, it’s very difficult now because some companies use their own proprietary Z-codes to explain the same thing. So it’s hard to see who all the customers are that match the search criteria. By cleaning up that data in those endorsement
Z-codes, you’ll be able to target your specific customers and cross-sell them on the appropriate product or service. Bill Morris: Do you have a solution coming for this that will help? Hans Gantzkow: Well, we have one part of the solution, but we need to get carriers and brokers onboard to say this is something worth cleaning up. I think a lot of brokers are just conditioned to think, “Well, it’s always been like that, and we’ve got some workarounds, so we’ll make do.” But if you want to get to this next generation of thinking where you’re going to mine your data to cross-sell or upsell customers, I think you need to clean up your data. Tim Currie: Some get it; some don’t. And it’s probably a very small percentage of brokers that are interested in mining their data to the point where they can cross-sell and upsell effectively. Bill Morris: But in terms of what do we do now? are there any shorter-term solutions you can think of that would help these guys who are struggling with BMS solutions? Adam Mitchell: I see that as painting the shutters on a teardown. It doesn’t solve the problem of why TD can close business at 22 per cent in 22 minutes, and the average broker takes two hours, or why our retention is 70 per cent and should be 99 per cent. I think there are some fundamental cancers that need to be cut out.
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Tim Currie: I’ve worked in a controlled environment with directs, and you control all information, and brokers are not on the same system. But quite honestly, we could have easily been on three different systems with three different territories and three different ideas about what success looks like. This is the dynamic that you see going from a direct carrier or a bank to the broker system. We have different opinions about what we should do, where we should be, how big we should be, what systems we should use and the importance of technology. Companies should be tying their horses to brokers that get technology and weeding out those ones that aren’t on the program. We’re not in the insurance game; we’re in the information game. The more we can gather and decipher, the better we’ll be able to sell it and service it. WEB PAGES Key takeaways It takes more than just having a web page for your brokerage. You need to create a userfriendly site, ideally with a Live Chat option, for those looking for answers about a product or policy. The website needs to be a living, breathing thing that needs to be updated and nurtured on a daily basis. It is where clients are beginning their search for insurance products – and where 21st-century brokers need to operate to survive.
Hans Gantzkow: You all have web pages. How effective would you say your web presence is in generating new business? Tim Currie: We have a difficult time tracking. We try to get as much posted to keep our name in the top portion or on the first page of an Internet search, but it’s really difficult, almost impossible for us. Adam Mitchell: We were tracking. We had about 100 leads a month, and that was from all the people who came to the site and started a quote, finished a quote and clicked “Yes, I’d like it.” But quite easily you can write a cheque to Hotline and buy 5,000 leads a month. So it’s a prolific difference between the two, and pretty hard to continually invest in one brand and compete in that realm. Tim Currie: The problem we were having was that we would get most of our web leads in the evening. A good portion – probably half of them – came between 6 in the evening and 10 at night, which was initially a time when we were winding down and inactive. We know that we’ve got probably a fiveminute window to respond to those. If we don’t get back to them quickly, they just... Rick Dresher: Go to the next page. Tim Currie: We’re just getting to the point now where we have the ability to respond quickly. Adam Mitchell: One of the metrics we tripped on in studies is that the industry average for responding to an online lead or a lead for business is typically 48 hours. But if you can respond to that same exact lead within 60 seconds, your closing rate is 400 per cent higher. At about 12 minutes, 80 per cent of that lead diminishes to the point of any ability to close it.
BETTER AT COMMUNICATING From extending their operating hours to strengthening their online presence, Canadian brokers are moving to better meet consumer expectations, say customers responding to this leading industry survey
“
My broker communicates with me in the way I prefer (electronically, phone, in person, etc.).
”
89.4%
86%
“
My broker makes it easy for me to find the information I require, when I require it (website, phone reference material, etc.).
”
87.8% 2014
2014
2013 Source: “Sample Broker,” Risk Assessment & Performance Report, Personal Lines (Navicom Inc.; August 2014)
84.6% 2013
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SOCIAL MEDIA Key takeaways There has been mixed success by brokers using Twitter and Facebook to promote business and reach out to clients. One broker has found success using Kijiji in conjunction with Facebook – allowing individual agents to find leads that otherwise wouldn’t have come knocking on the door. Tim Currie: We have experimented with social media. I wouldn’t say that anything’s been extremely successful. We’ve done some work with media companies, which was… Adam Mitchell: A wreck. Didn’t work. We’ve just completed a project with Yelp, and we’re looking into marketing with Facebook. Bill Morris: Anybody else had any experience that’s been successful? Rick Dresher: We’ve used Kijiji. It’s really been a big driver to us. Bill Morris: How’s that work? Rick Dresher: All our salespeople have their own Facebook page, and it connects with ours. They put their own Facebook page out there, and they put ads in Kijiji in various places. It all is connected; it drops the lead right down into their directly into their bucket tool. It’s been successful. But again, the traffic on it is more of your nonstandard type of business for the most part. MAPPING OUT CHANGE Key takeaways Insurance companies need to streamline their broker portals and work together to create a more universal, “same system” underwriting standard for brokers. Brokers in turn need to do away with paper and embrace eDocs and electronic signatures. It is of benefit to them in terms of saving time and costs, and will give insurance companies a better idea as to what brokers want in terms of portal interaction and underwriting needs. Insurance companies and third-party providers – and organizations like CSIO and broker associations – want broker feedback. What is working? What could work better?
Bill Morris: We’ll start with the experts – what do you think brokers need to be good at in order to drive growth and move forward? Bryan Mo: I think just understanding your customer. We have to do a better job at really understanding what our brokers need on a day-to-day basis to transact business quickly and efficiently. We’ve done a lot of work on what I’d call are traditional broker tools, our WebBusiness portal. Along with
THE PANEL Brokers
Experts TIM CURRIE, Vice President, Personal Lines, Navigators Insurance Brokers Ltd., Markham, Ont.
BILL MORRIS President of Navicom, representing the Insurance Brokers Association of Ontario (IBAO)
RICK DRESHER President, Affiliated Insurance Management Inc., Oakville, Ont.
BRYAN MO Manager of Broker/ B2B Technologies, RSA Canada
ADAM MITCHELL President, Mitchell & Whale Insurance Brokers Ltd., Whitby, Ont.
HANS GANTZKOW Senior Architect, Centre for Study of Insurance Operations (CSIO)
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CSIO, we’ve made enhancements to our EZ-Docs system to drive efficiency for our brokers, and we’ve introduced live chat to help improve our service offering. And on the front-end, we’re continuously looking for ways to make our pricing strategy even more accurate to help our brokers attract and retain their best customers. Gathering customer insights is another great opportunity for RSA to bring value to our brokers by sharing this important information. We’re on a journey of better understanding the next generation of customers, the ones who are savvy in social
media, and using online tools to research in advance of purchasing their insurance. Hans Gantzkow: eDocs is also bringing efficiencies where traditionally paper has been transferred between trading parties. We see that growing. Right now it’s typically the personal lines, but we are also extending into commercial lines and to other areas like claims notices. I think that the nirvana for CSIO is really to get to that real-time integration. The messaging is there, but I believe the roadblock is going to be interacting with systems/technology of the carriers.
Innovative technology is the way forward As many of us know well, the Canadian insurance market has drastically changed in the contemporary era by several direct-to-market providers entering the fray, consolidating the industry into a handful of large, dominant players. That being said, one of the emerging players in Canada’s insurance industry is the UK-based multinational insurer RSA. Within the last few years, the company has moved from being the 10th largest to the 3rd largest insurer in the country. Undoubtedly, its innovative approach to technological investment has aided this expansion by streamlining how brokers interact with underwriters, eliminating inefficiencies and making them more competitive. “We allow [brokers] to do a lot of their own transaction processing – new business and amendments for the personal lines customers – in our WebBusiness application. They can get access to all sorts of material about RSA, including underwriting guides and manuals on our Bravo portal as well as marketing and product material on RSABroker.ca,” explains Bryan Mo, manager of Broker/ B2B Technologies at RSA
Canada. “They can also access their policy documents in PDF format through EZ-Docs, and we support integration with all the major broker management systems.” Furthermore, for commercial insurance lines, RSA has taken traditional underwriting questions and pricing tools and placed them online so brokers can very quickly assess their clients’ needs. RSA adheres to the idea that through leveraging the power of web business, brokers can best drive efficiencies in their agencies. “Brokers can use the integration capabilities between their systems and ours, as well as take full advantage of the paperless solutions that we offer,” Mo says. Some of RSA’s other cutting-edge technological solutions include capabilities such as its web chat feature –a live chat offering through WebBusiness, in which clients can have their questions instantly answered by a live support agent. Having the support on hand helps brokers ensure their clients get accurate, top-quality quotes. “The future is definitely moving toward more technologically advanced brokerages, so brokers that adapt to technology will be able to stay competitive,” says Mo. “We are investing in systems and tools that will help make the process more seamless. It is essential for insurers to provide access to more information and tools that will help them service their customers better.” Mo reiterates the fact that the company is always trying to adapt and take a proactive approach to maintain its position as an industry leader. “We continue to invest in our tools, and we always welcome feedback from our brokers – we take everything into consideration,” he says. “We just want to make sure our tools are as easy to use as possible.”
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I think carriers are moving to new platforms that will enable real time, but some of them are still trying to get the most value out of their legacy platforms, and they weren’t designed with real time in mind. So hopefully as carriers upgrade their systems, they’ll be able to use our messages. Rick Dresher: I find from our field reps that (some insurers) want to drag these 19th-century brokers into the 21st century. And my opinion is, forget about it. If they don’t want to use the technology that’s available, let them be inefficient and let them lose customers, and spend your resources on the brokers who want to be super-efficient and want to be able to grow through efficiencies and new methods. Bill Morris: Interesting perspective. If you’re the IBAO, you’ve got all these members, and obviously you’ve all got one thing in common: You’re selling through an intermediated channel. The problem that you run into is that you can only bring a horse to water, right? But the danger is you’ve got all these brokers out there who sort of aren’t moving along, and you’ve got a whole bunch of customers who are watching their service levels erode, because you’re still doing business the same way for the last 20 or 30 years. Customers are saying, “I used to at least get a phone call or a visit at renewal time; now I don’t hear from you, or I get something in the mail that says ‘Call me if you need me.’” Versus the whole direction of the banks and the real-time directs which are, “We’re here for you whenever, whatever, however.” We’re trying to figure out ways to make life simpler. They don’t see all that. When they finally do switch, they are more likely to go to a direct because that’s where the advertising is, and they’re saying “Wow, this is great!” because the service levels are actually much better than what they’re getting from a broker that hasn’t adapted. So you guys are ending up with customers that are leaving the broker channel because they have no idea what they could have been getting. Rick Dresher: As an example, we all talk about getting personal service as a direct writer. So for this one client, I went onto Belairdirect to get the quotes, I did the homeowner’s quote putting my cell phone number. Within half an hour I got a call from Belairdirect saying, “You know, you didn’t fill in a couple of things that could have got you additional discounts. Can I walk you through that?” Bill Morris: Pretty impressive, right?
OPEN WEEKENDS Key takeaways There is a dynamic shift in how younger clients want to buy their insurance. It needs to be available in the palm of their hands through smartphones, and it needs to be available on a 24/7 basis. Saturdays are proving to be the busiest day of the week for today’s broker, and one brokerage that uses the Internet almost exclusively to find business is moving more to having agents work in the evenings – when potential clients are looking for insurance options – rather than during the traditional 9-5 office hours. Rick Dresher: All of our insurance requests come through to me. So if I see it on my BlackBerry on the weekend, I will send a response saying, “Thanks for your inquiry; we’re not in the office right now, but we’ll get back to you first thing Monday.” Tim Currie: We want to take advantage of the Saturday, Sunday lull in our business – again, from
“Spend your resources on the brokers who want to be able to grow through efficiencies and new methods” Rick Dresher
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“We’re running 8 a.m. to 6 p.m., and the only reason it’s not 8 till 8 is because I don’t have that person to put there yet” the direct writers where they’re open on Saturday, and if they’re not open Sunday, they will be soon. We use aggregators to send us leads. We get more leads on Saturday and Sunday than we do during the week. When we get a lead from our website or any other place, it drops it into a file, and we have a person on call. The other thing we’ve just launched about two months ago is live chat, and I’m not sure if too many other brokers are doing it. It’s been really, really good for us in terms of staying in touch with people and taking what before was just an email lead; now we can correspond immediately if the person hits the live chat. We have somebody on call, not 24/7, but we’re available from 8 to 10 at night. Rick Dresher: I looked at about five different e-chat platforms, and some of them will provide automated responses. They’re smart, so they can recognize certain questions. Usually it will say, “A live person isn’t available, but send a message and we’ll get somebody back to you.” Bill Morris: So nobody’s 24/7 yet. What do you think: Is that inevitable for you guys?
Adam Mitchell: I’m going to try to go there. We’re running 8 a.m. to 6 p.m., and the only reason it’s not 8 till 8 is because I don’t have that person to put there yet. And we ran Saturday, Sunday for a few months before we realized we weren’t really making much on Sunday. I think you have to move when the market’s ready. I’m not sure that people are looking to buy insurance on Sunday. Bill Morris: How about Saturdays? Adam Mitchell: Saturday is probably our most productive day. Most people are ready to do business and deal with life on Saturday. Bryan Mo: It makes sense when you think about it from a consumer’s standpoint. You know, people are busy; life is really complex Monday to Friday, and a lot of things that were traditionally done during that period are now done on Saturdays. But again, part of the problem is that we have a population that is really trained to think Monday to Friday, 9-5, for the most part. Rick Dresher: They think of us like a bank. It’s the blessing and the curse. Adam Mitchell: The spike in traffic we see on Saturday is because no one else picks up the phone. So if and when we pick up a phone, there’s a lot to gain there.
SUMMARY Arming brokers with the technology and tools that mesh smoothly with insurers is crucial to ensuring the health of Canada’s industry. The challenge for brokers is using those tools to keep pace with the evolving needs of their customers. But does that mean working 24/7, constantly plugged into the online world? Not necessarily, say brokers leading the charge, but it does mean that independents will have to become much more flexible to capture the next generation of clients. Make no mistake –those consumers demand expert service where and when they want it.
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FEATURE / SUCCESSION PLANNING
What makes a
BROKERAGE ATTRACTIVE?
You’re a small broker-owner looking to enjoy your retirement years, and you’re ready to sell. But what are buyers looking for? The perfect combination of factors is different from firm to firm, but some elements are universal. Insurance Business talked to two of Canada’s most rapidly expanding brokerage firms to find out what sellers need to have to attract a good buyer 30 | OCTOBER 2014
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ARCHWAY INSURANCE What draws the attention of a broker network looking to expand? Is it the staff? The location? “There is a combination of factors involved,” says Michael Stack, vice president of Archway Insurance. “It’s not necessarily one thing all the time. In a perfect world, I would be able to pick the location and staffing, maybe a niche product they offer.” For Archway, it’s a case of sometimes making accommodations to find not the perfect candidate, but the best candidate out there. “Realistically, we aren’t in a perfect world, and you can’t always get what you want,” Stack says. “In Basin’s case, there were some key things: a very profitable book of business upon investigation, the knowledge that this was a well-run brokerage with solid staffing, and geographically, Halifax is one of the only expanding municipalities in Atlantic Canada, population-wise, and Halifax is one of our key geographical expansion areas. Basin met those criteria, and that’s what drew us in.”
LOCATION, LOCATION, LOCATION In addition to the Basin Insurance acquisition, Archway also purchased McLaren Hebb and Faulkner Insurance, another brokerage in Halifax. “It’s an area where we want to expand our writings, and it has the potential for organic growth. They have specific expertise in the marine insurance industry,” he says. “They’ve been known for marine insurance for a number of years in Atlantic Canada, and they have access to markets that we don’t.” The addition of the two Basin and two MacLaren
Hebb and Faulkner offices presented an opportunity for cost savings as well, Stack points out. “There’s no need for us to maintain four offices in Halifax, so there is a potential for synergies and cost savings.” The MacLaren Hebb and Faulkner acquisition brings the total number of Archway locations to 12 – spanning the distance from Yarmouth, N.S., to Miramichi, N.B. Over the past 10 years, Archway has purchased 17 brokerages across Nova Scotia and New Brunswick, quietly amassing a substantial presence and market share in the region. The deal with MacLaren Hebb and Faulkner is the third brokerage purchase in the Halifax regional market in the last 12 months, and for Stack, is strategic in terms of increasing Archway’s presence in this growing market.
ALL IN THE FAMILY The Basin acquisition was a surprise bonus for Archway, says Stack, as it hadn’t even been on the company’s radar. “Rob is a younger guy, so I wouldn’t have thought that he would have been ready to retire,” laughs Stack. “Sometimes things just happen, and you have to take advantage of situations as they present themselves. So we were very fortunate to have these guys want to deal with us. There’s certainly no shortage of buyers.” Stack points out that both Knapp and Hebb are only in their mid-50s with children in university, and have enjoyed successful careers. “They are ready to enjoy their lives,” he says. “They waited to see if their children were going to enter the business; those
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decisions have been made. “I think those family businesses that have decided not to expand, that are good-sized brokerages but have decided they have a great staff and a good income to have a lifestyle they enjoy, those guys will do wonderfully for the rest of their careers,” Stack continues. “The problem will be when the next generation comes along. If they haven’t expanded and don’t have multiple offerings, if they don’t have access to programs that are prevalent now, they’ll have a rough time. You do see those brokerages that haven’t expanded having a tough time passing the business down to the next generation. The progressive brokerages seem to be dealing with succession well.” But the real question is, how can brokers looking to sell better position themselves? “Having a clean balance sheet, running a lean operation,” says Stack. “Being profitable and doing things proactively on the technology side. A solid, profitable CPC [cost per click/per client] revenue. Things like that can increase the value of a brokerage.” Unfortunately, there are some factors that a broker/owner cannot control. “Most people are subject to the geography they’ve been dealt over the
TAKE CARE OF YOUR STAFF What happens to your staff after your firm is acquired? This concern should be top of mind when you’re looking to sell, says Archway’s Michael Stack. “You have certain buyers out there who don’t necessarily recognize seniority for staff,” he points out. “So they lay them off and then rehire them at the same salary as a first-year employee.” The extras are important, too – Archway has a scholarship plan for employees’ children, and a medical plan including dental. “We have a pension plan that a lot of brokers don’t have, and we have education assistance for all of our staff to help develop their skills and industry knowledge.” Stack’s advice to sellers? “Make sure your staff and the people who helped you make that multiple are well looked after in this deal.” Start by asking yourself these questions: >Will the buyer lay off my entire staff? > Does the buyer offer a pension plan? > What does their medical plan look like? > What’s their history in dealing with staff and clients?
years, but there are some things you can do to achieve a higher payout if you’re selling,” says Stack. “But if you are in Timbuktu, it isn’t easy. “If you’re looking for a buyer, I think you will look to those who have been active in the acquisition marketplace and approach them confidentially – that is the best advice I can give to a seller.”
LEARNING FROM ACQUISITIONS If your intent is to exit the business, Stack advises against investing too much money in a new management system. “Actually, it’s easier to do on a smaller scale, to become paperless, to do everything electronically,” he suggests. “Larger brokerages actually struggle to get that implemented, just because of the size of the project. “We’ve certainly learned through acquisition,” he continues. “We’ve made acquisitions where they are doing things that have revolutionized the way we do it. We’ve implemented that same workflow in the rest of our brokerage, because they’ve taken the time to work on that through the years, and we’ve been able to acquire that knowledge.” An example of taking the best of an acquisition and incorporating network-wide can be seen in Archway’s acquisition of SNC Insurance in Halifax. “They are in a paperless environment, and we’ve started to implement their workflow company-wide,” says Stack. “We’ve started something called ‘The Archway Way’ of doing business – and a lot of that is the great workflow that this agency had and the way they were able to do business.” The same thing can be said about specialities. “Back in 2010, we purchased a brokerage in New Brunswick, and they specialized in municipal business,” says Stack. “So now we’ve started as a company that specializes in municipal business in that region, in towns and cities. And that’s been driven by this company’s access to those markets – we’ve learned a lot from that. Every brokerage you buy teaches you something. “I’m a young man; I’m only 37 years old,” he continues. “For me, I’m learning – I’m sponging it all in. These brokerages, these principals who are selling to Archway – they can teach me. We try to retain principals as we go along now, for a couple of reasons. They are great for retention, of course, and the knowledge base for us is so valuable.”
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WESTERN FINANCIAL Canadian pop artist Drake might have ‘Started from the Bottom’ and risen to international fame, but the story of Western Financial is just as impressive. “I’ve been with this company since it was one brokerage and a handful of staff,” says Catherine Rogers, CAO of Western Financial Group, “and now we’re 160 brokerages with more than 1,800 employees. It’s been an exciting adventure to watch this company grow.” Western Financial continues to expand and seek out brokers looking either to retire or to pass along the business to a larger network. But what do they look for in a brokerage? Perhaps more important,
what should a broker do to get the best deal possible for what has been a lifetime of work?
ADVICE TO BROKERS “Brokers need to make sure they have a strong staff already in place, and that the firm has values similar to Western,” says Rogers. “The other thing is to be organized – to have their financials in order. The first step we do when looking to buy is due diligence: if they’ve got their financials and their tax returns in order, and they’ve got good underwriting habits. These are things that are very attractive to us.” Geography is important – if a community that’s
Because employee #658 forgot the bolts.
Open minds. Better casualty. SovereignGeneral.com
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“As things got more active, we found that brokers started contacting us. A lot of them were ready to retire ... and didn’t have a son or daughter who was going to carry on with the business, so a lot didn’t know what to do” –Catherine Rogers going backwards in population and growth, it’s not an attractive prospect, says Rogers. “It’s interesting, because when we started this exercise years ago, there were communities that were identified as attractive at the time that are no longer attractive,” she says. “We also go into communities where an acquisition will involve a second location. The location may not be overly attractive, but it’s part of the deal. We then just use our best practices to try to grow that location, offering multiple products.” A lot of brokerages that have joined Western Financial came through insurance companies they recommended. “They see a broker who is getting close to retirement, and they aren’t sure what they want to do, so they will recommend to the broker to give us a call,” says Rogers. “We also go to the broker association conventions, where you meet people ready to retire or who just want to be a part of a bigger group.”
BIGGER & BETTER Western Financial’s growth began in the mid-90s, when they found that a lot of rural brokers were close to retirement age, but weren’t really thinking about succession planning. “The local insurance brokers couldn’t get enough business in the rural communities to support multiple insurance company contracts,” says Rogers, which didn’t provide them the opportunity to offer clients a lot of choice when it came to placing policies. “Secondly, back in 1996, a lot of the rural insurance brokers were still using fax machines and
typewriters, and there was a small push around that time to get people to become more advanced with technology,” she says. “They weren’t really keen on having to invest in technology that they weren’t really familiar with. It was that, trying to offer the customers more choice in the rural communities, and the fact that the banks were beginning to pull out of the rural communities.” It became an opportunity for Western Financial to start gaining a presence in some rural locations. “Because our volume is on a consolidated basis with the insurance companies, we were able to support contracts with many insurance companies,” Rogers says. At the moment, Western Financial has contracts with more than 100 companies. “What we did back then was identify about 200 communities in western Canada that we wanted to be in,” Rogers says. “We just went province by province and looked at communities that were stable and growing.” Out of that 200, Western Financial began identifying brokers in those communities. “And as things got more active, we found that brokers started contacting us,” she says. “A lot of them were ready to retire, a lot didn’t have a son or daughter who was going to carry on with the business – so a lot didn’t know what to do.” The typical broker/brokerage Western Financial sought was one with a history of strong performance, and a growth in policy count. “We were looking for brokers with strong underwriting practices, owners who wanted to be part of a bigger group if they weren’t ready to retire, or a broker who was ready to retire with a strong right-hand person who could take over the management of the office.
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“We have found in the majority of acquisitions that there is always a righthand person who – even though they aren’t the manager – is running the office,” Rogers continues. “The transitions have been quite smooth in that respect.” But not having an existing ‘go-to’ person in the office isn’t a deal breaker. “If it really is a good location, we can always drop a manager in there from one of our other locations,” she says. One of the perks of acquiring brokerages with excellent business practices or business management systems is being able to adopt them throughout the network, says Rogers. “We did an acquisition not too long ago, and the broker has an online ‘e-hail’ program that allows farmers to log into the internet, get their policy and pay online. It’s an amazing program, so it’s something we can take and launch through the western communities that have hail damage exposure.”
ON THE HORIZON For Western Financial, 2014 has been a year to step back and take a breath. “We’re a little quiet this year – we just closed on Falkins, which has 11 locations,” says Rogers. “Last year we closed on Coast Capital Insurance, which has 30 locations. Our focus this year is on proper integration to make sure we get it right. The process throughout this year will be researching the roughly 30 additional locations we’d like to be in by 2020.”
WHAT WESTERN LOOKS FOR Western Financial has a clear vision as to what it wants in a brokerage, according to CAO Catherine Rogers STRONG EBITDA AND GROWTH “If they have strong EBITDA (earnings before interest, taxes, depreciation and amortization) and they have really good growth, those are two important factors. And the purchase price is based on a multiple of revenue and a multiple of EBITDA.” GOOD UNDERWRITING “Any good insurance broker is going to have good underwriting for their policies. If you go into a firm and they are doing half a million dollar liability, that’s not good underwriting.” A DEDICATED STAFF “When we go in as Western Financial, we are hiring the people – the people are the biggest asset in a brokerage. We keep the staff whole. We don’t do layoffs, we don’t do wage cuts. We have ‘boot camp’ where we bring every new hire into head office for a two-day session and a dinner, so they can see the culture and see what the office is like – so they can see that we’re not the big corporate ‘bad guy.’”
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Y A W E E H T F TH L
BUSINESS STRATEGY / LEADERSHIP
A E S
Comparisons between the corporate world and the life-and-death situations faced by elite military units may seem tenuous – but there are fundamentals common to both. Who better to coach leadership and human performance than an ex-Navy SEAL?
After a brief career as a CPA for the firm now known as PricewaterhouseCoopers, Mark Divine left the corporate world to follow his dream of becoming a Navy SEAL officer. At 26, he graduated as the Honour Man of his SEAL BUD/S (basic underwater demolition school) class. He retired as a commander in 2011 and embarked on his entrepreneurial career, founding a number of courses for business leaders and athletes alike, tapping into his expertise in human performance, mental toughness, leader-
ship and physical readiness. Here, he answers questions about how business leaders can tap into the training and knowledge used by SEALs to better lead their own teams.
IB: How do SEAL commanders gain loyalty and respect from their troops, and how can this be translated to the business world? Mark Divine: SEALs must lead the most dangerous and complex special operations missions in the world. To succeed, they must gain the loyalty and respect of their team. This trust starts as SEAL leaders endure the exact same training as their troops. They must perform side by side with the troops, meeting the same physical and mental toughness standards, while exceeding the academic standards. Assuming the SEAL officer makes it through the arduous 45 weeks of training (and little more than 20% of all SEAL trainees do), then they have proven to their troops that they can walk their talk. This gives them an initial bank account of professional respect. They build upon this respect and further develop the trust and loyalty of their team by continuing to lead from the front during their careers.
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Business leaders can use this same approach by getting their hands dirty and by being willing to do everything they ask of their teams. They can show that they’re willing to prove their mettle against the standards and share in the bonding experience. In this manner, respect and loyalty are earned every day in the trenches rather than conveyed by the privilege and power of the position.
IB: In your experience, can anyone be a leader? MD: No, not everyone can be a leader. The most important element of leadership is character. The character to lead is a combination of natural and acquired talent. Natural talents associated with leadership include the ability to accept unusual risk and a burning desire to learn and grow. Assuming one has the natural talent to lead, then competence is developed through a willingness to embark upon a daily effort to master the many skills required to lead well: communication, trustworthiness, consensus building, vision and planning, as well as the tactical skills and knowledge of one’s particular domain of leading. Not everyone is willing to work that hard to be an exceptional leader, which is why it’s rare to see it in action.
IB: I imagine being a SEAL requires a degree of conformity (to be able to constantly obey orders, etc.). How do you know when to conform and when to be unconventional? Does the ability to choose wisely come from training or intuition and natural ability? MD: Unconventional methods and conformity are
“Business leaders can gain respect by getting their hands dirty and by being willing to do everything they ask of their teams. In this manner, respect and loyalty are earned every day in the trenches rather than conveyed by the privilege and power of the position” impact mission success (or worse, your life). Business leaders can learn to control fear and use it to their advantage. They must lean into things they fear and learn from them. The more one takes bold action with those things they fear most, the more they are able to transmute the fear energy into determined, focused action.
IB: You’ve previously talked about Front Site Focus, where a SEAL must engage one target at a time. Yet in the business world, there is an emphasis on multitasking. What’s your view on multitasking ... is it productive or not? MD: It’s OK to multitask when conducting simple tasks that one can train to do without much cognitive energy. A healthy example of this includes walking on a treadmill while talking on the phone. However, the way multitasking is done in the business world leads to many mistakes and misunder-
not mutually exclusive. SEALs follow orders, but those orders allow for flexibility of thought and action uncommon in other military units (including other special ops units). This way of thinking is trained starting in BUD/S and continues at the team level. The freedom allowed for field-level decisions requires that SEALs develop deep intuition to guide their decision-making. Deep intuition is acquired through repetition and mastery of the requisite skills so they are done with an unconscious competence. In addition, the level of risk and intensity of the missions that SEALs take on deepens intuition naturally.
IB: How can business leaders conquer their fears in business situations, just like SEALs do? MD: Fear is nothing to fear. SEALs learn that fear can be managed and be used as a focusing energy. On the other hand, the absence of fear can indicate burnout and lead to hasty decisions that negatively OCTOBER 2014 | 37
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Participants at the SEALFIT 50-hour Kokoro Camp
standings. For instance, holding an important phone call and checking email at the same time will lead to both being done poorly. So I am not a fan of multitasking and believe that we can only do one thing at a time with excellence. Major performance and productivity gains are found when a business leader can learn to focus on one thing at a time and do it with excellence. The key to this skill is to learn what things are the right things to focus on. This is the essence of the Front Sight Focus concepts that I teach in my book, The Way of the SEAL.
IB: How do SEALs deal with conflict in the ranks? And can this translate to the business world? MD: Though conflict can be uncomfortable, it’s not
Mark Divine is the founder and CEO of SEALFIT and NavySEALs.com, and creator of Unbeatable Mind. After working with thousands of special ops candidates and professionals to develop mental toughness, Mark self-published his first book, Unbeatable Mind, in 2011 and launched the at-home study program UnbeatableMind.com. He is also the author of the WSJ bestseller The Way of the SEAL, published by Readers Digest, and the NYT bestseller 8 Weeks to SEALFIT, published by St. Martins Press.
necessarily bad – it’s an opportunity to grow and learn. Conflict is feedback that a system is in need of upgrade, or that a person or persons do not share the same view of reality. In both cases it provides an opportunity to come out of the situation stronger and wiser. In the SEALs, conflict is dealt with head-on and immediately. It is not done through secretive back-channel communications. Rather, it is dealt with directly and immediately, and all team members are expected to have the emotional resilience to deal with the feedback even if it’s about a personal failure. Perpetual growth accrues to those who constantly challenge their own beliefs and the systems they operate within, by accepting their own limitations and stepping up to make positive changes.
IB: If business leaders reading this were to choose between honing their minds or their bodies for business success, which should they choose? MD: Both. When you hone your body, you are developing mental control, focus and resilience. Training your mind without training your body is like
“Fear is nothing to fear. Business leaders must lean into things they fear and learn from them. The more one takes bold action with those things they fear most, the more they are able to transmute the fear energy into determined, focused action” tuning your car’s engine daily while letting the body rust and decay. Eventually the mind will be destroyed by the failing body. My students in my online study program, Unbeatable Mind, tell me that they are operating at a much higher level of effectiveness as they train their body, mind and spirit in an integrated fashion.
IB: How do you think clearly when things go wrong? MD: By controlling your breathing and then learning to focus your mind under pressure. These are advanced skills learned by SEALs in training and which I teach in the Unbeatable Mind program. I refer to the core skills for this level of thinking as ‘the big four of mental toughness.’
IB: When is the risk worth the reward? MD: A risk is worth the reward when you have trained for victory so that you see it happen in your mind clearly and convincingly before you execute the mission. To achieve this level of confident execution, you must train relentlessly at a level of risk near or equal to the risk involved in what you seek to achieve. The chances for success must be high, or else you are gambling and the project should be avoided if possible. SEALs train relentlessly for mission success and are able to take on projects with a risk level inconceivable to most. They succeed because their level of competence meets the level of challenge.
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BUSINESS STRATEGY / MARKETING
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7
DEADLY SINS OF BUSINESS MARKETING
(that every business owner commits, even you!) Jamie Thomas lists the cardinal sins that all business owners commit when it comes to marketing. Take heed or repent at leisure!
The ability to market your business effectively is key to delivering a stream of qualified leads to your door and ultimately determines the level of your business success.* The latest surveys suggest that the average consumer is bombarded with between 3,500 and 5,000 marketing messages per day, every day.** Therefore the challenge to be heard above all others increases daily. In such a crowded space, costly marketing mistakes will inevitably occur. So for all you sinners out there, here are the Seven Deadly Sins that every business owner commits. How many are you guilty of?
SIN #1: LUST PLEASING THE MASSES (OR GETTING INTO BED WITH EVERYONE) “If you try to be everything to everyone, then you’re nothing to no one!” Too many business owners still target the mass market with too general a message.
The misguided belief is that a wider reach with a broader message should produce better results. Cast your ‘net’ wide and reap the rewards? The trouble is, the rules have changed. Today the smarter strategy requires targeting a specific market niche that shares similar needs and wants. By selecting targeted channels where your best customers are more likely to listen, you’re able to create messages that speak directly to and solve your customers’ problems. The big-picture goal? Dominate the market gradually and build up your niches. So resist the temptation to jump into bed with any old customer; be selective and start playing hard to get.
SIN #2: GLUTTONY OVERDOING IT WITH YOUR CONTENT Content is the new king. Business owners who understand how content marketing can help build their OCTOBER 2014 | 41
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business’s profits are often guilty of overindulging in the type of content generated as well as the quantity of platforms they use and the frequency of their postings online. Resist the temptation to create content for content’s sake while blitzing your client database. It’s both a sin and a crime against your brand. Always abide by the first marketing commandment: Make all content relevant, engaging and useful, and you won’t stray from the path.
SIN #3: GREED OR, PUT ANOTHER WAY, BEING SELFISH Are you always focusing on yourself and never on your customer? Not knowing your audience is a business owner’s classic cardinal sin. Absolve yourself. Put yourself in your customer’s shoes and brainstorm campaigns that target their specific interests and problems. Don’t be greedy and just promote your product or services. Share your unique IP in a way that resonates with your audience. Entertain and educate first, then learn about the best ways to reach your audience.
SIN #4: ENVY IS SOMEONE DOING BETTER THAN YOU ARE? OF COURSE THEY ARE
Jamie Thomas believes everyone is a marketer. He is a brand and marketing specialist at Synkd, a Melbourne-based niche marketing, brand, communications and design agency. He is also co-author of Self-Made: Real Australian Business Stories (Busybird Publishing). For more information, visit www.synkd.com.au or contact info@ synkd.com.au.
There’s always someone doing better than you are. The likely reason they’re more successful is that they’re working smarter than you are; that’s to say you’re not leveraging your time and bringing in qualified leads. A golden rule of marketing? Get your message out to the market. With only 24 hours in any day, duplicating your messages and attracting leads using new technology and practices is smart marketing. Don’t get left behind in Biblical times. Get up to date!
SIN #5: SLOTH LAZY, LAZY, LAZY YOU! Do you always play it safe? Do you adopt a ‘wait and see’ approach? Do you simply follow what every other business does? This only serves to help you blend into the background. Get up and stand out! Be creative; make some noise and make a statement. How? Publish a unique video, look for a niche, or create a unique online community. Get social or be forgotten. Calculated risks all come at a price, but
they’re usually the ideas that generate the most results and ROI. Get busy; get creative; get moving!
SIN #6: WRATH ARE YOU ANGRY OVER A LACK OF LEADS? ARE YOUR CUSTOMERS ANGRY AT A LACK OF CLEAR DIRECTION? Aside from needing anger management classes, maybe you’re simply not asking for the sale. Remember, always have a clear call to action for all of your marketing campaigns – tell customers what you want them to do next! Above all, make your call to action stand out.
SIN #7: PRIDE OR AS I CALL IT, ‘ME, ME, ME’ CONTENT Pride: the most common ‘sin,’ or symptom of self-obsession. The guilty are easily identified by marketing copy that harps on “company XYZ has been around for 30 years,” or “we’re the market leader” in blah, blah, blah. You’ve lost me already as a prospective customer. It has no place in your marketing collateral anymore. The problem is we’re all masters at marketing to ourselves, and pride has a lot to answer for! Use the words ‘you’ and ‘your’ much more than you say ‘I,’ ‘me’ and ‘our company.’ Stress the benefits of what your business offers – focus on how you solve problems rather than telling customers how good you are. Here’s a wake-up call: People aren’t that interested in you, but they are interested in what your business can do for them. Always stress the benefits; don’t sell on features. Customers primarily buy solutions, but mostly they buy benefits, and invariably they buy how you improve their lives, how you give them more time and how you solve their problems. If your marketing makes no reference to any of these pain points, you’re committing the biggest sin of all. Worst of all, they’re deadly for your business. Learn the lessons from these seven deadly sins; change your ways, see the results, and see your business thrive. * Whatever success means to you – in this case we’re simply implying financial success ** A recent study by Yankelvich Consumer Research, NY
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BUSINESS STRATEGY / EXIT PLANNING
Exit
planning
Get the best price for your brokerage When it comes to maximizing business value and sale price, size does matter, argues Craig West For many SMEs, a succession and exit strategy is the proverbial elephant in the room. And, irrespective of the countless books, seminars and newspaper columns devoted to the subject, business owners continue to ignore the basic principle that their enterprise needs to be prepared well in advance for sale in order to maximize value, price and successful exodus of the principals. As with all things in life, there is a series or sequence of steps that must be adhered to in order to ensure a business is valuable, attractive and saleable. The following factors have a heavy influence on the value of a business for sale, and owners need to ask themselves these key questions to determine the sale readiness of their businesses:
BUSINESS SIZE Is the size of my business right for my industry or market in order to maximize sale value? Simply put, size does matter! There is plenty of research to support the fact that businesses with a turnover of $5m or more nearly always sell at higher
multiples than their smaller counterparts. While I’m not in favour of growth for growth’s sake, designing your business to grow to at least this level of turnover will maximize value. Achieving the scale required might include making acquisitions of complementary businesses/ opportunities, expanding to other states or looking for baby boomer business owners desperate to exit and retire. Interestingly, the research clearly shows the top two outcomes baby boomers look for in a successful exit are not about dollars; rather, they want assurance that the business will continue after their exit (legacy) and that the new owner will look after the staff.
BUSINESS MODEL Clarity and sense of purpose and belonging are the next important factors. Are the business owner and all the members of the team on the same page with their understanding of the business model? Does every aspect of the business actually match the business model? Is it a boutique or scale business and, even more important, are all aspects of the operation – customer service, online presence, the people employed, the pricing strategy, office location (even its layout and fittings) and marketing materials – aligned to ensure they reflect the business model? This is further supported by a key finding in a Pitcher Partners 2013 survey, which discovered that the overall price of the business was rated less important than its continuity and ongoing jobs for employees, with 69% of respondents believing continuity of the business was important before they engaged in succession planning, and 89% afterwards. I met a financial adviser recently who told me that he looked after high-net-wealth individual clients and was extremely good at what he did, and as a result, he charged a premium. When he gave me a business card on very flimsy paper that looked like it had been printed as cheaply as possible, it clearly highlighted a misalignment within his business model.
REVENUE The ease of reading and understanding the business revenue is the next factor that has a significant
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bearing on sale price. Is it an annuity-style income based on long-term contracts, or does it depend on continually deriving new sales? Put simply, recurring revenue is worth more. Businesses with clients on long-term retainers, extended contracts, or some type of residual income trail are far more attractive and valuable than those that need to make sales continually – every day, week and month. Astute buyers will carefully examine the sales system/process (especially to identify if it is based on a key salesperson’s skill and networks) and the supporting marketing strategy and infrastructure.
SALES AND MARKETING Sales and marketing that run independently are vital for a business and need to be able to generate new business, leads, inquiries and ultimately sales without relying on either the owner or a key person’s skill and sales ability.
SYSTEMS Businesses that are systemized and have a documented operational process will have a distinct advantage over similar operations that are on the market. Systems save time, effort and money because they are far simpler to run, less stressful and generally far less risky – and, as a consequence, are also more valuable. The potential that they’re performing well is greater, the level of specialized skill to run them is reduced, and the lower risk is always more valuable.
EMPLOYEES Positively engaged, motivated and incentivized employees to perform and work are also an immense asset for any business. Incentive plans that reward based on performance can be adapted easily in an employee share ownership plan (ESOP). This simple strategy substantially reduces one of the key risks for buyers – employees exiting the business after the owner has left. It also provides a strong incentive for performance, and their financial well-being (at least part of it) is closely matched to that of the owner. Employees who have the same mindset as the business owner result in better performing, more profitable businesses with everyone sharing in the benefits.
RISK MANAGEMENT Far too many SMEs unwisely regard risk management and compliance as something only large businesses need to worry about. Corporate governance and compliance are often ignored by business owners. They fail to see that it adds considerable value, as reduced risk can provide a source of the right type of buyers for the business. In our experience, we often see deals fall over at the due diligence stage when the buyer really investigates the substance behind the business. Those with poorly prepared accounts, badly documented processes, and little or no governance structures often fail to meet this hurdle.
OWNER DEPENDENCE The reliance of the business on the owner that often can be the deal breaker. Can the principal take time away from the business for a holiday? A potential buyer needs to see that the business is able to operate efficiently and effectively without the owner’s involvement. It reaffirms to a prospective buyer that many of the above operational attributes are in place and functioning properly.
START EARLY Ideally, business succession should start the first day a business opens its doors and then evolve continuously until it is time for the owner to leave. However, in the real world, business owners get caught up in the day-to-day demands of running a business and pay little attention to succession and exit until they are on the eve of retirement. Others postpone exit planning because the task seems too difficult, or it is avoided because of the emotional issues involved. For many owners, it can be quite stressful to relinquish control of what has been one of their greatest achievements in life. Familyowned businesses have special needs, some of which can impact family harmony and relationships. However, despite the barriers or emotional roadblocks, business succession is important to all businesses irrespective of size, market share or ownership, and is not a process that can wait to the last minute to be implemented. The sooner owners acknowledge the need to implement an exit and succession strategy, the better their prospects are to maximize value, sale price and a comfortable exit following a lifetime of work and endeavour.
Craig West is a strategic accountant who has more than 20 years’ experience advising business owners. He has written four books on employee incentives, succession planning, asset protection and exit strategies. Craig is the president of the Australian chapter of The Exit Planning Institute and in March 2014 was appointed executive chairman of the SME Association of Australia. Visit www.successionplus. com.au.
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FAVOURITE THINGS / SUZANNE POUNTNEY
Favourite things... Suzanne Pountney, president, London Insurance Brokers Association, and commercial account manager, May-McConville Insurance Brokers Limited
Music: I’ve got pretty varied musical taste. On my iPod right now, you’d find everything from Broadway soundtracks to English Beat to Imagine Dragons. But no country.
My best day in insurance: My favourite days are those when I help a client solve a problem, figure out an invoice, decipher a contract requirement, obtain new coverage, etc.
Book: When I was five, Santa brought me a boxed set of The Bobbsey Twins. I haven’t stopped reading since. The book I most recently finished was Nelson Mandela’s ‘Long Walk to Freedom.’
My first day in insurance: Was because I didn’t get into teachers’ college. I quickly learned that being an insurance broker is to always be learning and teaching.
Vacation spot: Anywhere close to water – The Bruce, Muskoka, the Bahamas.
Movie: I’m a sucker for a John Hughes film or anything Pixar, but I also love docudramas.
Favourite sport or pastime: I’m a huge sports fan. I love to swim, cycle and participate in recreational triathlons. I watch mostly hockey and tennis and anything Olympic-related.
My weirdest ever coverage: Early in my career, I had a homeowners’ client with a vast clock collection. He refused to have it formally evaluated or appraised, so instead we spent hours photographing (on a Polaroid!) and cataloging it in order to market it.
Favourite food: I love grilled beef tenderloin with blue cheese and a good red wine.
Best thing about working in insurance: I love the teaching aspect of what I do, whether it’s formally at the Insurance Institute, mentoring a colleague or educating a client. And to be good at it, I get to constantly be learning, too.
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EXPERT ADVICE
QUESTIONS TO INCREASE SMALL BUSINESS WINS Small businesses are more likely than larger ones to experience potential emergencies, but while most entrepreneurs realize they need some type of insurance, few are pros at navigating risk management. A recent survey commissioned by RSA Canada revealed that contingency planning was not a priority for the majority of small business owners, but a thorough plan and adequate insurance can mean the difference between the businessâ&#x20AC;&#x2122; survival or failure in the event of an unforeseen disaster. Though youâ&#x20AC;&#x2122;ll have a number of customized risk management recommendations to share with your clients based on the critical components of their operation, there are several questions brokers should be asking all entrepreneurs: Business Disruption: What are the necessary backup procedures? Supplier mishaps or equipment failure, for example, can cause sudden productivity or profit losses, or interfere with the ability to cover continuing expenses.
Julie Pingree is vice president of commercial insurance, RSA Canada
Weather Damage: Have you considered and planned for the most common severe weather threats? This increasing challenge is triggered by climate change.
Crime: Which security measures should be implemented? Fraud, vandalism, theft, and emerging technological and cyber misconduct pose major threats. Succession Planning and Talent Management: What steps are you taking to ensure employees feel engaged in the business, and are adequately trained and keeping up to date on job skills? Hiring and retaining the right people is vital. A strong and stable workforce is the lifeblood of a small business. Along with the business benefits, an investment in employees can have positive impact on insurance premiums over the long term. Once your clients have a documented plan in place, ensure it is updated regularly and shared with the appropriate audiences. This list is just a starting point, so tailor your recommendations by circumstance and visit www.rsabroker.ca/commercial for additional insights and information.
48 | OCTOBER 2014
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9/10/2014 3:16:37 AM
© 2014 Royal & Sun Alliance Insurance Company of Canada. All rights reserved. RSA, RSA & Design and related words and logos are trademarks and the property of RSA Insurance Group plc, licensed for use by Royal & Sun Alliance Insurance Company of Canada. RSA is a trade name of Royal & Sun Alliance Insurance Company of Canada. ®™ Trademarks of AIR MILES International Trading B.V. used under license by LoyaltyOne, Co. and Roins Financial Services Limited. AIR MILES ® offer not available in Manitoba or Saskatchewan. Collectors can earn 1 AIR MILES reward mile for every $20 in premium (including taxes) to a maximum of 15 reward miles a month. All AIR MILES offers are subject to the Terms and Conditions of RSA, and may be changed or withdrawn without notice. For full details, please see Terms and Conditions available at rsabroker.ca/commercial/broker-tools/airmiles. *RSA’s Small Business Analysis Research, 2014
TRUST
IS THE MOST INVALUABLE THING A BROKER CAN OFFER A SMALL BUSINESS OWNER.
With an in-depth understanding of Canadian entrepreneurs, our dedicated risk-control team— experts in the field with years of experience—and specialist underwriters can support you and your clients with hassle-free solutions that keep their businesses moving forward. With 22% of Canadian small to medium businesses planning to increase coverage because of the risk of business interruption, you can help them deal with a sudden loss of productivity with a risk-management plan that minimizes the impact of disruptive events.*
RSA and our broker partners are committed to supporting our Canadian entrepreneurs. Happy Small Business Month!
IBC.indd 38 11193_RSA-CI-IB-SBW_FA.indd 1
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Personal Insurance
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9/10/2014 3:19:461:16 AMPM 2014-10-08
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