Surpassing the Competition IIABO 89th Annual Convention & Trade Show Eagle Crest Resort • Redmond, OR August 13 – August 15, 2017
Rewarding Activity Agency Valuation, Is It Based on the Past or the Future?
Background Checks and the Seven Stages of Hiring
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Agent
IIABO Office 6 Centerpointe Drive, #430 Lake Oswego, OR 97035 Phone: 503-274-4000 Fax: 503-274-0062 Toll Free: 866-774-4226
IIABO Staff Directory Executive Vice President Jim Perucca jimp@insureoregon.org
Sr. Vice President Marketing & Communications Barb Demings barbd@insureoregon.org Vice President Education & Finance Tyra Dressel tyra@insureoregon.org Asst. Vice President Agency Products & Services Abby Kahl abbyk@insureoregon.org IIABO Lobbyist Roger Beyer roger@rwbeyer.com
The Oregon Agent is a publication of the Independent Insurance Agents and Brokers of Oregon and is published quarterly by Blue Water Publishers, LLC. IIABO reserves the right in its sole discretion to reject advertising that does not meet IIABO qualifications or which may detract from its business, professional or ethical standards. IIABO 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.
For more information on advertising, contact : Eric Johnson Blue Water Publishers, LLC phone: 414.708.2059 fax: 414.354.5317 eric@bluewaterpublishers.com
4
The Oregon Agent • Summer 2017
Page 18
Page 12 Cover photo courtesy of Dreamstime.
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Page 28
Letter from the President, Kay Hunkapillar
10 IIABO Leadership – 2016-2017 12 Rewarding Activity 14 Agency Valuation: Is It Based on the Past or the Future? 16 Background checks and the Seven Stages of Hiring 18 89th Annual Convention: Agenda & Registration 22 Buying, Selling and Merging an Agency – What Should You Do? 26 The Top Rules of the Most Successful Agents 28 Are You Ready for a Data Breach? ADVERTISER INDEX
OREGON
CONTENTS
Summer 2017
AmTrust North America Anderson and Murison Berkshire Hathaway Guard Burns & Wilcox CRC Group EMC Insurance Grange Insurance Association Griffin Underwriting Services
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Imperial PFS Insurance Agency Network Liberty Mutual Mutual of Enumclaw Preferred Property Program Risk Placement Services Western National Insurance
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FROM THE IIABO PRESIDENT
Kay Hunkapillar
President, Wheatland Ins. Ctr., Inc.
I
It has been a great honor to serve as your IIABO president for the last year. The Independent Insurance Agents and Brokers of America partners with our local Oregon association and, together provide an incredible voice for independent agents – both in Salem and Washington, D. C. My term of office will end during the IIABO annual convention, August 13-15, 2017. We will again be at the Eagle Crest Resort, Redmond, Oregon, and it is the 89th annual meeting.
same agency and all Young Agents will be able to attend the full convention for only $49. The $49 includes all meals, receptions, workshops, and GOLF! What else?? A sold out exhibit hall, law and ethics, and a Champagne breakfast featuring a presentation from IIABA National Chairman Spencer Houldin. Every event is family friendly with special low pricing for children. See the centerfold of this magazine for program details and registration. Hope to see you in August.
The convention is all about value and this year David Connolly will be conducting sales workshops showing agents the importance of building a relationship before making the “sale.” Selling property and casualty insurance typically means breaking an existing relationship and establishing your value proposition. The last thing an agent wants to see is the customer giving the current producer the opportunity to “match” your work.
Kay Hunkapillar President IIABO Wheatland Insurance Center, Inc.
This year the Young Agent Committee will again be hosting an event for young agents and those new to the industry. We expect 40-50 Young Agents to be in attendance as the group continues to grow with different events every quarter. Once again, the IIABO convention is about value and affordability. Rooms in the lodge start at $124 per night and two and three bedroom condos are an option for sharing starting at $229 per night. Second attendees from the
Your association staff: Executive VP
Jim Perucca
503-274-0583
Sr. Vice President
Barb Demings
503-274-4000 ext. 126 barbd@insureoregon.org
Vice President
Tyra Dressel
503-274-4000 ext. 131 tyra@insureoregon.org
Asst. Vice President
Abby Kahl
503-274-4000 ext. 123 abbyk@insureoregon.org
Toll Free Numbers:
6
The Oregon Agent • Summer 2017
1-866-77-IIABO or 1-866-774-4226
jimp@insureoregon.org
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2016 - 2017 IIABO LEADERSHIP The IIABO Board of Directors is a diverse group of insurance professionals representing the varied interests of agents throughout the State of Oregon. We would like you to learn more about these volunteer leaders and the years of experience they bring to the association.
10
Kay Hunkapillar President, IIABO President, Wheatland Ins. Ctr., Inc. Pendleton, Oregon - 46 years
Brett Slater President Elect, IIABO Chief Operating Officer, Slater & Assoc. Insurance, Inc. Tualatin, Oregon - 26 years
Steve Smelley Vice President, IIABO Chief Operations Officer, PayneWest Insurance Beaverton, Oregon - 25 years
Trish Fulwiler Past President, IIABO President, J.D. Fulwiler & Co. Portland, Oregon - 24 years
TJ Sullivan Legislative Chair, IIABO Huggins Insurance Services Salem, Oregon - 18 years
Keith Blackerby Finance Chair, IIABO Chief Operating Officer, Bisnett Insurance Offices throughout Oregon - 28 years
Ed Davis National Director, IIABO Maps Insurance Services Salem, Oregon - 49 years
Lyndsay Kooistra Young Agents Chair, IIABO LaPorte Insurance Portland, Oregon - 14 years
Mark Atkinson Board Member President, Atkinson Insurance Group Portland, Oregon - 25 years
The Oregon Agent • Summer 2017
Debbie Flores Board Member KPD Insurance, Inc. Springfield, OR - 29 years
Gary Githens Board Member Data Breach Specialist Brown & Brown NW Bend/Portland, Oregon - 35 years
Greg Horner Board Member Commercial Lines Producer, Insurance Partners, LLC Portland, Oregon - 20 years
Joe Hubbard Board Member Managing Partner, The Protectors Insurance Medford, Oregon - 31 years
Marty Kantola Board Member Owner, Chet Hill Insurance Portland, Oregon - 30 years
Debbie Krambeal Board Member President, CAL/OR Insurance Specialists, Inc. Brookings, Oregon - 32 years
Matthew Pidcock Board Member Co-Owner, Valley Insurance LaGrande, Oregon - 17 years
John Timm Board Member President, Timmco Insurance, Inc. Portland, Oregon - 39 years
Brian Wilbur Board Member Owner, Pacific Insurance Partners Forest Grove, Oregon - 21 years
Insurance carriers and service providers do not serve on the IIABO board of directors, but support the association as Associate Members, Sponsors and Exhibitors. If you want to learn more about the IIABO, or if you would like to get involved, please contact any of these individuals. If you are not a member, please email Jim Perucca, jimp@ insureoregon.org for information on membership.
Summer 2017 • The Oregon Agent
11
By David Connolly
A
gency Leaders in tune with their producers, especially young producers, understand that compensation plans for producers, must include compensation based not on results, but on activity as well. I am a firm believer in tying compensation to activity for young or new producers. It’s also not a bad idea to implement activity-based incentives for experienced producers whose production has stalled. This will result in plump pipelines, more at bats, and more new business. Producers who do not have high activity levels are doomed to fail. I see this consistently when working with new and experienced producers. Activity is a key behavior that develops successful salespeople. Fortunately, activity can be a learned behavior and skill set that managers can easily monitor, measure and instill in producers. Activity is also a yardstick mangers can use to measure performance to make decisions that save years of frustration and hundreds of thousands in wasted resources on producers who won’t prospect at sufficient levels required for success. Knowing the importance activity plays in developing successful producers, I suggest you find a method of doing this using your CRM or Agency Management system. In the absence of these an excel spreadsheet will do nicely. Many agency principals and sales managers believe compensation and commissions are the key motivation factors for their producers. That’s true 12
The Oregon Agent • Summer 2017
for those who are motivated solely by money. However, many studies show that people, producers included, can be motivated by a variety of influencing factors. Some are positive influencers, some are negative, but they are equally potent forms of motivation. The most frequent responses to surveys that ask “What motivates you to perform at work” include: • Money • Recognition • Competition • Peer pressure • Fear of failure • Personal satisfaction While our agency management or CRM systems cannot be used to create personal satisfaction incentives, they can be used to tap into other motivation factors. For Example: • Posting wins creates to create recognition • Posting activity and results creates peer pressure • Both 1 and 2 create competition • Lack of activity compared to peers creates a potential fear of failure factor I suggest you find a method of doing this using your CRM, or Agency Management system. In the absence of these, an excel spreadsheet will do nicely. It’s not difficult or complicated. What I want to measure with respect to activity are four things. # of phone calls
# of new business appointments # of visits with centers of influence or clients for referrals # of cold calls Leaders can then run these reports to monitor and compare activity-to-activity based goals they set for producers. Obviously it’s also important to capture these contacts in your agency database for use in marketing initiatives and for future follow up. To effectively manage and motivate producers, we need to create incentives that drive activity and influence producer behavior. Good luck with development!
your
producer
David Connolly is the founder of iQ Consulting, and is a recognized industry leader in helping agencies and carriers accelerate and perpetuate growth and retention. Their robust agency services platform provides professional guidance in almost every area critical to the success of your company. iQ Consulting provides Agency Consulting and Leadership Coaching services as well as Producer Development services including training, In field Coaching and Reinforcement Resources. They have coached thousands of Insurance sales and marketing professionals in the US and Canada. David delivers performance-based seminars, keynotes, and workshops throughout North America, For more information about iQ Consulting, visit www.iqsalescoach.com or contact David directly at david@iqsalescoach.com.
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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 14
The Oregon Agent • Summer 2017
The answer, of course, was that the buyer wanted to buy future earnings.
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 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.
So I proceeded to show the buyer how we project both income and expenses on a line-by-line basis
The buyer was in shock that the value was so high again falling back on his favorite multiple “of something.” So
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?
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.
Summer 2017 • The Oregon Agent
15
BACKGROUND CHECKS and the Seven Stages of Hiring The perennial challenge for employers is how to identify applicants that are the right fit and have the knowledge, skill, and abilities to do the job. In pre-industrial society, the problem was generally solved by either hiring someone that the employer knew, or basing the hiring decision upon a personal recommendation. Another method was using an apprenticeship type program that gave an employer a great deal of insight into who they were hiring. Assoc Ad OR PRINT.pdf AlthoughA&Mthese approaches 1are10/20/15 still in 12:35 use PMtoday, it is
no longer possible to match millions of applicants and jobs based upon the employer having a preexisting relationship with applicants. Additional approaches such as using the internet to find good candidates have developed. Since every time an employer hires a stranger, it is somewhat of a “leap of faith,” employers need tools to make good decisions. Employers are seeking ways to determine who the person really is and what the person has done in the past, as predictors of how they will perform. Although past is not always prologue, past performance says a great deal about how a person may be expected to perform in the future. Employers also want a means to “look under the hood” at applicants rather than just accepting them at face value.
Tallent Recruitment and Development
Every hire represents a significant investment and – at the same time – a significant risk. A bad hire can result in a legal and financial nightmare. Bad hires cost an employer a great deal in terms of time wasted recruiting, hiring and training, and searching for a replacement, not to mention the job not being done. A bad hiring decision can also lead to litigation for negligent hiring, if the new employee turns out to be unfit, dishonest, or dangerous, and someone is harmed. To add insult to injury, when the bad hire is eventually terminated, employers need to deal with the possibility of a wrongful termination lawsuit even if the firing is entirely justified. In order to evaluate the various hiring tools, it is essential to understand that the hiring process occurs on a time line. Each step of the continuum carries its own set of legal implications. Matching your hiring tools to the proper stage 16
The Oregon Agent • Summer 2017
of the time line is key to sorting out the best applicants AND to helping prevent a bad hire. The stages and available tools of the hiring process can roughly be divided as follows: 1. Sourcing stage: This is the process of gathering potential applicants through a variety of means that can include inbound applications from job boards, websites, newspapers, or outbound efforts, such as recruiters seeking passive candidates; 2. Preliminary screening stage: In order to narrow down the applicant pool, there is a preliminary screening primarily based upon the applicants’ self-stated qualifications, conveyed by the resumes or applications or newer tools such as video websites; 3. Assessment stage: This stage can include the interviewing process to further narrow down the field of candidates, as well as numerous other assessment tools, ranging from objective testing to references from past employers or supervisors, or various other testing methods; 4. Decision process stage: Here, the employer has narrowed the pool to one, two, or three finalists and is moving toward a conditional job offer based upon an internal decision-making process;
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5. Background checking stage: At this point, either a conditional job offer has been made or is contemplated, and the employer needs to exercise due diligence, typically through a background screening firm, to determine if there is any reason NOT to hire the candidate. The emphasis of a background screening firm at this point is a factual verification of details such as job title and dates; 6. The post offer/pre-hire stage: This is where an employer is able for the first time, if they so choose, to address such areas as pre-employment physicals; 7. The post hire/on boarding stage: This is where an employer, for example, can complete the form I-9 process. These seven stages illustrate a clear demarcation between efforts pointed at deciding who to hire, and efforts directed at deciding who NOT to hire. This is where evaluation of the pros and cons of the hiring tools comes into play. Background checks, for instance, are of little assistance in stages 1 through 5. That is because a traditional background check is only performed on finalists, where, by definition, an employer has already made a tentative decision to either hire or place that person in the group of finalists. Background checks are used to decide who NOT to hire.
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Summer 2017 • The Oregon Agent
17
The Independent Insurance Agents & Brokers of Oregon 89th Annual Convention
August 13 – 15, 2017 Eagle Crest Resort Redmond, OR
IIABO 6 Centerpointe Drive, #430 Lake Oswego, OR 97035 503.274.4000 Toll Free 866.774.4226 Fax 503.274.0062 ww www.iiabo.org 18
The Oregon Agent • Summer 2017
IIABO 89th Annual Convention & Trade Show Eagle Crest Resort, Redmond, OR August 13 – August 15, 2017
Surpassing the Competition Saturday, August 12 1:30p - 4:00p Board Meeting River Run 5:30p - 6:30p Board Reception River Run 6:30p - 9:00p Board & Past Presidents Dinner (by invitation only) River Run
Sunday, August 13 1:00p
Golf Tournament Resort Golf Course, Shotgun Scramble
4:00p
Registration Open
Convention Center / Foyer 6:00p
“Beer & Bones”
Convention Center / Golden Eagle Ballroom Buffet Dinner / Golf Awards
Monday, August 14 7:30a – 9:15a Registration Open / Breakfast with Exhibitors / Raffle Convention Center / Foyer & Golden Eagle Ballroom 9:30a – 11:30a Workshop “4P – A Perpetual Pipeline of Perfect Prospects” – David Connolly Convention Center / Golden Eagle Ballroom 11:30a – 1:30p Lunch with Exhibitors / Raffle Convention Center / Foyer & Juniper Hall 1:30p – 3:30p Young Agent Event 1:45p – 3:45p “Sales Excellence” – David Connolly Convention Center / Golden Eagle Ballroom 1:45p – 4:45p Ethics Convention Center / Golden Eagle Ballroom 4:30p – 6:30p Cocktail Reception with Exhibitors / Raffle Convention Center / Juniper Hall Raffle Drawings 6:15p 6:45p Banquet Convention Center / Golden Eagle Ballroom Exhibitor Drawings / Grand Prize Drawing / Entertainment
Tuesday, August 15 7:30a – 9:00a
Champagne Breakfast with IIABA National Chairman, Spencer Houldin Convention Center / Golden Eagle Ballroom
9:15a – 12:15a
Law
Convention Center / Golden Eagle Ballroom Adjourned! Have a safe trip home! Summer 2017 • The Oregon Agent
19
The Independent Insur ance A gents & Br ok er s of Or egon Insurance Ag Brok oker ers Oregon 89t h Annual Con vention & T rade Sho w 89th Conv Tr Show August 13 - August 15 2017, Eagle Crest Resort, Redmond, Oregon
“SURPASSING THE COMPETITION ” First Full Registration Agency/Co:
$299.00
Email:
Title Sponsors: Liberty Mutual Insurance / Safeco Insurance
Phone: Fax: Golf / Preferred Foursome: Spouse / Guest: Golf / Preferred Foursome:
$ 84.00 $169.00 $ 84.00
Additional Full Registration(s) And Young Agents Name:
Members of the Liberty Mutual Group
Phone:
Agency/Co: Fax:
$49.00
Members of the Liberty Mutual Group
Title Sponsors: Liberty Mutual Insurance / Safeco Insurance
Name:
Email:
FREE
Golf / Preferred Foursome: Spouse / Guest:
$49.00
Golf / Preferred Foursome:
FREE
For additional attendees from the same agency / company, please photo copy this registration form and register as an “Additional Full Registration”.
Limited Registration Packages $60.00
Sunday “Beer & Bones” ONLY” (per person)
$75.00
Monday Banquet “ONLY” (per person) Ethics - Monday, August 14th - Includes Lunch with Exhibitors, Raffle & Door Prizes Law - Tuesday, August 15th - Includes Champagne Breakfast Young Agent Event - Monday, August 14th - Company/Vendors Young Agent Event - Monday, August 14th - Putting Golf (With a paid Young Agent registration) Monday Workshops with David Connolly Includes Lunch with Exhibitors, Raffle & Door Prizes Champagne Breakfast “ONLY”, Tuesday, August 15th
$60.00 $60.00
$20.00
FREE $89.00 $40.00
Kids Registration Kids 6 - 18 years ---------------------------------# X $75.00 each TOTAL Includes all meals and social functions. Kids 5 and under are FREE. Name(s) & Age(s) of Children:
TOTAL AMOUNT If paying by Credit Card, please complete the following information. A 5% service charge will apply on all credit card payments. Checks should be made payable to the IIABO and mailed to IIABO, 6 Centerpointe Dr #430, Lake Oswego, OR 97035
Credit Card #:
Card Billing Address: Name on Card:
Exp Date:
/
Vcode:
Signature:
REFUNDS IN FULL WILL BE MADE ON ANY WRITTEN CANCELLATION RECEIVED IN THE IIABO OFFICE BY JULY 1ST. REFUNDS BETWEEN JULY 1ST AND AUGUST 1ST WILL INCURE A FEE OF $150 AND CAN BE TRANSFERRED TO ANOTHER EVENT OR INDIVIDUAL. NO REFUNDS WILL BE GIVEN AFTER AUGUST 1ST. HOTEL RESERVATIONS ARE NOT INCLUDED IN REGISTRATION FEES, CONTACT EAGLE CREST RESORT 855.200.3551.
CONVENTION WORKSHOP >> David Connolly is the founder of iQ Consulting Inc. Mr. Connolly has devoted his entire 35-year career to insurance. He has worked in almost every aspect of our industry including Production, Risk Management, Sales Leadership, Executive Leadership and Education. His Production career is underscored by the development of 3 National Niche Programs and a personal book exceeding 1.4 Million in Revenue. “Our Company is iQ Consulting. We are a Minneapolis based Consultancy that specializes in the Insurance & Financial industries.
Our corporate mission is: To accelerate organic growth and profitability for our clients through Leadership and Producer Development Mr. Connolly’s personal success, and experience working with high performance executive teams uniquely qualifies him to consult on best practices and growth acceleration. His sales acceleration process is described as one of the most effective producer development programs available. As a performance coach David works with many of the top Agencies and Brokers in the U.S. and Canada. He has coached thousands of insurance professionals to create significant and sustained performance gains. He frequently collaborates with carriers to develop and deliver customized performance training for their agency and broker partners. David has partnered with the Big I for many years to develop and deliver exceptional programs like this, and others including The Young Agents No Plateau Producer School, The Right Stuff Leadership Seminars and many other success workshops and webinars focusing on Agency and producer performance. As a public speaker, David delivers seminars and keynotes across the country for industry organizations. He writes the “Your Sales iQ blog” for the Insurance Journal, and delivers Webinars and on-line training for Carriers, Agencies and Trade groups.
I.Q. Consulting Inc. will develop and deliver 2 workshops for IIABO’s August Agents Meeting 1. “4P - A Perpetual Pipeline of Perfect Prospects” This wor kshop will provide insight, and direction on developing and managing pipelines to create opportunities that help producers meet and exceed their goals and the new business production results of producers nationwide. The workshop will provide coaching on identifying ideal prospects, filling pipleines through leveraging introductions from clients and centers of influence. 2. “Sales Excellence” This workshop will focus on teaching your producers the iQ Comparison / Contrast approach to buyer facilitation. The workshop will provide instruction, role playing, coaching along with forms and processes to help your producers qualify prospects, differentiate your agency and avoid playing the price game.
Visit iQ’s website at: iqsalescoach.com Contact David at: david@iqsalescoach.com iQ Consulting : 218-568-5238 Summer 2017 • The Oregon Agent
21
BUYING, SELLING AND MERGING AN AGENCY WHAT SHOULD YOU DO?
Insights from the Experiences of Swiss Re Corporate Solutions Veteran Underwriters
O
ne of the biggest decisions of your professional insurance career comes when you decide to either sell the agency you’ve worked long and hard to create, or to buy another agency that someone else has worked long and hard to create. You’ve met with the owners of the agency, you’ve looked at the book of business, you’ve agreed on a price, hopefully you’ve contacted your attorney to help you draft the buy/ sell agreement, and you’re a few short days away from closing the deal when suddenly someone asks: what about the E&O coverage? Who’s doing what? Are you going to pick up the prior acts or am I? Can we just transfer the E&O policy to the new owners? What kind of losses have you had? All of these questions should be asked at the beginning of the talks regarding the sale/purchase, but unfortunately they usually aren’t discussed until the last minute and they can have a big impact on the deal. Think about this, when you buy a new car or are selling your current one, one of the first things you should do is contact your insurance provider. It’s no different when you are buying or selling an insurance agency. It also applies when you are only buying or selling a book of business. In most, if not all cases, your E&O policy states that you must notify your E&O provider within 90 days of a merger or acquisition (check your policy for verification of the time limits.) Failure to notify your carrier in a timely manner could result in a gap in coverage. So let’s
go through the steps you should follow when you are making a life and business changing decision regarding your agency.
Buying an agency You’ve been talking with a fellow agent about buying their agency for some time and now you’ve both decided that the time is right. There are many details to consider and the first of which is to do your due diligence to review the other agencies operations, book of business, finances and E&O Policy. At this point it is advisable to retain an attorney to help you through the process. Remember, an attorney can only represent one party, not both. You and the seller should each seek separate counsel. It is a good idea to have a confidentiality agreement with the seller so that you can freely review all of the documents necessary to begin the change of ownership. After you have completed your due diligence and you and the seller are comfortable with all aspects of the agency, the attorneys will draft the buy/sell agreement. Included will be such things as the timing of the sale, the assets to be transferred, the price, and of particular importance is who is responsible for the liabilities of the selling agency. The cleanest way to do this is for each party to retain their own liabilities. In regard to the seller’s E&O policy, they will purchase tail coverage and the buyer will add the new agency’s book of business to their current E&O policy. Continued on Page 24 >>
22
The Oregon Agent • Summer 2017
– 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. It’s a partnership you can count on! To learn more contact Joe Kelsch 480.758.6503 or email at Joe_Kelsch@rpsins.com. RPSins.com
<<Continued from Page 22
The reason this is the cleanest way to make the change, is because the seller will have the peace of mind of knowing that should a claim arise after the sale for acts while they owned the agency, their E&O policy will provide coverage for them. For the buyer, they know that they will not be responsible for any acts that may have occurred prior to the purchase of the agency. This is true whether or not the selling agency will continue as a separate entity or location for the buying agency. In most cases, even if the buyer maintains the new agency as a separate entity or location, it can be included on their current E&O policy for errors and omissions that are made after the sale.
is important to you, be sure to discuss this with your attorney so that it is properly addressed in the agreement. If you have valued employees that you wish to provide for, you should include how they will be taken care of in the agreement. This may be a source of negotiation as the seller may not wish to add any permanent staff, so make sure this is brought up in your discussions with the buyer. An important aspect that was mentioned previously is protection for you if a claim should arise after the sale. As stated before, the best way to ensure this is to purchase tail coverage from your current E&O carrier. While you may not want to add the expense of tail coverage and you believe you are protected because of your agreement with the buyer that they will provide coverage for prior acts and will maintain an E&O policy, you have no guarantees that it will be done. It is not unheard of after an agency sale for the buying agency to either go out of business, sell their agency to another party who will not agree to provide prior acts, or have their E&O policy terminate either voluntarily or involuntary. In each of these cases you could be left without coverage.
If you are either growing or selling your agency, you want the peace of mind of knowing that you have adequately protected yourself. Another option, while not the best way to transfer the ownership, is for the purchasing agency to agree to accept responsibility for prior acts. This is accomplished by adding the selling agency to the buying agency’s E&O Policy. However, please remember that this must be approved by the E&O carrier before the sale is completed. It is imperative that you contact your E&O agent as soon as you begin the buy/sell process. You will be required to provide a loss history of the seller, and the carrier may require an application providing information about the mix of business, gross annual premium, commissions, staff, etc. In some cases the carrier may not agree to provide prior acts due to claims history, nature of the book of business, etc. In that case the seller should purchase tail coverage from their current E&O carrier. One thing to keep in mind is that the cost of tail coverage or additional premium expense if the prior acts are provided by the buyer can, and should, be considered in determining the sale price of the agency.
Selling an agency As a seller of an agency, you may feel that it is important to maintain your agency’s legacy. If this 24
The Oregon Agent • Summer 2017
Another thing to consider should your agency be added as an additional insured on the buyers’ policy is that any claims, whether they are for your agency or the buyer’s agency, will be subject to the policy limit of the buyers’ policy, regardless of whether there are multiple claims as a result of either agency. In other words, are you comfortable that the policy limits of the buyers E&O policy are sufficient to cover both your and their claims? Also, it should be made clear who will be responsible for any deductible payment.
Mergers If you are merging with another agency to either form a new agency or be a continuation of one of the two, there are a couple of different ways to handle this in regard to your E&O coverage. One way is to have a new E&O policy for the newly created entity. This ensures a clean slate for all involved. If a new policy is created, each of the former agencies can purchase tail coverage or they can be added as additional insureds on the new entity policy. Again, keep in mind that any claims will be subject
to the limits of the remaining policy and remember that this must be approved by the E&O provider prior to the completion of the agreement to ensure that the carrier can comply with your wishes. Another way to handle a merger is to terminate one policy and have that agency added as an additional insured to the policy of the “surviving” agency. The agency that is terminating their policy can either purchase tail coverage or be added as an additional insured upon approval by the E&O provider.
Internal sale Many times an owner has a key agency employee who they believe is qualified to take over the agency. Everything that has been stated before applies just the same in these situations. There should be due diligence by both parties, attorneys should be retained, agreements drafted and entered into, and all other aspects of the change of ownership should be carefully contemplated and resolved.
You spent your professional insurance career building a business that has provided you with a livelihood and personal fulfillment. If you are either growing or selling your agency, you want the peace of mind of knowing that you have adequately protected yourself.
Transfer of a book of business Remember that even if all you are doing is transferring a book of business, either as a buyer or a seller, all of the things mentioned previously apply. While you might think that a transfer of only a small book of business should be uncomplicated, as soon as a claim is made it can become very complicated.
Key points to remember 1. Consult your attorney and have a formal written agreement outlining the duties and responsibilities of all of the parties.
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2. Contact your E&O provider as soon as you can to ensure that coverage can be provided as you intend and that there are no gaps in coverage. 3. Giving timely notice to your E&O provider is of utmost importance as many carriers may be unable to comply with your intent after the transaction has already been completed.
For more information please contact:
DARREN EVERSOLE
darren.eversole@ipfs.com | 503.957.5460
Copyright © 2017 IPFS Corporation. All rights reserved.
FIRST LAST | 000.000.0000 | first.last@ipfs.com Summer 2017 • The Oregon Agent
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The Top Rules of the Most Successful Agents by John Chapin
What follows is a list of most important rules followed by the top 1% of agents. Burn these into your brain by reading them every morning when you first wake up and right before you go to bed for the next 30 days. After that read them once a week. Rule 1: My most important result is to produce.
Rule 7: I persevere and persist. I refuse to quit until I win.
Rule 2: My most important activity is to talk to as many potential prospects as possible. This is my main focus every day and I don’t let anything distract me from this most important task.
Rule 8: I am thick-skinned and don’t take things personally.
Rule 3: I am in the people business first and foremost. I build solid, long-term relationships. Rule 4: I am a team player and play well with others. Rule 5: I have a great attitude, am self-disciplined, and am the hardest worker in the workplace. Rule 6: I show up early, leave late, and work nights and weekends.
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Rule 9: I always smile no matter what gets thrown at me. Rule 10: I am extremely responsive and answer client/ prospect communications as quickly as possible. I also answer calls and e-mails at night and on the weekends. Rule 11: I am self-motivated. I know WHY I do what I do. I am also self-disciplined so that when motivation wanes, I still do what I need to do even though I may not feel like it.
Rule 12: I push myself harder than anyone else can possibly push me. Rule 13: I am always learning and getting better professionally and personally. I read books, listen to CDs, watch DVDs and videos, follow industry publications, go to workshops and seminars, and invest in learning. Rule 14: I take 100% responsibility for my failure and success. I am my greatest enemy or ally. The only one in my way is me. Rule 15: I understand there are no excuses. Someone has had it worse and overcame it. Rule 16: I face my fears and push out of my comfort zone. I make the tough calls and do something that scares me every day.
Rule 17: I know my numbers and my daily activity. I know what I have to do every day to hit my weekly, monthly, and annual goals. Rule 18: I listen 70 to 80% of the time. When I do talk it is usually to ask good questions. Rule 19: I am great at finding problems and never propose a solution until I know the problem(s). Rule 20: I always do what’s best for the client and put their needs first. Rule 21: I realize that the first sale is to myself. I believe my company and my product are the best. Rule 22: I dress well and am neatly groomed. I realize that a good handshake, polished shoes, speaking professionally and intelligently, and having a clean, crisp image are essential. Rule 23: I understand that my quality of life comes down to who I associate with and what I put in my brain. I put positive thoughts and ideas in my head and only hang out with positive people. I stay away from negatives and negative people. I also only listen to top salespeople and business people.
Rule 24: I jump right to the next call after I make a sale and don’t take a break because I know there is power in momentum. Rule 25: I am scripted and know exactly what to say in each and every prospect and client situation. Rule 26: I am over prepared for any and all sales situations. Rule 27: I role play and practice constantly with others and myself. Rule 28: I make one more call and do one more thing before knocking off for the day. Rule 29: I delegate as many nonsales tasks as I can.
Rule 33: I do my job and hold myself accountable to the highest professional and ethical standards. I am a person of integrity and character. I am always professional, respectful, and honest. Rule 34: I focus on agreeing with people as much as possible. Rule 35: I know I will have difficult days but refuse to complain or quit. Rule 36: I understand that most worthwhile undertakings usually take far more effort than estimated. I am prepared to do whatever amount of work is necessary to make my dreams come true.
Rule 30: I time block my schedule and do my best to only work on one thing at a time. Rule 31: I outwork, outrelationship, and out-sell the competition. I am more committed. I take better care of our clients than the competition because I care more. Rule 32: I do what I say I’ll do when I say I’ll do it and I always go above and beyond and do more than the client expects.
John Chapin is a sales and motivational speaker and trainer. For his free newsletter, or if you would like him to speak at your next event, go to: www.completeselling. com John has over 29 years of sales experience as a number one sales rep and is the author of the 2010 sales book of the year: Sales Encyclopedia. For permission to reprint, e-mail: johnchapin@completeselling.com.
Summer 2017 • The Oregon Agent
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ARE YOU READY FOR A DATA BREACH? By Judi Newman & Bill Larson Insurance company-agency agreement wording for both property-casualty and group health agents requires unequivocal compliance with all current state and federal privacy and data breach response laws, including the following: • Gramm-Leach-Bliley Act (GLBA) • Fair Credit Reporting Act (FCRA) • Fair and Accurate Credit Transaction Act (FACTA) • Health Insurance Portability and Accountability Act (HIPAA) • Health Information Technology for Economic and Clinical Health Act (HITECH)
Agency agreements tend to be one-sided and typically require that “the agency hold the company harmless for any claim, demand, liability, dispute, damage, cost, expense or loss including reasonable attorney’s fees and cost of litigation arising as a direct result of the acts, errors & omissions and negligence of the agent.” Following an extensive review of more than 100 companyagency agreements, most p-c and group health companies require agency compliance with all federal and state laws. For example, p-c agency agreements reference the GLBA, while group health agency agreements, both individual and agency, cite HIPAA and HITECH. GLBA is a robust law and applies to most insurance agents.
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If an agency wants to protect itself from fines, penalties and the possible breach of contract provisions with insurance companies, it must comply with the agency agreement and, by extension, all other relevant laws. HERE ARE A FEW KEY COMPLIANCE COMPONENTS TO KEEP IN MIND.
Under HITECH, business associates are now directly “on the compliance hook” since they are required to comply with the safeguards the security rule contains. HITECH does not speak directly to the rationale, but even casual observers understand that a potentially massive expansion in the exchange of personal health information increases the privacy and security concerns of all stakeholders.
Privacy plan: Privacy laws apply to personal information you collect, use and disclose with other organizations in the course of doing business. Personal information is information about an identifiable individual, including information that relates to a particular person and allows that person to be identified.
… if the agency is found to be the cause of a data breach through negligence or noncompliance, the expenses, fines and penalties could be a death wish. Summary of agency agreement: The hold harmless and
GLBA requires companies to give consumers privacy notices that explain the institution’s information-sharing practices and how they will protect the consumer’s non-public information. In turn, consumers have the right to limit some – but not all – sharing of their information.
Security plan: Information and information systems are assets which agents should protect from accidental or unauthorized access, disclosure, modification, destruction or denial. Security controls must be sufficient to ensure confidentiality, privacy, reliability, integrity, audit capability and availability of information. You will need to identify potential threats and analyze and prioritize those threats, devise plans and strategies to reduce the likelihood of those threats occurring and maintain a contingency plan to address and mitigate any damage that might result from a breach.
Data breach response plan: More than 30 federal laws and regulations address privacy and security on nonpublic personal information. At a more local level, 47 states and the U.S. territories of Guam, Puerto Rico and the U.S. Virgin Islands have regulations and laws on what a business must do to respond to a known breach.
Defining “business associate” for insurance agents: Compliance with HIPAA is not an option for insurance agents who are considered business associates. Insurance agents involved in the sales and service of group health insurance coverage need only review any or all of these company-agency agreements to see that they are indeed business associates of the insurance companies represented.
indemnification sections in most p-c and group health agency agreements could require agencies to pay the following costs and expenses – in addition to the direct costs and expenses the agency incurs in defense of action: • Costs of the company’s investigation of the agency as well as a national investigation, since the breach originated at the agency level • Costs of the required company notifications • Costs of attorney fees the company accrues • Defense and liability costs the company accrues • Additional costs the company accrues as a result of the agency’s signed agency agreement Based on the insurance company language, if the agency is found to be the cause of a data breach through negligence or noncompliance, the expenses, fines and penalties could be a death wish. In any event, it will be a long, costly process – and the end result is likely going out of business.
Judi Newman is president of NetGenDataConsulting and Phaze II Consulting, Inc. Bill Larson is president of Profit Protection Risk Management Consulting and partnered with Newman to further NetGenDataSecurityConsulting.
Summer 2017 • The Oregon Agent
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A CRC GROUP COMPANY CRC Group | CRC | CRC Swett | SCU | JH Blades | TAPCO | Programs ©2017 SCU is a division of and operates under the licenses of CRC Insurance Services, Inc., CRC of California Insurance Services, CA Lic No 0778135. No claim to any government works or material copyrighted by third parties. Nothing on this website constitutes an offer, inducement, or contract of insurance. Financial strength and size ratings can change and should be reevaluated before coverage is bound. This material is intended for licensed insurance agency use only. This is not intended for business owner or insured use. If you are not a licensed agent please disregard this communication.
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