T H U R S D A Y ,  D E C E M B E R   6 ,  2 0 0 7 

Big “I” National News

P&C Trends

The Power of People
Best Practices study finds personnel are an agency’s biggest asset.

An agency’s No. 1 asset is the people who work to keep it profitable and running smoothly, according to the 15th annual Best Practices Study.

This year’s study, a partnership between IIABA and Regan Consulting, Inc., polled 195 agencies nationwide in order to help agency owners and managers better understand how their business operations perform against others in the industry. The study found that the majority of Best Practices agencies, regardless of size, when asked what they attributed their success to, said “the quality of people.”

According to the study, quality employees are defined as those with a strong work ethic, extensive knowledge/expertise, integrity and dedication.

“The ideal employee is a good combination of experience, attitude, ambition and initiative,” says J. Michael Collier, vice president of RC Knox & Company in Hartford, Conn., one of the 2007 Best Practices agencies. “The bottom line, the thread that goes through this, is that there has to be a willingness to serve the customer,”.

Thomas Skelly Jr., president of Skelly Insurance Agency, Inc. in Boston, Mass. agrees. For Skelly, the study’s findings aren’t surprising, especially since his motive for starting the agency centered on having a capable staff.

“The purpose of starting an agency for an owner is to get out on the road and sell more, but someone has to service those people back at the agency,” he says. “I find that you can’t train enthusiasm and a pleasant demeter. People are happy naturally and I tend to look for people who are enthusiastic and upbeat. We can always train them on the technology of the industry.”

For Doug Follmann, the agency manager for Town & Country Insurance, enthusiasm is an important quality for his employees to have, but at his agency in Webster City, Iowa it’s trumped by flexibility and a willingness to adjust to change.

“We’ve done a lot of acquisitions over the last 10 years and there really are two things I look at --- the book of business and the people within the agency, because they are truly what will make it possible going forward,” Follmann says. “We probably spend more time dealing with people and understanding the needs and goals of employees than the customers.”

According to the study, quality, when paired with technology utilization, has enabled many agencies to increase productivity levels to all-time highs. In 1993, the average $3.5 million revenue agency had approximately 42.5 employees, with each employee generating an average of $80,793 in revenue. Today the same revenue-sized agency has 25.4 employees and an average revenue per employee of $160,979.

Collier agrees with the technology aspect, but says gauging employees’ revenue is often a challenge.

“It’s so difficult these days to measure revenue per employee,” he says. “It may appear someone’s book of business has declined by 20%, but quite honestly they are having to work harder than ever. In general automation has been a tremendous help, so revenues per employee are going up.”

While agencies are seeing higher revenues, despite smaller staffs, finding people willing to join that workforce is often a challenge, according to Brian Miller, vice president of insurance for AAA Minneapolis Insurance Agency in Minneapolis, Minn.

“When you hire someone the biggest challenge we face is that, in a good job market, it’s tough to get someone who fits an ideal agency plan, so you’re really looking for someone who can adapt to how agency is run and work within those guidelines,” says Miller. “In the Minnesota market it is very hard to find experienced insurance people, especially for customer service. More often than not you find people who are interested in sales positions than CSRs.”

Miller said the key to finding and keeping quality employees is to keep them happy by providing good compensation, benefits and offering incentives for a job well done.

“Most agents are paid a salary plus commission plus bonus,” he says. “Bonus programs are set up differently depending on job description and are designed to [reward] them based on things that are important to the agency. For example, customer service representatives, get incentives to do reviews and rewrites. Some agents get incentives for getting clients paid-in-full or EFT because retention is higher with those types of policies.”

Investing in staff is another key component to maintaining a successful and productive agency, according to Follmann, who recently instituted a training program for his employees.

“We have gone to monthly product meetings by department and a lot of staff think we are spending too much time on training…we commit a couple hours a week on every product line we have --- for most folks that’s a couple hours a month. It’s expensive, we have a lot of people in a classroom learning product, but the investment is worth it,” Follmann says.

*Editor’s Note: This is the first part in a month-long series highlighting the findings of the 2007 Best Practices Study. Next week’s edition of Insurance News & Views will look at the study’s profitability and growth results.

Michelle Payne (michelle.payne@iiaba.net) is Big “I” writer/editor.




Legal Advocacy

Former Lawyer for Scruggs Pleads Guilty to Bribery
Scruggs in hot water for allegedly covering attorney’s bribe offers.

Timothy Balducci, a former lawyer with the law firm of Richard “Dickie” Scruggs, is reported to have pleaded guilty to attempted bribery. Scruggs, a Mississippi plaintiffs’ attorney who recently got national attention for representing insureds in Hurricane Katrina litigation, was indicted last week along with Balducci and two others. The indictment alleges that the lawyers conspired to offer $50,000 to a Mississippi state court judge, Henry Lackey, in a lawsuit involving the division of legal fees from work on Katrina-related insurance litigation. The others indicted in the alleged conspiracy are Zach Scruggs – another lawyer with Scruggs’ law firm and Scruggs’ son, Sidney Backstrom – a lawyer in Scruggs’ firm, and Steven Patterson – a former state auditor (and not an attorney) who worked with Balducci. 

According to the indictment, Balducci is alleged to have had several meetings with Lackey and offered the bribe on behalf of Scruggs in exchange for a favorable ruling for Scruggs in litigation over the Katrina legal fees. Scruggs allegedly created documents to cover up Balducci’s bribe offer by falsely showing that Scruggs hired and paid Balducci to do jury selection work and jury instruction preparation in an unrelated case. But the payments Scruggs made to Balducci were allegedly to reimburse him for the bribes offered to Lackey. According to the indictment, Lackey reported the bribery overture to the FBI and worked undercover with the FBI on the matter.

Following these indictments, the Scruggs law firm withdrew from representing clients of the group of firms that joined together to represent insureds in Katrina litigation.

Scruggs is the brother-in-law of Trent Lott, the republican senator from Mississippi who recently announced his retirement. Lott filed a lawsuit against State Farm following the destruction of his home by Hurricane Katrina and was represented by Scruggs. That lawsuit was settled earlier this year as part of the mass settlement of State Farm claims by Scruggs. 

For more information, please contact Kathleen Graber, associate general counsel, at 703-706-5432;  kathleen.graber@iiaba.net.




L&H Trends

A Season for Giving
IRA charitable rollover allows for direct transfers to charity.

As the holiday season goes into full swing, it’s an appropriate time of year to consider helping the many people in need here in the United States and around the world. And, since many independent agents meet or see their customers during the holidays, it is an opportune time to share a tax avenue for giving that won’t be around much longer.

On Aug. 17, 2006, the President George Bush signed into law the Pension Protection Act of 2005 (PPA). Included in this legislation was a two-year IRA charitable rollover, allowing individuals age 70.5 years and older to make direct transfers of up to $100,000 per year in 2006 and 2007 to the charity (or charities) of their choice, without having to count the transfers as income. The individual has to be actual age 70.5 to make the transfer, which can be up to $100,000 through the end of this month.

It is important to note that funds must come directly from the individual’s IRAs when transferred to the charity. If the client has retirement assets in a 401(k), 403(b) etc., they must first roll those funds into an IRA and then direct the IRA provider to transfer the funds from the IRA directly to the charity. The charity must be a tax-exempt charity - IRC 501(c) (3) type.

There are tax implications for the donor, including:

*Federal - They do not recognize the transfer to the charity as income, provided it goes directly from the IRA provider to the charity. However, they are not entitled to an income tax charitable deduction for the gift.

*State - Each state has different laws, so donors will need to consult their own tax advisors. Some states have a state income tax and will include this transfer as income. Within those states, some allow for a state income tax charitable deduction and others will not. Other states base their state income tax on the federal income or federal tax paid. Still other states have no income tax at all.

Under the current tax rules, individuals who reach age 70.5 must take a minimum required distribution from their IRAs each year, according to the MRD table. IRA charitable rollovers qualify as these minimum required distributions. This simplifies the tax treatment of the donation, as it counts toward the person’s MRD and doesn’t involve withdrawing the amount from the IRA, paying taxes and then determining whether they can itemize the entire contribution and deduct it fully from their taxable income.

How does a client know if an IRA charitable rollover is right for them? They need to be at least age 70.5 and meet one of the following requirements: they do not need the additional income necessitated by the minimum required distribution; or their charitable gifts already equal 50% of their adjusted gross income, so they do not benefit from an income tax, charitable deduction for additional gifts; or they are subject to the 2% rule that reduces their itemized deductions or they do not itemize deductions.

Older clients will appreciate know about this limited time opportunity and so will the charity.

Dave Evans (dave.evans@iiaba.net) is a certified financial planner and IA l-h contributing editor.




VIEW: P&C Trends

Farm Owners Insurance: An Independent Agent Opportunity
Farm owners premiums have risen steadily since 1997, making it an attractive product for enterprising agents.

Farm owners insurance might be an easy product to overlook, but more independent agencies may start to take notice as the line continues to grow, according to statistics from A.M. Best’s Aggregates & Averages.

Farm owners insurance is a segment of the p-c industry big enough to have meaningful data, yet small enough that national statistics on individual companies are telling. As seen in the graph below, the farm owners industry represents a meaningful segment of the industry at about $2.5 billion in premiums for 2006 (about the same size as the Federal Flood Program). Premiums have grown steadily at about 7% a year on average since 1997. The line has had three years with a combined ratio below 100%, but its average is 107% over the last 10 years (as compared to the p-c industry average for the same period of 103.4%).



Turning the focus toward insurers pursuing this market, take a look at the top 10 writers, their distribution strategy and their 2006 loss ratios. It is interesting the direct writers dominate the top 10 list, but at the same time, their loss experience is worse than average and much worse than the business produced by independent agents (nearly the same results occur when you look at the last five years).



So what does this mean for independent agents? Certainly an enterprising agent interested in escalating their pursuit of farm owners packages would be welcomed by insurers writing this line through independent agents, as loss ratios through independent agents are typically more than 10 percentage points better than average and nearly 20 percentage points better than the direct writers in 2006. Moreover, two trends in agriculture should create opportunities for independent agents. First, there is a trend toward consolidation to larger and more corporate-like farming operations. Second, there is an increase in the number of specialty farming operations catering to demand for products grown locally and/or organically. Both of these trends should result in individuals making insurance purchasing decisions that independent agents are well positioned to serve. Why?  As farms grow, they tend to look more and more like the rest of an agent’s commercial customers. Also, locally-grown or organic operations are often start-ups, and the proprietors may be more likely to purchase coverage with the counsel of an independent agent rather than the traditional exclusive agent and direct writers currently dominating the top 10.

Paul Buse (paul.buse@iiaba.net) is president of Big “I” Advantage^SM and a licensed p-c agent.




Tech Trends

The Seven Deadly Sins of Data Backup and Recovery
Data backup and recovery are not just for big business. Agency data is more visible, vulnerable and valuable than ever. 

If an insurance agency can’t manage its own risks, how can it manage its clients’ risks?

Agency data is more visible, vulnerable and valuable than ever. Data backup and recovery are not just for big enterprises.  The argument can be made that when a small business loses its Internet connection or its server for a few hours, it suffers greatly. In fact, research shows that 50% of companies that lose their data in a disaster never reopen for business and 93% are out of business within two years. Here are the seven deadly sins agencies commit in the backup and recovery process:

Sin #1: No Backup Plan
Too often, backup is not perceived as a strategic, value-added activity for small businesses. As a result, critical data is left at risk. Every business, regardless of size, needs a data protection strategy to ensure business continuity. HIPAA, Graham-Leach-Bliley, Sarbanes-Oxley, anyone?

Sin #2: Backup is Not Taken Offsite
To minimize cost, insurance agencies also routinely overlook storing data securely off-site. In some the “best cases,” this consists of tapes stored in office drawers, purses or the back seat of a car.

Sin #3: Bad Backup Plan
Many companies only back up their data on a nightly or weekly basis. This leaves a large window of vulnerability where critical data can be lost.

Sin #4: Reliance on Tape Media
Fifty percent of tape-based backups fail. Most agencies do not have the IT resources to consistently and reliably handle tape management and off-site storage.

Sin #5: Our Office Manager Can Do It
Forgiveness time. There are simply too many moving parts in tape backup schemes and it’s too much for mere mortals to do. When was the last time your tape backup log was checked?

Sin #6: No Regular Testing of Backup and Recovery
Backup is useless if your recovery fails. Testing tape-based recovery can be time-consuming, and most companies rarely do it.

Sin #7: “It Won't Happen To Me”
Data loss events are inevitable. Critical data loss can result from a variety of causes including human error, a computer virus, hardware or software system failure, power disruption, fire or natural disaster.

Despite these challenges, insurance agencies need to commit to protecting their data. It could be a matter of business life or death!

To read the entire article,  click here.

Bob Chaput (rchaput@amtechgroup.com) is President of American Technology Group, Inc., a disaster recovery and data protection services firm.