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Publisher’s Note by Isaac Peck, Publisher
Our Mission
Producer’s Edge is published to help readers build their businesses, reduce their risk of liability and stay informed on important technology and industry issues.
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We welcome comments and letters. All stories without attribution are written by the Editor.
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CONTRIBUTORS
Shane Tatum
Shane Tatum is CEO of the Integra Partner Network, where he and his team help successful agents start, grow, and enhance their independent agency. The Integra Partner Network provides market access, agency solutions, and mentorship to growing independent agencies throughout the U.S. In addition, Shane co-hosts the IA Forward Podcast at www.iaforward.com (or your favorite podcast player). Email Shane at shane@integrapartnernetwork.com or visit Integra at www.integrapartnernetwork.com for more information.
Isaac Peck
Isaac Peck is the President of IBDPro, a Division of OREP Insurance, that specializes in providing E&O insurance for insurance agencies as well as providing them with business-building benefits like SignItSecure.com and ServeYouReviews.com to lower their operating costs, improve their online reputations, and grow their businesses. Email Isaac at isaac@orep.org or visit IBDPro.com to get an E&O quote for your agency.
Kendra Budd
Kendra Budd is Editor of Producer’s Edge and the Marketing and Education Coordinator for IBDPro, a Division of OREP Insurance, that specializes in providing E&O insurance for insurance agencies as well as providing them business-building benefits like SignItSecure.com and ServeYouReviews.com to lower their operating costs, improve their online reputations, and grow their businesses. Email Kendra at kendra@orep.org or visit IBDPro.com to get an E&O quote for your agency.
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Glad to Meet You
Hello and thanks for reading Insurance Producer’s Edge . My name is Isaac Peck, the Publisher of Producer’s Edge and President of IBDPro, a Division of OREP Insurance.
Insurance Producer’s Edge , which you now hold in your hands, is a new independent industry publication designed to help you build your business, reduce your liability and stay informed on important industry and technology issues.
Our promise is to cover these stories with the energy and honesty that your important industry deserves—without the slant. I hope you find that this issue lives up to that promise.
Producer’s Edge reaches over 20,000 insurance agency owners, covering stories important to this valuable profession. Please pass along your suggestions, story ideas and comments to me at isaac@orep.org. I’ve always believed that the men and women who go out to do the actual work every day are the ones who know best about what’s really going on and what matters most. Please let me know and I will do my best to cover the story.
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of Producer’s Edge and President of IBDPro Insurance
Record Agency Valuations: Why Small Firms Get Left Out
by Isaac Peck, Publisher
“A s an agency’s revenue exceeds $500,000, and especially as it approaches $1 million, the agency might start to enjoy a valuation based on EBITDA, instead of just a strict revenue multiple.”
You’ve probably seen the headlines! Insurance agency valuations have been hitting record highs, driven in part by the private equity’s enormous interest in the space as well as the low interest rate environment created during the COVID-19 pandemic.
Of course, interest rates have risen substantially since then. The Federal Reserve (Fed) spiked interest rates dramatically in late 2022 and early 2023, increasing the Federal Funds Effective Rate roughly 5 percent in a 12-month period.
Even though the Fed has issued two rate cuts in 2024, the Effective Rate is still 4.5 percent to 4.75 percent, compared to 0 percent in early 2022. Interest rates are obviously a key driver of borrowing costs and such a sharp increase was widely expected to have a substantial negative impact on
insurance agency valuations. So far that has not happened.
According to Marsh Berry, a leading provider of investment banking, mergers and acquisitions, and consulting services in the insurance sector, valuations have continued to rise in 2022, 2023, and 2024.
While the actual number of transactions have declined year-over-year, valuations have remained high and have actually continued to increase.
Here’s what you need to know about insurance agency valuations today.
Valuations That Defy Logic
The numbers that Marsh Berry publishes every year are shocking. They show a valuation multiple of EBITDA of 11.26 times earnings, with an additional “Earn-Out” of 4.33 times earnings. (EBITDA stands for Earnings Before Interest, Taxes,
Depreciation, and Amortization. An “EarnOut” is a contingent payment that the seller only receives from the buyer when specific performance targets are met.)
Here’s what those numbers mean. As an example, if you had an insurance agency with EBITDA of $3 million per year, applying these averages to your valuation would mean that your agency would be worth 11.26 x $3,000,000 = $33,780,000. Plus, you’d be eligible for an additional earn-out of $12,990,000 (4.33 x $3,000,000). For a total potential valuation of $46,770,000— on a business making $3 million per year! Not bad right?
These are astronomical numbers. (To be fair, Marsh Berry posits the realistic earnout number to be 1.5 times earnings, not the “aspirational” 4.33 number.)
But even still, these valuations are incredibly rich, and Marsh Berry’s data con-
tinues to show a very slight increase yearover-year from 2021, to 2022, to 2023, to 2024. See Figure 1 for “Average” insurance agency EBITDA multiples that include the earn-out ranges.
Marsh Berry also reports valuations of “Platforms,” which it defines somewhat vaguely as involving a high-level transaction for a buyer, typically due to “new geography niche, expertise, size, or talent,” as being even higher. (“Platforms” in more generic private equity (PE) terms refers to a company that a PE firm acquires as a foundation to build upon through further acquisitions, as opposed to a “bolt-on” acquisition.) More specifically, Platforms enjoy up to three times higher valuation multiple than the EBITDA multiple valuation of the “average” insurance agency in Marsh Berry’s data. See Figure 1 : Agency Value Comparable: Maximum Purchase Price as a Multiple of EBITDA for Platform valuations over the last three years.
Private Equity Driving
Private equity has been driving much of the acquisition activity in the insurance space—especially at the higher end of the market. But the largest insurance brokerages have also been playing a role. Roughly half of the transactions completed are reported to be made by just 10 large firms. Many estimate that over the last 10 years, the capital invested by private equity into the insurance agency space has been in the tens of billions. Additionally, in an arti-
cle titled “Focused Insights: Is Your Firm Ready For a ‘What If’ Scenario?,” Marsh Berry writes that in the past 12 months (ending June 2024), there has been over “$87 billion in institutional debt raised in this industry, representing the highest amount ever raised in the insurance industry in a 12-month period.”
The Catch: Alternate Universe
Here’s the catch on these valuations as reported by Marsh Berry—and why they are essentially an “alternate universe” for most insurance agency owners.
What kind of insurance agencies are Marsh Berry benchmarking here anyways?
Marsh Berry is an investment banking and consulting firm that specializes in working with larger insurance agencies. Citing the source of their data, Marsh Berry reports that it comes from their “proprietary database” and is “compiled from transactions in which we were directly involved, those from which we have detailed information, and transactions in the public record.”
Here’s what’s to note about that. First of all, transactions in the public record are almost always going to be for very large, in some cases publicly traded, insurance agencies. Think Aon’s acquisition of mid-
dle market insurance broker NFP for $13.4 billion (at a valuation of 15 times EBITDA).
As far as Marsh Berry’s own data, here’s a very important fact to keep in mind: Marsh Berry does not represent firms with less than $1 million in annual revenue and their sweet spot is advising and representing firms with annual revenues north of $3 to $5 million in revenue. In other words, their expertise, and the background behind their own internal deals (and data), is working with the largest insurance agencies in the United States. These agencies are the white whales of the insurance profession.
To put it in perspective, according to Big I’s 2022 Agency Universe Study, roughly 84% of all insurance agencies in the United States have annual revenue of less than $1.25 million. (Revenue is defined by commission, fees, and other income.)
Just over 7 percent of insurance agencies have revenues between $1.25 million and $2.5M and then less than 10% of insurance agencies have revenue over $2.5M.
Less than 2 percent of insurance agencies have revenue of $10 million or more.
Based on this information, the valuations that are being proffered by Marsh Berry, likely only apply to between 5 to 8 percent of insurance agencies in the United States, perhaps less.
Valuations for Smaller Agencies
The reality for smaller insurance agencies is nothing like the numbers published by Marsh Berry. One need only look at actual listings of smaller insurance agencies for sale to get a good handle on where valuations are for agencies with revenue of less than $1 million in revenue.
SpringTree Group is a Texas based insurance agency merger and acquisitions broker that specializes in small-to-mid-size insurance agencies. Agency owners that are interested in buying or selling can easily sign up for SpringTree Group’s newsletter and see what is on the market. SpringTree usually has 25-40 insurance agencies listed at any given time, the majority of which are property and casualty agencies or books of business.
AgencyEquity.com is another resource that lists a number of insurance agencies and books of business for sale. Usually over 70 agency listings are advertised on AgencyEquity.com
Based on listings offered on SpringTree and AgencyEquity.com, smaller agency books of business are trading based on multiples
of revenue, not EBITDA. The average small insurance agency (or book of business) is selling for anywhere between 1X to 3X its annual revenue, with an average listing and sale price in the 1.5X to 2.5X annual revenue range.
Once agency revenue exceeds $500,000 and moves up towards the $1.25 million mark, valuations increase slightly. As an agency’s revenue exceeds $500,000, and especially as it approaches $1 million, the agency might start to enjoy a valuation based on EBITDA, instead of just a strict revenue multiple. These EBITDA multiples can move into the 4X to 8X range (with the multiple increasing in correlation to EBITDA), but still remain a far cry from the multiples indicated by Marsh Berry for $5+ million annual revenue agencies.
The very, very wide variance in insurance agency valuations, especially as it relates to the size of agency can sometimes lead to misunderstandings amongst agency owners—with ambitious agency owners self-listing their $500,000 revenue agency for $5,000,000 and hoping for a Hail Mary!
Other Factors
Of course, revenue (for smaller agencies) and EBITDA (for larger agencies) are not the only driving factors of an insurance agency’s valuation. Other factors such as growth rate, type of business (personal versus commercial), size of accounts, staff,
systems in place, niche or focus, and geography can all play a significant factor in the value a buyer may perceive in an agency or book of business. These factors come into play for both small and large agencies.
Conclusion
So while we can conclusively say that valuations for the top 5 percent of insurance agencies have skyrocketed, has much changed for the average insurance agency owner and the small insurance agency?
Overall, it is safe to observe that valuations have increased modestly for small agency owners. While 1X to 2X annual revenue was a typical valuation for a small insurance agency 10 years ago, today a more “normal” valuation is in the 1.5X to 2.5X range.
Along similar lines, the small-but-bigger agencies with revenues of $500,000 to $1,000,000 in annual revenue, and the more medium size agencies with revenues of $1M to $2.5M also have seen a modest increase in their valuations compared to 10 years ago. With the multiple increasing a few points as the size (and profitability) of the insurance agency gets larger and larger.
But, of course, the largest change in insurance agency valuations is reserved for those larger revenue agencies—the top 5 percent and beyond.
To your success!
Making the Leap From Salesperson to Agency Owner
by Shane Tatum CEO at Integra
"Owning an agency means managing not just sales but also operations, compliance, marketing, and team development."
The transition from being an insurance salesperson to owning your own agency is an exciting and rewarding career move. It offers the opportunity to build your own brand, control your income, and create a lasting legacy. However, it also comes with challenges that require planning, dedication, and a shift in mindset. The mindset shift is probably the biggest challenge for most salespeople. You are the rainmaker! That’s why you are successful. Transitioning to agency ownership requires some adjustments to that pure rainmaking mindset.
Are You Ready?
Before making the leap, assess whether you’re prepared for the responsibilities of agency ownership. Sometimes “Super-
star Rainmakers” are better off continuing to make it rain! Owning an agency means managing not just sales but also operations, compliance, marketing, and team development.
• Experience Matters: Ensure you have solid experience in the insurance industry. Familiarity with different products, carriers, and client needs will be invaluable. Maybe the answer is yes, make the leap, but not yet.
• Financial Stability: You’ll need capital for startup costs, which may include office space, technology, licensing, marketing, and hiring staff.
• Entrepreneurial Spirit: Shifting from salesperson to owner requires a growth mindset, problem-solving skills, and
resilience. CEO means more than just ringing the bell.
Start from scratch or buy a book? This is a bigger question than you may think, and I encourage you to think long and hard on this one. A scratch agency has no revenue, and you will need some patience and start up capital to sustain you through what I call the first 24-month dark period. Buying an agency or book of business can provide some relief during those dry months. However, the big question surrounds the book of business itself. When you start from scratch, you get to decide who your customer will be and what your book will look like. When you buy, you get what you
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get. Both options can take you to the same end goal.
What’s Your Plan?
A plan is essential to outline your vision, goals, and strategy. It serves as a roadmap for your agency’s growth and can be crucial for securing financing if needed. If you don’t know where you’re going, how will you ever get there?
• Generalist or Niche: Decide where you will focus. Personal Lines. Commercial Lines. High Net Worth. It is difficult to “dabble” in several things. The Jack of all trades becomes the master of none. Creating a focused path and becoming the best at something will always lead to improved long-term results.
• Set Goals: Establish short-term and long-term objectives for revenue, client acquisition, and agency growth. Play the infinite game with your agency. The insurance business is a long tail business cycle. There are no true get-rich-quick schemes. Slow (well not too slow) and steady wins the race.
• Identify Your Target Market: Understand the demographics and needs of the clients you want to serve. Will your agency be metro based? Suburban? Small town/rural? Understanding who you are will help you understand where you can be successful.
Legal, Licensing, and Carrier Appointments
As an agency owner, you’ll need the right business structure, proper licenses, and carrier appointments to sell a variety of insurance products.
• State Licenses: Ensure you comply with your state’s licensing requirements for your business. If you set up a business entity (LLC, Corporation), you will need to have your entity licensed in addition to you and your team’s individual licenses.
• Carrier Relationships: Partner with reputable insurance carriers to offer competitive products and build credibility. There are several options on which
direction to go here. Seek direct carrier appointments or work with an agency network or group for carrier access.
• What type of business entity is right for you: Most newly formed agencies today choose the Limited Liability Company (LLC) business structure. Hiring a CPA and Attorney are good ideas to help guide you here. It is not required, but you need good legal and tax advice as you grow—so why not start out the right way?
• Insurance: That’s right, as an owner, you are not just selling insurance, you are now a buyer of insurance. E&O, Cyber, and General Liability are often needed to comply with licensing and most carrier agreements. Other needs may exist. Make sure you don’t skimp on this and turn yourself into the insurance version of the old saying that the “the plumber’s pipes are always leaking.”
Build a Team
Growing from a solo salesperson to a business owner often requires building a team. I always encourage new agency owners to start by building an Org Chart. Create all the future potential roles that you foresee once you have reached scale. Don’t use names, use functions or positions. You will initially be in every box. However, this will provide you with a clear understanding of where to start hiring. Hire your weakness first and make those pain points go away.
• Sales Agents: Hire agents who can expand your client base. Make sure and have clear sales requirements, goals and expectations. Evaluating salespeople should be easy. Are you selling or not?
• Support Staff: Invest in administrative and customer service roles to handle back-office tasks and client inquiries.
• Train and Mentor: Develop a training program to onboard employees and support their professional growth.
Establish a Brand
As an agency owner, your brand is your identity in the marketplace. In the beginning you are the brand but be careful about creat-
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ing “You Co”. Most new agency owners get stuck here, but don’t panic and don’t over think this issue. It is perfectly okay to start out as a personal or individual brand and then grow that brand into something else over time. Sales and revenue in the early days are still going to reign king!
• Create a Memorable Name: Choose a name that reflects your values and resonates with your target audience. This is the area where many agents get stumped. Don’t overthink this, it’s okay if your name and brand isn’t the next Amazon or Google. Be authentic and make it your own.
• Develop Marketing Strategies: Use a mix of digital marketing, community involvement, and referrals to grow your agency's presence. I personally love networking and community involvement. Referrals take a little longer to nurture but long term, they are always the best source of customers.
• Leverage Technology: Invest in a professional website, social media presence, and customer relationship management (CRM) tools to streamline operations and enhance client interactions. A single system is
Networks can solve a lot of start up growth issues in one fell swoop. Carrier Access, systems suggestions or offerings, guidance, and mentorship on making the ownership leap, along with much more.
less stressful than multiple systems patched together. You are an insurance professional, not a technology professional. Keep the main thing the main thing.
Should you Join an Agency Network or Agency Group?
Agency Networks can solve a lot of start up growth issues in one fell swoop. Carrier Access, systems suggestions or offerings, guidance, and mentorship on making the ownership leap, along with much more. In addition, those networks that offer profit sharing participation can add additional revenue to your agency on a much faster basis than direct contracts.
• Carrier Access: This is the core offering of most Agency Networks. When you’re starting out, it’s hard to feed carrier direct contracts, and the rise and
prevalence of Agency Networks have solved a big need here.
• Systems/Technology: Some networks will be Agency Management System specific, while others will offer discounts to various systems. Both options work, just be sure and understand what value is brought to the table when reviewing.
• Mentorship/Tools/Education: This is the unsung hero of the modern Agency Network. Carrier access is a given. Finding a culture that fosters peer to peer learning, mentorship, and supports you through your entire agency life cycle creates huge value for you as an agency owner.
Adopt a Leadership Mindset
One of the biggest shifts in moving from salesperson to owner is adopting a leadership mindset. Maybe not day one, but at
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some point, it’s not just about you and the sale. You need support. You need a team.
• Delegate: Empower your team to take on responsibilities so you can focus on strategy and growth. Delegating points back to how you build your team. If you hire your weaknesses correctly, you will be amazed at how much faster and further you can go.
• Communicate Effectively: Be transparent with your team and clients about your vision and expectations. Creating the right expectations will create clear communications. Remember, we can’t read your mind, so cast your vision well. Remember the KISS method, Keep It Simple, Stupid.
• Stay Adaptable: Be ready to pivot and evolve your business strategy as market conditions change. When we started our organization, we tripped and fell (and skinned our knees) multiple times. We started over three different times before we got it right. A pivot doesn’t mean you failed. My sister loves
the phrase “fail forward,” and I love the phrase “we don’t lose we learn.” Keep these things in mind as you go.
Monitor and Adjust
Owning an agency is a dynamic process. Regularly review your performance and make adjustments as needed.
• Track Key Performance Indicators (KPIs): Monitor sales, client retention, and operational efficiency. One of my favorite KPIs for personal insurance agents is the Policy Per Customer ratio or PPC. The more policies your agency has for a client, the more “sticky” that client is to your agency. Your revenue per client will grow and your retention will create a higher valuation when you decide to sell your agency.
• Seek Feedback: Listen to your team and clients to identify areas for improvement. I also believe everyone needs a mentor or two. Not 10, just one or two. Too many voices can work
against you, but a couple of trusted mentors are priceless.
• Invest in Growth: Reinvest profits into expanding your agency’s reach and capabilities.
Celebrate Milestones
(Even the Small Ones)
Small wins matter! Playing the infinite game with your agency also means winning some finite games along the way. You are in fact still a salesperson at heart and winning matters! Success in agency ownership doesn’t happen overnight. Celebrate achievements along the way to stay motivated and recognize the hard work that brought you there. Play the long game.
By planning strategically and maintaining a strong commitment to your goals, transitioning from a salesperson to an agency owner can lead to a fulfilling and prosperous career. As you build your agency, remember that every challenge is an opportunity to grow and leave a lasting impact on the industry.
“ADDITIONAL INSURED” LAWSUIT IN MONTANA SUPREME COURT
by Isaac Peck, Publisher
“All too often, insurance agents can assume that a general AI endorsement on a policy ‘does the job,’ but fail to take the time to explain or disclose the specific requirement to their client.”
There’s nothing like a lawsuit against an insurance agent for $1 million dollars that makes it all the way to your state’s supreme court.
These types of suits are why insurance agent E&O has long been regarded as a “hard” market by many insurance carriers. It is not that claims against insurance agents are particularly frequent, but when claims do come, the judgements can be severe.
Case in point is a recent decision by the Montana Supreme Court in 2024 to affirm a $1,000,000 verdict against an insurance agency, Rames, Inc., doing business as the
Central Insurance Agency for negligence and negligent misrepresentation.
The case involves a contractor, an engineering firm, and a certificate of insurance that contained false information.
Here is the story behind this very public insurance dispute.
Background: Sinking Condominiums
The lawsuit against the insurance agency, Rames, Inc., was brought by TCF ENTERPRISES, INC., doing business as Malmquist Construction (Malmquist), as part of a construction defect litigation dispute.
Malmquist, a general contractor, was building a new condominium project in downtown Whitefish, Montana, one of the most expensive cities in Montana with a median home price of over $1 million dollars.
As part of its new construction project, Malmquist hired C&H Engineering and Surveying, Inc. (C&H) to conduct “subsurface soils investigation” at the site of the proposed condominiums. C&H conducted its soil investigation and included recommendations regarding subgrade preparation and structural fill, writing that if its directions were followed, the expected total settlement
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of the building would be “less than ¾-inch.” Much to everyone’s dismay, the condominium building began “sinking” during construction and ended up settling over four inches, according to the Montana Supreme Court's summary. This caused substantial delays in construction and was very costly to repair.
The ensuing controversy then resulted in a litigation free-for-all, with the developers suing Malmquist (the general contractor) and Malmquist suing C&H (Rames’ insured). Additional suits were also brought against a second engineering firm and the excavation company.
Additional Insured Controversy
Rames was the insurance agent for C&H Engineering and Surveying. When Malmquist originally engaged C&H, Malmquist sent a sample certificate of liability insurance which contained the following required language:
TCF Enterprises Inc. DBA Malmquist Construction is named as an Additional Insured with respect to General Liability, including Primary/Non-Contributory and Completed Operations coverage, per forms CG2010 0413 and GC2037 0413 or equivalent. Waiver of Subrogation in favor of TCF Enterprises Inc. DBA Malmquist Construction on General Liability.
At C&H’s request, Rames then sent a certificate of liability insurance to Malmquist that showed Malmquist listed as an additional insured on C&H’s commercial general liability (CGL) policy, including primary and noncontributory, as well as waiver of subrogation wording.
The problem? Rames did not actually procure the requested coverage and C&H’s CGL policy with Travelers Insurance Company was never endorsed to add Malmquist as an additional insured.
When Malmquist was sued by its developer for negligence and breach of contract relating to the construction of the condominiums, Malmquist tendered the suit to Travelers Insurance, seeking defense and
indemnity as an additional insured under C&H’s CGL policy.
The catch? C&H’s CGL policy included a blanket additional insured endorsement, which required a written contract between C&H and Malmquist for additional insured status to apply. No such contract existed.
Travelers subsequently denied coverage to Malmquist, arguing that (1) Malmquist was not covered as an additional insured under the blanket additional insured endorsement because there was no written contract reflecting such between C&H and Malmquist, and (2) separately, even if Malmquist was named as an additional insured, the policy’s professional services exclusion would bar coverage.
Malmquist subsequently sued Rames for misrepresenting the coverage procured and breaching the standard of care owed by an insurance agent.
In Rames’ Defense Insurance agents familiar with commercial insurance are likely scratching their heads regarding Malmquist’s initial claim against the insurance agency.
After all, the core argument for damages in this case revolves around C&H’s allegedly erroneous professional services—specifically that it mishandled its subsoil investigation and it was negligent in its evaluation of how much the building would “settle” once construction began.
And yet, Malmquist’s insurance requirement was strictly for CGL coverage. Coverage for professional services, such as engineering and surveying services, is not found in CGL policies. This exposure would be properly covered under a professional liability, also known as an errors and omissions (E&O) policy. This type of root-level misunderstanding of coverage and policy is not uncommon in contractor circles (and even amongst some insurance agents that strictly specialize in personal lines).
The point is that Malmquist might have been better served by requiring proof of
E&O coverage and being listed as an additional insured on the E&O policy.
So if this claim revolves around an E&O exposure, why does being listed as additional insured on C&H’s CGL policy even matter?
Rames argued exactly this. Rames asserted that even if Malmquist had been listed as an additional insured under C&H’s CGL policy, the policy’s professional services exclusion would have barred coverage.
C&H’s CGL policy, like nearly all CGL policies on the market today, had a professional services exclusion which expressly excluded bodily injury and property damage “arising from” engineering and surveying activities, as well as “any service requiring specialized skill or training.”
The catch lies in the fact that Malmquist was sued for both general negligence and professional negligence. The laws around an insurance carrier’s duty to defend broadly indicate that if a lawsuit is filed and any of the allegations trigger coverage, even if most other allegations are excluded, then the carrier has a duty to defend the insured.
The Montana Supreme Court cites precedent at length here:
If a complaint states multiple claims, some of which are covered by the insurance policy and some of which are not, it is a mixed action. In these cases, Montana follows what is known as the mixedaction rule, which requires an insurer to defend all counts in a complaint so long as one count triggers coverage, even if the remaining counts do not trigger coverage.
Here, the court found that because the exclusion for services “requiring specialized skill or training” does not unequivocally exclude coverage for Malmquist’s role as a general contractor, such as the furnishing of labor, materials, tools, and equipment, which clearly do not require specialized skill or training, that a trigger for coverage was possible. Additionally, the court found that were all coverage excluded for a general contractor which,
The court found that under Montana law, a client’s request to procure certain insurance, followed by an agent’s commitment to do the same [is enough] to put the agent under a ‘duty’ to procure.
as one portion of its duties, provides services which could be deemed “professional services” on a project, coverage would be illusory under the policy and “policy language which renders coverage illusory is against public policy,” the court wrote.
Consequently, Rames’ argument about the professional services exclusion was rejected by the court.
Duty of Care
Another defense raised by Rames was that it did not owe a duty to Malmquist and that it was unreasonable for Malmquist to rely on the certificate of insurance.
Malmquist was a third-party, not a client or an insured of Rames, and Rames didn’t owe a duty of care to Malmquist—so the argument goes.
The court found that under Montana law, a “client’s request to procure certain insurance, followed by an agent’s commitment to do the same to put the agent under a ‘duty’ to procure.”
“If an insurance agent is instructed to procure specific insurance and fails to do so, he is liable for damages suffered due to the absence of such insurance. The breach of an agreement to procure coverage for a third party is actionable; C&H requested Rames to procure specific additional insured coverage for Malmquist’s benefit, and Rames agreed to do so. Rames, therefore, had an absolute duty to procure the coverage and is liable for damages for failing to do so,” the court concluded.
Consequently, the court found Rames had a duty to Malmquist and was liable for negligence because it failed to procure the coverage requested, and negligent mis -
representation because it “falsely” represented that Malmquist was listed as an additional insured on the policy when it was not.
Verdict
Ultimately, the Montana Supreme Court upheld the lower court’s jury verdict that Rames was liable to Malmquist for $1 million dollars in damages and $22,257.85 in defense costs.
Liability Lessons
Catherine Kimmey, Senior Underwriter for IBDPro Insurance, a national insurance agency that specializes in insurance agent E&O, says that claims involving certificates of insurance (COIs) are fairly common against insurance agents. “We’ve seen a variety of claims involving agents incorrectly reporting coverage on a COI. It’s a common claim against agencies. In one case, an insurance agent issued a COI before a policy was even procured and the agent’s client (a contractor) presented the COI to the developer and never paid for the policy— so no coverage ever existed. A wrongful death claim arose months later and the insurance agent ended up being sued for fraud and negligent misrepresentation,” Kimmey reports.
Insurance agents should be particularly careful when dealing with commercial insurance policies because clients often require very specific endorsements and coverages, advises Kimmey. “As an independent agent, you want to be absolutely sure that if your insured needs specific wording on their COI, like primary and noncontributory, a waiver of subrogation, or an additional insured endorsement, that the coverage is actually in the policy. Additionally, a blanket additional insured endorsement can be materially different than adding a company specifically to a
policy as an additional insured, as we’ve seen in this case,” Kimmey says.
Sometimes an insurance agent can issue a COI with the intention of requesting the endorsement or coverage enhancement later, in an effort to satisfy a customer who often is under tight deadlines to compete for business and is looking to their insurance agent to help. “As much as you might want to help your client and provide fast service, we highly recommend you have a hard rule to never issue a COI unless you verify the specific coverage or endorsement has been issued by the insurance carrier. The coverage or endorsement need to exist before you represent to your client or third-parties that it exists. We’ve seen too many cases where a COI is issued but something falls through the cracks and the coverage never gets added,” relates Kimmey.
This case also highlights the need to explain to clients in writing the specific requirements of coverage. For example, it’s not uncommon for more general Additional Insured (AI) endorsements to require a written contract between the Named Insured on the policy and their third-party client. All too often, insurance agents can assume that a general AI endorsement on a policy “does the job,” but fail to take the time to explain or disclose the specific requirement to their client.
As we see with this case, even small mistakes can be incredibly costly. Stay safe out there!
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Protecting Your Practice: How to Avoid Uninsured Motorist Claims
by Isaac Peck, Publisher
“Cl aims against insurance agents regarding uninsured motorist (UM) coverage are relatively common and often involve allegations of failure to inform, failure to procure, or misrepresentation of the coverage ."
An incredibly common claim against the independent property and casualty (P&C) insurance agent is the uninsured motorist claim.
Here’s a few iterations of what this claim looks like:
1. An insured, who did not purchase uninsured motorist (UM) coverage, will get into an accident with an uninsured motorist and their claim with their own insurance carrier will be denied. They will then make a claim against the insurance agent alleging that (A) UM coverage was never offered to them, and/or (B) UM
coverage was not explained properly to them and the agent was negligent in their duties (or some version of this argument).
2. An insured, who did not purchase UM coverage, will get into an accident with an uninsured motorist. The insurance carrier may check to see if the insured signed a declination of the UM coverage. If the insurance agent cannot procure the signed declination, the insurance carrier will pay the insured’s claim, but them subrogate the claim against the insurance agent. For example, if the insurance carrier had to pay $30,000 to
the insured because of the uninsured motorist accident, the insurance carrier will send a demand letter to the insurance agency and demand the insurance agency pay the claim because they failed to get a signed declination of the UM coverage.
The second scenario here occurs, in part, because many states require that drivers carry UM coverage unless they explicitly reject it in writing. This written rejection ensures that policyholders are aware of the coverage they're declining.
Texas is among these states. According to the Texas Insurance Code, insurers must
provide UM coverage unless the named insured rejects it in writing.
Other States With Similar Requirements Include:
• California: Insurers must offer UM coverage, and policyholders must reject it in writing if they choose not to include it in their policy.
• Florida: UM coverage is offered, and a signed rejection is necessary to exclude it from the policy.
• Illinois: UM coverage is mandatory unless the insured rejects it in writing.
• New York: Insurers are required to provide UM coverage unless a written rejection letter is provided by the policyholder.
It's important to note that insurance laws vary by state, and the requirements for rejecting UM coverage can differ. In cases where the insurance carrier is not required to get a signed declination, the insureds themselves are more likely to bring a UM claim against the insurance agent
(as opposed to the claim coming from the carrier).
Anatomy of the Claim
Claims against insurance agents regarding UM coverage are relatively common and often involve allegations of failure to inform, failure to procure, or misrepresentation of the coverage.
Here’s a breakdown of typical claims agents might face related to UM coverage and how these issues are framed by the claimants:
1. Failure to Offer or Recommend Uninsured Motorist Coverage
• Claim Overview: The insured (claimant) will claim that the insurance agent did not offer UM coverage and/or did not properly explain the benefits of UM coverage.
• Example: A client is injured by an uninsured driver and then discovers their policy lacks UM coverage. The client files a claim alleging the agent failed to explain UM coverage or rec -
ommend it, even though it could have provided essential protection.
2. Failure to Procure Requested Coverage
• Claim Overview: This occurs when a client specifically requests UM coverage, but the agent fails to include it in the policy, resulting in no coverage or insufficient coverage during a claim.
• Example: A client recalls requesting maximum UM coverage, but after a serious accident, they find out they only have the state minimum or no UM coverage at all. The client sues the agent for failing to secure the level of coverage requested.
3. Misrepresentation of UM Coverage Limits
• Claim Overview: In this type of claim, the client accuses the agent of misstating the level or extent of UM coverage provided. This can happen if the client mistakenly believes they are fully covpage 24
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Include a reminder in each agent’s email signature, explicitly stating the importance of UM coverage and encouraging clients to reach out with questions.
ered for UM when they actually have limited or no coverage.
• Example: An agent might say “You have full coverage,” leading the client to assume that includes high UM limits. When an accident with an uninsured driver occurs, the client learns that their UM limits are much lower than expected and sues the agent for misleading them.
4. Failure to Explain UM Coverage Rejection Requirements
• Claim Overview: Some states require agents to inform clients about UM coverage and obtain a signed waiver if the client chooses to decline it. Agents may face claims if they do not adequately explain UM coverage or fail to document the rejection.
• Example: A client alleges that they were never informed about UM coverage options or provided the opportunity to accept or reject it formally. After an accident, the client realizes they lack UM coverage and sues the agent for failing to explain or document the decision.
• Second Example: In states with requirements for signed UM rejec -
tions, the insurance carrier may sometimes pay the claim for the insured and treat the claim as a covered claim, but then subrogate against the insurance agent’s professional liability (E&O) insurance to be made whole for their error in not getting the rejection form signed.
5. Failure to Add Underinsured Motorist (UIM) Coverage
• Claim Overview: In some cases, clients mistakenly assume they have UIM (underinsured motorist) coverage, which, though related, is distinct from UM coverage. Agents may face claims if clients are underinsured when struck by a driver with minimal insurance.
• Example: A client believed they had UIM coverage that would cover excess costs after an accident with an underinsured driver. Finding no such coverage, the client sues the agent for failing to explain the UIM option or obtain it on their behalf.
6. Failure to Increase UM Limits
• Claim Overview: Clients may allege that an agent didn’t offer higher UM limits or failed to keep the UM limits on par with the bodily injury liability limits, which some clients might assume would match.
• Example: A client has increased their liability coverage multiple times over the years but was never offered or informed of the option to adjust their UM coverage accordingly. After a severe accident, the client discovers that their UM coverage is far below their needs and brings a claim against the agent for failing to inform them of the option to increase UM limits.
How to Avoid a UM Claim
Given that this is such a common claim for many insurance agents, the question
arises: what can be done to prevent these types of claims?
It starts with developing thorough processes. A clear process helps ensure that every client interaction regarding UM coverage is well-documented and legally sound. Here are some suggestions for your practice:
1. Include a reminder in each agent’s email signature, explicitly stating the importance of UM coverage and encouraging clients to reach out with questions. This small but consistent reminder can reinforce the agency’s dedication to keeping clients informed and create a record of the agency’s proactive approach to UM coverage.
2. Incorporate digital signatures with a quality control (QC) check in place to confirm each client’s acknowledgment of the offered coverage. Ensuring clients review and sign electronically helps establish a clear and verifiable record, especially if clients decline coverage. Alongside this, documenting any declined UM coverage in writing is a must.
3. Make it part of your process to keep your files organized. A well-organized file, including signed forms, emails, and records of discussions, can be essential in defending against a claim. Having an organized client file can also make it easier to spot when key documents are missing.
4. Create email signatures that disclose UM limits separately when sending quotes and policy documents. Include a prompt for the client to contact you if they would like higher UM limits.
Insurance agents must be vigilant in safeguarding themselves against errors and omissions (E&O) claims that allege a failure to offer or explain UM coverage. Proactively offering and documenting coverage discussions helps insurance agents better protect their clients—and themselves.
Stay safe out there!
Growth Engine: Importance of Customer Reviews
by Kendra Budd, Editor
“Many insurance agencies simply ignore customer reviews altogether.”
The reviews are in—and they matter immensely! Especially for insurance agencies.
Sure, you’ve probably heard marketing folks herald the importance of positive customer reviews. But why exactly do they matter?
Here are two primary ways that having positive reviews on Google can help your insurance agency grow:
1. Building trust with potential clients: The vast majority of customers look at online reviews before making a purchase.
2. Google search and map rankings: Whether an insurance agency shows up in the top results on Google, especially Google Maps, when a business or consumer searches for an “insurance agent” is massively influenced by the number of positive reviews that agency has.
Great reviews can help you grow, while bad reviews can cause serious damage to your business. (Especially with the growing influence of social media!) Instead of just letting negative reviews sit though, you can use them to better your business practices. In fact, criticism can help a business
look at the parts in which your business could improve.
Here’s why reviews are so important and what you can do about it.
Customer Trust
Clients actively research reviews before making a purchase or choosing a service provider. According to the Harvard Business Review , 98 percent of customers look at reviews before making a purchase. This obviously has a huge effect on a small business’s revenue. “[In] 2021, online reviews were predicted to affect $3.8 trillion revenues worldwide,” the Harvard Business Review found. This means business is won or lost because of positive reviews, negative reviews, and even a lack of reviews. Meaning if you don’t have any Google reviews, or you have very few reviews, then many clients may steer clear.
Of course, many professionals, including insurance agents, speak to potential clients and highlight their decade(s) of experience and expertise at their craft, but imagine if you have 100+ reviews of happy customers showcasing your exper-
tise and your ability to serve your clients? It serves as social proof and it makes a world of difference.
Google Rankings
If you can’t be found online, then you won’t be found at all.
When you look up a service on Google, especially if you’re looking for a local service provider (i.e. Google Maps), odds are you are going to see businesses with a plethora of positive reviews at the top of your search, while businesses with little reviews (positive or negative) will fall toward the bottom.
Give it a try in your area! If I search “Dallas Texas Insurance Agent” and go to Google Maps, I am not shown any agents that have less than 50 Google Reviews. The majority of insurance agencies that show up have over 100 5-star reviews, and many have over 500!
In terms of capturing organic search traffic of local businesses and customers who take to Google to look for a local insurance agent, building your customer reviews is an
page 29
absolute must. If you’re in a competitive market, it’s likely that many potential clients that are looking locally for insurance will never see your business listing if you have no or very few reviews.
This also extends to more general Google search engine rankings if you have potential customers in your state, or even nationwide, who are searching for your specific insurance offerings. While Google reviews have an undeniably huge impact on local SEO, they also play a role in your website’s general search engine rankings.
Organic traffic is one of the easiest, lowest cost ways for you to grow your business. If you can show up on the first page of Google search or Google Maps and if you have many positive reviews, it’s a powerful combination that will help you grow.
Ignoring Customer Reviews
Many insurance agencies simply ignore customer reviews altogether. They don’t focus on getting reviews, and they don’t respond to positive reviews. In fact, there are many large, successful agencies that have grown sizable books of business and have very few reviews.
As a marketing professional working for an insurance agency myself, one fun thing I like to do is look up other insurance agencies (sometimes our own competitors!) on Google and see how many have a strategy around their Google reviews. You’d be surprised at how few insurance agencies pay attention to this.
So yes, you can build a successful agency with only two reviews on Google. But, in your own life, all other things being equal, if you were looking to buy from two different service providers and one of the companies had two reviews on Google and the other had 500+ reviews on Google (both with an average of 4.5 stars), which business would you be more likely to buy from?
It makes a difference. Here at OREP Insurance Services (the parent company of IBDPro Insurance), we have over 1,000+ 5-star reviews on Google showcasing our expertise in serving professional service firms with their E&O insurance.
How to Get More Reviews
Despite reviews being a great way for you to build your reputation, many business owners find themselves too afraid to ask for them. Many small businesses fear negative reviews, but the truth is that you are more likely to get a positive review if you ask for a review at all. People who leave negative reviews are typically going to leave them no matter what, but oftentimes, people who had a positive experience will only leave one if they are prompted to.
There is an art to review-solicitation. First, you want to ensure you’re asking for reviews at the right time. Within a few days after the service has been provided is generally agreed to be the best time to ask a customer for a review. This gives time for the client to think more about their experience.
Next, you want to ensure you’re getting the wording right before sending the email. Don’t say something along the lines, “If you’re satisfied, please leave us a review online.” This wording may make the client feel like they can only give positive feedback, making them feel like their opinion doesn’t truly matter to you. Instead, say something along the lines of, “You’ll receive an email shortly asking about your experience today. We’d really appreciate it if you took a couple of minutes to let us know how we did!” This invites the client directly and doesn’t pressure them to give feedback that they think you are expecting.
Keep everything simple. The more steps it takes to leave a review, the less likely customers will do it. Offer direct links in your emails to where they can review your business. If they have to search for it or answer too many questions in a survey, they’ll abandon the venture halfway through. The simpler, the better.
Review Software
There are a number of software platforms and tools that insurance agencies can now use to simplify the review collection process.
Here's how to use review tools:
1. Once a week, pull a list of policy binds you did the week before and upload the first name and email address to the review tool.
2. The review tool will send an email to all of the contacts in the list you uploaded asking them to leave you feedback.
3. If a client leaves a 1, 2, or 3-star review, the review tool will prompt the client to write about their experience and submit it. The catch here is that the feedback comes straight to you, the business owner, instead of being posted to Google.
4. If the client leaves a 4 or 5-star review, the review tool will then prompt the client to post their review to Google.
This creates a dynamic of public praise and private criticism. If a customer has a negative experience, you are notified and are then given a chance to investigate your processes without having the negative review posted online. You can look into the complaint and determine what went wrong, where the process failed, and what changes you can make to ensure other customers don’t have a negative experience. This can be an incredibly valuable process that can help you serve your customers better.
If a customer has a positive experience, they will be prompted to post their review to your Google listing, and their review will show on your Google business page.
Final Thoughts
Customer reviews can be a powerful way to grow and improve your business, even the tough ones. Rather than fearing a negative review, see it as a chance to connect with clients and show your responsiveness. Addressing concerns directly and professionally can strengthen your reputation. The more reviews you gather, the more likely you are to appear in search results on platforms like Google, which can drive new clients to your business. People tend to trust reviews and actively seek them out, so don’t ignore feedback—embrace it. When you get a less-than-glowing review, consider it a way to refine your services and show potential clients that you care about their experiences. You just need to know how to wield them to your advantage.
Litigation Case Study: Signature on Renewal Application
by Isaac Peck, Publisher
I“The
case clarifies that insurance brokers may be held fully liable for failing to properly manage renewals or get a signature on the application.”
f you’ve been an insurance agent for any length of time, chances are you’ve pre-filled an application for one of your clients before.
Depending on your agency’s focus and client type, helping your client fill out their insurance application, or, if we’re being honest, filling out their application for them, may be very commonplace for you, or it might be rather rare.
The practice varies widely depending on the type of clientele an agent is dealing
with, the type of business the agent is writing, and even the size of the account.
While it is somewhat common with many insurance agents, a recent lawsuit against an insurance agent, Kaufman v. P&G Brokerage Inc., highlights the very real danger that exists when an agent does not check the answers on the application with the client or get the client’s signature on the application before binding coverage.
In this case, despite the insurance agent’s protestations and best legal arguments,
the New York Supreme Court ruled that they could be held solely liable for negligence and failing to properly manage a client's insurance policy renewal, which the plaintiff’s argued resulted in a denied fire damage claim.
Here’s the details of what happened.
Background
In 2016, Meyer Kaufman, the plaintiff and property owner, engaged P&G Brokerage Inc. (P&G) to procure and maintain insurance coverage for a small apartment build-
ing that he owned in Brooklyn, New York. P&G obtained a policy from Union Mutual Fire Insurance Company (Union), with automatic annual renewals requiring updated applications. For Kaufman’s policy documents and renewal applications, P&G designated an internal P&G email address as the main email contact point.
During the 2019 and 2020 renewal processes, Union added the following question to the insurance application: "Are any of the habitational units rented to anyone other than individuals on a longterm lease for their exclusive use and that of their immediate families?"
Kaufman alleges that P&G, without consulting him, inaccurately answered this question “No,” despite the property being leased through Iris House, a non-profit intended to assist those living with HIV/ AIDS and other health issues. Iris House
had subsequently subleased to an individual named Rasheed Murdaugh, who had made an agreement with the non-profit to lease one of the apartment units for 30 percent of his income.
The renewal applications that P&G submitted to Union were not forwarded to Kaufman, nor was he consulted with respect to how the applications were completed, the suit alleges.
Fire and Denied Coverage
In March 2021, a fire damaged the property, prompting Kaufman to file an insurance claim. Union denied the claim, citing material misrepresentation in the renewal applications regarding the leasing arrangement, leaving Kaufman without coverage for the loss.
In July 2022, Kaufman then sued P&G for negligence and breach of contract, assert-
ing that the broker’s mishandling of the renewal process led to the denial of its insurance claim.
P&G responded to Kaufman’s claims by denying liability, raising 25 affirmative defenses, and then filing a third-party complaint against Iris House and Murdaugh, alleging their lease and tenant relationship contributed to the coverage dispute. P&G further argued that Iris House’s own negligence and contractual obligations means that they were responsible for the fire and, at a minimum, should contribute to the losses. The court was tasked with evaluating whether the broker’s actions—or thirdparty defendants’ involvement—were at fault for the plaintiff’s uncovered losses.
P&G’s argument essentially was akin to “equitable subrogation,” as it attempted to make the tenant, and its subtenant partially page 32
(or wholly) liable for the fire and the damage, irrespective of its own alleged negligence. This is a move that is not uncommon for insurance carriers, who sometimes subrogate (meaning to put someone or something in the place of another, especially in the context of legal rights or claims) against third-parties and attempt to recover damages that they paid out on behalf of their original insured. This was the first case in New York where an insurance agent or broker attempted to use this legal principle in their defense to “spread out” the liability. For this reason, P&G’s counterclaim was escalated to New York’s Supreme Court, Kings County.
Side Note: An example of subrogation would be a property insurer paying a fire claim on an insured property, but then subrogating the claim against the manufacturer of a television that was in the property and was determined to be the cause of the fire (let’s say the fire investigation determined that the television malfunctioned and spontaneously caught fire, causing the fire). The property insurer in a case like this may make a payment to its insured to cover
the fire loss, but then subrogate, i.e. take the place of the insured, and sue the television manufacturer and allege that since it was their product was the cause of the fire, they should pay for all damages and losses associated with the fire—essentially reimbursing the insurance carrier for what they paid the insured.
Conclusion
The New York Supreme Court ultimately sided with Iris House and dismissed P&G's third-party complaint. It ruled that P&G was not entitled to indemnification, as the broker was not a third-party beneficiary of Kaufman’s lease with Iris House. Further, the court found that P&G’s alleged failure to maintain accurate records and disclosures was independent of any duties Iris House owed to Kaufman as a tenant. Consequently, P&G could not seek common law indemnity, as it would not be unjust for P&G to bear full liability for its own handling of the insurance policy.
While the New York Supreme Court ruled against P&G’s interpretation that the prop-
The Easy Way to Get Online Reviews
erty tenants should share in the liability on the property loss, Kaufman’s (the actual property owner) case against P&G was still not decided and litigation continued until September 2024, when Kaufman’s attorneys filed a Stipulation of Discontinuance and the case was dismissed. This type of dismissal is not uncommon if a case is settled confidentially.
The case clarifies that insurance brokers may be held fully liable for failing to properly manage renewals or get a signature on the application. Insurance agents are no strangers to helping a client fill out their insurance applications, but this saga drives home an important lesson: the client needs to review, approve and sign the insurance application to ensure the accuracy of the answers.
This case provides an important reminder of how coverage can be at stake and litigation can ensure when the agency doesn’t get a fresh signature on the insurance application.
Stay safe out there!
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