DELAWARE
IN THIS ISSUE
_______________ Independence through employee ownership Member profile: Insurance runs in the blood for five generations How to position and plan for your agency’s future Erie Insurance talks shop
I used to think EMC was ju st for niche commercial programs. Then again, I used to think babies
came from storks.
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Valley Forge Service Office: 800.362.3620 | Home Office: Des Moines, IA
www.emcinsurance.com
© Copyright Employers Mutual Casualty Company 2009 All rights reserved
GLOBAL SOLUTIONS MEET LOCAL SUPPORT.
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We are now QBE Americas Division. And we’re working for you.
generalcasualty.com General Casualty is a registered service mark of General Casualty Company of Wisconsin. QBE and the links logo are registered service marks of QBE Insurance Group Limited. All coverages underwritten by member companies of QBE. © 2009 QBE Holdings, Inc.
Contents
12
PRIMARY AGENT MAGAZINE
Perpetuation is in your hands — positioning & planning for your agency’s future Back by popular demand … MarshBerry returns to lead IA&B members in a two-day executive management conference focused on agency perpetuation.
Page 12
16
Erie Insurance talks shop Erie Insurance representatives attended the May IA&B Board of Directors meeting to discuss the company’s unique offerings, as well as its commitment to the independent agency system, plans for growth and legislative priorities. Here, IA&B provides a recap.
Page 16 Thicker than water: Insurance runs in the blood for five generations Kathleen Mullins Shoudt gets it naturally. She represents one of five generations that have found a career in the independent agency system.
20
Page 20 Inside track: Independence through employee ownership As Murray Risk Management and Insurance’s two primary stock holders reached their mid- to late 50s, they began planning. Their goal? To perpetuate the agency and maintain its independence.
Page 26
In every issue
26
4 5 6 7 8 9
Chairman of the Board’s Message Glance at Events State News New Members Preventing Errors & Omissions Member FAQ
10 15 23 25 25
Coverage Corner IA&B Partners Technology Update Advertisers Index Classified Ads
Subscriptions: Non-member price: $2.25 per copy or $15 per year. All communications for publications, including news, features, advertising copy, cuts, etc., must reach the editor by 1st of month two months prior to publication. Advertising rates furnished upon request.
Mission Statement Primary Agent delivers ideas to help Insurance Agents & Brokers’ members negotiate their unique position as guardians of trust between insurance consumers and companies while facing the challenges of maintaining a small business. Primary Agent also supports IA&B’s mission to preserve and advocate the American Agency System.
Address inquiries to: Primary Agent Editor PO Box 2023 Mechanicsburg, PA 17055-0763 Phone (800) 998-9644 or (717) 795-9100 Fax (717) 795-8347 Periodical postage paid at Mechanicsburg, Pa. and additional entry post office. Postmaster: Send address changes to above address. Primary Agent (ISSN 1543-3110), Permit # 638-620, Issue # 2009-8) is published monthly by IA&B Service Group Inc., a subsidiary of IA&B.
Copyright 2009. All rights reserved. No material may be reproduced in whole or in part without written consent of the publisher. The information in this publication is general in nature and is not intended to serve as legal, accounting, financial, insurance, investment advisory or other professional advice as to any reader’s particular situation. Users are encouraged to consult with competent legal, financial, insurance, investment advisory and or other professional advisors concerning specific matters before making any decisions and we disclaim any responsibility for any decisions or actions by readers. Statements of fact and opinion in Primary Agent are the responsibility of the authors alone and do not imply an opinion on the part of the officers or the members of the IA&B. Participation in IA&B events, activities and/or publications is available on a non-discriminatory basis and does not reflect IA&B endorsement of the products and/or services.
“Do you have that nationwide “A” rated Treasury listed bond thing?”
Need a Treasury listed bond for a small or mid-sized client? You’ve got it! And we mean any bond, in any state, for any purpose. Because we write bonds nationwide with the same fast approval and collateral requirements as local bonds. With over 20 years in the business, we know you need answers fast. And you’ll get them from us in 24 hours in most cases, with no cash collateral or letter of credit. Fast turnaround is what we’re all about. So call us to get that little “yes” word you and your client want to hear. And that big commission you want to make. TOLL FREE: 1-800-886-7760 FAX TOLL FREE: 1-800-566-7761
Board of Directors Officers Robert J. “Buc” Cawley, AAI Chairman Wexford, Pa. Kathleen M. Glattly, ChFC, CLU, CPCU Vice Chairwoman Factoryville, Pa. G. Kevin Nemith, CIC Immediate Past Chairman Dover, Del.
ROBERT J. “BUC” CAWLEY AAI
Chairman OF THE BOARD’S MESSAGE
Members Norman F. Basso, CPCU York, Pa.
Perpetuation planning takes center stage
Vincent D. “Chip” Boylan Jr., CPCU Rockville, Md.
Perpetuation. It’s an industry buzz word these days. As it should be. By and large, baby boomers are heading up the nation’s independent agencies, and as they look toward retirement, not enough young people are looking toward the industry as an appealing opportunity.
Timothy P. Burris Thompsontown, Pa. M. Scott Clemens, CIC, CPCU, CLU, ChFC Souderton, Pa. John T. “Chip” Colwell Jr., CIC Corry, Pa. Robert B. Hall, CPCU, CLU, ChFC, ARM, ARM-P West Chester, Pa. Denise M. Kozel, CPCU Newark, Del. Linda A. McCann, AAI, CPCU, CPIW Salisbury, Md. Thomas G. McElhaney State College, Pa. Michael F. McGroarty Sr. Pittsburgh, Pa. Scott C. Rogers, CPIA York, Pa. David Rosenkilde, CIC Reisterstown, Md. Susan A. Sallada, CIC** Ft. Washington, Pa. William D. Schneider, CPCU, ARM* Pittsburgh, Pa. Robert A. Walbeck, CIC Homer City, Pa. David B. Wasson Sr., CIC State College, Pa. James M. Watkins* Dover, Del.
Fortunately, knowing is half the battle, and the industry as a whole has recognized the impending crisis and begun taking action. Producers are attending career days, trade groups are implementing awareness campaigns and agency principals are contemplating acquisitions, mergers and succession plans. IA&B has swung into action as well. The board of directors has prioritized the issue, and association staff is responding. There is a hub on iabgroup.com that links members to industry resources and an October 2009 executive management conference that will focus on perpetuation planning. This edition of Primary Agent magazine is dedicated to the topic, too. On the pages that follow, you’ll find more information about the conference, plus examples of how IA&B members have dealt — and plan to deal — with perpetuation. So consider this your wake-up call. If you haven’t put the time and energy into a succession plan, no one else is going to do it for you. At the same time, there have never been as many resources to help you make it happen.
King W. “Kip” White, LUTCF Fallston, Md. John S. Yasik, CIC Newark, Del. * IIABA National Director ** PIA National Director
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Glance at Events A U G U S T C A L E N D A R Date
Topic
Location
4
CISR — Commercial Casualty
Scranton, Pa.
4-6
P&C Licensing
Allentown, Pa.
4-6
P&C Licensing
Mechanicsburg, Pa.
5
CISR — Commercial Casualty
State College, Pa.
6
CISR — Commercial Casualty
York, Pa.
11
CISR — Commercial Casualty
Hagerstown, Md.
Company Auto vs. Personal Auto seminar
Philadelphia, Pa.
Insuring Contractors seminar
Gaithersburg, Md.
12
CISR — Commercial Casualty
Lancaster, Pa.
12-14
James K. Ruble Graduate seminar
Hershey, Pa.
13
CISR — Commercial Casualty
Philadelphia, Pa.
18
Insurance Success Seminar: CPIA 1
Pittsburgh, Pa.
18-20
P&C Licensing
Pittsburgh, Pa.
19
Insurance Success Seminar: CPIA 2
Pittsburgh, Pa.
19-21
CIC — Personal Lines
Timonium, Md.
20
Insurance Success Seminar: CPIA 3
Pittsburgh, Pa.
25
William T. Hold Seminar
Hagerstown, Md.
25-27
L&H Licensing
Mechanicsburg, Pa.
26
Dynamics of Service
Baltimore, Md.
27
William T. Hold Seminar
Newark, Del.
Don’t wait for a CISR course to come to you — access it from your desktop! CISR OnLine is an excellent way to complete a course you need that may not be scheduled in your area in the timeframe you need it. You can also mix and match the CISR OnLine course with classroom courses so you can still maximize the benefit of networking and face time with the instructor. Register for courses online at iabgroup.com.
[5]
Primary Agent | August 2009
State News 2009
Convention Alex Soto served as keynote speaker and provided an executive leadership session.
Nearly 250 DAIAB members and company personnel gathered in Rehoboth, DE, June 9-11 for the association’s 52nd annual convention. The event included educational seminars, social outings and a trade show and culminated with a banquet and awards ceremony.
Charles Fouraker, Megan Marshall and Diana Momot attended the banquet dinner and awards ceremony, where Marshall was named Outstanding Delaware CSR of the Year.
Bill Lenhart (second from right) received the inaugural agency-company relationship award, named in his honor, from DAIAB board members Jim Watkins (left), Denise Kozel and John Yasik.
Mike Bucco, Anthony DiMarzo and Seth Costello participated in the golf outing at Kings Creek Country Club.
David Digman led a seminar on difficult personal-lines questions.
2009
Convention
State of the Association By John Yasik, outgoing DAIAB chairman
John first delivered his stateof-the-association address at the convention. An excerpt of his remarks follows. “The last two years have been a whirlwind of activity in moving our state association forward. Many things have changed, but at the same time, we have been sensitive to retaining some of our past. Change is good but comes with comprise. Our single guiding principle has always been to leave this organization in better shape than when we took it over. Our foundation was always to protect the interest of the independent insurance agent here in Delaware. Dare I say, ‘Mission accomplished’? Hardly. There is plenty of work to do. The landscape in front of us is shaping up to be the most challenging in my 27 years in the insurance industry.
Congress is expected to embark on major reform of the nation’s health care system this summer. Health care reform and its impact on workers’ compensation would be disastrous for independent agents if we are removed as counselors and advisors to our individual and business clients…. The DAIAB is preparing for this fight. We will be teaming up with our national affiliates to craft a call-toaction plan. We will need your help. Yes, your financial contributions to AgentPAC, InsurPAC and PIAPAC might make all the difference. More importantly, your contribution of time will be invaluable. In addition, federal regulation of insurance has been elevated as a priority by Congress. The recent AIG dilemma has popularized the ‘need for Washington’ to regulate insurance. Nothing could be further from the truth. Our state-based system has performed extremely well…. The DAIAB Board will continue to consider and the DAIAB staff will continue to implement ways to advocate for you and our state-based system of regulation. But my job as your state chairman is done! I think it safe to say, and I hope you will agree, it has been a ‘mission accomplished.’ Financially, the DAIAB was the only state association in the tristate area to earn a profit in 2008. Our AgentPAC contributions have increased 50 percent. We launched our first Member Agent Panel meeting with
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outstanding success this past April in Dover. Additionally we commenced a public relations campaign focusing on the theme ‘Driving Members to Distinction.’ Our goal of focusing and strengthening one voice for the independent agent in Delaware is resonating the strongest it ever has in Dover and Washington D.C. And finally, I am most proud of what the annual convention has become – which is what we hoped it would be when we formulated our idea for its makeover. The support by our company sponsors has increased every year, including 2009. Our agency principles, producers and CSRs have responded with unparalleled participation. I believe we can conclude the value of the education, camaraderie, networking and other activities clearly make this the premier insurance event in the area. I thank you for the opportunity to serve you. I hope many of my fellow agents seated in the audience tonight will consider volunteering to give something back to your state association. It truly is a gratifying experience. If we all take our turn, we all get to contribute for the collective good of the DAIAB. It is with fond memories that I conclude as your state chairman. I truly believe the Delaware Association of Insurance Agents & Brokers is in the best condition it has ever been. I wish to all of you all the best.”
Primary Agent | August 2009
Preventing ERRORS AND OMISSIONS
SURPLUS LINES – A POTENTIAL E&O NIGHTMARE?
CURTIS M. PEARSALL, CPCU, AIAF, CPIA Curtis M. Pearsall is vice president of E&O for Utica Mutual Insurance Company in Utica, N.Y. Insurance Agents & Brokers Service Group Inc. is the exclusive agent for the Utica E&O program in Delaware, Maryland and Pennsylvania. For questions regarding this article or your Errors & Omissions coverage, contact IA&B at (800) 998-9644 or by e-mail at iab@iabgroup.com.
Although most agents would characterize the current marketplace as somewhat soft, there is no doubt that a significant amount of business is still placed with Excess and Surplus lines companies through the wholesaler community. Whether the needed coverage is property or general liability or umbrellas as well as professional liability and Directors & Officers Liability, the E&S marketplace today serves a vital need for virtually every insurance agent. To effectively deal in this marketplace requires knowledge of some distinctive differences as compared to the admitted marketplace. Without knowledge of these differences, dealing in this marketplace could be your biggest nightmare. First, let me clarify that any E&O concerns that I have about this segment of the marketplace should not be construed as a negative comment towards the carriers that write business on a non-
admitted basis. There are a tremendous number of top-notch, A-rated E&S carriers that have stability and exhibit unbelievable creativity in writing what could be characterized as tough business. The industry is better because of these markets. Essentially, E&S, or companies that write business on a nonadmitted basis, means that in most state jurisdictions, the carrier can write the business free of rate and free of form. While most carriers have set rates for the business they write, these rates do not have to be filed with the Insurance Departments. One advantage of this is that the carrier can change the rates very quickly since they do not need state Insurance Department approval. In fact, this is what you are probably seeing today. As the standard markets look to grow, much of the business that they are targeting is business previously written in the E&S market. So the E&S carriers are dropping their rates to
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keep these accounts, and they can do this fairly quickly. As stated above, the forms typically do not need to be filed. This is actually one of the areas that has the potential to cause a problem and that you should look out for. Most of the E&S companies use their own policy language. The language may have some resemblance to ISO, but don’t count on it. As a result, the coverages can be modified without department approval. So when placing business in the marketplace, be sure to request a specimen copy of the forms from the wholesaler that you’re dealing with and include them in the proposal to your client. Don’t assume that when you get quotes from a wholesaler with 3 different carriers that the coverage is identical with all three. Be certain that you are dealing with a wholesaler that will advise you of the exclusions. This will enable you to guide your account accordingly. It is also
important to understand that E&S companies are not required to send out conditional renewal notices when the renewal coverage is going to be different from the expiring coverage. Once again, it would be advantageous to ask your wholesaler if the coverage in the renewal proposal is different from expiring. Without this knowledge, you will need to do a policy comparison to identify the differences. Do you have the time? Oftentimes in the standard marketplace, circumstances arise where you are asked to bind an account effective today, but due to your workload, you do not get to the actual task until tomorrow. Well, in the standard market, this may not cause a problem since you are probably acting as an agent and thus have the authority to bind on the carrier’s behalf. In the E&S market, this can be your biggest headache. In the E&S market, you are not acting as an agent, and you should understand that carriers will bind the risk the day they are asked to bind, not a day before. No backdating. I can guarantee that not binding on time will cause you significant anxiety, praying that a loss does not happen. Also it may not be just an issue of calling to bind. With many wholesalers, binding a risk may require money and the necessary affidavit forms prior to binding. In some situations this may be virtually impossible. Once again, dealing with a wholesaler that looks to make dealing in the E&S marketplace somewhat customer friendly is a must. Sounds like dealing in the E&S marketplace can be a nightmare. Yes, it can be, but by better understanding the uniqueness of it, you can adjust your procedures and workload accordingly. Also, having a relationship with the wholesaler that you do business with can play a key role.
Member FAQ QUESTION: We hold a non-resident license in Ohio and just received a delinquency notice about corporate franchise tax from the state. What is this notice and what, if anything, did we do wrong?
ANSWER: This notice likely comes from Ohio’s Department of State, but a similar situation could arise with other states as well.
?
When you applied for a non-resident license in Ohio, you probably first registered the agency with the Ohio Department of State. This came with some requirements, such as those relative to annual filings and taxes. Whether those requirements were clear or not from the onset is a different story. It is a common misconception that if your license is renewed everything else follows suit. Rarely is there coordination between the state’s Insurance Department and the Secretary of State. In the same line of thought, rarely are the reporting requirements the same from one state to the next. So, if you are licensed — and registered — in many states, you need to monitor and abide by each state’s specific obligations. Some states send requests to businesses registered in their states and systematically ask for annual reports. Some expect to receive those reports annually, but rather than notify you in advance, they will simply post the information on their Web site. As the number of non-resident licenses held by an insurance agency increases, so does the need to monitor each state’s requirements, forms and deadlines. These requirements do not only stem from the Department of Insurance, but also from the Department of State. In your case, the best course of action is probably to: 1)
Contact the Ohio Department of State and explain that you were not aware of the need to file the annual report and had assumed that the license renewal handled by the state ‘s Department of Insurance was coordinated with any Department of State requirement. In other words, you interpreted the license renewal as the confirmation that everything was in order.
2)
Offer to correct the deficiency from now on. Usually, the states are tolerant of that approach.
3)
Make sure you implement a system that will remind you of the report that is needed for the state in question and the deadline for remittance. Put together a chart with each state. Investigate the other states for which you hold a license and are registered as a business entity, and keep an eye on their Web sites for updates to the requirements.
DO YOU HAVE A QUESTION? E-mail it to us at iab@iabgroup.com. Please use “Primary Agent FAQ” in the subject line of your message. You can also fax your question to (717) 795-8347. We look forward to answering your questions! [9]
Primary Agent | August 2009
Coverage CORNER
IS A DIRT BIKE AN “UNINSURED MOTOR VEHICLE” UNDER PENNSYLVANIA’S FINANCIAL RESPONSIBILITY LAW? denied the claim on the basis that the dirt bike was not an uninsured motor vehicle. Their policy specifically excluded any vehicle designed for use off public roads.
JERRY MILTON, CIC Jerry M. Milton teaches and consults on industry issues. The legal profession
Time out. Let’s pause a minute. The ISO Uninsured Motorists Coverage – Pennsylvania (stacked or nonstacked) endorsements state that an “uninsured motor vehicle” does not include “any vehicle or equipment designed for use off public roads while not on public roads.” In this case the dirt bike was on a public road when the accident occurred.
recognizes him as an expert on insurance coverages. He is also the education consultant for IA&B, working with CISR, CIC and continuing education programs.
On July 6, 2001 Ivan and Helene Burdick were traveling in their auto on a public road in the city of St. Mary’s, PA. Nicholas Dragone was operating a dirt bike in a private driveway that intersected with the road on which the Burdicks were traveling. Dragone entered the road in front the Burdicks’ auto. The Burdicks collided
with the dirt bike and then ran into a ditch. Both suffered injuries as a result of the accident. Dragone’s dirt bike was unregistered and uninsured. Following the accident, the Burdicks filed a claim for Uninsured Motorists benefits with their auto insurer, the Erie Insurance Group. Erie
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Now, back to the Burdicks. On June 22, 2004 they file a complaint for declaratory judgment against Erie. Erie responded, and both parties then filed motions for summary judgment. On April 3, 2006 the trial court granted summary judgment in favor of Erie, concluding that the exclusion in the Erie policy did not violate Pennsylvania’s Motor Vehicle Financial Responsibility Law (MVFRL).
The Burdicks appealed and raised two issues: 1. Does a contractual exclusion from uninsured motorist coverage for a collision with a motor vehicle intended primarily for off-road use violate the MVFRL where the law makes no provision for such an exclusion? 2. Is a motor vehicle insurance policy contrary to public policy where it attempts to exclude from uninsured motorist coverage a claim for injuries suffered in a collision on a public highway with a motor vehicle not intended for highway use? On appeal, the Superior Court of Pennsylvania concluded the following: 1. The MVFRL requires that UM coverage must be offered. 2. The statute provides that UM coverage shall provide protection for persons who suffer injury arising out of the maintenance or use of a motor vehicle and are legally entitled to recover damages from owners or operators of uninsured motor vehicles.
overhead trolley wires, but not operated on rails.” 6. Clearly, the dirt bike at issue falls within the definition of a motor vehicle as defined by the Vehicle Code. Based on the above conclusions, on April 4, 2008 the Superior Court of Pennsylvania reversed the trial court’s ruling. The court found that the exclusion contained in the Erie policy which excludes UM coverage for a collision with a motor vehicle intended primarily for off-road use violates Pennsylvania’s Motor Vehicle Financial Responsibility Law. Erie argued that their policy’s exclusion of motor vehicles primarily intended for off-road use is supported by Herr v. Grier (PA Superior Court, 1996). The Herr case involved a situation where Herr
was injured when the four-wheeled golf cart in which he was riding overturned. At the time of the accident, the golf cart was being operated on a golf course. Herr sought UM coverage under his auto policy, which excluded coverage for vehicles or equipment “designed mainly for use off public roads while not on public roads.” In this case a panel of the Superior Court concluded that the golf cart was not a motor vehicle within the meaning of the MVFRL because it was not “a vehicle of a kind required to be registered.” I have no legal knowledge whatsoever, but the opinions in these two cases — Burdick and Herr — appear to me as if the court is talking out of both sides of its mouth. Y’all take care!
You know who we ARE
3. The MVFRL defines an “uninsured motor vehicle,” in part, as “a motor vehicle for which there is no liability insurance or self-insurance applicable at the time of the accident.”
When there’s a loss, Mike Snare iss there.
4. The MVFRL does not provide a definition of the term “motor vehicle,” but the legislature provided a definition of “motor vehicle” within the broader Vehicle Code.
That’s reliability. That’s the MBG Experien Experience. nce.
The minute a policyholder calls with a claim, Mike responds with sympathy, courtesy, and professionalism. And he’s been doing so for 20 years.
5. The Vehicle Code defines a “motor vehicle” as “a vehicle which is selfpropelled except an electric personal assistive mobility device or a vehicle which is propelled solely by human power or by electric power obtained from
Mike Snare
Multiline Claims Supervisor
MUTUAL BENEFIT GROUP Huntingdon, PA www.mutualbenefitgroup.com
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ASSOCIATION AT WORK
Perpetuation is in your hands — positioning & planning for your agency’s future IA&B to offer first-of-its-kind conference
Back by popular demand … MarshBerry returns to lead IA&B members in a two-day executive management conference focused on agency perpetuation.
Primary Agent | August 2009
I
t’s a well-known fact that an aging population operates the independent insurance industry. That means that agency perpetuation and succession planning will take center stage over the next few years — and at the inaugural IA&B Executive Management Conference.
Last October, IA&B brought together over 150 members for a day themed on planning for the future, which included a presentation on agency valuation by MarshBerry. This Oct. 27-28, IA&B once again will host MarshBerry for a member-exclusive event — Perpetuation Is in Your Hands — Positioning & Planning for Your Agency’s Future. Built around member feedback, the program will provide attendees with specific strategies for perpetuation planning. “Our goal is for the audience to leave … with the knowledge, process strategy and tools to help them define a perpetuation plan,” said Patrick Linnert, executive vice president of Marsh, Berry & Company, Inc. IA&B members consistently have expressed that the most prominent roadblocks preventing their perpetuation planning are time, money and getting started. “This program will tackle all three obstacles,” said Robert “Buc” Cawley, chairman of the Insurance Agents & Brokers Service Group. “It requires minimal time out of the office and will be reasonably priced. What’s more, attendees will walk away with tips and strategies from the industry experts.” Additional information about the program will be available via Agent Headlines and on iabgroup.com in the coming months.
SCHEDULE OF EVENTS TUESDAY, OCT. 27 12:30 – 1 p.m. — Registration 1 – 5 p.m. — General session n
State of the Industry and the M&A Environment
n
Sales Management Designed to Attract and Fund Perpetuation
n
Agency Valuation Methodology
n
Characteristics of Agencies that Perpetuate — Income Statement, Balance Sheet and New Business
5:30 – 7:30 p.m. — Welcome Reception
WEDNESDAY, OCT. 28 7:30 – 8 a.m. — Registration 8 – Noon — General Session n Perpetuating the Ownership, Relationships and Leadership of the Agency n Financial Building Blocks — The relationship between Valuation and Cash flow n New Producer Hiring, Training and Retention Noon – 1 p.m. — Lunch
SAVE
THE DATE:
IA&B EXECUTIVE MANAGEMENT CONFERENCE
1 – 3 p.m. — Breakout Session 1. Case Study—Valuation and Financial Modeling of Transactions 2. Perpetuation Funding 3 – 4:30 p.m. — Breakout Session 1. Case Study — Valuation and Financial Modeling of Transactions 2. Estate Planning
October 27-28 Eden Resort and Suites Lancaster, PA
4:30 – 5 p.m. — General Session
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Platinum Profile Insurance Agents & Brokers proudly recognizes The Main Street America Group as one of its Platinum Partners. IA&B Platinum Partners dedicate the highest level of sponsorship to our organization. FEATURED PARTNER The Main Street America Group CHIEF EXECUTIVE OFFICER Tom Van Berkel, Chairman President and CEO CORPORATE HEADQUARTERS Jacksonville, Fla. Regional Offices Grand Rapids, Mich. Jacksonville, Fla. Keene, N.H. Richmond, Va. Syracuse, N.Y. Claims Service Center Auburn, Mass. A.M. BEST RATING “A” (Excellent)**
T
he Main Street America Group’s rich history began in 1923 when we formed our company to serve the insurance needs of Grange fraternity members in New England. Today, Main Street America serves the insurance needs of individuals, families and small businesses in 24 states. We provide a full line of competitively priced personal lines and commercial lines products and services, as well as fidelity and surety bond products, and annually write nearly $800 million in premium. Through our five “A” rated property and casualty carriers — NGM Insurance Company, Old Dominion Insurance Company, Main Street America Assurance Company, MSA Insurance Company and Great Lakes Casualty Insurance Company, we partner with more than 1,000
independent agents to provide superior, personal service to more than 500,000 policyholders. As a founding company partner of Trusted Choice®, Main Street America is 100 percent committed to the independent insurance agent, as you are our sole channel of distribution. We strive to meet the needs of our customers (agents), and our customers’ customers (policyholders), better than anyone else in the market. To become our customer and represent Main Street America, please visit www.msagroup.com and click on the “Become a Main Street America Agent” link. **A.M. Best’s rating of “A” (“Excellent”) applies to The Main Street America Group. Ratings listed herein are as of Jan. 1, 2009, are used with permission of A.M. Best, and are subject to changes by the rating service. For more information about ratings, please access www.ambest.com.
Main Street America business management executive Terry Evert (right) and Knoll Insurance Agency president John Knoll (left), Main Street America agent-customer and IA&B member, meet at the agency’s New Cumberland, Pa., headquarters.
“Independent agents have more than 50 percent of the overall market. You offer your customers choice, expertise and advocacy. No one else can offer that. This is why consumers prefer your distribution channel.” — Tom Van Berkel, Chairman, President and CEO
Listed below are those companies that strongly support the independent agency system and Insurance Agents & Brokers. Thank you for your continued sponsorship.
WHAT IS IA&B PARTNERS? The IA&B Partners program gives company and allied businesses the opportunity to demonstrate their commitment of support to independent agents and receive maximum market exposure. As an IA&B Partner, you will also realize the benefits of IA&B membership to help you succeed in the insurance industry.
DO YOU SEE YOUR NAME? To become an IA&B Partner, choose the sponsorship package that matches your commitment of support. Contact the Member Sales Center at (800) 998-9644, (717) 795-9100 or visit us online at www.iabgroup.com to get started.
PLATINUM LEVEL
BRONZE LEVEL
Berkley Mid-Atlantic Group Erie Insurance Group Harleysville Insurance Insurance Agents & Brokers Service Group Inc Millers Mutual Group Millville Mutual Insurance Co Mutual Benefit Group Penn National Insurance Selective Swiss Re The Main Street America Group Travelers Utica National Insurance Group
AAA Insurance Agency Insurance Company Allied Insurance Briar Creek Mutual Insurance Company Builders Insurance Group Capitol Insurance Company Chubb Group of Insurance Companies Companion Property & Casualty Group Countryway Insurance Company Encompass Insurance Foremost Insurance Group Friends Cove Mutual Ins Company Goodville Mutual Casualty Company Grange Insurance Companies Hanover Fire & Casualty Insurance Company Insurance Alliance of Central PA Inc
GOLD LEVEL
Insurance Placement Facility of PA
Ohio Casualty Progressive
Keystone Insurers Group Inc Lebanon Mutual Insurance Company
SILVER LEVEL
Merchants Insurance Group
Aegis Security Insurance Co American Mining Insurance Co Cumberland Insurance Group Frederick Mutual Insurance Co Harford Mutual Insurance Co Juniata Mutual Insurance Co MMG Insurance Company Private Client Group PSBA Insurance Trust The Motorists Insurance Group Westfield Insurance Zenith Insurance
Mercer Insurance Group Mercury Casualty Penn Millers Insurance Company Penn Prime Municipal Insurance PMSLIC Insurance Company Reamstown Mutual Insurance Company Rhoads & Sinon LLP Rockwood Casualty Insurance State Auto Mutual Insurance Company TAPCO Underwriters Inc The Brethren Mutual Insurance Company The Mutual Service Office Inc The Philadelphia Insurance Companies Tuscarora Wayne Mutual Insurance Company UPAC Insurance Finance Primary Agent August 2009
INDUSTRY NEWS
Erie Insurance talks shop Erie Insurance representatives attended the May IA&B Board of Directors meeting to discuss the company’s unique offerings, as well as its commitment to the independent agency system, plans for growth and legislative priorities. Here, IA&B provides a recap.
(L to R) Robert “Buc” Cawley, IA&B’s Chair; Kathleen Glattly, IA&B’s Vice Chair; Tim Maher, Erie Insurance Regional Vice President; and Mark Dombrowski, Erie Insurance Manager of Government Affairs.
Primary Agent | August 2009
“
E
rie is committed to the independent agency system,” opened Tim Maher, regional vice president. “It is the only way we do business and the only way we plan to do business. We are convinced that independent agents, with a presence in local communities, building relationships with customers, are the best distribution model that exists.” Erie began in 1925 as a Pennsylvania auto insurer and, through the years and a network of independent agents, has grown its operations to include auto, home, business and life. Today, Erie is the 21st largest P/C group, 16th largest auto writer and 121st largest life insurer.
Erie Insurance by the numbers Erie Insurance works with over 9,000 licensed agents at more than 2,000 independent agencies throughout 11 states (including Maryland and Pennsylvania) and in Washington, D.C. In over 80 percent of those agencies,
Growth aspirations The regional insurer has goals for growth and profitability, but not extensive expansion.
Erie is the No. 1 carrier.
“We have no aspirations to be in all 50 states,” said Maher. “We are very comfortable being a big player in a small market.” Maher offered that the company intends to grow to remain profitable and poised for the future and explained, “The key to our growth is helping our agencies grow.” Rather than specific quotas, Erie works to become their preferred insurer — a goal the carrier has attained with over 80 percent of its agencies. __________________________________________________________
“Erie is committed to the independent agency system. It is the only way we do business and the only way we plan to do business.” __________________________________________________________ “We ask that they give us a chance to become their lead carrier,” he continued. “We want to earn the right to be the top carrier in every agency that we do business.”
Tim Maher, Erie Regional Vice President, addresses the IA&B Board of Directors.
Erie also plans to make 127 appointments in 2009, with six of them in Maryland and another six in Pennsylvania. “We’re proud of the fact we are one of the few carriers who will help people start scratch independent agencies,” said Maher. “Over the years we have developed what we believe is a niche in the marketplace: letting people start business and letting them get up and off the ground.”
Legislative priorities Like the rest of the industry, Erie has its eye on legislation. The carrier is monitoring safe-driving initiatives in Maryland. In Pennsylvania, several bills are of note, including one that would require policies to be translated into various languages and another, HB 400, which would define more clearly an
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Mark Dombrowski, Erie Insurance Manager of Government Affairs, talks about carrier relations during the IA&B board meeting.
INDUSTRY NEWS
independent contractor in the construction industry. (IA&B also is tracking HB 400 and working to ensure that it is free of any provision that potentially could hold agents liable for improper coverage, particularly workers’ compensation.) “In the area of life insurance, we have a general difficult time getting products to market in Pennsylvania,” continued Erie Insurance Government Relations Manager Mark Dombrowski, who reported that Insurance Commissioner Ario is aware of the issue.
On a federal level, Dombrowski discussed systemic risk and the need to educate legislators. _____________________________
“We are very comfortable being a big player in a small market.” _____________________________ “Perhaps there should be some regulation and some monitoring of what’s happening in the insurance industry, but we want to make sure [legislators] understand that it wasn’t the insurance industry that caused all of the problems,” he said.
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Finally, Dombrowski commented on Erie’s opposition to the repeal of the McCarran-Ferguson Act: “We think the sharing of information actually helps smaller companies to compete effectively, helps the overall industry and helps consumers.”
Agency support The Erie representatives wrapped up their presentation by discussing industry hot topics, including economic, marketing and perpetuation challenges.
“It is a tough time to own a small business. Credit markets are tight. Consumers are price shopping. There is not as much discretionary income,” said Maher, who went on to cite the value of branding. “What is it about your agency that sets you apart? What is about your agency that makes you distinctive? What is it that you want a consumer to remember about your agency?”
Make Our Experience, Your Advantage.
Maher also discussed the ways Erie assists its agencies – from monitoring the ease of doing business and lightening the administrative burdens faced by owners so they can remain in a sales role, to helping even the smallest agencies have a presence on the Web and piquing young people’s interest in the industry.
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PERPETUATION
Thicker than water Insurance runs in the blood for five generations
Kathleen Mullins Shoudt gets it naturally. She represents one of five generations that have found a career in the independent agency system.
Primary Agent | August 2009
K
athleen’s great grandparents owned an independent insurance agency in Stroudsburg, PA, which is where her father got his start in the industry after leaving the U.S. Marine Corps in 1956. Then in 1972 her father opened the Stroudsburg, PA-based Harry A. Mullins Insurance Agency — the agency that Kathleen now manages and that employs her daughter, Katie Ace.
Family ties Kathleen’s family history showcases the struggles and successes that can accompany a family-owned business. Her father, Harry Mullins, became enamored with the world of insurance when he went to work for his grandfather. But after Harry’s father joined the business in 1957, tensions eventually ran high, and as in many family businesses, the stresses of joint ownership and management resulted in conflict. So in 1972, Harry left E.A. Bell Agency. He borrowed $135 from his daughter Kathleen’s savings account and started his own agency from his dining room. It was a leap of faith for a man with five young children to support. But Harry’s agency brought out the best in the family. His wife, who had no industry experience, joined him, and throughout the years, they built a thriving business and are now thrilled to pass it through the family tree. “A lot of families don’t get along, but we’ve never had a problem with that,” says Kathleen, of the working relationship among her, her parents and her daughter. _________________________________________________________ Kathleen graduated with a degree in business education and never intended to stay in her hometown, let alone work for her father’s agency. But the agency eventually called to her when she started a family and sought part-time work. _________________________________________________________
Begrudging beginnings Kathleen graduated with a degree in business education and never intended to stay in her hometown, let alone work for her father’s agency. But the agency, which first provided her with employment during summers in high school and college, eventually called to Kathleen when she started a family and sought part-time work. She began filing. Eventually she earned her license and entered the personal-lines side of the business. Later Kathleen
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Kathleen Mullins Shoudt (right) with her parents, Harry and Patricia Mullins, who began the Harry A. Mullins Insurance Agency.
“Within 10 years, 40.3 percent of [family] business owners expect to retire…. Of these, fewer than half of those expecting to retire in five years and fewer than a third of those expecting to retire between six and 11 years have selected a successor.” – 2007 American Family Business Survey, conducted by MassMutual, Kennesaw State University and the Family Firm Institute
PERPETUATION
Approximately 30 percent of family-owned businesses transfer to a second generation. Twelve percent survive to a third generation, and only 3 percent reach a fourth generation. – Joseph Astrachan,
After he graduated from college, Kathleen’s brother began working with her at the agency. Within three years he left, only to return briefly a few years later with no interest in ownership or management. So it was back to the drawing board for Kathleen’s parents. They met with their attorney, accountant and life-insurance advisor, and they devised a new strategy for turning the agency over to her.
Family Business Review editor
added commercial lines. Today she owns 40 percent of the agency and manages it on a full-time basis.
___________________________ Harry’s agency brought out the best in the family. He and his wife built a thriving business and are now thrilled to pass it through the family tree. ___________________________
Succession plans “My parents had four girls and then one boy,” says Kathleen. “The plan was always for my brother to take over. There was no talk of the girls.” However, after Kathleen showed interest in the business, her parents worked with an attorney and put in place a plan to gift her and her brother gradually with a percentage of the agency with the intention that they eventually would buy out their sisters and then co-own and operate the agency.
Kathleen received a certain percentage of ownership each year until she reached her maximum of 40 percent. Her mother now owns 42 percent and her father 18. Each parent’s ownership will transfer to the other parent upon death, and once they are both deceased, their 60 percent will be divided among Kathleen and her four siblings. Life insurance is in place to assist Kathleen in buying out her sisters and brother.
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Gradual transition Kathleen’s mother is retired from the business, but her father has maintained his “semi-retired” status for the past 12 years. “He occasionally meets with larger clients he has known for years,” says Kathleen. “He still looks over income statements, producer reports, balance sheets, etc. each month, but he’s not active with writing or servicing.” Instead, another generation of the family has taken on those duties. Kathleen’s daughter began working there four years ago as a receptionist handling claims and mail. Today she is licensed and working in personal lines. “We haven’t formally discussed if my daughter will take over one day, but I would like to see that happen,” Kathleen shares. For now, she is concentrating on the current transition and ensuring the contentment of her employees and customers. “My parents and I are all glad to see that the agency continues to be perpetuated.”
Primary Agent | August 2009
Technology U P DATE
IDENTIFYING KEY TRENDS THAT DRIVE REAL OPPORTUNITY
JEFF YATES, ACT EXECUTIVE DIRECTOR Jeff Yates is executive director of the Agents Council for Technology (ACT) which is part of the Independent Insurance Agents & Brokers of America. Jeff can be reached at jeff.yates@iiaba.net. ACT has posted further information on many of the subjects discussed above at www.independentagent.com/act. This article reflects the views of the author and should not be construed as an official statement by ACT.
Independent agents and brokers should take time periodically to think about the trends that are most likely to affect the future of their businesses: w How do I identify the trends that have the highest degree of certainty? w Do the trends create opportunities for my agency to begin to take advantage of today, or do they represent threats that I had better start to prepare myself for now? w What are the two or three things the leaders
of my agency all agree we must do today to meet these trends and continue to improve our business? Under the leadership of our Strategic Future Issues Work Group, ACT has been encouraging this type of discussion on an industry level by the agents, brokers, carriers, vendors, user groups and industry associations participating in ACT. The discussions themselves have been very healthy to get the industry focused on the future and moving toward a common vision. ACT’s work is ongoing, but I’d like to give
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the reader a flavor of the discussions we have been having, and why I believe these trends represent primarily a positive for independent agents and brokers, provided they have a culture that is willing to embrace change and seek continuous improvement. Trend types Noted technology futurist Daniel Burrus, author of “Technotrends,” provided ACT with good methodology for distinguishing between hard and soft trends. Hard trends are usually driven by technological, demographic or legislative/regulatory changes
TECHNOLOGY UPDATE
that are permanent and often transform the reality with which we must deal. The emergence of the Internet, cell phones and globalization are all good examples. These trends have changed our reality forever. We have the highest degree of certainty about hard trends, and they are the most important trends for organizations to consider when they are making investments for the future. There are two categories of soft trends. Trends known as soft trends Is are apparent trends today, and we think they will continue to occur. But they are not a certainty. Soft trends IIs are those that are apparent today, but we do not think they will continue to occur in the future. The prediction of a continuing federal government budget surplus was a good example of a soft trend II, upon which decisions should not have been based.
over the Internet, as well as to see and talk to him/her through the computer. Many independent agencies run the risk of ceding the Internet to their competitors by not focusing on this area, at the very time the Web is becoming the “go to” resource for a large percentage of the public. It is important for agents to develop a Web site strategy and to offer a meaningful Web site presence. They also need to learn more about how they can use search-engine optimization and other Internet marketing techniques to attract business to their site and to their agencies. Demographic trends
Burrus spends a lot of time thinking about trends, and he believes that technology will continue to transform our reality at an accelerating pace. He points to the fact that computing power continues to double every eighteen months (Moore’s Law), while broadband connectivity, wireless and low-cost storage all continue to become more widespread.
There are also many demographics related hard trends occurring. A big percentage of baby boomers will reach the traditional retirement age over the next ten years. We know this is going to happen. We also anticipate that the baby boomers will differ from prior generations by continuing with active lifestyles into retirement, often re-engaging with new work, including part-time positions, in-home businesses or volunteer work. This latter prediction is a soft trend I, and its implications are that baby boomers will continue to be important insurance consumers for many more years.
Consumers increasingly will turn to the Internet as their first source to get information and be attracted to businesses that give them value added services online. Competitors — both the direct companies and innovative agencies — will move to the next generation of Web site that marries voice and video with the graphics, enabling customers to access a customer service representative live
During this same time frame, Generations X and Y will be in their prime child rearing years, owning homes and running businesses. They will have needs similar to those that their parents had at this stage of their lives, but they are likely to have some different expectations from their parents, which service providers will have to ascertain and deliver. We anticipate that these consumers —
Technology trends
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having grown up with computers — will look for agencies which are full participants in the networked world and are readily accessible to them 24/7 to accommodate their busy lifestyles. We will also see the United States continue to become more ethnically diverse, and there will be significant numbers of single parent and other non-traditional households. In traditional households, it will continue to be the norm for both spouses to be working, and women will increasingly hold managerial positions. In this environment, time will continue to be in short supply for most consumers and businesses, and they will favor business relationships that can save them time, rather than cost them time. Agents, of course, are in an excellent position to save their customers time. Relationship opportunities One point Burrus made struck me as a particular opportunity for independent agents and brokers: In spite of the growing pervasiveness of technology, ours remains essentially a human economy that is based upon relationships. Trust continues to lie at the heart of all effective relationships, and agents are well positioned to build trust relationships with their customers. Today, more than ever, however, trust must be earned, because of the high degree of public skepticism, based upon people’s perception that many businesses have not lived up to the promises they have made, whether to customers, employees, stockholders or insureds. Burrus was very excited about the direction in which many agencies are headed to transition their staffs into the role of trusted advisors who actively
Classified ADVERTISEMENTS work on nurturing their relationships with their customers. These agencies are in the process of using new technology to automate their processing functions wherever possible so that they free up their service personnel to perform this new role. These agencies are also beginning to track the preferences of these customers including how they want to be communicated with and what customized services they want to receive. We urge agents to seize this opportunity to strengthen their customer relationships by specifically focusing on building the levels of trust they have with them. To what extent do current communications and procedures, as well as contemplated actions, build client trust or detract from
it? Agents should consider addressing the trust issue directly with their customers, asking them what it would take to move trust to the next level. We hope this article will serve as a starting point for the reader to identify the hard trends that promise to be the most significant for his or her particular agency, so that the agency can then devise the appropriate must-do strategies to capitalize on the opportunities created by these trends, while fully preparing to counter any accompanying threats.
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PERPETUATION
Inside track Independence through employee ownership
As Murray Risk Management and Insurance’s two primary stock holders reached their mid- to late 50s, they began planning. Their goal? To perpetuate the agency and maintain its independence.
Primary Agent | August 2009
“
II
t was always our goal to stay independent,” explains Rick Rankin, president and CEO of Murray Risk Management and Insurance. “We looked for ways to facilitate that.”
So principals of the Lancaster, Pa.-based agency began researching their options. They did their due diligence, and in 1994 created an employee stock ownership plan (ESOP).
Strategy The ESOP originally bought 30 percent of the primary stock holders’ stock. Within five years, the employees owned another 15 percent, and today the agency’s 135 staff members own 53 percent. “In our particular case, it was a smooth transition,” says Rankin. “It allowed us to retire quite a bit of stock and do it in a way that wasn’t detrimental from a financial standpoint and didn’t put pressure on our other shareholders.” As with many ESOPs, the Murray plan originally was a leveraged ESOP, which meant the company borrowed money to buy out shareholders. ___________________________________________________________ “It takes a lot of work to promote ESOP as the culture of a company,” shares Rankin. “It takes not only management but all employees to buy into the concept.” ___________________________________________________________ Today, the money is paid off, and the ESOP sustains itself. An annual stock valuation determines Murray Risk Management and Insurance’s fixed stock value for the following year. “Our staff receives a statement each year that explains the value of the ESOP,” explains Rankin. “They know what’s there, and when they retire, they are paid based on the stock valuation.”
Management A committee, comprised of nine employee-owners representing each of Murray Risk Management and Insurance’s four locations, is responsible for educating fellow employee-owners about how ESOPs work and what value they bring to employees and clients. “It takes a lot of work to promote ESOP as the culture of a company,” shares Rankin. “It takes not only management but all employees to buy into the concept.” He advises that an ESOP must operate more transparently than a private company: “You really have to let employees
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ESOP statistics* w There are approximately 11,500 ESOPs (covering 10 million employees) in place in the United States. w At least 75 percent of ESOP companies are or were leveraged, meaning they used borrowed funds to acquire the employer securities held by the ESOP trustee. w Approximately 4,000 ESOP companies are majority-owned by the ESOP, while approximately 2,500 are completely owned by the ESOP. w U.S. ESOPs’ assets reached an estimated $800 billion at the end of 2006. w A majority of ESOP companies have other retirement plans, such as defined benefit pension plans or 401(k) plans, to supplement their ESOP. * Courtesy of The ESOP Association
PERPETUATION
know where you’re at from a numbers standpoint. If you aren’t open and willing to share, you won’t recognize the benefits.�
UnderwritingYour
Considerations Rankin stresses that an ESOP is not for everyone. “It’s for primary owners whose major goal is internal perpetuation and taking care of employees and clients,� he explains.
Success
SM
For those who are interested, he advises seeking out and talking with other business that have adopted ESOPs and meeting with an attorney and accountant to determine the best way to move forward.
ESOP Resources The ESOP Association (866) 366-3832 esop@esopassociation.org www.esopassociation.org The National Center for Employee Ownership (510) 208-1300 nceo@nceo.org www.nceo.org The Employee Ownership Foundation (202) 293-2971 info@employeeownershipfoundation.org www.employeeownershipfoundation.org
GIVING PROPERTY OWNERS CONFIDENCE TO BUILD UPON. Years ago, Mike Serluco had a national company insuring his growing property development business. “But they go the way the wind blows,� he says. Then Independent Agent Don Kingsbury, of Christian Baker Insurance Agency, Lemoyne, suggested a local insurer with a stronger commitment to building owners – Millers. “It’s very, very important for an investor to have an insurance partner, and that’s what I call Millers,� Mike says. With the few insurance claims he’s had, “Bing, bam, boom – it’s done and taken care of.� Adds Kingsbury, “With Millers, they actually listen to what you have to say. And not only do they know this industry, they offer package policies at a good price, and they back it up with excellent claims service.� Smart business people, independent agents and Millers...truly partners in protection. .*--&34 .656"- (3061 t 805 N. Front St., Harrisburg, PA 17108 'BY t NJMMFSTJOTVSBODF DPN *OTVSJOH ZPVS CVTJOFTT UISPVHI .JMMFST $BQJUBM *OTVSBODF $PNQBOZ *OTVSJOH -JHIU .BOVGBDUVSJOH t 0GGJDFT t 4NBMM 3FTUBVSBOUT t 3FUBJM 4UPSFT 4USJQ .BMMT t "QBSUNFOU #VJMEJOHT
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