Big I Virginia Summer 2017 by PHCC-WI

BUY YOUR WAY TO GROWTH

WHAT YOU NEED TO KNOW ABOUT ACQUIRING ANOTHER AGENCY

IS BIGGER ALWAYS BETTER? AGENCY VALUATION: IS IT BASED ON THE PAST OR THE FUTURE?

(800) 613 2600 :::.:IU US:.

Our is like chocolate pudding... One taste and you'll be back for ! P

H : :: :

â&#x20AC;˘O : :q â&#x20AC;˘ R : :: : 15% 20% b : k : For personalized service, call: ::::::::::::::: (845) 426-5353 aaron@aiu-usa.com

SUMMER 2017

BIG I The

Official Publication of the Independent Insurance Agents of Virginia

Virginia

The Big I Virginia is a publication of the Independent Insurance Agents of Virginia 8600 Mayland Drive, Richmond, VA 23294 Phone: 804.747.9300 / Toll-free: 800.288.IIAV (4428) Fax: 804.747.6557 E-mail: members@iiav.com / Website: www.iiav.com IIAV IS AN ORGANIZATION DEVOTED TO PROMOTING, ENHANCING, SERVING AND ASSISTING INDEPENDENT INSURANCE AGENTS.

The Big I Virginia is a publication of the Independent Insurance Agents of Virginia and is published quarterly by Blue Water Publishers, LLC. The Independent Insurance Agents of Virginia, Inc. reserves the right in its sole discretion to reject advertising that does not meet IIAV qualiﬁcations or which may detract from its business, professional or ethical standards. IIAV and Blue Water Publishers, LLC do not necessarily endorse any of the companies advertising in the publication or the views of its writers. The publisher cannot assume responsibility for claims made by advertisers, content provided by the editor, or for the opinions expressed by contributing authors.

Inside this issue 6 8 12 14 16 20

Ally Barbour Communications/Media Manager abarbour@iiav.com Robert N. Bradshaw, Jr., MAM President & CEO rbradshaw@iiav.com cell (804) 929-4134 Teri Chester Executive Secretary/ Receptionist & Membership Coordinator tchester@iiav.com

THE BIG “I” VIRGINIA • Summer 2017

Agents Insurance Markets

Allstar Financial Group

Amalgamated Insurance Underwriters

Amerisafe 7

Message from the Chairman of the Board – Monty Dise Message from the State National Director - Robert Yergey Message from the President and CEO - Bob Bradshaw New Chairman of the Board Doug Megill Build Your Way to Growth The Top 5 Reasons Why Insurance Companies Should Post, Tweet, and Share Today 22 Case Studies: Acquisition and Perpetuation 24 Is Bigger Always Better? 28 Agency Valuation: Is It Based on the Past or the Future? 30 Does Your Buy-Sell Agreement Include an Accurate Value for Your Company? 32 Mergers & Acquisitions Checklist 34 Agency M&A Market Still Hot – But Will It Last? 36 insurEXPO17 38 Save the Date Young Agents Conference 2017 40 5 ‘Musts’ for Insurance Agents Trying to Reach Millennials 44 Why Independent Agents Are Losing the Marketing War 47 Thanks to Our Partners 2017

IIAV Staff

Thank You Advertisers

Anderson Murison

Atlantic Specialty Lines

Berkshire Hathaway/GUARD Insurance Cos. 19 Builders Mutual Insurance

Burns & Wilcox

EMC Insurance

Grange Insurance

Harford Mutual

Hilb Group

Jackson Sumner & Associates

JGS 23 Millers Mutual Group

Penn National Insurance

Risk Placement Services

SIAA 26 Southern Insurance Company of VA The Iroquois Group

43 5

For more information on advertising, contact Eric Johnson, Blue Water Publishers, LLC, 9406 N. 107th St., Milwaukee, WI 53224 414-708-2059 / fax: 414-354-5317 eric@bluewaterpublishers.com

Joe Hudgins, CPCU Technical Consultant jhudgins@iiav.com cell (804) 929-4138

Danny Mitchell, AAI, AAI-M Vice President Business Development dmitchell@iiav.com cell (804) 929-4135

Bonnie Joyce Insurance Administrative Assistant bjoyce@iiav.com

Susan E. C. Perkins Membership/Education Coordinator sperkins@iiav.com

Linda Loving, CIC, AISM, AIAO IIAV Chief Operating Officer & VFSC Executive Vice President loving@iiav.com cell (804) 929-4133

Carter Lyons, CAE IIAV Director of Education & Professional Development & VAIA Executive Director clyons@iiav.com

Jennifer Riley Member Services Assistant jriley@iiav.com Bonnie J. Warren, ACSR, CPIW, DAE, RPLU Insurance Account Executive bwarren@iiav.com Melanie Miller, AINS, CPIW Insurance Account Executive mmiller@iiav.com

Chairman of the Board

MONTY DISE mdise@apgroupinc.com

THE YEAR IN THE REAR VIEW MIRROR – AND WHAT IT PORTENdS FOR THE NEXT 12 MONTHS.

ach and every year in just about every association imaginable, the outgoing chairman or president makes the obligatory statement containing the following: the year flew by; it was such an honor to serve; gratitude to staff and fellow membership for the encouragement and support (staff wrote this last part); and so on. Starting my term last June, I was fully aware of the many challenges we faced. Each was identified and addressed head on. The annual budget preparation, adoption and year-long monitoring is an especially daunting and very serious process and I am pleased that we have grown the association and maintained its exceptional financial integrity. I am proud to leave the association in a terrific and sound position for my successor, Doug Megill. Let’s look at what we tackled during the past twelve months. IIAV’s 2nd annual insurEXPO was held in April at the Marriott Downtown Richmond. An exceptional set of speakers and presenters offered a valuable two-day series of sessions including up to three hours of CE for attendees. We were blessed with a fabulous number of exhibitors and sponsors. Plus there were actually more agencies represented this year. With the growing number of resources for agents to utilize CE, IIAV maintained a strong education presence. In a world of rapid change, education is paramount to success. IIAV and VAIA both are fortunate to provide great classes, led by incredibly talented, knowledgeable, and caring instructors. I encourage you to continue to learn and grow as that is truly the best path to success. VAIA is also taking on a new challenge of providing a more robust training program to better meet the needs of your team as you recruit and hire new employees. Exciting things are happening in the world of education. An active and growing Young Agents element of IIAV was

THE BIG “I” VIRGINIA • Summer 2017

a priority for this year. A number of networking social events coordinated with other young professionals from the Society of CPA’s, Bankers Association, Virginia Bar Association and others were held in a variety of sites across the Commonwealth. The Young Agents enjoyed their own annual conference with plans underway for an even more exciting event this October. However, a particular focus is on the renewed efforts within the YAC; their goal is to put forth increased focus on education, leadership, and community service. If you work with a young agent, you, your organization, and your clients would be well-served if they were actively engaged in this group. Despite the robust activity in the merger and acquisition arena IIAV’s membership numbers have remained steady. We experienced the largest number to date of member agencies lost to both existing members and non-members through acquisition but were able to replace these with a strong number of newly formed and start-up firms. The Virginia General Assembly kept Bob Bradshaw and Joe Hudgins on their toes prior to, during, and even since the session with many pieces of insurance-related bills. All in all, we enjoyed a very successful session and IIAV weekly reported legislative activity and bill status to the membership. The products and services offered by the Virginia Financial Services Corporation (IIAV’s for-profit arm) was most impressive. Strong gains in E&O, personal umbrella, and data breach resulted in a superb year. I could go on and on. But, with some new exceptional staff additions throughout the year, your association is running at a busy but measured pace that is even keeping this Georgia Bulldog panting. Thanks again to all for permitting me the pleasure and honor of serving IIAV during the past year.

Workersâ&#x20AC;&#x2122; Comp for Working People

Arborist | Roofing | Trucking | Wholesale | Wood Products

www.amerisafe.com | 800.897.9719

State National Director

Robert Yergey ryergey@towneinsurance.com

HOW THE MERGER AND ACQUISITION ACTIVITY AFFECTS YOUR ASSOCIATION

ell it just does not seem to let up. It appears that each and every day I learn of yet another agency merging or becoming acquired by another. And that is just in Virginia. Multiply that by each and every state and you will join me in becoming a bit overwhelmed by the activity going on among us. 2015 was a banner year in M&A activity. Last year was even more severe. The first few months of this year are outpacing last. In speaking with A&M Assoc Ad VA PRINT.pdf 1 10/20/15 12:33 PM IIAV staff this week I was told that in just one day

they became aware of at least four agencies newly prepared for purchase. Such a high volume of continued M&A activity has a tremendous impact on our industry. Let’s examine the impact it has on our state and national associations. Are these mergers and acquisitions a positive or negative outcome for the agency associations? The answers may well rest with how well the industry and agency associations react and adjust. The negative impacts are immediate and quite obvious. When one agency buys or mergers with another our association “loses” a member and either experiences a loss or reduction in dues revenue. More often than not, an E&O policy – perhaps written through the Association – must be canceled. The state and national associations must continuously re-examine its membership and other necessary revenue-generating resources. And it is not just agencies buying agencies. We are witnessing an increased level of activity on the broker and carrier side as well. Brokers are buying agencies. Agencies are buying brokers. Carriers are buying brokers. Will it continue? Get worse? Improve? If we use the last several years as any indication, this fast-paced activity is likely to only continue. The average agency principal’s age continues to inch toward 60. Poorly planned or no-longer-viable agency perpetuation plans are forcing many agency owners to seek an exit strategy. With so much available cheap cash seeking a tightening “seller” agency base, the prices offered continue to be very, very attractive. Just think how these events impact our carrier

THE BIG “I” VIRGINIA • Summer 2017

Continued on page 10 >>

COMPREHENSIVE COVERAGE IS OUR MIDDLE NAME. Only Burns & Wilcox has the depth and breadth of experience to deliver the right solutions right away. Baltimore, Maryland 410.891.4200 toll free 800.729.1273 fax 410.540.9140

Charlotte, North Carolina 704.525.1152 toll free 800.999.3434 fax 704.525.7399

burnsandwilcox.com Morehead City, North Carolina 252.726.8992 toll free 800.498.1600 fax 252.726.9484

Anywhere Coverage!

<< Continued from page 8 partners. Each carrier is struggling even more to attract or maintain appointments. With fewer and fewer midand large-size agencies with which to conduct business, attention must focus more on smaller and start up agencies. This has traditionally been avoided to a great extent. Clusters, aggregators and other brokers may offer some solutions to achieve growth. Other association-related activities are also affected. Fewer agencies generally result in lower attendance and participation in conventions, meetings, education sessions, etc. Large and mega agencies are significant enough to host “in-house” activities. Our associations need to be quickly restructuring offerings to take advantage of these changes. And on a much grander scale, our Association must become more keenly aware that the “needs” and “expectations” of tomorrow’s larger, merged agencies are ever-changing and considerably different than their previous, smaller acquired or merged components were.

Agents Insurance Markets consistently delivers competitive coverages and rates for most of your clients specialty property and casualty risks. With two mobile home markets to offer, we take ‘competitive’ to a whole new level. For more information contact us today! • Coverages statewide (including coastal) • No credit checks or prior coverage needed • Prior claims activity will be considered • Pro-rata cancellations • Financing available on $400+ premiums (20% down)

Visit us online at

www.aim-ins.com p: (804) 285-4930 tf: (800) 627-0505 f: (804) 285-4945 10

THE BIG “I” VIRGINIA • Summer 2017

A Bloss & Dillard, Inc. Company

We can try to react to this as best we can as an association in several ways. However, reacting is exactly that – trying to work with the purchasers and merged members after they have made decisions. This is usually not favorable to the association and membership issues, products and services. What we truly need to do is be proactive regarding these issues. The best way to do this is to make sure that perpetuation plans are put in place that allow agencies to continue to work on their own and not feel the need to merge. While it will continue the industry needs to be sure that agency owners have alternative options available and don’t feel they are in a position without choices. Younger persons in our industry as well as persons that are interested in being agency owners must be brought along at a quicker pace to allow for these options to be available to retiring agency owners. This is a tall task, but it must be done for both perpetuation and the livelihood of the agency distribution system. We can all benefit from this happening. There is other work to be done to assist our membership with having options. However, the availability of these options is critical. As an association we need to help to develop these options and help us all continue the independent agency system as we know it. We are working at the national level to develop new programs to assist and we need to do so at the state and local level also. Your help would very much be appreciated.

donâ&#x20AC;&#x2122;t weather the storm alone. are you prepared for storm season? Storm season is upon us. Are you prepared? In 2016, severe weather events caused a total of $46 billion in loss -- the second highest annual total. The 2017 Atlantic hurricane season is expected to produce 12 named storms, of which six are expected to become hurricanes and two expected to become major hurricanes.

how is asl prepared to ride out the storms with you? all of aslâ&#x20AC;&#x2122;s serv- our off-site locaers are located tion in Richmond, VA has a backup in an off-site power generabunker with tor, should our power back up home office be and diesel geninaccessible. erators.

greg provenzo president -- asl of va d. 804.474.1568 c. 804.338.2221

two back up internet connections are available for access to our servers from anywhere in the world.

all policies and file documents are imaged (paperless), thus allowing us to immediately access all files for you and your clients.

dave adcock

svp of sales & bus. development d. 804.474.1571 c. 804.398.0998

email claims to: claims@aslinc.com 800.368.2095 | www.aslinc.com

President and CEO

Robert N. Bradshaw, Jr., MAM rbradshaw@iiav.com

MERGERS & ACQUISITIONS AND PERPETUATION – COME TO IIAV FIRST

o matter where you are in the perpetuation process of your agency – IIAV has the resources you need….and more. Of course, many of our members explore the perpetuation process first in their agency planning process whether it’s to a family member or in-house associate. We have the education programs that prepare individuals for agency management and leadership and of course, the IIAV Young Agents program. This program provides considerable training and leadership and networking for our agency leaders of tomorrow. From my perspective, it’s exciting to look at our young agents program as they are the association’s leadership of tomorrow and thus I know that the association will be in good hands for many years to come.

Don’t shortchange yourself looking for the easy answer to the valuation question. It used to be members would call IIAV and ask – in effect – “what’s the going rate for agency valuation today?” It honestly used to be rather easy to provide

THE BIG “I” VIRGINIA • Summer 2017

a ballpark answer. Those days are long gone – for one reason there doesn’t in some cases appear to be any rhyme or reason to the valuation and purchases of agencies. I’m sure we have all seen examples when an agency is purchased and we question how on earth the evaluation on that one was established. It’s with this in mind that IIAV has the contacts of true agency evaluation professionals who are also very familiar with industry practice of today. Don’t shortchange yourself looking for the easy answer to the valuation question. Then there’s financing. Have you gone to your local bank and asked how they value “good will”? You’ll probably get a blank stare. IIAV’s partnership with InsurBanc is important because it’s a bank that was established by insurance agents to help insurance agents in all matters of business. The President of InsurBanc – Dave Tralka – has spoken at both our recent Expos and provided examples of successful mergers and acquisitions and how InsurBanc can be a partner to you in this process. No matter where you stand in this process – perpetuation, to buy or to sell….IIAV has the resources to help you and your agency. Keep us on your speed dial.

Meeting my customers where they work. Crafting each policy to meet different needs. Partnering with Builders Mutual insurance.

Thatâ&#x20AC;&#x2122;s how I get the job done right. BuildersMutual.com

New chairman of the board

Meet Doug Megill

t the Annual Meeting of IIAV in June, Douglas B. Megill will be duly installed as the 2017-2018 Chairman of the Board.

Getting to know Doug Megill is meeting a man in motion. His “wheels” are always spinning; the “transmission” always in gear. Having been reared in the Washington, D.C., area, Doug grew up not intending to venture into the family insurance business. He attended Randolph Macon College in Ashland and the University of Florida, graduating with a B.S. in Behavioral Psychology in 1984. Influenced by his father’s illustrious career in the Navy (he attained the rank of Commander in the Naval Reserves), Doug briefly entertained visions of becoming an aviator himself. His flying ambitions were brief and shortly before graduating from the University of Florida, Doug received a phone call from his father’s insurance agency. The call came not from his father but from a senior staffer. More on that later. Upon completion of his regular military service, Doug’s father, Henry C. Megill, had begun selling life insurance and mortgages. He did so well he diverted his career path as an attorney. Even with a law degree he chose never to take the DC bar exam. Doug’s father and grandfather both worked with Megill & Son Insurance Agency. In 1971, Henry Megill started his own agency. Now back to the phone call mentioned above. Doug Megill was in Florida with no clear career path in mind. His father’s agency office manager called Doug to say the agency could really use his help. “Would you seriously consider joining the firm?” Doug started in 1984 doing the most basic office functions: licking stamps; filing; folding four-part invoices. He recalls learning every aspect of the agency business “except the accounting functions” in which he wished he’d been better 14

THE BIG “I” VIRGINIA • Summer 2017

tutored. Doug admits he really was not totally committed to a lifelong career in this business at first. However, once he realized the satisfaction of “helping clients with their needs” his attitude changed completely. Doug’s father was a total believer in not only the pursuit of continuous insurance education but also the importance of aligning with and participating in the industry associations and groups. Together they attended every IIAV meeting and convention. Doug’s success in client service and sales was evident even in his first year. He focused on the personal lines side of the business initially and he boosted sales by 30 percent. Selling life insurance was also part of his early success. He began his pursuit of a CPCU designation during his second year. His success was clear and evident. It was during his third year in the business that his father became ill. After leukemia took the life of his father in 1990, he was thrust into the leadership role within the agency, which at the time had three employees and less than $150,000 of revenue. Today the agency has more than 10 employees and over $13,000,000 of premium with Doug at the helm as president and CEO. McLean Insurance is recognized at the top of our industry for continuous learning. That’s why their team has attained some of the insurance industry’s most respected credentials, including: Certified Insurance Counselor (CIC), Accredited Advisor in Insurance (AAI) and Accredited Customer Service Representative (ACSR). In addition to being proven professionals, you’ll find they are caring and conscientious people; the kind of people on whom you can depend. As incoming IIAV Chair, Doug seeks to continue to strengthen the Association and its members. A significant emphasis on meaningful association committees with a

focus on education, technology and Young Agents is his ambition. The industry needs to encourage a whole new younger, capable and qualified generation of talent to join the agency ranks in particular.

Insurance specializes in serving Northern Virginia and the Greater Washington, D.C., metropolitan area, but is also licensed to provide personal and business insurance coverage in over 20 states.

Doug is an active member or has previously served on the McLean Rotary Club, Troop 572 of the Boy Scouts of America, the Lower Loudoun Little League, the McLean Chamber of Commerce, the Loudoun County Chamber of Commerce, the Dulles Regional Chamber of Commerce, the Independent Electrical Contractors Assn – Chesapeake Chapter, NAIOP, NVBIA and the Loudoun Chapter of the Fellowship of Christian Athletes. Also on the board of directors for the Fairfax County Chamber of Commerce, the Northern Virginia Transportation Alliance, the Independent Insurance Agents of Virginia and on the advisory board of Virginia Commerce Bank. Also a former board member of the Vestry for Potomac Falls Anglican Church, the McLean Orchestra, the Independent Insurance Agents of Northern Virginia, Birthday Blessing, the DC Gator Club and the McLean Planning Committee. Doug is also a member of Lambda Chi Alpha Fraternity’s Epsilon Mu Chapter at the University of Florida.

Today, Doug Megill continues his father’s passion for making a difference to clients’ business and personal lives. One particularly notable project is Carz Cruisin to Cure Cancer. Doug Megill, founded this event to continue his father’s legacy and passion for making a difference in the community. Funds raised by Carz Cruizin to Cure Cancer are donated to help the Leukemia and Lymphoma Society cure leukemia, lymphoma, Hodgkin’s disease and myeloma, and improve the quality of life of patients and their families. In recent years nearly $30,000 annually is raised! The goal at this year’s September event is to raise $50,000! So as was initially mentioned, Doug’s “wheels” are always spinning. Occasionally for fun; sometimes for business; and often times for charity.

Headquartered in the Potomac Falls/Sterling area, McLean

FIND ALL YOUR INSURANCE NEEDS IN ONE PLACE

Summer 2017 • THE BIG “I” VIRGINIA

MERGERS & ACQUISITIONS

BUY YOUR WAY TO GROWTH

WHAT YOU NEED TO KNOW ABOUT ACQUIRING ANOTHER AGENCY. By Robert J. Pettinicchi

n today’s demanding business climate, agencies have two options: grow and prosper, or just stay the course and plod along. But how to grow? Most agencies can grow organically, through plain old hard work, methodically attracting more clients and perhaps expanding markets. A few, however, accomplish it quickly, by acquiring another agency. In fact, hundreds of sizeable independent agency mergers were recorded last year alone. Is a merger or acquisition in your agency’s future? Here are important considerations to help you craft a deal to your advantage.

WHY CONSIDER A MERGER OR ACQUISITION?

•

Add qualified staff, functionality, or industry knowledge

It’s all about creating value. Any proposed acquisition should help you create value in the agency for its owners and provide greater value-added to your clients. Larger agencies typically have more access to markets, can specialize, and may have a broader geographic reach. Therefore, for example, an acquisition might be an appropriate way for you to efficiently:

•

Access more clients, or a new market

•

Increase market share

•

Reduce competition

THE BIG “I” VIRGINIA • Summer 2017

All of which should lead to enhancement of the value of your agency. Remember, however, that it is “better to be excellent than to be big.” You should not consider growing

through acquisitions unless your existing agency is in good order. In particular, pay close attention to your agency’s financial health. Maintaining a proper working capital position and reasonable debt load are two places to start. Other challenges for agencies continue to be managing compensation, utilizing technology, and finding and retaining the right people. There are a number of very qualified industry-specific consultants Continued on page 18 >>

Independent agents throughout your area Count on EMC ® for a number of reasons. • 100-plus years of commercial lines experience. • Expert loss control services. • Responsive service delivered by a fully-staffed branch office right in your own back yard. Let us show you how EMC Insurance Companies can work for you. ANGELA CRITZ Commercial Lines Underwriter III EMC Charlotte Branch

WE’RE READY TO HELP YOU

WIN MORE BUSINESS.

CHARLOTTE BRANCH OFFICE Phone: 800-333-3622 | Corporate Office: Des Moines, IA

<< Continued from page 16 that can help you to get your agency humming. You may also want to see how your agency “stacks up” against other similar agencies by reviewing “Best Practices” data. IDENTIFY A TARGET The best target agency may be across the street, across town or across state, however, don’t expect the ideal target to drop into your lap. Most mergers and acquisitions evolve slowly and are the result of months or even years of talks. Your top competitor may be your best target because you have a strong suspicion who their top clients are and who their most reliable markets are. Chances are you will have to do some networking and kick the tires on the deal before it all falls into place. Industry associations, insurance carriers, and consultants arc good places to start when seeking potential candidates. Characteristics that may point to a viable agency target are those with aging principals with no readily apparent perpetuation path or agencies in a stagnant growth position. Next, ask yourself how a merged operation may look. Do you think there is a chance that the two firms can be successfully integrated into one from a financial, cultural and human resources perspective? If not, that target may not be a proper fit. Remember, time is money; the longer it takes to successfully meld the combined enterprise will dramatically impact the chances for success (and ultimately the opportunity for enhancing value).

to ride off into the sunset with the most cash now? ls it possible to strike a deal based on retention? Is some degree of seller financing available? Be open and honest about your plans for the agency. Keep in mind that you are dealing with someone’s lifelong pursuit. Don’t underestimate the amount of feelings and ego that may be present during negotiations. Explain why you are interested, what your vision of the future is, and the potential opportunity for current owners. AUDIT THE FINANCIALS Ask for three years of fiscal year-end financial statements from the target agency’s management system and a current interim statement with a comparison to the previous year. Get an overall production report by business line and carrier. Ask for production reports from all of the major carriers and get copies of the carrier agreements as well. Also, obtain an employee census with compensation details and copies of all producer anti-piracy and non-solicitation agreements. A big red flag is the failure of the seller to produce any and all of the preceding items. While you may be asked to sign a confidentiality agreement, the items will be needed to formulate an offer. SEEK PROFESSIONAL HELP

OPEN TALKS

At this point you should consult with your accountant and attorney. Don’t forget to discuss this with your banker too, unless you have been a very diligent saver or don’t need to borrow money for valuation.

You’ll want to spend time with a target agency’s principals. Consider the desires of the selling party. Does the seller expect to stay in the business in some capacity? Does he or she want

You would also be well served to engage a consultant to prepare a business valuation. This could help you negotiate a better deal, identify business issues to be ironed-out and

THE BIG “I” VIRGINIA • Summer 2017

it may be required or at the least, appreciated by your banker. Many articles have been written about the advantages of purchasing assets versus stock, all cash deals versus seller financed or partially financed deals and those deals based on retention or any combination of the above. This article is not intended to provide advanced advice but is meant to point you in the right direction. Again it is best to seek out the advice of qualified professionals. Don’t cut corners by choosing professionals that don’t adequately represent your needs and don’t choose professionals based solely on price. There is usually some form of tax consequence to your actions. The cost of bad advice is one that you will keep paying for over time. The attorney that handled your sister’s divorce may not be your best choice for your next strategic acquisition. SET THE TERMS Every deal is different. And, the more astute your lender, especially about the agency business, the more financing options you’ll have. For starters, how much credit is your lender likely to extend to you? Specialized lenders are better able to assess the full value of your agency, represented by your book of business. If your current lender is unwilling to provide a loan based on the value of the agency you are acquiring, you may want to look elsewhere. Most importantly, never force the numbers. From the outset, be sure you have defined the maximum amount you can invest and still achieve an acceptable return. Don’t take on an acquisition if the adjusted cash flow of the target cannot support the debt required to buy it. And remember, the sales price is not your total cost you have to factor in any debt you will be acquiring.

TALK TO YOUR BANK/CHANGE YOUR BANK You would also be well served to talk to your bank and do it early. You’ll get more support and valuable advice the better your lender understands your business and your track record. Does your banker understand that insurance agencies typically have little in the form of hard assets? Would your banker be willing to make a loan that is secured solely by the agency’s book of business and its associated cash flow? If the answer to both questions is no, then you need to consider changing banks. The best time to do so is well before an acquisition opportunity arises. A bank that specializes in your industry is better able to serve your needs. Ask your banker:

•

Is the bank willing to count your book of business when determining loan collateral?

•

Does the bank offer a range of terms tailored to the nuances of the agency business and help you select the ones best suited to your needs?

•

Does the bank have a suite of lending and depository products designed specifically for my industry?

•

Does the bank sell insurance and compete with my agency?

strong ally on your team by selecting a banker that knows your agency, your industry, and who can be fair and disciplined in their analysis, yet flexible and creative in their solutions. Robert J. Pettinicchi is chief lending officer of lnsurBanc, a federal thrift dedicated to providing banking products and services to Independent Insurance Agents. Additional information about the Farmington, Conn.-based bank is available at www. insurbanc.com. Mr. Pettinicchi can be reached at rpettinicchi@ insurbanc. com or 860-674-2310.

Pulling off a successful merger or acquisition can be one of the most rewarding exercises an agency owner can pursue. It can also be one of the most frustrating. Be sure to put a

Come Grow with Us!

25% Avg Annual Rate of Direct Written Premium Growth (2010 - 2015)

You don’t triple in size in five years without satisfied agents!

Berkshire Hathaway

GUARD

Insurance Companies

We’re the quote you could come up against, so why not join us? Go to www.guard.com/apply

We now feature more lines of business in most states (including a One-Stop Insurance Shopping solution via BizGUARD Plus).

We are a stable open market for your commercial Property & Casualty accounts that provides the qualities you seek: Competitive Pricing • Unique Coverage Extensions • Excellent Commission Potential • Broad Underwriting Appetite • Easy Submission Process • Superior Customer Service Visit www.guard.com for product availability in specific states.

Summer 2017 • THE BIG “I” VIRGINIA

TOP 5 THE

REASONS WHY INSURANCE COMPANIES SHOULD POST, TWEET, AND SHARE TODAY

ocial media is for kids. It’s just a place for people to share photos of the western omelet they ate for breakfast. It’s a way to connect with old friends. Sound familiar? These are typical statements people provide when asked about the purpose of the communication platform.

Take away all the specifics of each social media channel and it is quite simple to understand: Social media is simply another avenue through which individuals and businesses connect with friends or customers. Still, some companies remain resistant to tapping into social strategies to reach customers, failing to understand the evolution over the last decade. What started as a communication tool in the F-to-F (friend to friend) arena has steadily gained ground, emerging as a powerful brand platform for both B-to-C and B-to-B markets. The proof is in the numbers. According to Statista.com, social media users are projected to reach 2.5 billion by 2018, up from 1.96 billion in 2016. The Insurance Industry has built its foundation on networking and building a good reputation – both of which are inclusive of social media efforts, making it a natural ally for nurturing relationships and connecting with customers. With the exponential growth of social media, insurance companies now have the ability to join a daily conversation with their customers, connecting on a level that was once impossible. Bottom line, companies can benefit from incorporating social media into their marketing plans.

THE BIG “I” VIRGINIA • Summer 2017

TO EFFECTIVELY STAY IN FRONT OF YOUR CUSTOMERS AND AHEAD OF YOUR COMPETITORS, YOU NEED TO BE SOCIAL TO BUILD A STRONG AND LASTING RELATIONSHIP. Here’s the why for social media:

Increase Brand Awareness

In order to get your brand noticed, people need to know about it. Through social media you can encourage people to start talking about your company, increasing your organic reach. According to Adroit digital, 75 percent of online Americans said product information found on social media influences their shopping behavior or enhances brand loyalty.

Legitimize A Brand

According to a Ballihoo study, 63 percent of consumers who search for local businesses online are more likely to use businesses with information on social media sites. Think about it like this: Smaller businesses tend to have static websites. Social media, on the other hand, offers daily or weekly updates. If a company has a website, it means a brand exists. If a company has an active social media presence, it means the brand wants to engage with its customers.

For best results, keep your content relevant to those you’re trying to reach. In addition to sharing information about your products and services, include posts offering insights about the nuances of the brand like its history, its community involvement, and honors and awards employees receive. It’s also smart to go beyond your brand to share content that speaks to your audience’s interests, even if it does not sell or promote your products and services. Using thoughtprovoking posts and some with a dash of humor keeps viewers interested, in turn, getting you more followers.

Efficient Way to Distribute Content

Typically, social media is a part of a content marketing campaign. Social media counts for a huge portion of referral traffic on the web. We know that people are looking for interesting content and are sharing it online. A joint study by AOL and Nielson show that people spend more than 50 percent of their time online with content and an additional 30 percent of their time on social channels where content can be shared.

It’s no secret that insurance isn’t the easiest topic to understand. Social media allows companies to share information in much smaller pieces that can speak directly to a consumers’ needs and in a language that is much more meaningful.

Communicate with Customers Instead of “At” Customers Like Traditional Media

Traditional media has been used in the marketing world for years. When related to advertising, traditional media includes television, newspaper, radio and magazine ads. These forms of communication are steadfast ways businesses have reached both consumers and other companies. Although effective, a more integrated and collaborative approach to marketing is the future of advertising.

The beauty of social media is that it offers companies the opportunity to communicate WITH customers instead of AT customers, which is the opposite of traditional advertising. By participating in the conversation, you have the ability to build an online portfolio of knowledge that enhances your company’s reputation and boosts your brand.

Decreased Marketing Costs

When it comes down to it, social media is an inexpensive marketing tool. Social media ads cost as little as $0.12 per click and are constantly innovating to work better for less. You’re even able to target your specific audience down to the type of mobile device they use and their interests. By dedicating as little as six hours per week to your social pages, you’ll begin to see an increase in traffic to your website in no time! It All Comes Down To Building Relationships With Customers Today, having a website and marketing materials is no longer enough. To effectively stay in front of your customers and ahead of your competitors, you need to be social to build a strong and lasting relationship. Social media’s speed, reach, and collaborative nature offer a longterm appeal, meaning it isn’t going anywhere, anytime soon. Article courtesy of Millers Mutual

According to a Balihoo study, social media sites account for 25 percent of total time spent online in the U.S. If people spent one fourth of their TV watching time on one station, business owners wouldn’t hesitate to advertise there. Summer 2017 • THE BIG “I” VIRGINIA

MERGERS & ACQUISITIONS

Case Studies in Agency Financing - Acquisition CONSTRUCTION SPECIALIST AGENCY PUTS ON NEW ADDITION WHAT: Growing through acquisition of a peer firm to add to their diversified business base including a construction niche. HOW: Working with InsurBanc to finance the acquisition loan and gain access to a line of credit for working capital. SUMMARY: Two captive agents who shared an office started The Agency from scratch in 2000 to gain access to a wider choice of carriers and advocacy for their clients. The firm recently purchased a peer agency using guidance and funding from InsurBanc, a division of Connecticut Community Bank, N.A.®

CHALLENGE • The scale of the acquisition required the facilitation of external financing. The firm also sought a bank line of credit for working capital. •

Finding a financial institution that understands the agency business model and also the construction industry

•

Creating a financing package that would benefit the buyers and seller, while at the same time allowing the agency opportunity for future growth.

AGENCY SNAPSHOT • Founded in 2000 from scratch, no inherited or purchased book of business

THE SOLUTION After conversing with four lenders, the agency decided on InsurBanc and a finance package to accommodate both short term and long term agency goals.

•

Specializes in construction industry

•

$4,200M purchase price

•

$55,000M in premiums

•

$3,600M 7 year term loan and

•

75% business lines, serves 500 contractors and construction organizations

•

$300M commercial line of credit

•

40 employees

TAKE AWAY The success of this deal was a direct result of four key issues:

OPPORTUNITY • Growth was mostly organic

1. Sound financial agency management, Best Practices Agency

•

2. Strong due diligence on agency opportunity/professional agency valuation

•

Agency leaders wanted more growth, saw a good opportunity in a peer agency that exhibited stability, growth and high retention. Acquisition would add 40% more agency revenue and complement the current staff with experienced producers and inside sales people

3. Buyers demonstrate good business acumen and strong personal finances 4. A bank that understood the industry

Synergies between the two agencies including their construction expertise, agency culture, book of business, appointed carriers and management software.

Case Studies in Agency Financing - Perpetuation Fast Track Perpetuation Plan WHAT: Finding a bank to fast track the execution of a long standing perpetuation plan due to the sudden passing of the agency principal. HOW: Working with InsurBanc to finance the perpetuation loan according to the perpetuation plan and gain access to a line of credit for working capital. 22

THE BIG “I” VIRGINIA • Summer 2017

SUMMARY: The agency owners had the foresight and knowledge to put into place a perpetuation plan years before the actual event. After selecting and grooming one of the firm’s producers, the plan was written and reviewed periodically. The perpetuation plan was accelerated when the owner suddenly passed.

THE SOLUTION • After consulting two other banks, the buyer then contacted InsurBanc who was able to respond quickly under the tight timeline.

AGENCY SNAPSHOT • Founded in1886, fifth generation of owner •

$10M in premiums

•

50% business lines, 50% personal lines

•

9 employees including 3 producers

•

OPPORTUNITY • Producer started with the agency in 2002 and became Vice President in 2008 managing the daily operations of the firm and maintaining carrier relationships •

In 2011, the owner decided to perpetuate the agency to the vice president and developed a solid perpetuation plan which would financially benefit both the buyer and seller. No date was established to execute the plan.

Within weeks, a solid financing package was structured. •

$3,000M agency price (2x commissions)

•

$1,500M 7 year term loan, $1,500M seller note

•

$25M commercial line of credit

TAKE AWAY The success of this deal was a direct result of four key ideas: 1. Solid, sustainable perpetuation plan established well in advance

CHALLENGE • In 2012, the owner suddenly passed away and the executor of the estate requested a change in the finance structure.

2. Seller: Sound financial management, staying in trust 3. Buyer: Strong personal finances reflect his ability and propensity to repay the loan 4. A bank that understood the industry

7.5X4.625 • The perpetuation plan need to be expedited along with General JGS Umbrella Program ad a quick change in the structure.

•

The buyer’s current bank lacked the understanding of the agency business model and required lengthy explanations before considering the proposal.

Our Umbrella Programs Give You More Options Preferred Property Program gives you broader, more flexible coverage with a range of limits Fast service and more security are what you get with Preferred Property Program. Our umbrella liability policies are written by XL Insurance with Chubb Insurance Group for excess layer – two of the industry’s most highly rated carriers.

• • • •

A subsidiary of

JGS INSURANCE

Celebrating Our 95th Year

Options of $5 to $50 million in umbrella coverage. Hi-Rise apartments up to 35 stories eligible. Developer-sponsored board eligible. Excess of D & O General Liability, Auto Liability, and more.

888.548.2465

info@umbrellaprogram.com

Service is our specialty; protecting you is our mission ®

960 Holmdel Road, Holmdel, NJ 07733

Summer 2017 • THE BIG “I” VIRGINIA

MERGERS & ACQUISITIONS

IS BIGGER ALWAYS BETTER? By Barbara Rocco

t’s a familiar tale: an agency has been very successful, so its principals decide that the time is right to expand their business, grow within the industry and acquire another agency. They do their homework and find an agency that will blend in perfectly. Meetings are arranged, contracts signed and the deal is done. Nothing left to do but enjoy the payoff, right? Not so fast. Typically the motivation for acquisition is the assumption that “bigger is better.” But this can lead to disaster if an agency’s focus is solely on growth with no attention paid to attendant E&O risks. What if the agency being acquired made a few … ‘missteps’ that escaped attention? When those mistakes finally come to light – and they usually do – who will be paying those claims? More to the point: how best to ensure that it isn’t your agency? A first step is to learn about the acquired agency’s policies and practices as soon as you can. Multiple locations will increase the agency’s exposure to professional liability claims since the larger the agency, the greater the number of people, thereby creating more opportunities for errors. Going into an acquisition, the transition will be facilitated if the cultures of the agencies are already well matched, but oftentimes that is not the case. From day one, there needs to be an established plan in place as to each person’s responsibilities. This includes a review of responsibilities and training on how business previously procured by the acquired agency will be handled moving forward. You must actively integrate your successful and wellestablished procedures into the new agency. Meet with the new employees and educate them on procedures and expectations. Consistent and uniform utilization of policies and procedures is imperative as an agency grows, particularly by acquisition. Before the deal is finalized, the acquiring agency should confirm that the purchase contract includes indemnification language protecting it from claims related 24

THE BIG “I” VIRGINIA • Summer 2017

to the negligence of the soon to be acquired agency in which a potential wrongful act was committed before the acquisition. But, what about coverage for the acquired agency? Have they purchased tail coverage for their own protection? For that matter, have you notified your carrier about this acquisition? Acquisition of another agency typically means a change in risk, so E&O policy language commonly provides that mergers and acquisitions must be reported to the carrier within 90 days of such change. But not all E&O policies are the same. Effective 9/1/2016, Swiss Re Corporate Solutions will be adding an enhancement to their policy, which increases the maximum reporting time to 120 days! A typical E&O scenario: a successful agency, Buyer Insurance, reaches an agreement to acquire another, smaller firm, Seller Agency, whose principal is retiring. Some – not all – employees will move to Buyer Insurance. Indemnification language is part of the contract and Seller is made an additional insured on Buyer’s E&O policy with a retroactive date reflecting the date of acquisition. In addition, Seller terminates its E&O policy as of the date of the acquisition, but purchases tail coverage. So far, so good – everyone seems to be doing what they should. Here’s what Buyer didn’t know: the Seller Agency had been procuring workers’ compensation coverage for a longtime client, Widget Co., which had multiple facilities and locations. At renewal, but before the agency acquisition, Widget Co. requested a separate work comp policy for one of its out-ofstate facilities. The Seller Agency went to the state workers’ compensation pool to procure coverage for Widget Co. Buyer’s acquisition of Seller was thereafter completed. Continued on page 26 >>

Safe. Strong. Stable.

Insuring businesses for 175 years.

The Mutual Fire Insurance Company in Harford County was founded in 1842 to protect the citizens and businesses in the small rural town of Bel Air outside Baltimore, Maryland. As a mutual company, weâ&#x20AC;&#x2122;ve always put our policyholders first, working with our independent agents to grow responsibly and cautiously. Now a large regional carrier serving seven states and Washington, DC, we are celebrating 175 years of always being Committed to Mutual Success. HarfordMutual.com | 800.638.3669

<< Continued from page 24 to perform a review prior to the next renewal. What is clear is that Widget Co. was never informed that the policy was not issued, much less refunded the premium, so it’s left with little choice but to file a lawsuit against both agencies, after which it will find a new broker. If procedures and responsibilities were clearly articulated and all employees were notified, the fact that the policy was never issued and the premium had been returned may have been caught and corrective actions could have been taken to rectify the situation in a timely manner. Instead, a client was without coverage and two groups of employees are pointing fingers at each other. The Widget Co. account still had not been reassigned when, several months later, one of its employees was injured on the job. That’s when it is learned that the pool never issued the policy, but instead, returned the premium. The precise timing of the returned premium and notification of ‘no issuance’ – right around the agency acquisition date – is in dispute between the two agencies’ employees. The employees from Seller are claiming that it was the responsibility of Buyer to complete the follow up and ensure that the policy was issued, and if not, advise the client. Predictably, Buyer disagrees, saying it planned

Bigger can be better, but only if proper steps are undertaken to learn about the new agency, install your culture, educate your people and clearly document that the liabilities of the acquired agency for past mistakes are not being taken on by the acquiring firm. Barbara Rocco is an assistant vice president and claims specialist at Swiss Re Corporate Solutions and teleworks out of the Chicago, Illinois, office. Insurance products underwritten by Westport Insurance Corporation, Overland Park, Kansas, a member of Swiss Re Corporate Solutions.

www.siaa4u.com

• • •

Complete Independence Top Tier Profit Sharing Stable Markets

Call Jason Moody in Western VA 888-371-6879 www.msaanetwork.com Call Scott McKee, VP in Central & Southeast VA 540-280-1119 | mobile www.siaofva.com smckee@siaofva.com

Why I Joined SIAA: “When it was time to expand our Benefit Agency by adding P&C, after looking at our options, PIN was the ideal solution for us. They allowed us to be an Independent Agent and we were able to get quick access to the top insurance carriers we needed to compete. As a member of SIAA, we have access to other markets as well as exclusive programs to meet almost every risk we run into.” -Carlos Ortega President of Progressive Management Associates, LLC. Fairfax, VA

THE BIG “I” VIRGINIA • Summer 2017

Call Jon Pappas in Northern VA / DC area 443-692-4000 www.pinsiaa.com Call Beth Roe in North Central VA 423-612-0683 1-866-264-1292 www.meaa4u.com

DON’T JUST COMPETE. CRUSH.

THERE’S WINNING. AND THEN THERE’S WINNING BIG. When it comes to selling your business, you have many options. But not all will give you the same results. Hilb Group has joined Inc.’s 500 and become a Top 100 US Insurance Agency by acquiring the strongest players in the market, then collaborating with them to drive organic growth. We build on your firm’s foundation by providing strategies and resources to achieve new heights of success. When you join Hilb Group, you become a partner in our success. You continue to contribute until you’re ready to move on. And the business you built continues to grow and be nurtured, allowing your team to continue its success. It’s more than a win-win. It’s a crush-crush. hilbgroup.com

WANT TO START A CONVERSATION? Contact Bob Hilb, CEO, at rhilb@hilbgroup.com or (804) 414-6505.

MERGERS & ACQUISITIONS

AGENCY VALUATION: IS IT BASED ON THE PAST OR THE FUTURE? By Al Diamond When buying or selling an agency, is the value based on what the agency made in the past or what it will earn in the future? Agency Consulting Group, Inc. is one of the nation’s leaders for performing valuation for agencies annually. The majority of agency valuation is for internal purposes such as for estate planning, partnership stock values, ESOP, etc., but many are for potential transactions from sales to mergers and to purchases and other forms of association. A recent call illustrated the common fallacy attached to agency valuation. An agency owner was interested in acquiring another agency and asked Agency Consulting to perform an agency valuation prior to the purchase. The target agency was generating around $500,000 in total revenues, but it was growing at 10% /yr. and was dropping several hundred thousand dollars a year to the profit line. They were very efficient and their market didn’t require a host of employees. The owner was going to stay on to manage the agency for five more years before his retirement but wanted to cash out now for personal reasons. As you can imagine, the value of the agency was relatively high, much more than the proverbial “multiple” to which so many agents still tie themselves. The buyer called me asking why the value was so much higher than his expected multiple of last year’s revenue. I asked him the very question that I asked at the beginning of this article. Did the buyer want to buy the agency’s history or its future earnings potential? The answer, of course, was that the buyer wanted to buy future earnings. So I proceeded to show the buyer how we project both income and expenses on a line-by-line basis based on the agency’s history and any changes that we know or suspect will occur once the transaction takes place. Since there were none, the agency was going to continue to run as is with the same staff in the same place, just using the additional markets of the buyer, we were able to simply progress each line of income and expense based on the 28

THE BIG “I” VIRGINIA • Summer 2017

agency’s historical trend and contracts (leases, etc.) and form the projected profit stream of the agency against which we took the buyer’s tax liabilities. We told the buyer that this agency would likely throw off more than $1.5 million of value over the next five years, even with a 14% discount for risk factors associated with that particular agency. This means that the trend would have generated 14% more than our value estimate but we found sufficient risk factors associated with the agency to discount the value for our estimate. The buyer was in shock that the value was so high again falling back on his favorite multiple “of something.” So I turned the tables and asked the buyer, “If you owned this agency and someone wanted to buy it from you and you projected that you as the owner would take over $1.5 million in earnings from the agency (after taxes) in the next five years, would you be concerned over the multiple that represented, or would you want to be paid in some degree what you would likely have made over a period of time as your asset value?” When he thought about the situation from that viewpoint, the buyer admitted that he would expect a reasonable price equivalent to what he would make in the agency if he kept it. “So,” I asked, “ Wouldn’t it be logical to pay the seller a fair price for the agency, giving up some or all of the profits of the agency for a period of time (determined by the buyer) to purchase the agency, after which ALL profits would accrue to the new owner including the cost savings once the old owner retired?” This put the question of Value vs. Multiples in perspective. You, too, can judge the value of any agency that you are considering buying or considering selling your own agency in the same way. It is of utmost fairness to identify the earnings (after taxes) that the seller would generate from operating his agency in the future AND the earnings that a buyer would generate from the agency if he were to purchase it. Somewhere between those two dollar amounts is the proper value of the agency in a sale. Please reach out to us for our valuation service or, to conduct due diligence and assist the buyer and seller negotiate the price and terms of any transaction to the end result of a Win/Win situation.

THERE’S more FOR YOU AT MILLERS.

Millers Mutual’s BOPprime gives you more Habitational and Commercial Real Estate are what we know and do best. Take advantage of our deep expertise and creative underwriting solutions with our new BOPprime product.

more VALUE TO AGENTS

We believe the best way to give you greater value in coverage is by immersing ourselves in our customers’ world. The more we learn from our customers, the more insight and product enhancements we can use and share with them and with you.

more FLEXIBLE PRICING

BOPprime features four tiers with unique enhancements giving you greater flexibility in customizing coverage to satisfy your price-conscious customers through customers wanting the highest level of coverage and limits.

more TAILORED COVERAGE

Because of our expertise, we’ve been able to develop BOP coverage criteria that’s unique to Millers and offers class factors outside of standard industry offerings.

AVAILABLE JULY 1, 2017 IN VIRGINIA

Interested in learning more? Contact Millers Mutual’s Virginia Field Underwriter, Lisa Cabarrus Alexander, at 804.822.6572 or visit our website at millersinsurance.com/evenmore

B U S I N ES S O W N ER S PO L I C Y | COMME RCI AL UMBRE L L A | E P L | L E SSORS RI SK

MERGERS & ACQUISITIONS

THE BIG “I” VIRGINIA • Summer 2017

Summer 2017 • THE BIG “I” VIRGINIA

MERGERS & ACQUISITIONS

CHECKLIST YES

This is a suggested list of issues to consider during mergers and acquisitions. It should not be relied upon as the sole source for reviewing and implementing mergers and acquisitions. Be sure to consult with qualified legal counsel.

Has a careful and thorough due diligence been completed on the agency, brokerage, or book of business being acquired? Has there been a thorough investigation and analysis of why the agency for sale is, in fact, up for sale? Is the selling agency’s retention lower than average? Does the selling agency have a higher than average staff turnover? Are the current agency-company relationships in jeopardy? Is there either frequency and/or severity of E&O claims against the selling agency? Have outside contacts and sources been discretely tapped to determine relative strengths and weaknesses of the agency for sale? Have you engaged a lawyer experienced in handling the purchase and sale of insurance agencies? Have the documentation and file retention practices of the selling agency been audited? Does the purchase contract include indemnification language protecting your agency from claims relating to negligence of the seller committed before the sale closing? Has your E&O insurer agreed to accept the risk of the acquired or merged operation? Has a timeline been defined to fix gaps or non-concurrencies in coverage, inadequate liability and/or first-party limits and/or other potential coverage deficiencies in an acquired agency’s book of business? Have the necessary resources been confirmed as available to service the acquired accounts on a basis that is consistent with your agency’s current level of service? Has the selling agency purchased tail coverage for the protection of the acquiring agency or brokerage and its own protection? Has a timeline been defined to integrate the acquired agency into the existing practices and procedures of your agency?

THE BIG “I” VIRGINIA • Summer 2017

We look for the best independent agents and build relationships that last the duration. We are committed to the independent agency system as the only means to deliver our products. Because of that, we work hand-in-hand to help our agencies grow profitably.

Our agents set us apart. Business • Surety • Auto • Home

www.PennNationalInsurance.com Visit our website to find out more.

MERGERS & ACQUISITIONS

AGENCY M&A MARKET STILL HOT – BUT WILL IT LAST? By Katie Butler

fter a surge in the pace of agency mergers and acquisitions in 2015, the final tally of 2016 transactions was not far behind.

Insurance agency M&A last year was the secondhighest ever recorded, according to OPTIS Partners’ annual report. The OPTIS database recorded 449 deals in the U.S. and Canada in 2016 – a slight dip from the all-time record of 456 in 2015. “It was a sellers’ market last year, and it will probably remain one in 2017,” says Timothy J. Cunningham, managing director of OPTIS. “But the ‘perfect storm’ benefiting sellers won’t last forever.” Private-equity backed agencies were 2016’s biggest buyers, making 237 purchases or 53% of the total. The top two buyers were Acrisure, which executed 63 deals, and Hub International, racking up 45 deals. Privately owned insurance agencies came in second, purchasing 124 agencies, followed by public brokers (41), banks (25), and carriers and remaining organizations (22). On the selling side, property-casualty agencies continue to dominate the list at 54% of all sales. Sales of employee benefits agencies rose to become the second most popular category, accounting for 20% of sales, up from 17% in 2015. Deals for agencies selling both p-c and employee benefits held steady at 17% of transactions. The “other” category was 9%.

THE BIG “I” VIRGINIA • Summer 2017

What are the key takeaways for the industry? Daniel P. Menzer, partner at OPTIS, notes: • Valuation pricing is driven by the underlying value of the business and by market competitive forces – both of which have many contributing factors. • Buyers, in particular smaller and less capitalized firms, need to be careful not to get carried away in the pricing competition for a seller’s business, only to find out later they can’t afford it. • Firms wrestling with perpetuation need to be steadfast in setting realistic valuations for internal transactions without letting actual and anecdotal pricing stories of other agency transactions sway them too much. “For agency owners waiting for the ‘right time to sell’ before jumping on the bandwagon, now is the right time,” Menzer says. Katie Butler is IA editor in chief.

â&#x20AC;&#x201C; STUART JERKINS

RISK & INSURANCE CONSULTANTS

At Risk Placement Services (RPS), we are committed to building relationships one retail partner at a time. Our stewardship begins by providing you access to the finest markets and top producers in the industry and providing customized solutions to meet your needs by designing, negotiating and tailoring individual risks that help you succeed. Itâ&#x20AC;&#x2122;s a partnership you can count on! To learn more contact Tracy Nelson 704.264.0108 or email at Tracy_Nelson@rpsins.com. RPSins.com

The Blow-by-Blow

April 24-25, 2017

Champions! Amy Hutchinson with the Walls Agency- Winner of the Registration Drawing. A two night stay at the Hilton Virginia Beach Oceanfront - location of IIAV's 2018 & 2019 conventions. Evelyn W. Carpenter with Citizens Insurance Agency of LawrencevilleWinner of the EXPO Grand Prize. A 40" SMART Flat Screen TV - prize sponsored by Berkshire Hathaway/Guard Insurance

What an excellent program. Kudos to the IIAV staff for excellent work. Doug Palais – Vandeventer Black LLP I brought back ideas to implement and I'm sure that other agencies did as well. Great job putting all of this together! Forest Wanger- F.A. Wanger Insurance Agency

Stats From the Ring: 50%

40%

30%

20%

10%

0% d on hm ic R VA al st oa C rn te es W VA

The Attendees Were From...

95% of attendees were agency

n er th or N

Principals

VA e at St of ut O

There were more agencies

Agencies small and large attended the EXPO from across the Commonwealth

REPRESENTED OVERALL THAN IN 2016

YOUNG AGENTS CONFERENCE 2017 NORFOLK WATERSIDE MARRIOTT HOTEL & CONVENTION CENTER

OCTOBER 11-13, 2017 THE INDEPENDENT AGENCY'S SURVIVAL KIT: BRANDING, MARKETING, AND ON-BOARDING STRATEGIES THAT WILL GROW YOUR AGENCY IN A HIGHLY COMPETITIVE SPACE

CHRIS LANGILLE Chris is the founder of Advisor Evolved, a web development agency focusing specifically on independent agents and advisors. Prior to launching Advisor Evolved, Chris was an independent agency owner himself for the previous 8 years, so he's in a unique position where he speaks the language of both insurance and digital marketing. Because of his background in insurance, he understands the pain-points and unique needs of an independent agency owner as it relates to marketing, retention, and building an online brand.

ACCELERATING AGENCY GROWTH THROUGH NICHE DEVELOPMENT

ERIN NUTTING Erin Nutting is the owner of Integrity Insurance Services and Arizona Wedding Insurance. She completed school at the age of 20 decided to get into the insurance business. She is a mommy to 4 and pioneered the blog “integrity in heels” about being a business owner and mom.She opened Integrity Insurance Services in November 2014 and launched her newly branded company Arizona Wedding Insurance in 2015.This niche market was the first of it’s kind throughout the country. She is best known for her ability to brand her business and use innovative new ways to grow and of course being the i. behind Integrity. 38

THE BIG “I” VIRGINIA • Summer 2017

BECOME AN IIAV YOUNG AGENT The next generation of industry leaders.

WHAT IS A YOUNG AGENT? The mission of IIAV’s Young Agents is to provide insurance professionals under the age of forty-one and those with less than 5 years of experience in the industry, with opportunities to enhance their professional skills and development through programs and initiatives designed for their specific needs. Young Agents are the future of this insurance industry. IIAV Young Agents events are designed to help insurance professionals cultivate their insurance, networking, and business skills. Through seminars, committee meetings, conferences, and networking socials specialized for Young Agents they learn how to become successful insurance professionals. TO QUALIFY AS A YOUNG AGENT…

  

Your agency is a member of IIAV, and You are under 41 years of age, or You have been in the insurance industry for less than 5 years

Make this the year you decide to get more involved with IIAV and their Young Agents Program. We have a variety of events planned and hope to see you there!

UPCOMING 2017 EVENTS May 11

Tidewater Regional Social Esoteric, Virginia Beach

June 8

NOVA Regional Social Vapiano Reston Town Center

June 22

Lynchburg Regional Social TBD, Lynchburg

July 13

Roanoke Regional Social Billy’s

July 20

Richmond Regional Social The Veil Brewing Company

Aug. 1

NOVA Regional Social TBD, Arlington

Aug. 24

Tidewater Regional Social TBD, Norfolk

Oct. 11-13

Young Agents Conference Marriott, Norfolk

Nov. 2

Roanoke Regional Social TBD, Roanoke

Nov. TDB

Richmond Regional Social TBD, Roanoke

Contact Carter Lyons, clyons@iiav.com with questions. INDEPENDENT INSURANCE AGENTS OF VIRGINIA

www.IIAV.com (804) 747-9300

Summer 2017 • THE BIG “I” VIRGINIA

‘MUSTS’ FOR INSURANCE AGENTS TRYING TO REACH MILLENNIALS By Katie Butler

When I say the word millennial what words come to your mind?

recently spoke to a group of business owners and asked them the same question. As expected, the answers I received were varied. I heard “entitled,” but I also heard the word “driven.” I heard “poor social skills,” but I also heard “connected.”

The term millennial is often overused and typically misunderstood. This is a huge and diverse group that’s well educated and even better connected. Understanding this generation is no longer optional. For your insurance business to survive long-term, you must find ways to attract, sell, and wow millennials. Before I provide specific ways to market and sell to millennials, let me provide some background. Millennials are those born in the early 1980s to the late 1990s. That means most millennials fall into the 18-34 age demographic. Millennials have never known a world when they haven’t been connected through technology.

THE BIG “I” VIRGINIA • Summer 2017

Let’s talk numbers on millennials There are an estimated 75,000,000 millennials! In fact, by 2025, they will account for 75% of the global market. These numbers can’t be overlooked. A recent study found the following trends on millennial habits. • 65% of millennial said losing their phone or computer would have a greater impact than losing their car • 63% of millennials stay in touch with their favorite brands through social media • 84% say that word of mouth is their primary influencer when making a buying decision

• 41% said they have made a recent purchase using their smartphones in the past month • It is estimated that millennials will spend $2,450,000,000 this year and by 2018 they will spend $3,400,000,000 (those are trillions!) • Each day more than 10,000 millennials turn 21. Yes, these numbers are important because of the sheer volume of this generation (larger than the baby boomers), but they are equally important because of how millennials buy things. Millennials simply don’t relate to most forms of traditional advertising like previous generations. In general, millennials don’t….. • Read newspapers

are extremely well connected? Instead of complaining to a friend over coffee, reports of foul play are now shared on social media and through mass text. Trust has never been given and will always be earned. Millennials take this a step further as they can fact check and share complaints in seconds. It’s vital that you and your team develop and maintain a message of authenticity. Acknowledging you can’t do something and delivering a sincere apology will go much further than promising something you can’t deliver.

2. You Must Be Able to Leverage Technology and Create a Digital Presence First of all, I didn’t say, “understand and implement technology;” I said, “leverage technology.” There is a huge difference.

• Watch television commercials • Answer telemarketing calls • Like any form of interruption

The point is that you don’t know how it all works; you just need to understand who it works for.

• Care about your sales pitch However, millennials do like to share great experiences with others using technology. So what does all of this mean to you the insurance agency owner? You no longer control the message! The question is, how do you market and sell to the largest and most connected demographic in history? First you must understand the trends and tendencies. Next, you must be open minded. Finally, you must realize that every generation brings a fresh set of ideas, skill set, and perspective. Although you may not understand or agree with everything, you must be adaptable. Here are 5 ways you can better position your agency to market and sell to millennials.

Millennials have never known a world without the internet. Yes, there have been enormous strides in internet speed, delivery, and social tools like Facebook in recent years, but this has always been a connected generation through technology. More importantly, millennials (and for that matter all generations) are now connected wherever they go. You can update, text, tweet, or maybe even actually call from anywhere at anytime. You must be visible and available 24/7. Your website, blog, and social media presence is your digital storefront. What does it say about your agency? What is the first impression a millennial will have when finding you online?

1. Your Message Must be Trustworthy and Authentic.

Fair or not, millennials will move on quickly if they can’t find what they are looking for or even if they are simply unimpressed with what they see about you online.

The number one trait that millennials loathe inauthenticity. Authenticity cannot be faked…..ever.

3. You Must Provide Value That’s Useful to Them

As I stated earlier, millennials are the most educated generation in history. They do not want to be pandered to, they want to be engaged. If you try to manipulate them or bend the truth, you will likely lose their trust forever. Moreover, inaccuracies can no longer be blown off. Instead, inaccuracies are blown up. Did I mention that millennials

This is really true of any generation, but millennials are known as the “me generation” for a reason. Too often insurance agencies market themselves in terms of their perceived value. I hear messages online and offline such as: we are an independent insurance agency; we have been in business since 1957; we provide great customer service. Continued on page 42>> Summer 2017 • THE BIG “I” VIRGINIA

<< Continued from page 41 While all of that may be true, none of it says anything to a consumer, especially a millennial consumer. To reach millennials you must find ways to share how you solve specific problems, present new ideas, and share new information. You must be able to give away some of your “insurance secrets.” You no longer hold all the cards. Information is readily available and if you don’t provide it, someone else will. Providing value in terms of them builds trust, credibility, and likability. Just because you “give away” some of your hard earned knowledge doesn’t mean they will use you and go somewhere else. Sure, some will, but most will lean on your for advice through the buying process.

4. You Must Build Personal Relationships After all this talk of technology, developing personal relationships may seem counterintuitive. Because millennials are connected by technology inundated with marketing messages constantly, you must find a way to reach them through all the noise. To do this, you must create a message or messages with specific focus. Who are you trying to reach? What do they want? How can you help them? What problems can you solve? I have always maintained the adage that “If you market to everyone, you market to no one.” This is especially true of millennials. The only way to cut through the noise and distractions millennials face is to address them at a personal and emotional level. Becoming a masterful storyteller is one of the most important skills you can develop. Not everyone will like or resonate with your story, but remember, you can’t reach everyone. The key is to connect with those that relate and you serve best. Facts and figures are forgotten, but a great story is retold forever. Millennials can share your story over and over. What’s your story?

5. You Must Stand for Something Other Than Just Profit As Simon Sinek wrote in his book, “Start with Why,” “People don’t buy what you do; they buy why you do it.” Millennials want to know why you are passionate about your industry, your community, and those you serve. What are your core values?

THE BIG “I” VIRGINIA • Summer 2017

What is your business providing your community, your region, your state, your country, the world?

Millennials long to be part of something, not just buy something. If your value proposition only discusses competitive pricing and quality coverages, millennials will not buy in. Describe outcomes, not features. If you can successfully demonstrate how your business serves its prospects, customers, and business community, the profit will take care of itself.

The Bottom Line No generation should be stereotyped with a broad brush. However, every generation grew up in a unique economic, social, and technological era. Whether you are a millennial, gen Xer like me, or baby boomer who is unsure of how to adapt to this new generation, one thing is certain. The size and power of the millennials can’t be overlooked. Millennials will be the driving force in our economy over the next 50 years. You must find ways to understand the tendencies of millennials to not only grow your business, but to survive. Brent Kelly is the co-founder and CEO of BizzGrizz Marketing where he teaches insurance agencies how to empower their agents to stand up, stand tall, and stand out through online training and consulting.

There when it matters most to agents.

ONLY ONE DISTRIBUTION CHANNEL

In today’s world of online shopping for insurance, Southern still uses the independent agency system exclusively to sell our products. We believe in your ability to truly know your clients and to help find the best overall insurance solutions for each individual or business. And Southern Insurance Company of Virginia continues to deliver incredible value to agents through ✓ Competitively priced insurance products ✓ Timely underwriting ✓ Outstanding claims service ✓ On-going development of state-of-the-art technology ✓ Total compensation package that’s one of the best in the industry.

Providing insurance through only one distribution channel, another way Southern is “There When It Matters Most” for independent insurance agencies. To learn more visit www.donegalgroup.com or call 800-468-1127. Judge Parker: ext. 2112 • Keith Captain: ext. 2104

WHY INDEPENDENT AGENTS ARE LOSING THE MARKETING WAR By Marty Agather/Trusted Choice In an earlier article we focused on a couple of the poor marketing habits that many insurance organizations rely on time and again: •

Low price is the only measure of value,

•

Most of the industry has no ethics and is out to screw the public but XYZ Insurance is one of the few that does the right thing.

This post will identify what the directs and captive carriers are doing right, why they are winning today, and what we can change so that the independent channel can begin to compete effectively. Before we get there however, we’re going to dive deep into the new shopping behavior.

THE EVOLVING BUYERS JOURNEY Insurance is a fairly opaque topic for most consumers. We have our own language, which ranges from confusing (underwriting, all risk) to downright incomprehensible (co-insurance, aleatory contracts). In that mythical time known as ‘the good-old days,’ insurance buyers were on the wrong end of the information asymmetry problem. They had less information, and insurance professionals had more. The only way for an insurance buyer to become educated was to interact with an insurance professional. Because of that information asymmetry, carriers and agencies had the upper hand. 44

THE BIG “I” VIRGINIA • Summer 2017

Consumers didn’t know what the pricing models were. They didn’t understand much about insurance; they certainly didn’t have resources like pissedconsumer.com. Not that the issue was confined to insurance, we just deal in an arcane subject. This situation existed in all types of industries, both B2C and B2B. For example, car manufacturers used to control all of the information about their model line-up. An enthusiast’s magazine might have some performance information. Ads on TV might lead you to believe how much better your life would be if you drive the 2017 Gizmodo SuperSport. But if you really wanted to know about option packages, colors, and how it felt to sit in one, you still went to the dealer.

Now all you need to do to get information on which model of the SuperSport has collision avoidance, you just fire up your browser and search. Want to see what the interior looks like? Use the panoramic camera option to take a look. Same thing if you want to know what a comprehensive deductible is. The internet has become the source for almost all information. And according to SiriusDecisions, 70 percent of the new buyer journey is completed prior to the buyer contacting the seller. Say it again: 70% of the buyer’s journey is complete BEFORE the buyer reaches out to you. The new buyers journey consists of 5 stages: •

Awareness – The process of realizing you need to purchase a product or service, and doing the research and investigation.

•

Consideration – Evaluation and inclusion or exclusion of various sources and providers.

•

Decision – Selecting the provider who will win the business.

•

Experience – Using the product and/or service and determining its relative value

•

Advocate – Encouraging (or discouraging) others to use the product.

In the Awareness stage, buyers are trying to understand and talk about their problem. But they may not even be able to clearly state what their needs are, nor identify what the root issue is. As they do their research, their understanding of the problem grows, and they are more able to articulate the issue.

In this article, we’ll be focusing on the first three steps of the journey, which culminate with purchase.

As the buyer becomes more knowledgable about their needs, they enter the consideration phase.

JOURNEY IN DETAIL The average consumer goes through their busy life focused on the last social update, today’s EHollywoodTonight or sports scandal, or getting the kids to their next event. That is, until a trigger event takes place that refocuses their mind. A trigger event is something that changes the status quo. They aren’t thinking about buying a new car until they are waiting for a tow truck on the side of the interstate. Or the last thing on their mind is their lack of a renters policy until an uninsured friend has a loss.

A TRIGGER EVENT CREATES AWARENESS OF A NEED. When a consumer enters the awareness stage, their equilibrium

has been disturbed. The trigger event has prompted them to reassess their situation and start researching.

During the Consideration phase, the buyer begins to look for a solution to their problem. They have a much better understanding of their problem, their needs and potential solutions. They can now clearly articulate and define their problem and their search for information becomes much more targeted. In the consideration phase the buyer starts ‘trying your product on,’ seeing how your solution addresses their needs. In this stage, potential solutions and providers are starting to be either eliminated or added to the short list. If the need to solve the problem continues to have urgency, the buyer will now enter the Decision phase of the journey. At this point, the buyer’s questions are less about whether or not your solution fits their needs and

more about how you will deliver the product or service. This is typically when the buyer reaches out to the seller. They already know that the product or service meets their needs, they just want to get the details. If your solution hasn’t been part of the Consideration phase, you are fighting an uphill battle to get the prospect to add it in the Decision phase.

THE ELEPHANT IN THE ROOM Unfortunately, the direct writers and captive agency companies have a distinct advantage in this new buyers journey. Their massive advertising budgets have allowed them to guide the conversation for decades. They have done a wonderful job of defining what the trigger event is for the insured. And what is it? When they get their bill. How insidious is that? Every time the policy comes up for renewal (or is billed, if the insured is on a payment plan) they wonder whether they are paying too much. The directs and captive companies have also built out wide and deep resources on their websites that allow buyers to do their initial research, narrow their choices, and if they so choose, make a decision. Continued on page 46 >> Summer 2017 • THE BIG “I” VIRGINIA

<< Continued from page 45 Compare and contrast that with the way we in the independent channel do our marketing. In the old insurance buyers journey, insurance purchases were hyper-local. The buyer visited a neighborhood agent to have their questions answered and if they were comfortable, they purchased a policy. The information asymmetry meant that the agency had the answers and there was no other way for a consumer to purchase. It made sense for insurance companies to focus their marketing dollars locally at point of purchase. The agency was the voice to the insurance buyer and the exclusive source of information. Unfortunately, that model doesn’t work with the new buyer journey. There are few consumer awareness marketing campaigns (aka top of funnel) being run by IA channel carriers. And of those, only a fraction actually co-brand to a local agency. Today, the hard truth is that when a buyer gets to an independent agent, the agent has to sell an unvetted option. Unvetted, because in the eyes of the buyer that carrier was not part of their research on potential options, and thus wasn’t on the short list. The marketplace has changed, and our marketing tactics haven’t kept pace. That’s why we’re losing.

LONG STORY SHORT The internet has leveled the scales for information. Any number of comparison sites will quickly provide quotes. Many sites, including TrustedChoice.com offer information about insurance products and services. 46

THE BIG “I” VIRGINIA • Summer 2017

Directs and captives also provide this information in great volume with high quality. But here is the difference. They spend billions of dollars creating awareness. The independent channel doesn’t. In the live debate between the author of the McKinsey Report “Agents of the Future” that predicted “The End of An Era for the Local Insurance Agent” and Bob Rusbuldt, the CEO of the Independent Insurance Agents and Brokers of America, interesting data was presented. The McKinsey consultant didn’t just parrot the report; he provided details on the research that supported his conclusions. He presented one slide that showed the relative positions of marketing spend in insurance. He pointed out a couple of interesting data points for insurance marketing spending. In order to create unaided brand recall, a company needed to spend $800 million per year. •

To even create aided awareness of a brand, a company needs to spend $425 million per year

•

The entire IA channel combined only spends about $425 million.

This last point is the crux of the matter. Insurance company A spends some marketing money telling consumers why the ‘Solid Foundation” insurance is the one you can trust. Insurance company B markets the cuddly stuffed bovine. Daybreak Agency promotes itself as the ‘Hometown Value’, while the Twilight Agency claims to be the ‘Last Choice’. Individualized, mixed, competing marketing often ends up diluting the message of the IA Channel that consumers also need to hear.

THE SOLUTION As self-serving as it is to say, Trusted Choice® is the only brand that the independent channel has that comes close to a being national in scope, consisting of: •

21,000 Trusted Choice agencies in 27,000 locations.

•

60+ Trusted Choice insurance companies.

Partner

It is time for us to work together to change the dynamic. If you are a member of the Independent Insurance Agents and Brokers of America, encourage your non-Trusted Choice Partner carriers to participate. Direct more of your production to Trusted Choice partner companies as a thank you for their support. If your insurance agency isn’t a member of the IIABA, this is the time to join us. If you are an insurance company that isn’t a Trusted Choice Partner, it is time to join the battle for the new insurance buyer. If you are already a Trusted Choice carrier partner, it is time to stop spending your marketing dollars at the bottom of the funnel where they are less than effective. Carriers must start or continue efforts to create awareness at the top of the funnel for the IA channel brand via cobranded marketing with Trusted Choice. That’s how we begin to compete effectively again. Good Selling, Marty Agather

PP aa rr tt nn ee rr PP rr oo gg rr aa m m Partner Program

22 00 11 77 2017

A Special Thank You to all Our Partner Participants A Special Thank to as allofOur Partner Participants forYou 2017 2/6/17 forYou 2017 2/6/17 A Special Thank to as allofOur Partner Participants for 2017 as of 2/6/17

president club president club president club

independent club independent club independent club

Summer 2017 • THE BIG “I” VIRGINIA

COME GROW WITH US WE’RE BUILDING EXCLUSIVE INDEPENDENT AGENT RELATIONSHIPS IN VIRGINIA. • We’re dedicated to Ease of Doing Business®, including an efficient underwriting and quoting process. • When it comes to our home, auto, life and commercial insurance products, we’re looking at the entire customer lifecycle to meet their current and future needs. • Our experienced claims team is ready to help at the moment of truth.

YOU & GRANGE: COMMITTED. CONNECTED. PARTNERS. Contact Katherine Ethridge to learn more: EthridgeK@grangeinsurance.com grangeinsurance.com/introduction Grange Insurance Corporate Headquarters • Columbus, Ohio