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Big “I” National News

P&C Trends

A Growth Spurt
Agencies are seeing improved net revenue growth, according to 2007 Best Practices Study.

Agencies of all sizes are seeing stronger organic net revenue growth, which has contributed to improved profit margins and growth rates across the board, according to the 2007 Best Practices Study.

The study, a partnership between IIABA and Regan Consulting, Inc., polled 195 Best Practices agencies nationwide to help independent agents better understand how they’re performing against others in the industry. This year, strong organic net revenue growth was one of the biggest surprises in the study, with agencies reporting higher-than-expected numbers. The study’s regional analysis, a comparison of agencies with more than $5 million in net revenue versus those with less than $5 million in revenue, showed double-digit growth for most regions.

Carl Sato, president of Business Insurance Services, a 2007 Best Practices agency in Honolulu, Hawaii, says his agency has been in growth mode in the past few years and attributes the increases to “good business” and good producers.

“We have been successful in our profit-sharing and our contingent contracts,” Sato says. “That’s primarily because of the good business we’ve given to the companies. We’re a little different in Hawaii because most Best Practices agencies have their own book of business. We have individual producers working for us, and we’re one of the few independent agencies in town that has been able to attract good independent producers.”

The study attributes the dramatic increases in organic revenue growth to firms with higher numbers in the southeast and coastal areas of the country, which saw population increases and higher pricing on accounts with coastal exposures. There was, for example, a significant disparity in results for agencies in the Midwest vs. firms in Florida, Texas and California.

Treutel Insurance Agency, a 2007 Best Practices agency in Bay St. Louis, Miss., hasn’t experienced a dramatic growth spurt like some of its coastal counterparts. However it is well-positioned for improvement, according to co-owner, Angelyn Treutel.

“Our agency is located in a coastal area that was devastated by Hurricane Katrina in 2005,” she says. “Our outstanding staff worked diligently to resolve claims issues and provide customer support. Immediately following the storm, a large number of our customers chose to leave the area, and we lost a part of our book of business, but over time, our area has begun rebounding and growing again and our agency was well positioned to take advantage of the re-birth.”

While growth is abounding throughout the industry, a large number of Best Practices agencies say there is a continued need to focus on revenue growth and creating a sales culture within their agencies, according to Madelyn Flannagan, Big “I” vice president of education and research.

“We find it very interesting that a majority of the 2007 Best Practices agencies, regardless of revenue size, acknowledged their desire to focus on revenue growth and to create a sales culture within the agency as a critical success factor,” she says. “The majority say that they have implemented programs for total account development, developed niche markets and created programs that expanded their geographic marketplace.”

Johnny Pitts, chief manager at Lipscomb & Pitts Insurance, LLC, a 2007 Best Practices agency in Memphis, Tenn., has implemented one such program. His agency started the Lipscomb & Pitts Breakfast Club, which holds monthly breakfasts featuring a notable guest speaker, in order to bolster sales.

“We get an enormous amount of publicity from this,” he says. “We had more than 2,000 guests this past year and 60% were their firm’s decision makers. We ask our members to invite their guests and at the end of the breakfast we send a thank you e-mail to every attendee from the agency. Then, at our Tuesday sales meeting, our sales manager hands out the prospect list.”

In addition to developing programs to spur growth, a majority of Best Practices agencies are also investing resources in finding new talent for the agency as a way of improving revenues.

“You have to have trained, professional producers on board who are willing to develop those relationship and it takes a lot of time to hire them and then train them,” Pitts says. “We spend six to nine months training a producer before he or she is allowed to make the first call to a customer, but once trained and educated that producer is ready to go.”

Developing growth strategies while balancing adequate profitability is a constant challenge for all agencies, but the 2007 Best Practices agencies seem to have found the right combination of the two according to a new statistic in this year’s study, the “Rule of 20” score.

The “Rule of 20” score is the sum of an agency’s EBITDA (earnings before interest taxes depreciation and amortization) margin multiplied by 50% plus the organic revenue growth rate. A score of 20 means an agency is generating a shareholder return that is acceptable for a well-run agency; a score of less than 20 indicates room for improvement and a score of more than 20 is outstanding. This year, almost all Best Practices agencies in every category had a score of more than 20 (with the exception of agencies with more than $25 million in revenue, which received a score of 18.7).

Striking a balance between profitability and growth isn’t so much a challenge as it is a necessity, according to John Watson, managing principal at Brower Insurance Agency LLC, a 2007 Best Practices agency in Dayton, Ohio.

“It is something that you are always keeping an eye on while protecting the bottom line,” he says. “I wouldn’t call it a challenge for us, but it’s something we are aware of and keep our eye on. We do believe you have to continue to invest in new people and new value-added programs for clients, so it’s not really a challenge for us as much as it’s something we know we have to do.”

Editor’s Note: This is the second part in a month-long series highlighting the findings of the 2007 Best Practices Study. To read the first installment of the series, click here. Next week’s edition of Insurance News & Views will look at the study’s findings on technology.

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

P&C Trends

Banking on It
Report finds p-c still leading revenue source for banks in insurance.

Commercial lines once again dominated the top 100 banks in insurance, but at a lesser rate than previous years, according to the “2007 Who’s Who in Banking Insurance.”

The study, published by the Bank Insurance Market Research Group, ranks the top banks and thrifts in the insurance business. While 68% of institutions involved in the study said commercial lines were their leading revenue generator this year, that number is down from 73% in 2006 and 79% in 2005.

“It’s a difficult year for commercial p-c,” says Andrew Singer of the Bank Insurance & Securities Association. “The renewal rates were lower for the most part, so revenues weren’t as high. So some other lines banks are active in, like employee benefits, gained relative to commercial p-c. The jury is still out whether commercial p-c can be sold to commercial banking clients. I would say right now the minority says that it can be sold through banks. Employee benefits, by comparison, might be…you can see a team and a banker and insurance producer teamed together and meeting with a client because health insurance is a continuing problem for small business owners.”

This year’s study found 23 institutions with insurance as a major business segment, and seven of these banks generated 10% or more of their net income from insurance. The top 10 banks where insurance is a major business segment include: BNCCorp (53%), Oneida Financial (24%), Leesport Financial (19%), Greater Bay Bancorp (17%), Evans Bancorp (17%), ACNB (14%), First Financial Holdings (13%), Coutnrywide Financial (7%), German American Bancorp (6%) and BB&T Corp. (6%).

Even though the p-c industry is experiencing a soft market, the top 100 banks in insurance had significant performance goals. This year’s top 100 banks were required to have $4.1 million in annual insurance brokerage revenues, which was an increase from the $3.8 million required in 2006 and the $3.4 million in 2005.

There have, however, been some banks opting to withdraw from the game, with three of the overall top 10 banks in insurance undergoing major changes. These banks include: Bank of America (ranked sixth overall), which sold its commercial insurance agency to Hilb Rogal & Hobbs Co.; Commerce Bancorp Inc. (ranked 10th overall), which announced it’s intention to sell its insurance brokerage to agency founder George Norcross; and Greater Bay Bancorp (ranked seventh overall), which sold itself and its ABD Financial agency to Wells Fargo.

“A lot of banks that were pretty big in this area exited this year,” Singer says. “I think that’s probably explained primarily by the soft p-c market. What happens is in banks where they don’t really know too much about insurance, they don’t even really know if they want to be in the business. These nice projections they had when they purchased the agency aren’t being fulfilled. So they lose patience and say the agency isn’t growing as much as the bank and they say ‘let’s get out’. I suspect that is going to happen a lot as the pendulum swings back and forth in the market.

 “In a tough market the banks that really want to be in insurance are sticking it out and are still satisfied with insurance subsidiaries,” he continues. “They recognize that in a tough market it’s going to be tougher to meet your insurance goals. There are people who weren’t really weren’t sure about being in the business in the first place or they had unrealistic ideas about cross-selling. I still think you are going to find banks in the business for some time, but there is no question this was a more difficult year for banks in insurance.”

For more information or to order a copy of the study, click here.

For more on the status of banks in insurance today, read “Who’s Afraid of the Big, Bad Bank?” in the upcoming January issue of Independent Agent magazine.

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




VIEW: P&C Trends

Flood Insurance in the News --- Again
An opportunity for every agent.

Flood insurance is an important global issue, but nowhere is the economic value to flood insurance purchasers higher than in the United States. On Dec. 4, leading academics from United Kingdom and French research facilities concluded that floods are coming and they will get worse. While the research focuses on coastal areas, it highlights the opportunity for U.S. agents to ramp up their flood insurance sales.

Independent agents should be aware that flood insurance is a great deal for the U.S. individual or business purchaser. As demonstrated in the graph below, that great deal is being recognized increasingly and sales are climbing to where they ended in 2006 --- at a little less than $2.5 billion (green line). To see the value of purchasing coverage, examine the combined ratio of this line of business (red line). This line is rarely profitable for the risk taker and, on average, a dollar of premiums is insufficient to pay the losses and expenses incurred in delivering the product. In such situations, the purchaser gains an economic advantage over the risk taker and that translates into a good deal for those who are exposed to flood loss.



*Source: A.M. Best’s Aggregates & Averages

“For the insurance industry, there is both an opportunity and a necessity,” says Dr. Celine Herweijer, principal scientist of future climate at Risk Management Solutions (RMS), a catastrophe risk management firm with origins at Stanford University. While her main point is that society’s adaptation to the increasing exposure is critical, it goes hand-in-hand with mitigation in insurance protection. For the immediate future, the biggest value agents can bring to their clients is making sure they know you can provide flood insurance.

Editor’s note: This is part one of a two-part series on flood insurance. Next week IN&V will examine the top writers of this line of business.

Paul Buse (paul.buse@iiaba.net) is president of Big “I” Advantage^SM and a licensed p-c agent. For information on Big “I” national and state flood coverage, go to www.independentagent.com.

Agency Management

Making Taxes Less Taxing
Year-end tax tips for independent agencies. 

This is the time of year many people are caught up in the hustle and bustle of the holiday --- not taxes. Yet now is the perfect time for independent agencies to start planning for the April 17 tax deadline, according to Tom Foster, national spokesperson for The Hartford’s Retirement Plans Group.

“I think the small business owners, especially this time of year, get hung up on all the small things around them,” he says. “Some common mistakes they make are that they really should go back and look at last year’s business returns because some of the things they were able to do last year they are unable to do this year.”

Agency owners have several factors to take into consideration each year when tax time rolls around and changes to an agency, such as hiring new employees or taking on a business partner, can affect the agency’s taxes, according to Foster.

Foster recommends independent agents utilize the following year-end tax tips in order to be better prepared come April 2008:

1. Review last year’s tax return with an accountant to make sure that you are taking full advantage of the same deductions again. If you are making estimated tax payments, make sure that you are on track with estimated tax liabilities and that you will have sufficient funds to cover any deficiency in your taxes to avoid incurring any penalties.

2. Rely on professional guidance to help navigate the complex tax regulations, which can change at lightening pace. Changes in tax laws could make some deductions from the previous year no longer applicable, and other tax regulations could make you eligible for new deductions.

3. Review life or business changes to determine if there are any new qualifications or disqualifications for tax deductions. If you older than 50, you become eligible for the baby boomer catch-up contribution in your retirement plan. For example, at age 50 you may make an additional $5,000 contribution to your 401(k). If you are older than 59.5 years, you are able to make withdrawals from your retirement account without incurring the IRS 10% penalty tax. If you are older than 70.5, you may be required to start drawing upon your retirement plan depending on level of ownership and whether or not you are still working. If you don’t follow the rules of that properly, you may get a 50% penalty on the amount that should’ve been withdrawn.

4. Consult with a financial advisor to review your investment strategy and make sure it is still on track despite issues of market volatility and adjust it accordingly. While a high level of trust in an advisor is important, it is a good idea to do due diligence and proactively check with your advisor to ensure your investment strategy is consistently on mark to achieve your goals.

5. Work with financial advisors who specialize in retirement plans to make sure you are taking advantage of any new developments with tax-deferred retirement savings and are invested in a plan that is best suited to your situation and future needs. Small business owners should talk with their advisors about the retirement savings options available with advantages suited to their needs, such as the individual 401(k), solo defined benefits plan, age weighted plan and new comparability plan. Many of these plans will allow those who are highly compensated to have a larger percentage of the contributions made on their own behalf rather than their employees. It is important to work with a financial advisor to understand how these rules apply to each individual situation.

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

Forms & Substance

PAP vs. BAP
How do  personal and business auto policies stack up?

The Big “I” Virtual University recently received the following question from an agent:

“Recently we have had several personal lines customers ask to transfer their personal vehicles to their business auto policies. In both cases, the businesses are solely owned by our personal auto customers, but they are incorporated. The business auto rates are less (at this time) than the personal rates. We are strongly discouraging this transfer, and have explained the problem with titling, registration, ownership, etc. We would like the expert’s opinions on the coverage advantages/disadvantages of personal auto vs. business auto with DOC.”

This question often comes up when insureds (e.g., an artisan contractor with a pickup truck) have the option of insuring autos under either a personal auto policy (PAP) or a business auto policy (BAP). While there is no definitively correct answer, often the PAP is a superior way to insure the exposure if the vehicle is personally owned. Again, which form is most appropriate for an insured depends on their particular circumstances.

When comparing prices, be sure to compare apples with apples by selecting the same coverages --- make sure the BAP is priced with the appropriate coverage symbols, along with UM/UIM and medical payments, plus PIP if applicable. Make sure to compare the same limits and don’t forget the need for umbrella coverage --- agents are probably going to find generally broader coverage and a cheaper price for a personal umbrella policy (PUP) versus a commercial umbrella policy (CUP) as long as the PUP covers business use of autos. In addition, it might be difficult to get a CUP issued with a PAP as underlying coverage.

Neither policy talks about registration or title specifically, but physical damage is like all property or inland marine policies. The insured must have an insurable interest in the property. PAP eligibility is contingent upon “ownership” (as are “acquired autos,” unless leased) — however, the ISO Personal Auto Manual does not define “ownership” because this is a legal issue that will vary from state to state, depending on statutory criteria or case law. The same is true for the BAP.

Why this is important deals not only with eligibility, but also autos acquired during the policy period. In one instance, like the question cited above, there might be an auto owned by an individual who would like to cover it under a business auto policy of their wholly owned corporation. In another situation, there might be a corporately owned auto that the person wants to cover under a PAP. Both of these scenarios are addressed by separate articles on the Virtual University.

Using the latter situation as an example, if the corporation acquires a new or replacement auto, is it automatically covered by the PAP? The PAP covers acquired autos when “you” become the owner (or acquire it under at least a six month written lease)...the problem is “you” is defined to be the named insured (an individual, not a corporation) and resident spouse. You don't have to be a rocket scientist (or underwriter or adjuster) to see that this presents a problem.

It would be easy to conjure up many scenarios where these types of issues can present problems. So, no matter what course you take, be sure to consult with the insurer to make sure that claims and coverage are what you expect them to be.

To read the entire article, click here.

Bill Wilson (bill.wilson@iiaba.net) is the Big “I” director of Virtual University.