Top Posts In Finance

am best underwriting guides from iroquois

am best underwriting guides from iroquois

 The AM Best Underwriting Guides are very helpful to new commercial producers or experienced ones who want to learn about a new class of business.  Each guide provides the appropriate lines of coverage for the desired class with Best’s Hazard Index; SIC codes and Classifications; Related Classifications; Risk Descriptions; Materials & Equipment; a Narrative on the Lines of Liability; and an Underwriter’s Checklist.
AM Best has hundreds of Guides by class of business.  Here is a partial list of recently updated or revised reports that have been added to AM Best’s extensive database of underwriting guides:

  • Fast food restaurants
  • Jewelry Stores
  • Convention centers
  • Toy stores
  • Executive search firms
  • Car washes
  • Colleges and universities
  • Bed and breakfasts
  • Lawn care and landscapers
  • Trucking – specialized carriers
  • Micro-breweries
  • Newspaper publishers
  • Bowling centers
  • Electrical appliance wholesalers
  • Charter boat fishing
  • Bakeries – retail    

How to Request an Underwriting Guide:
Your Iroquois Regional Manager can give you a list of all available Guides and can obtain any Guides that you request.  Use the available Guides listing to choose those Guides you want and email your Regional Manager asking for them.  It is that simple.

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mergers vs. acquisitions – what’s the difference?

mergers vs. acquisitions – what’s the difference?

Mergers vs. Acquisitions – What’s the Difference?

Mergers and acquisitions are often referred to together as if they were one and the same.  The reality, however, is they are both similar and very different, depending on which side of the transaction you’re on. 

By definition, a merger is the legal consolidation of two entities into one entity with shared ownership, whereas an acquisition only happens when one entity acquires and takes over another.  In a merger of two firms, one legal entity will always be the survivor while the other is dissolved and becomes part of the survivor.  In an acquisition, the firm being sold may retain its separate legal entity status, or the buyer may choose to close down the acquired entity and consolidate the business into the buyer’s organization.  As a further twist, many acquisitions are not acquisitions of the entire company, but rather an acquisition of certain net assets of an existing business, leaving the seller with a legal entity but limited or no business.

From a practical perspective, the two key differences between a merger and an acquisition are related to the financial implications of the transaction. 
     • Generally in a merger, the consideration between the two parties consists of stock/ownership interests being exchanged with little to no cash.  Therefore, if someone is considering selling their business in order to “cash out,” a merger will generally not provide the immediate means to accomplish this, especially if the other party is a privately held firm without the liquidity or marketplace to liquidate the securities. 
     • Secondly, the tax implication to the parties in the transaction are materially different.  A merger may not create any tax shelter or income to either party if the transaction is properly structured as a tax-free exchange of ownership.  The acquisition of the stock or assets of another business will always create a taxable event to the seller. An asset purchase may be amortized over a 15 year period for tax purposes by the buyer, but a stock acquisition will not create any amortization tax shelter for the buyer.

Most of the agency transactions over the past 10 years have been acquisitions as opposed to mergers since most are liquidity events for the sellers.  However, that doesn’t mean there isn’t still a place for true business mergers, but the tax and legal obstacles need to be weighed by all parties involved.

A true merger can be a means to a subsequent internal buy-out if the result of the merger is a better structured organization with built-in perpetuation candidates.  As an example, consider two agencies, both single producer/owner operations with support staff.  Assume one principal is 60 years old and the other is 45 years old.  Clearly, the senior principal is not prepared to perpetuate his business and the timing and expense of bringing on a younger producer at this stage would not be a logical investment.  However, in a merger with the younger principal’s firm, the elder principal now has a proven producer/partner and can likely begin to map out an internal exit strategy with the younger owner. 

The biggest obstacle agencies face when considering merger transactions is the relative valuations of the two firms, and in particular, the impact of the balance sheet component.  Consider the above example, assuming both agencies generate approximately $500,000 of commission revenue and a Pro Forma profit margin of 25%.  The simple assumption is that the two principals would join together as equal partners.  In a merger, the ownership distribution post-transaction is based on the relative values of the two firms, which includes the respective balance sheets. 

Continuing our example, let’s assume the senior principal has been frugal and conservative, and has built up a healthy balance sheet with no debt and perhaps $100,000 of excess assets.  The younger producer, on the other hand, has made some bad people investments and a less than ideal acquisition, resulting in $200,000 of long-term debt. 

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a useful tip about flood insurance

a useful tip about flood insurance

A Useful Tip about Flood Insurance

Here is a tip from an Iroquois member that we thought was worth passing along. FEMA’s website has loads of documents for agents regarding NFIP and Flood Insurance, many of which are free.

One of the items that Iroquois Member ENI uses is the Notice: This Policy Does Not Cover Flood Sticker (F-077 (7/09)). The dark red sticker can be stuck on the Dec Page of new Homeowners policies or the Binder if the policies come direct from the carrier to the insured. The stickers notify the insured to contact their agent about buying an NFIP policy.

Getting in the practice of using these stickers can protect you from an E&O claim and helps notify the Read More..

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developing a strategic business plan - insurance cluster

developing a strategic business plan - insurance cluster

Developing a Strategic Business Plan - Insurance Cluster

A traveler without a map or route guidance will simply wander. The same is true for an agency without a business plan.  In this TOOLS article we will discuss how to develop a strategic business plan

Strategic PlanningIn its simplest form, strategic planning is: (1) assessing your agency’s current situation; (2) identifying your agency’s strengths, weaknesses, opportunities and threats (SWOTs); (3) collaborating to decide what objectives you want to achieve in the next 3 to 5 years (to capitalize on the strengths and opportunities and to address the weaknesses and threats); and (d) mapping a course to get from here to there.  The plan should be as simple as needed based on the agency’s size, complexity and your vision as owners.  For agencies with owner/managers having an aggressive growth vision, a robust plan is appropriate.  For agencies with owner/managers having a less aggressive vision, a less robust plan may be appropriate.  Finally for agencies with owner/managers who are mostly focused on slowing down and cashing out, a perpetuation-focused plan may be appropriate.

Situation Analysis: In advance of any planning session with owners and managers, a member of the management team should develop a brief bullet point summary of the current situation.  This should include: (1) the agency’s past performance versus key benchmarks and objectives; and (2) what is going on in the external environment (renewal pricing, industry and economic trends, competition, etc.). This analysis should be shared in advance with the key people who will participate in the planning session.

The Planning Session: The planning session should begin with a brief discussion of the current situation and then move on to a round table discussion of the agency’s SWOTs.  As strengths and opportunities are identified, explore how the agency might take action to capitalize on them.  As weaknesses and threats are identified, explore how the agency might take action to address them or reduce their effects.  Through discussion, identify a few foundational strategies that will drive the agency forward the most and flesh-out supporting objectives to execute those strategies. Overall financial objectives should then be developed for each of the years in the plan. After the session, the plan should be documented in writing.  The best plans are usually kept simple and focused.

Sample Strategic Plan Format: A common format for your written plan would include: (1) cover; (2) table of contents; (3) mission statement for your website; (4) vision statement for your employees; (5) core values (optional); (6) current situation; (7) revenue/financial goals; (8) foundational strategies; (9) action plans; (9) exhibits (optional).

Mission Statement: A sample mission statement might look something like this, “ABC Insurance Agency is dedicated to continuing its position as a leader in providing quality insurance, employee benefits, and financial services products & risk management solutions to businesses and individuals through a team of highly trained professionals sharing a tradition of integrity and service to our clients.”

Strategies and Action Plans: The following are hypothetical foundational strategies: (1) grow internally through adding high potential producers annually and increasing the effectiveness of sales management and sales processes for new and existing producers; (2) grow externally through making a strategic agency acquisition every 3 years; (3) increase efficiency of personnel as measured by industry benchmarks for productivity through establishing standard processes to maximize utilization of technology.  Strategies and objectives should be established following a consistent format.  The following are partial excerpts from typical action plans for various critical success areas.

Revenue - Increase revenues organically from existing producers, account managers, new producer hires and inorganically from strategic acquisitions.

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from 'hello' to close ... in one call - insurance services

from 'hello' to close ... in one call - insurance services

From 'Hello' to Close ... in one call - Insurance Services


So tell me if this has ever happened to you in your office: you get a telephone call from a prospect, or perhaps it was an email lead that you obtained via your “Get an auto or homeowners quote” button on your agency website or Facebook fan page, and immediately either you and/or a member of your agency staff spring into action!

You begin the usual ritual of fact finding, the conducting of a complete financial and asset protection needs analysis, complete discussion of coverage and insurance carriers available, pricing of coverage, and most importantly, what is appropriate for this particular and unique situation.

Once you come to an agreement on what is the proper amount of coverage and price, your prospect says, “Yes, that is precisely what I need.”

Knowing that their current policy doesn’t expire for 10 days, you ask him to come into your office to sign the application. Unfortunately the insured is at work every day, so you tell your prospect that you will mail him the application and he can sign it at his leisure and mail it back to you.

So you prepare the ACORD forms for the coverage requested, attach the little yellow “sign here” sticky notes, write a nice cover letter with explicit instructions on precisely what is expected of them, ask them to enclose a check made payable to the carrier, enclose a self-addressed stamped envelope, and you drop in into the outgoing mail.

Once completed, your business spent 20 minutes completing the necessary ACORD applications for the auto, home, and umbrella policy, another five minutes typing up and printing the cover letter, a minute or so more to self-address and stamp the return envelope, another five minutes assembling the package to be delivered, a minute or so to weigh it and affix the correct amount of postage, and then drop it in outgoing mail. In dollars and cents, how much did that time just cost your business? Oh, and let’s not forget the time that was spent on the phone speaking with the prospect to even get to the point where you were able to do the manual leg work to get the application out. Add in the cost of obtaining the lead, however you received it, and what has this cost you so far? …and you haven’t even made the sale yet!

Back to our story: so after three days, you follow up to see why you have not yet received the signed application, and they don’t return your calls, or emails, or texts. You continue to try and reach them, and finally you get an email back stating that on the same day that you originally spoke with them, your prospect decided to contact one more agency that was located even further from him than you are.

But there was one difference: while speaking with the other the prospect was told that while he remained on the phone this agency would have him set up immediately! How was it done and all while the prospect remained on the telephone?

Easy! ...and here’s how: the agent went into his real time comparative rating system and generated the ACORD forms necessary for the package policy. From there, using an electronic signature program that was inherent to the system, he packaged up the applications, along with a cover letter, and directly from the system he emailed it out to the insured. Immediately, the management system portion of the program notated an activity, and time and date stamped it for errors and omissions protection.

Still while conversing on the telephone, the insured received the email and opened the attachment. He reviewed the application on his computer screen (he could have also used his mobile tablet or smart phone), “clicked”  on the electronic signature portion of the attachment, and instantly the now “signed” application was returned directly back to the agent…again while they are still on the telephone!

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berkshire hathaway guard now writing homeowners policies in pa

berkshire hathaway guard now writing homeowners policies in pa

Berkshire Hathaway GUARD Now Writing Homeowners Policies in PA

Berkshire Hathaway GUARD has begun offering Homeowners and Personal Umbrella coverage (click here) in Pennsylvania. Targeted markets include one- to four-family dwellings, renters, and condo unit owners. In addition, the product can accommodate situations where business and personal insurance needs overlap, providing coverage for residences owned by corporations or LLCs; dwellings held for rent (written under a Homeowners policy with an endorsement for rental units); home-sharing services (e.g., Airbnb); and residences where incidental business activities occur.
The ISO-based policies offer a full range of “Add-Ons” with the most popular being Service Line coverage, Home Systems Protection, and Identity Fraud. A unique Personal Property Plus Endorsement Package also features 60% savings on a host of bundled upgrades most beneficial to applicants with high net-worth homes.

Numerous premium discounts are available for circumstances including (but not limited to): a newly purchased home, new construction/recently renovated residence, approved protective devices, companion GUARD policies (personal AND commercial!), and an “agency auto bundle”.

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7 ways an m&a advisor simplifies the process

7 ways an m&a advisor simplifies the process

In 2012, there were approximately 300 reported sales of independent insurance agencies and brokerages. We know from experience that many of these transactions and nearly all larger sellers—as in all other industries—turn to the guidance of an independent advisor when they’re thinking of conducting a merger or acquisition.  Is it really more prudent to engage an advisor than to simply go it alone?

M&A advisors can bring an extensive array of services to the table, but in the end, they generally fall into the following primary categories:
• Advocate for the seller in all aspects of the process
• Experience from other transactions with buyers and other sellers
• A dose of reality for the seller.
Most sellers only get one opportunity to sell the business they have spent years building: providing expert advice and services for their clients, advocating on their behalf in pricing negotiations and claim situations. When they finally decide to find the right buyer for their firm, it’s time for the selling agent to become the client and call on an expert advisor for advice on how to sell the business, something they’ve probably never done before. 
More so than in years past, the potential buyer group is vast and diverse:
• Publicly traded brokers, most very experienced in acquisitions and offering fair value and a predictable future for your firm, your staff and your clients
• Private equity backed buyers with money to invest, some with nearly as much M&A experience as the public brokers to those just getting into the insurance brokerage business
• Other privately owned firms in which a true merger or acquisition could accomplished, if the valuations, ownership or capital structure mesh well with the cultural fit of the firms.
Each firm, from whatever ownership category, will have a different personality, their own approach and biases to the acquisition process, and will be advocating on behalf of their own firm, not the seller’s. This is a subtle but significant point.
Along with acting as the seller’s primary advocate, the advisor’s functional responsibilities throughout the seller-representation engagement include:
1. Developing a thorough understanding of the seller’s business by reviewing and analyzing various types of financial and operational information as well as face-to- face meetings with principals and key employees, as necessary, to learn as much as possible about the company and the people
2. Preparing the “seller profile” report, including the pro forma income statement for delivery to the buyer universe based on the in-depth knowledge of the seller from Step No. 1. This standardizes the information requested by most potential buyers in a common format
3. Building a list of potential buyers with the client and making the initial marketing contacts and screening with the buyer group. All buyer discussions are subject to execution of confidentiality agreements to protect the interests of the seller’s firm.
4. Responding to questions from the buyers’ review of the profile, isolating serious candidates and coordinating meetings between prospective buyers and the client to expose the seller to multiple buyer organizations’ management, staff and firm culture
5. Soliciting formal offers from interested buyers and summarizing key points of difference for the client. Because price is not always the sole driver of the selection for the seller, assisting with the objective (price and terms) and subjective (culture, fit, people, etc.) qualities of the potential buyers is always a critical aspect of this process.
6. Once the preferred buyer is identified, negotiating the most attractive deal terms possible, keeping other buyers in wait in case something comes up to quash the deal. 
7. After agreeing to final terms, assisting the seller’s other advisors regarding purchase and sale documents, buyer’s due diligence and general project management of the formal closing process. The advisor will also create separation and a buffer between seller/subsequent employee and buyer/subsequent employer on difficult or contentious matters through the negotiation process.  It is good to have both a lightning rod and shield throughout the process.
Throughout this whole process, the advisor is continually establishing reasonable expectations on the part of the seller, whether it’s purchase terms, contractual issues, timing or other matters. There is a plethora of slightly to materially inaccurate anecdotal information floating around the agent-broker M&A universe. The advisor can sort through fact and fiction for their clients, providing guidance on industry customs and practices based on extensive experience and knowledge of the M&A market.   
The critical starting point and key driver of value is the pro forma income statement. Experienced advisors collaborate with their clients to establish the pro forma based on the in-depth knowledge of the seller. The advisor will also identify unique characteristics in seller’s operations that can be incorporated creatively into the negotiation of price/terms, all for the benefit of the seller. Generally, buyers will not have the same level of knowledge of the seller, and will not be able nor are necessarily motivated to drill down as deep as the advisor to find incremental value for the seller.
Buyers by nature will also be more aggressive in their pricing and terms when there is an advisor involved because they know someone else is advocating for the seller, and because there may be other potential buyers in the mix. Although most buyers will approach the acquisition opportunity in an attempt to be fair with the seller, they are still first and foremost working for the best interests of their own firm.  Using an advisor will help ensure the price and terms of the transaction are the best available for the seller.
Selling the business can be extremely disruptive to the ongoing operations of selling insurance and taking care of clients. It is a very time consuming and arduous task for the inexperienced seller to effectively negotiate his way through the transaction steps on top of maintaining the business focus.  Many buyers prefer transactions where the seller has engaged an independent advisor because they are more familiar with the various stages of the transaction process. 
When it comes to selling your business, likely the largest asset in your portfolio, an advisor’s impact on the value of the transaction for their client can be material, in price, terms and contract language. Moreover, agency principals can minimize the distractions from running the day-to-day operations of their business, which usually is a full-time job for most of them. 
As a smart person once said, given enough time, he could probably make his own car, if he was so inclined. But since time is such a limited resource, why would any of us choose to invest it so heavily in something we aren’t intimately familiar with? There are plenty of people who know how to build a house or make a car—or help you sell an insurance agency. These firms or individuals can bring tremendous value and ease of mind to their clients, generally far in excess of what they are paid for their services. Why would anyone not want to take advantage of their expertise and wisdom when dealing with such personal financial matters?

Tim Cunningham and Dan Menzer are Principals with OPTIS Partners (, a Chicago based investment banking and financial consulting firm providing M&A, valuation and strategic consulting services to firms in the insurance distribution sector.  The authors can be reached at  312-235-0081 and 630-520-0490, respectively, or by email at, and

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maximizing supplemental compensation

maximizing supplemental compensation

Maximizing Supplemental Compensation


In this article we will provide tips on ways to maximize supplemental compensation - whether it is in the form of profit sharing, contingent commissions, supplemental compensation, new business bonuses, or any other bonus commission arrangement.  Regardless of the form it takes, agencies can maximize bonus compensation and enhance their market relations if they take steps to improve production and profit with their core markets.

How Supplemental Compensation Arrangements Work

Although Supplemental Comp programs vary by carrier, they tend to have some common components.  Typically payments are based on the 3 “Ps:” premium volume, profitability and production.  These are the “drivers” of the amounts of supplemental compensation that can be earned and these are what need to be managed by the agency.  Adjustments typically exist for large losses and catastrophes so this usually means that an agency has control over the largest percentage of the components driving their contingent commission payments.

Role of Agency Management

In any agency there are four key areas that must be managed: sales, operations, finance, and markets.  A key manager should be assigned to each.  In smaller agencies this means someone may need to be responsible for more than one of these areas.  Regarding markets management, the agency should have a plan and process they follow to maximize their production and profit with core companies.  This will maximize their supplemental compensation.
The agency should never be surprised in the 4th quarter to learn that they will miss bonus commissions because of a shortfall in achieving the production or loss ratio goals for supplemental compensation.  The markets manager needs to be pro-active in developing a markets plan through collaboration with the rest of the management team and through managing the process throughout the year.  The objective should be to accomplish the following:
• Determine which markets do the best job of meeting the needs of the agency’s clients, prospective clients, and the agency.  The agency should favor them with the major share of its new business submissions.  This will increase its likelihood of growing supplemental compensation with them.
• Develop plans with those markets to profitably grow the business using their resources and those of the agency;
• Understand and communicate to the agency’s staff what each market’s strengths and risk appetite are.  Communicate what the growth and profit objectives are for the agency regarding each market and what actions will be taken to increase business flow to them. 
• Institute actions, not only in the area of production, but in loss ratio management, risk reduction and loss control as well.  All of these areas need to be managed to maximize supplemental compensation.
• Monitor agency performance versus plan regularly and communicate with team members on how the agency is progressing.
• Take actions during the year to “true up” processes and maximize the likelihood of keeping everyone focused on achieving the objectives.


In promoting any new sales campaigns, it is wise to target classes of business that are aligned with your core carriers’ risk appetites and are adequately priced.  Be systematic in your sales approach to these segments and focus on growing the business with those core carriers.
Look at new business flow.  Are producers seeking new business in classes that tend to be profitable, or are they spending too much time working on problem classes?  Are they going after quality accounts that core carriers will write or are they spending their time on prospects with past problems that will end up placed in excess markets anyway?   Focusing sales time on the right things can pay off.   It probably takes as much time to seek out new targeted prospects (or cross sell existing clients) as it does to hold the hand of a poor payer who may have all kinds of other problems.  Also, be sure your people understand that if they do write a poor payer, the account should be underwritten very carefully before placing it with a core carrier.  In such cases they need to be certain that any issues impacting risk are revealed and proper classification is established. 

Loss Ratio Management

On a quarterly basis, the markets manager should analyze the loss ratio performance of the agency versus plan for each core carrier.  Adverse loss experience (loss ratios in excess of carriers’ permissible loss ratios (which typically range from 52 to 60%) or adverse loss trends for any line of business, should be investigated. 
Assess the quality of your training for customer service representatives and producers.   Review underwriting check lists and other processes you have in place to see if they are being followed or if incorrect handling is contributing to loss ratio problems.  Examples might be breakdowns in front-line underwriting, lack of training in consumer education, or lack of loss control.  Check to see if vehicle and home inspection processes are working as they should.  Be certain that prior insurance condition is being verified.   Also be sure that customers are being properly educated on the savings they can realize through assuming more risk through higher deductibles.  Check to see if you have any employees who misclassify risks resulting in depressed premiums.  The long-term effect of poor front line underwriting, inadequate client education, or artificially depressing premium will typically be poor loss ratio performance.

Loss Reserves Management

On a regular basis, review large losses on open files to see what reserves have been established.  If you have information that could help settle a claim for a lower amount than its current reserve, share the information with the carrier.  Their reserving is only as good as the information they have.  If information is incomplete, their reserving may be incorrect.  Look also at large increases in reserves on open claims.    If you have information that leads you to believe that the reserve increases are not correct, share your information and rationale to support that point of view with the carrier.  Also review claims to see if any carrier reports still show the claims as open when they have been settled.  Such cases should be pointed out to the carrier.  Once these claims have been closed on the carrier records, any excess reserves will be removed and this may favorably impact your loss ratio results.

Risk Reduction and Loss Control

Where loss ratio problems exist, look at client detail.  Look for frequency and severity situations.  In the case of loss frequency situations, would the client and carrier be better off if larger deductibles (with lower rates) were suggested to the client?  What about policy limits?  Are they appropriate?
Agents often spend time on helping commercial lines clients reduce exposure to risk.  The processes also can work with personal lines.  Even in the case of homeowners’ risks, suggesting that they cut back high bushes, improve exterior lighting, install double cylinder deadlocks, or an alarm system could materially improve the safety of occupants and reduce insurance risk.


Keep your markets plan alive by frequent monitoring, communications and feedback. Then watch your supplemental compensation grow.

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biggest challenges, opportunities

biggest challenges, opportunities

Biggest challenges, opportunities

When written in Chinese the word crisis is composed of two characters.  One
represents danger or challenge and the other represents opportunity.  With
all the uncertainties facing independent agencies as we move into 2013, this
can be seen as a time of both challenges and opportunities.     

Agency Perpetuation

Agency perpetuation is a problem for most agencies. In a recent study
sponsored by The Insurance Journal, it was found that over 50 percent of agency
owners were concerned about perpetuation.  2013 may be a year of opportunity
for such owners seeking internal ownership transfer.  This is because of a
variety of factors:
  • Credit is expected to be cheap because the Fed intends to keep interest levels low in an attempt to promote growth in the economy;
  • Credit should be readily available for good credit risks because many banks are seeing their low cost of money as a justification to increase
  • lending;
  • Low interest rates for buyers means they can afford to pay more for the same ownership purchase; and Affordability may also be enhanced by an expected 4 percent average industry increase in property casualty renewal pricing for 2013.
Add all of this to the fact that agency values are again at a high point
where they are not likely to stay.   With pro forma EBITDA multiples for
agency purchases sometimes being 7 or 8 times, this should encourage some
senior owners to consider selling now, before prices begin to fall.

Market Conditions

For most agencies, market pricing had been a big problem for several years
and has only recently become a neutral or positive factor.  2013 may present
some opportunities for agencies that understand what is in the process of
happening and capitalize on it.  Rates are continuing to rise and they are
likely to continue rising for only a few years.  This is because most of the
recent "harder" market cycles have lasted about 3 years and then have been
followed by about 9 years of softer pricing.  No one can predict the future,
but it is a good bet that the rising prices and their favorable impact on
agency revenue and profit will be short lived.
This could make 2013 a good year to invest in actions that may have up-front
costs but provide long term benefits to the agency and its owners.  Adding
producers, purchasing books of business, purchasing a building to occupy,
expanding geographically to an area with growth potential,  investing in
social media or better technology, etc. may be what's needed for the long
term and what could be more affordable if accomplished in the short term.


Many agency owners are concerned about the erosion of their business from
forces like the changing buying and communicating habits of consumers.
Every day more consumers become used to purchasing online, communicating
digitally and price shopping electronically.   Every publication read by
agents talks about the threats and possible opportunities tied to digital
marketing, mobile marketing, search engine optimization or social media.
For agency owners who aren't yet ready to completely "dive in," 2013 may be
the time to finally accept that generalist insurance products will continue
to be targets for digital competitors and every agency should also develop
some specialty program or expertise to promote.  Specialty business presents
an immense opportunity for agencies.  On the whole, program business
continues to expand dramatically.  In 2011, program business hit an all-time
high at $24.7 billion in gross written premiums, up by 9% from the prior
year.  This was during a time when generalist property casualty business
grew by about 4%.  This data is according to the "State of Program Business
Study" conducted by the Target Markets Program Administrators Association
(TMPAA).  Across industries, program administrators recorded their largest
revenues in the following sectors: government, nonprofit, education,
construction and transportation.  TMPAA describes "program business" as
insurance products targeted to a specific niche market or class.  The
targets generally represent a group of similar risks that can be written
through a single carrier that has differentiated its offering in product
features, risk management or price.  The products are delivered by
specialists having developed expertise in that market.

Economy and Taxes

The economy and the uncertainty about taxes have everyone concerned.  Although Congress finally averted the worst of the “fiscal cliff”, hard decisions creating long term solutions on spending and taxes have once again been postponed.  There is danger for an agency owner in not having the confidence to feel he or she is operating in a somewhat predictable economy and tax structure. 
However, in such uncertain times, there are opportunities as well.  For the
feint hearted, the uncertainty can lead them to pull in their horns and do
nothing.  For the opportunistic agencies, they can refuse to let good
opportunities pass them by.  They will seek out the opportunities.  In many
cases the opportunities may be to fix things that are broken or simply
better "position" their agencies for long term prosperity.  For example 2013
can represent a good time to do the following:
  • Address non-performing personnel;
  • Invest in new networking opportunities that will give the agency access to new prospects;
  • Create alliances that generate new revenue sources;
  • Refine the agency's rewards and recognition systems to be sure they are motivating the results and behaviors that will be needed in the coming years; or
  • Improve service offerings to really differentiate from the competition.

Patient Protection and Affordable Care Act (PPACA)

A big part of PPACA (Obama Care) is the creation of online health insurance
"exchanges."  In theory, effective 1/1/2014 (for accounts having under 100
lives) "navigators" who are part of the state (or federally run) insurance
exchanges, will explain options to the consumer to enable educated decisions
to be made.  This causes problems for agencies that write employee benefits
accounts, since they have been earning commission and fees for performing
this role and now are likely to see a sizable portion of that revenue
diminish or even disappear.   But, this problem may yield opportunities for
well positioned agencies.

Voluntary Benefits Sales

In 1965, when the US introduced Medicare to provide major medical insurance
for all seniors, a significant demand was created for insurance to fill the
gaps in coverage left by that federal program.  Medicare supplements became
hugely popular.  The same occurred in Japan when they introduced national
health care.  A high percent of recipients of their national health care
program purchased privately provided voluntary benefits.  This has the
potential to create many opportunities for the right agencies.

Benefits Consulting

The National Association of Health Underwriters (NAHU) foresees that agents
will still have a role in helping to walk consumers through the changes and
determine their eligibility for tax credits.  NAHU feels this will be
especially so in cases where the consumers are in the many "opt out" states
(ones having the federal-government-run exchanges handle their residents). 

Acquisition of Benefits Agencies

Right now, employee benefits agencies that write lots of small accounts are
selling for low multiples of revenue.  This could be an opportunity to
acquire (or merge with) a benefits agency at a very low cost.   Such an
acquisition could position the surviving agency for aggressive benefits
consulting opportunities involving mid-sized to large account business.  It
could also position them for strong sales in voluntary benefits business
involving all size accounts.  It may, in some cases, also add younger talent
to a P&C agency and improve their ability to internally perpetuate down the
road.  It's interesting to note that some major insurance brokers are
aggressively buying benefits agencies.  In 2012, Arthur J Gallagher and
Digital led the pack in the acquisition of benefits agencies, each having
made several benefits-only agency acquisitions.
The key to success in 2013 will be to avoid standing still and waiting.
Agency owners need to move fast in recognizing and addressing problems while
taking action to capitalize on long term opportunities that face them.
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