2017 Winter IIAI Viewpoint

Independent

Insurance Agents of Iowa

WINTER 2017 • VOLUME 35 • ISSUE 1 INDEPENDENT INSURANCE AGENTS OF IOWA

IN THIS ISSUE: • Changes, Challenges and Transitions Part II • 2017 Is Looking To Be A Year For Transformation • What Will You Be Doing?

• The Little Stuff That Drives Your Customers Away • Succession or Prepetuation?

• 2016-2017 Board of Directors

• IIAI Staff • Beware Of The Top Seven Agency Myths • What Would You Do If You Had A Data Breach?

• Take Your Kid To Work and Look What Happens • The Bottom Line

PRESIDENT’S REPORT Changes, Challenges and Transitions Part II Our industry will experience many changes. Some of these will be directly related to major electoral changes at both the state and federal level.

Independent Insurance Agents of Iowa 4000 Westown Parkway West Des Moines, Iowa 50266 (515) 223-6060 • FAX (515) 222-0610 800-272-9312 (In-State only)

Advertising Editors Melissa Meiners & Nicole Peffers

BOARD OF DIRECTORS President

Eldon Hunsicker Page 5

NATIONAL DIRECTOR’S REPORT 2017 Is Looking To Be A Year Of Transformation I do believe this year is going to be a year of transformation in many areas of our business.

Terry McDonald, CIC Page 7

Eldon Hunsicker - Ottumwa

President-Elect Terry Friedman, CPCU - Dubuque

Treasurer Tim English, CIC - Dyersville

National Director Terry McDonald, CIC - Iowa City

Directors

John Dalton - Council Bluffs Steve Madsen - Marshalltown David Rowley, CPCU, CIC, AU - Spirit Lake Scott Wirtz - Emmetsburg Luke Horak - Washington Lottie Miller, CPCU, CIC, AAI, CISR, CPIW, AAM, CRIS - Cedar Rapids Chris Gentry - Ollie Dave Walters - Audubon

Past President Jerry Mease - Winterset

IIAI OFFICE STAFF Chief Executive Officer Bob Skow, CPCU, CAE bob@iiaiowa.org • Ext. 13

Chief Operating Officer

In This Issue

ADVERTISERS

What Will You Be Doing?

by Thomas J. O’Meara Page 11

The Little Stuff That Drives Your Customers Away

by John Graham Page 13

Succession Or Prepetuation?

by Al Diamond Page 15

We would like to thank our advertisers for their support.

This magazine would not be possible without them.

THANK YOU! 39 Big “I” Professional Liability 26 Burns & Wilcox 37 Donegal Insurance Group

2016-2017 IIAI Board of Directors

12 Errors and Omissions

Page 18

4 EMC Insurance Co.

IIAI Staff

10 Grinnell Mutual

Page 21

2 The IMT Group

Beware Of The Top Seven Agency Myths

32 Iowa Mutual Insurance Co.

by Roger Sitkins Page 22

30 Merchants Bonding Co. 17 M.J. Kelly Company

Tom O’Meara tom.omeara@iiaiowa.org • Ext. 18

What Would You Do If You Had A Data Breach?

30 Partners Mutual Insurance

Director of Membership Operations & Education

by John Immordino Page 27

25 SECURA Insurance Co.

Melissa Meiners melissa@iiaiowa.org • Ext. 15

Big “I” Names New Virtual University Director

9 Western National

Technology & Communications Coordinator

Take Your Kid To Work And Look What Happens

Office & Education Assistant

by ACT News Staff Page 29

Membership Services Coordinator Marilyn Paul, CPCU, AIT, AAM, CPIW marilyn@iiaiowa.org • Ext. 11

Membership Services Coordinator Brenda Kluger, CIC, CISR, CIIP, CRM brenda@iiaiowa.org • Ext. 14

Membership Services Coordinator Megan Kincy, AINS, AIS megan@iiaiowa.org • Ext. 16

31 West Bend

Page 28

Nicole Peffers nicole@iiaiowa.org • Ext. 17 Cindy Grim cindy@iiaiowa.org • Ext. 12

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The Bottom Line

by Bob Skow Page 33 MISSION STATEMENT: The Independent Insurance Agents of Iowa will be an ­unrelenting advocate of the business, professional and p ­ olitical interests of its members; doing so by working in the p ­ ublic’s best interest and with the highest e ­ thical standards.

Viewpoint is a publication of the Independent Insurance Agents of Iowa. Viewpoint is published quarterly: Winter, Spring, Summer and Fall. Viewpoint is mailed to Iowa insurance agents, Iowa Home Office Executives, Affiliate members, and other state associations and organizations.

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president’s REPORT

Changes, Challenges and Transitions Part II Independent

by Eldon Hunsicker

Insurance Agents of Iowa

PRESIDENT’S REPORT In my first article written at the time of the IIAI convention, the focus was on the many transitions that were taking place within our association. As we start the new calendar year, I would like to discuss many challenges that are facing our industry in 2017.

Our industry will experience many changes. Some of these will be directly related to major electoral changes at both the state and federal level. Others will be initiated by industry partners and still others will be the normally expected policy language changes, claim interpretations, and other agency management issues.

At the national level, changes to the ACA (Obamacare) will probably be the most significant changes that agents will experience. At this time it is hard to know just what form that will take.

One thing, for sure, is there will be change which will directly impact all our agencies, whether as health insurance providers, health insurance users, or both.

Another area that impacts many agencies is Federal Crop Insurance.

The process of negotiating a new farm bill will be in full swing as the new Congress convenes. It will be quite interesting to see how the agent’s

positions (paperwork requirements, submission requirements, and commissions) fair in the negotiation process.

National Flood Insurance needs a consistent long term renewal process.

This is tied to Congressional budget work which has been undependable, at best. It is yet to be seen how the new administration and Congress will arrange this process.

There are many other areas that the Federal Government will be focusing on. These include tax reform and insurance regulation. It is indeed reassuring to realize that our national

Big “I” staff, along with agent volunteers, work consistently and tirelessly to protect independent agents from government over reach. This activity requires financial support so that activities (lobbying, candidate support, etc.) can continue to be successful, as we have come to expect. This requires that every agent, not just agency principals and producers support the national PAC. With the success that we have had and the challenges that we face it is imperative that every agent supports the Governmental Affairs activities with a contribution to the InsurPac. The Iowa Statehouse has a new look in 2017 with the control of both houses being held by one party. It is unclear what the changes will produce with new proposed legislation. However, it is quite clear what our Iowa IIAI/ PAC has done to support the activities of Bob Skow at the Statehouse. We cannot rest on our past successes, new challenges will arise. Again, every agent should be supporting our IIAI/PAC activities. Bob Skow and Tom O’Meara need our financial support to continue the work on Capitol Hill which positively supports the Independent Insurance Agents in Iowa.

And last, but not least, we need to focus on agent-company relations as the traditional company/agent agreements and working relationships are

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unilaterally changed by our business partners. Many agencies will be reviewing these relationships and what impact they have on our agency/ customer relationships. These issues will require diligent, on-going review and oversight as we go forward. Your association is very much concerned about the impact on individual agencies and subsequently on overall company/agency relations as the changes move all agencies into unchartered waters.

I personally am very optimistic about how Independent Agents will work through these changes and challenges.

History has recorded the resilience of the insurance agency force. We work hard to meet the changes/challenges and move on to the next set of challenges. Working together, supporting, our PACS, and supporting our state and national staff, will put the agency force on strong ground to meet the new challenges.

I look forward to working for you as we address the many issues facing our industry. Together, we can work our way through the many issues in the New Year.

Happy New Year!

Independent

Insurance Agents of Iowa

Sometimes things are just clearly

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national director’s REPORT

2017 Is Looking To Be A Year Of Transformation Independent

by Terry McDonald, CIC

Insurance Agents of Iowa

IIAI’S NEW NATIONAL DIRECTOR - TERRY MCDONALD, CIC WELCOME to 2017 everyone! As I commence my new position as your National Director to the Independent Insurance Agents & Brokers of America (IIABA), I want to take time to thank Dean Brooks for his 5 years of dedicated service as our past National Director, representing our interests on a national level. I had the opportunity to attend a few meetings observing Dean and how he carried the Iowa agents’ message so that our voices were heard. I can tell you, no one represented their state interests like Dean. It is easy to get caught up in the national politics and go with the crowd, but Dean was always focused on who sent him and what he represented. Dean, I know I am speaking for all Iowa Insurance Agents when I say THANK YOU for giving us your time so unselfishly.

I do believe this year is going to be a year of transformation in many areas of our business. Here are some instances that will have a direct impact on our business and agents personally: • Donald Trump as our new President. The history making aspect of this election is that President Trump is not an establishment candidate.

• This country has not witnessed a single party controlled congress

and presidency since George W. Bush in 2003-2007.

• Governor Branstad is headed to China in a very important role as the U.S. Ambassador to China.

• Our Chief Executive Officer Bob Skow is entering his last year.

• Tom O’Meara, is our new Chief Operating Officer and will replace Bob Skow in 2018 as the Chief Executive Officer.

• Commissions are changing yielding some angst for agents, but offering opportunities to these agents at the same time.

• Mergers and acquisitions are on the rise at an alarming rate creating additional challenges for membership numbers in our state and national association.

• Trustedchoice.com is gaining real traction in some parts of the country for independent agents to combat the online competition when buying personal lines insurance.

Not one business person appears unaffected by what is going on around us. I do not have firsthand experience on how these issues may affect agents, but I will try and use my crystal ball to speculate.

Insofar as the change in our national government goes, I trust that it will not be business as usual in 2017. With a non-politician moving into the White House and one party controlling all three branches of our government, I am certain that a few of the changes on the horizon will deal with the ACA, Federal Insurance Office (FIO) and Corporate Taxes to the extent that the ACA is concerned, I would hesitate to say the

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entire system will be blown up until another health care solution is in place.

I do not play in this sand box, but I have a partner that deals with it every day, keeping me updated quite often.

The FIO will undoubtedly be analyzed and scrutinized. This new layer of bureaucracy established by Title V of the Dodd-Frank Wall Street Reform and Consumer Protection Act is designed to be oversight authority for our industry (except health, long-term care and crop), but the supervisory role and power remains with the states. The fear of “mission creep” is a concern for all state regulators and agents alike so this should be a welcome change for the better.

The tax issue for small business corporations creates additional issues for insurance agencies. Corporate Tax Reform is gaining momentum with bi-partisan support. This area would give our members welcome relief from what is double taxation. The ability to keep more money in the agency to help hire and expand business will help bolster the economy with really well-paying jobs and strengthen the American independent agency system.

Governor Branstad is the new Ambassador to China. This will be welcome news to Iowa’s farmers and Iowa’s number one industry. It is a well-known fact that the farm economy has been down the past 3 years, so if Ambassador Branstad’s decades old relationship with China’s President Xi Jinping can improve relations, it has to help the entire state of Iowa.

Bob Skow is entering his last year as our CEO. Let me assure everyone that Bob will leave our association knowing that he has implemented sound business practices and hired top notch staff to carry us forward. The continuing leadership is in place and positioned to keep on our successful path that has made the Independent Insurance Agents Association of Iowa one of the strongest in the nation. Believe it or not, we are the gold standard of successful agent associations.

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Several of you know the leadership I am talking about is the IIAI’s new Chief Operating Officer, Tom O’Meara.

Several of you worked with Tom while he was Assistant Insurance Commissioner for the State of Iowa.

I had the opportunity to spend some time with Tom and believe me, Bob and our IIAI Board of Directors could not have found a better candidate to lead us. They really hit the ball out of the park on this one. The wealth of experience Tom has with insurance division issues, political matters and association issues will help guide us into the future. If you combine this experience with the knowledge of our staff made up of Melissa Meiners, Director of Membership Operations and Education; Marilyn Paul, Brenda Kluger and Megan Kincy, Membership Services Coordinators; Cindy Grim, Office & Education Assistant; and Nicole Peffers, Technology & Communications Coordinator, you know we are positioned well to continue our strong path as national leader in agent associations.

The biggest challenge we face today are member numbers. Many of you know the association is only as strong as it members. Increasing membership numbers can be a huge task moving forward for the IIAI when you figure the amount of mergers and acqui-

sitions that happen every day. The average age of the agency principals is edging up every year. It is up to your National Board of Directors and State Board of Directors to map out clear visions going forward on how to sustain our association with dwindling agency members but increasing agent numbers.

The last item I want to briefly touch on is the TrustedChoice.com. This is the Big “I’s” answer to help drive customers to your agency that shop online. While this website is progress not perfection toward online shoppers, it does reflect a commitment by our national association to help us combat online competitors. Let’s face it, all data points to the need for the insurance buyer to have an agent, but at the same time the sophisticated consumer wants the convenience of using the internet. More to come on this in future articles.

You might ask what all of this has to do with my duties as National Director and the answer is, I am not sure yet. I do know we all have our work cut out for us moving forward on local, state and national levels. I will make you a promise to commit my time and effort to keep our association strong for present and future generations. I welcome your feedback or calls.

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What Will You Be Doing?

Independent

by Tom O’Meara, Chief Operating Officer

Insurance Agents of Iowa

MEET TOM O’MEARA – CHIEF OPERATING OFFICER I heard this question often during my transition time from my previous employer to my current role here at the Independent Insurance Agents of Iowa.

After having worked together with the IIAI for over 10 years while I was at the Iowa Insurance Division, I thought I had a pretty good idea of what my new position would entail. I always answered the question in a safe manner, advising them of what it is I knew the job included, but looking back I now recall a bit of hesitation in my answer. Not that I was not comfortable in what it was I would be doing, rather the uncertainty of what I did not know which would be part of the job functions.

Now, looking back at my first 4 months in my new role at the IIAI, I can affirmatively say that I had no idea of all the moving pieces and parts that go on at the Association in an effort to make the Independent Insurance Agents of Iowa one of the top agent associations in the country. To start, the energy, organization, and positive attitude by each and every staff member is the key to the overall success of the Association. I continue to be amazed more and more each day I walk in the office at the way they work so fluently in their roles. Whether it be in their own individual duties and responsibilities or working together as a collaborated team effort, the staff here

takes great pride in what it is they do and accomplish. I have no doubt Bob will be the first to admit that through all his great years and accomplishments as leader of the association, none of it would have been possible without the efforts of his tremendous staff that work with him.

This past December I participated in an event that certainly was not on my radar when asked the question of what it is I would be doing? We organized a series of Town Hall Meetings throughout different geographic regions of the state. The meetings were held on consecutive days in Storm Lake, West Des Moines, and Iowa City. I have

attended countless meetings throughout the state during many years of professional employment however this was the first time I have ever been a part of “organizing” and preparing for such meetings. And these Town Hall meetings were not planned out months in advance. From the moment a decision was made that these meetings were needed to help inform our membership of certain current hot-topics in our markets, we had 5 weeks to get them organized. This included everything from dates, logistics, speakers, agendas, and marketing. For the many of you who were able to attend one of the meetings, I hope you found them beneficial. For those who were unable to attend, I hope you are able to make it to similar meetings in the future.

For me, it proved to be a valuable experience not only in the educational aspects of the meeting itself but also in the behind the scenes preparation and organizing that takes place in order to make the events as successful as they turned out to be. Much of the credit and accolades following the meetings were being delivered to the various speakers. Well-deserved, however I could not help but think about those individuals I refer to in the above paragraph (Melissa, Cindy, Nicole, Megan, Brenda, and Marilyn) back at the office who truly made the events such a success. Also, the institutional knowledge that I was surrounded by while traveling with Bob Skow, Eldon Hunsicker, Dean Brooks, and Dirk

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Nohre was priceless. I thought I knew quite a bit about the insurance world, I learned that I “don’t know” much more than what I “do know”.

Looking back on my first 3 months, I now welcome the question, “WHAT WILL YOU BE DOING”? Much of my answer would remain the same but there would be many more elements added to my response. When I started this position on October 1, 2016, I worried that working under Bob’s direction for 15 months would be far too long.

Now as we head into 2017, I worry if it will be long enough?

I look forward to working with all of you in 2017 and beyond and for the continued success for the Independent Insurance Agents of Iowa. My goal is to meet and visit with as many of you as possible in the upcoming year.

Please do not hesitate to contact me if I can ever be of any assistance to you.

Call your Big “I” Errors and Omissions Team!

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First we have membership discounts with the three main markets for agents errors and omissions insurance, second we have a team of errors and omissions professionals to assist you and help answer your questions, and third we are the only market that actively puts your association clout to work passing liability laws which help make Iowa a great place to operate your agency! So if your coverage is not with us…call and get a quote! Marilyn Paul, CPCU, AIT, AAM, CPIW; Brenda Kluger, CRM, CIC, CISR, CIIP and Megan Kincy, AIS, AINS along with CEO Bob Skow, CPCU, CAE are here to help you! 800-272-9312

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The Little Stuff That Drives Customers Away With all the talk today about the need to create a great experience for customers, why are so many companies overwhelmed with a tidal flood of customer complaints?

Much of it is little, picky stuff. But small things get big in a customer’s mind, and the next thing you know, the customer is gone — for good. Spotting the little stuff that upsets customer is the first step. The next one is to doing something about it.

Here are examples of little stuff that drive customers crazy — and away:

By John Graham

1.

2.

3.

“We make it easy for you.” For many customers, these words are a red flag. They’ve been duped too often. What’s easy from a company’s viewpoint may be complicated and confusing to its customers. Check with them before using “easy” or “convenient.”

Counter intuitive websites. If visitors get confused when trying to navigate a website, they leave, unwilling to spend any time trying to figure it out. Websites are a marketing tool that must make sense to users.

Making excuses. “Sorry you had a problem. I gave that to my assistant to take care of…” Or, “I meant to get back to you but I was in meetings all afternoon.” Such words inflame customer rage, and send the message that someone is disorganized, distracted or incompetent. Companies should be an “Excuse-Free Zone.”

4.

5.

Slow is a killer. Amazon’s “1-click,” Apple pay, and 4-hour (or less) delivery all point in one direction: fast is never fast enough, as customer expectations go higher and higher. Slow, by whatever standard, isn’t tolerated.

Having to repeat your story. It’s not only frustrating and drives customers out of their minds, but there’s no acceptable reason why it should occur. Yet, it happens all-too-frequently. “Isn’t this information already in your computer?” a customer asks. The response is often an unsatisfactory excuse.

6.

Being put on hold endlessly. There is nothing worse that having to hear the same words repeated endlessly: “Your call is important to us. A representative will be with you shortly.”

After 25 times the voice adds, “We’re sorry for the inconvenience.” The message the customer hears is different: “My call isn’t important to you.” Customers retaliate by leaving.

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“COMPANIES SHOULD BE AN EXCUSE FREE ZONE”

7.

8.

Getting differing answers. “The salesperson assured me…,” says the customer when making an inquiry a week later. “Oh, we’ve never done that,” according to someone else. It raises the question, “Can I trust this company? Am I going to get what I expected?” Creating doubt drives customers away.

Putting customers on the defensive. When they asked why something occurred without prior notice, the manager said, “We sent an email to everyone and posted the notice.” That’s how to make customers feel stupid. A better approach may have been, “I understand how you feel if you didn’t get the email. I’ll make sure that’s corrected.”

9.

10.

11.

12.

13.

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Lack of knowledge. Even five years ago, having to deal with people who lacked knowledge was irritating, but often ignored. Today, with instant access to endless sources, customers won’t tolerate it. If customers want help, they’ll find it.

Ignorance isn’t bliss; it’s lost customers.

Faking answers to questions. Customers may not know everything, but they figure it out fast when someone makes up answers. It sounds basic, but employees should be empowered to get accurate information.

Getting passed around. After telling your story, there is nothing more aggravating than to be told, “You’ll have to talk to Martin about that.

I’ll transfer you.” Then, you hear that Martin is away from his desk or helping other customers.

Today, we get one shot at satisfying customers.

Inconsistency. It’s a lack of consistency that upsets customers. It applies to all types of change, from phone options, to personnel, website navigation, discounts, return policies, and product/service availability. So, prepare the way with customers before making even small changes.

And, remember, customers are smart, so don’t tell them a change is to improve service. They won’t need any help in making that decision.

Not using communication options. Whether it’s texting, a chat line, or a help line, making it convenient for customers to get information or get their questions answered, technology helps maintain customer relationships.

| WINTER 2017

14.

Making things complicated. The CVS clerk rang up the purchases and keyed in the coupons, until he came to the $6 “good customer reward.”

Pointing to a coupon dispenser, he said, “You need to get it from the machine over there first and come back.” Not good. Customers want everything as simple as possible.

15.

Not answering inquiries. The button on the restaurant’s website, said, “Send us a message,” noting that it will be answered within an hour.

Three weeks later, still no response. The story is repeated when the name of this restaurant comes up. Tending to customers is as important as working the grill.

16.

Making changes without telling customers.

Let customers know why, and when you’re making changes. The city was buried in snow, but the Boston Globe emailed its home delivery customers letting them know the Sunday edition would come at night when there was less traffic. Result: happy readers and a lot fewer complaints.

17.

Lack of follow through. Broken promises are indelible; they don’t go away. They influence how customers feel about a company from then on, and it’s even worse when customers take the initiative to find out why and are told one or more of the following, “I’m sorry, but I got busy,” or “It slipped through the cracks,” or “I thought I did that,” or “I’m just getting around to it.”

Customers deserve timely responses.

18.

19.

Not showing appreciation. No customer likes feeling ignored or, worse, taken for granted.

Relationship building begins with finding thoughtful expressions for saying “thank you” and “you’re important to us.”

Ignoring social media postings. With so many customers checking out businesses online, negative and inaccurate reviews can be damaging to a brand if ignored.

Such examples make it clear that the little stuff that aggravates customers is a big deal.

John Graham of GrahamComm is a marketing and sales strategist-consultant and business writer. He publishes a free monthly eBulletin, “No Nonsense Marketing & Sales.” Contact him at jgraham@grahamcomm.com, 617-774-9759 or johnrgraham.com.

SUCCESSION or PERPETUATION?

By Al Diamond

I

t would seem to be easy to create a succession plan if you have one or several children in the business or you have younger partners who you and they expect will take over once you retire. But a HUGE number of agents don’t have children in the business and are “Lone Rangers,” having managed their business on their own since they started or became owners. What do they do?

And many agents with successors in place are not so sure that their successors can manage the business as well as the older agents (or sufficiently to assure the older agent a secure retirement payout). What do THEY do in this very sensitive situation?

Until now the Lone Rangers simply sought the highest price from a buyer and sold out. That has been the simplest way out and the agent didn’t

have to do what they have never done before – bring someone else into their business, train and spend time with people who may have different ideas about running the agency. Most ‘Lone Rangers’ are comfortable enough with their clients and can even spend time with employees and company folks.

But the idea of mentoring someone who will eventually own their businesses is foreign to them. Many of them are so averse to this concept that they will sell their agencies at a value below what they deserve to avoid this “unknown universe.”

What the ‘Lone Rangers’ don’t consider is the ramifications of a sale if they intend to remain in their communities. Over the long years spent in a business, we find that our best and long term clients either are or become our friends, especially in rural areas.

Selling out to the highest bidder (often banks, regional agencies, nationals or

foreign competitors seeking a foothold) puts your “friends” into the hands of folks you (and they) might not find as friendly and service-oriented as you have been. No one thinks about how they will face their friends in the future having “sold” them with the agency.

So selling to the highest bidder works well if you’re going to leave the area (and have the time to set up your agency for maximum value).

Otherwise you may not get the full value for your agency in the sale. And, you have to deal with your client/ friends after the sale if the service levels are not up to yours.

Meanwhile the ‘Lone Rangers’ are envious of their friends who have children, partners or employees who are capable of taking over the business some day. What the “Rangers” don’t realize is the panic faced by

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many of these owners with default succession plans. They have watched their children and/or partners/employees grow into their roles in the agency and they well-know the weaknesses of each of them. They wonder whether or not their successors can fill their shoes once the older owner departs.

businesses at a tidy profit. This is only a shame and a problem if the older generation gave the younger generation a break on the price to allow them value benefit in the ownership transfer.

In that case, the old owner discounted the value of the agency in favor of the new generation of owners only

WHETHER OR NOT YOU HAVE TIME BEFORE YOU TURN OVER THE REINS TO YOUR NEXT GENERATION OR IF YOU STILL HAVEN’T IDENTIFIED THAT NEXT GENERATION, A MANAGEMENT REPORTING PROCESS CAN BE ESTABLISHED THAT WILL REQUIRE THE NEXT OWNERS OF THE BUSINESS TO OPERATE IT IN A MANNER THAT WILL ASSURE YOU OF ITS ABILITY TO MAKE PAYMENTS TO YOU IN A BUY-OUT.

Many times there is truly no cause for this concern. Every parent and elder has periods during which he thinks of his successors as the “idiot children.” Their mistakes have been magnified to the point that the owner is concerned over the well-being of the firm and the security of his retirement payout. That’s why so many agents have required third party loans to fully pay them with the debt carried by a financial institution for the payments he could have engineered for him or herself. But the agents have convenient memories, remembering the faults of others and forgetting their own mistakes as they grew from their 20’s and 30’s into ownership positions.

No, most are not ‘Idiot Kids,’ they are the same kind of people as their elders, learning more from their own mistakes than from the teachings of their elders.

But it is hard for the older owner to distinguish between youngsters growing up and those real Idiot Kids who have been spoiled and will take over the agency long enough to realize that they don’t like it even without the older owner (who they always thought was holding them back). Within a few years to a decade, these new owners will have secured their future by merging or selling their predecessors’

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to have it sold at a tidy profit shortly thereafter. However, if the ownership transfer was at a fair value, then the new owners have every right and privilege to merge or sell if they are not up to growing the agency’s value as an independent entity.

The problem is not the eventual sale or merger of agencies. Sales and mergers are actually a part of agency life-cycles that is healthy for the industry. The problem is that the original owners knew that the new generation of owners were not capable of managing the growth and value of the agency and still sold it to them BECAUSE MOST OWNERS DON’T FEEL THEY HAVE ANY CHOICE. So the ‘Lone Rangers’ sell their agencies because they feel they don’t have the option of internally succession and the multi-generational owners are concerned because they feel obligated to their children (or other successors) and feel they have no choice. Do you see the commonality? All of these agents, small, medium sized or large, urban, suburban or rural¸ ’Lone Rangers’ and agencies with successors — all of them feel trapped with no options besides selling and hoping for the best.

BUT IT DOESN’T HAVE TO BE THAT WAY. No, we can’t rule from the grave (or from retirement), but tools are in place to secure the future of your agency (and the future of the payments to you) whether you are alone in ownership or have generations behind you.

If you have time (several years before you either retire or want to cash out), there’s a plan of action you can take to make your retirement or withdrawal from ownership more secure. If you waited too long (you’re in the process of selling down or need to do something within the next year), there are still tools that can be implemented that can secure your payout to maximize the value of your asset.

In a nutshell, whether or not you have time before you turn over the reins to your next generation (or if you still haven’t identified that next generation), a management reporting process can be established that will require the next owners of the business to operate it in a manner that will assure you of its ability to make payments to you in a buy-out. This reporting requires the new owners to retain sufficient business and to grow the agency sufficiently to sponsor the payments to the retiring owner. If it doesn’t happen, they have pre-agreed (in the purchase agreement) that the agency will have to be sold once again to satisfy the old owners (or they must secure full payment of the remaining balance due to the retired owner). The reporting system mandates both retention and growth to minimum levels AND the prudent spending habits that keep the agency’s balance sheet liquidity ratios at levels that will assure any financial auditor of the agency’s continued ability to support it debt.

The difference between having the luxury of time and doing this shortly before an ownership transfer is the training and implementation that can be done prior to (and proving the validity of) and ownership transfer and the need to establish the reporting system without any evidence that the

new owners are capable of achieving the requisite goals to assure sufficient success to manage the value paid for the agency. If you have the time, you establish the management reporting program as a test of the ability of the agency (and its potential new owners) to support the financial strength needed to buy out the old owner(s).

If the agency with its younger owner-potentials can accomplish this in the years available to them prior to the buy-out, the older owner can be reassured of the agency’s continued stability. The achievement of the objectives can be the pre-requisite for the ownership transfer and could, potentially, provide a ‘way out’ for an ownership change that could be disastrous if actually implemented.

Doing what’s best for the old owner is also doing what’s best for the new generation. If they are capable of handling the ownership change, it’s wonderful. If not, we know this prior to any change in ownership and other

avenues can be explored.

If you are a ‘short-timer’ and need to make a transition quickly, this same management reporting requirement can be used to sell to a new owner who will either retain and build the business or have to re-sell it to satisfy the retired owner. No owner will ever be surprised again by their payments suddenly stopping and a sorrowful letter explaining the cash shortfalls that make further payments difficult.

The reporting process and balance sheet liquidity reporting requirements will reflect any negative changes very quickly and the Sale Agreement will contain very specific remedies if the agency cannot support its payments.

Plan ahead and any change of ownership can be managed to provide the maximum value to the old owner with a payment schedule that makes the burden bearable without sacrifice to the new owners. If you would like to

explore Succession and Perpetuation Planning with Agency Consulting Group, Inc., please call us at 800-779-2430 and we’d be happy to discuss your specific situation in complete confidence and confidentiality.

PUBLICATION ATTRIBUTION Agency Consulting Group, Inc. freely gives permission for its articles to be reprinted by permission by any industry publication.

We simply ask that all articles reprinted bear the attribution below. We also request that a copy of every publication carrying an Agency Consulting Group, Inc. reprint be sent to us prior to general release (so we know where and which articles are reprinted when we receive agent calls on the subject).

Reprinted from the PIPELINE, the national newsletter for agency principals. The PIPELINE is published by Agency Consulting Group, Inc., a leading consulting firm for independent agents in the U.S. for over 20 years. Call 800-779-2430 for information about the content of this article or PIPELINE subscription information.

E-mail info@agencyconsulting.com Website www.agencyconsulting.com

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2016-2017 IIAI BOARD OF DIRECTORS 18 |

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President

President-Elect

Eldon Hunsicker

Terry Friedman, CPCU

NOEL Insurance, Inc.

Friedman Insurance, Inc.

219 W. Fourth St., PO Box 370 Ottumwa, IA 52501 Phone: (641) 682-7533

880 Locust St., Suite 200, PO Box 759 Dubuque, IA 52004 Phone: (563) 556-0272

Treasurer

National Director

Tim English, CIC

Terry McDonald

English Insurance Agency, Inc.

A.W. Welt Ambrisco Insurance, Inc.

129 1st Avenue E., PO Box 190 Dyersville, IA 52040 Phone: (563) 875-2716

24 Westside Drive Iowa City, IA 52246 Phone: (319) 887-3700

Director

Director

Director

John Dalton

Steve Madsen

Dave Rowley, CPCU, CIC, AU

Midwest Insurance Associates, LLC/ Agriland Insurance Agency

Shomo-Madsen Insurance

Bank Midwest dba Bank Midwest Insurance

2352 Railroad Highway Council Bluffs, IA 51503 Phone: (712) 325-0011

22 E. Main Street, PO Box 129 Marshalltown, IA 50158 Phone: (641) 752-5568

1525 18th St., Suite 100, PO Box 248 Spirit Lake, IA 51360 Phone: (712) 336-1224

Director

Director

Director

Scott Wirtz

Luke Horak

Hughes, Brennan & Wirtz, Inc.

Horak Insurance, Inc.

Lottie Miller, CPCU, CIC, AAI, CISR, CPIW, AAM, CRIS

3685 450th Avenue, PO Box 97 Emmetsburg, IA 50536 Phone: (712) 852-2523

115 E. Washington Street Washington, IA 52353 Phone: (319) 653-2116

Millhiser Smith Agency, Inc. 3100 Oakland Road NE, PO Box 3100 Cedar Rapids, IA 52406 Phone: (319) 365-8611

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Director

Director

Past President

Chris Gentry

Dave Walters

Jerry Mease

Gentry Insurance Agency

Community Insurance Agency of Audubon

Johnson Insurance LLC

PO Box 118 Ollie, IA 52576 Phone: (641) 667-2516

PO Box 31 Audubon, IA 50025 Phone: (712) 563-4422

PO Box 231 Winterset, IA 50273 Phone: (515) 462-2913

Independent

Insurance Agents of Iowa 20 |

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IIAI STAFF

Chief Executive Officer

Chief Operating Officer

Bob Skow, CPCU, CAE

Thomas O’Meara (515) 223-6060, Ext. 18

(515) 223-6060, Ext. 13

Director of Membership Operations & Education Melissa Meiners

Technology & Communications Coordinator Nicole Peffers (515) 223-6060, Ext. 17

(515) 223-6060, Ext. 15

Office & Education Assistant

Membership Services Coordinator

Membership Services Coordinator

Membership Services Coordinator

Cindy Grim

Marilyn Paul, CPCU, AIT, AAM, CPIW

Brenda Kluger, CIC, CISR, CIIP, CRM

Megan Kincy, AINS, AIS

(515) 223-6060, Ext. 11

(515) 223-6060, Ext. 14

(515) 223-6060, Ext. 16

(515) 223-6060, Ext. 12

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I

BEWARE

of the Top Seven

AGENCY MYTHS

by Roger Sitkins, CEO Sitkins Group Inc.

f you hear the same things often enough, repetition becomes reality. And through the years in our industry, certain ideas have been repeated so often that they’ve become widely accepted as the truth when in fact, they’re nothing more than myths. As a result, many people in the agency business have made some very serious mistakes caused by believing in these myths. Here’s my list of the top seven myths to avoid.

Myth #1: Every Account is a Great Account

Most think that every account is a great account, which simply is not true. This is especially true with you newer producers, who tend to confuse activity with results. In their minds, anyone who can fog a mirror and pay in U.S. dollars is a great account. These are normally order-taking accounts. Typically, the prospect will call for an insurance quote after seeing an ad or will click to receive a “Free Quote” through the agency’s web site.

So the producer follows up and provides a quotation and winds up taking an order on about two out of ten opportunities. They sell just one policy that the prospect had requested, with the plan to round them out someday. The problem is, that day never comes.

If it did, we’d certainly have a smaller percentage of single-policy accounts. But the reality is that more than 50% of personal lines and small commercial lines are single-policy accounts. You wind up with low revenue per customer and lower retention. No wonder the average agency loses money on 80% of their customers!

I’m a firm believer that you have to know your numbers. You may recall my comments in past articles about “Knowing versus Guessing”. It’s important to complete a profit-center analysis on your various types of clients. For example, if all you had were personal lines, what would be your income and expenses? Most agencies — not all, but most — will lose money on the vast majority of their customers because they don’t even take a look at it, they don’t “know”.

Myth #2: Hire People with Insurance Experience

When most agencies have an opening, because they say they don’t have time to train, or any New Employee On-Boarding process, they look to hire people from inside our industry. Typically, they want service people who are already licensed and producers with experience at another agency. But when you go that route, in most cases, all you’re really doing is hiring a bunch of baggage!

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If someone is going to move to your agency, you should be questioning why. Assuming they’re not working for a terrible agency, you have to wonder why they’re leaving their current employer if they’re really that good.

profiles can be, so if you are working with a reputable profiler, listen to them. If they advise you not to hire a certain candidate, believe them. No matter how much you like that prospective employee; it’s never a good idea to hire against the profiler’s recommendation.

I remember one of the early interviews I conducted as an agency owner in Michigan. The prospective employee was working for a reputable competitor in town and had applied for a personal lines CSR position with us. Naturally, I asked her why she wanted to change jobs. Her reply: “ If I can make a few bucks more per hour, that would be great! I’ll move.”

Wrong answer! What happens next year when someone else offers her a few dollars an hour more?

Myth #3: You Can’t Have Too Many Insurance

I mentioned above the importance of knowing vs. guessing your numbers. It’s equally important to know your people, both existing and future employees.

Hire Attitude and Aptitude. I believe in hiring attitude and aptitude first. I also believe in hiring to match your overall agency culture. If we can hire great people and train them, we’re better off. OK, I realize that it’s not that easy, but you can always teach insurance.

With producers, look for sales talent first. You can always teach them insurance. In fact, at one point, everyone reading this article knew nothing about insurance! You’re not born with innate knowledge of the insurance business — you have to learn it! My two grandsons will attest to that — once they learn how to talk (they’re only two weeks old). Right now they know nothing about insurance. And at some point in their life, even the most successful producers in the industry didn’t, either.

Similarly, seek out service people with the qualities that can’t be taught. Look for customer service people with empathy; those who truly enjoy helping people and have a “customer-first” attitude. Don’t hire someone who’s rude just because they know insurance.

Get Profiling Assistance. Work with a profiling firm such as Omnia. Profiles can help you take a closer look at people so that you’ll know what you’re getting.

What’s interesting about this service is they ask nothing about insurance, yet they can tell you very clearly what it takes to be successful in this business. Their profiles tell you how the candidates’ characteristics match up against the traits needed to be successful at a specific job. It’s really remarkable how accurate

Carriers Are you proud that your agency represents so many companies? If so, you’re not alone. I’m amazed at the number of carriers the average agency has. But what’s even more amazing is when they figure out how many they have! In reviewing their “insurance company accounts payable,” most agencies are shocked to see how many carriers are listed.

Sometimes, when looking at all companies and E&S Brokers, it’s in excess 75.

Often, agencies will take a contract with one company or one E&S lines broker for one piece of business.

We always talk about the 80/20 Rule, but were you aware that it applies to your carriers also? Basically, 80% of your premium volume is written with 20% of the carriers that you represent. Take a look at your own book if you don’t believe me.

Today more than ever, you need relationships and clout with your carriers. That way, you’re more apt to get their cooperation when you need help with a client who is high-risk or hard to place. Chances are you won’t enjoy that benefit if you’re trying to “spread the wealth”.

First, you’ve got to know your numbers. You may not agree with the 80/20, but go ahead and find out if it applies to you. Just look at all the carriers that make up the bottom 80% and ask yourself: “Why do we have this carrier? Who else could take this premium volume? Who could we take this premium volume to, continue to do a great job for the client but more importantly, be negotiating better deals because we have the clout to do so,” etc. Currently, there are a few major companies that allow the business that you place with E&S business lines to count towards your premium volume requirements on your contingency income contract because they own the E&S business also.

Myth #4: 90% Retention is Great

Everyone thinks this is such a great business because 90% of your customers stay with you. As wonderful as that sounds, here’s another area where you have

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to know your numbers. For example, let’s say that you have 1,000 customers and a 90% retention. Here’s how that would play out over a five-year period.

Year 1: 1,000 clients Year 2: 900 Clients Year 3: 810 Clients Year 4: 730 Clients Year 5: 660 Clients Basically, in four renewal cycles, you’ve lost one-third of your business! And when you look at it that way, if you’re not growing by 33% every four years, you’re going backwards.

So the fact is, 90% retention is terrible.

There are several keys to retaining clients, starting with taking a hard look at writing full-time clients only (for the 10 millionth time). Also, you should have formal relationship management programs in place for your A&B customers and do stewardship reports for them, as well. Finally, if you’re really serious about retention, then you won’t start treating every customer like a VIP customer?

Myth #5: We Can’t Compete with GEICO and

Progressive GEICO & Progressive each spend $1 billion a year on advertising. When was the last time you watched TV and didn’t see a gecko or Flo? Geico’s gimmick has been that customers who spend 15 minutes can save 15% on their insurance. Now Esurance is saying that 15 minutes is too long! They claim they can save you just as much on your insurance in half the time — just 7.5 minutes. You really can’t compete with that (and I hope that you don’t want to) because it’s strictly a commodity-based business! However, you can compete — and you will win — if you decide that you want a relationship-based business and everybody is a VIP. A couple of questions to ponder: Have you ever been the lowest price and not won the account? Have you ever been a higher price on a renewal but you still kept the account?

That should tell you that relationships are important, and it’s not always about price.

Granted, some buyers only care about price. But again, those are the commodity buyers that will leave you for $100 a year.

Since you can’t build a career or an agency around them, let them go — you’re not making money on them anyway!

Myth #6: You Can’t Earn a 25% Operating Profit

People are constantly refuting the idea that it’s possible to earn a 25% operating profit, but the truth is, yes you can!

How? (And here comes the big trick) You simply can’t spend more than 75%! Seriously, I could earn a 25% operating profit if I truly managed to a financial model designed with that in mind. In that case, the bottom line would become the top line and you would live by the 25-50-25 Financial Model

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(a 25% operating profit; 50% service and administrative expenses, and 25% on sales expenses).

What’s your Financial Model? At some point, you have to draw a line in the sand and commit to earning a 25% profit.

Make it a defining moment!

Myth #7: A Website and Social Media Will Solve All of Our Problems I can’t believe how many agencies will spend $50,000 on a website and expect the public to knock their doors down.

Apparently, their theory is “Build it and they will come.” But after seeing some of these sites, I wonder how much time (if any) the agency owners actually spend on them. Some of the sites are atrocious. What’s worse is the owners are often obliv-

A couple of questions to ponder: Have you ever been the lowest price and not won the account? Have you ever been a higher price on a renewal but you still kept the account? ious to what’s on them. They don’t visit them and don’t realize that their website is their brand, that they need to protect.

Instead, they’re using their website for automated practice quoting: “Click Here for a No-Obligation, Free Quote.”

While that may seem like a great way to get leads, those leads are only as good as the follow-up. Usually, agencies respond to automated inquiries either with an automated online reply or a phone call, or in rare cases, both. But more often than not, they do none of the above, which understandably doesn’t sit well with most prospective customers. After all, if they can’t follow up there, I’d hate to see how they service their accounts.

Social media is another arena to approach with caution. Be especially careful about what you and your employees post on Facebook. If you don’t want your customers to see it, don’t post it. For instance, if you’re asking customers to “like” your page, don’t be posting wild and crazy party pictures on it. And speaking of pictures, if you’re part of an online professional networking group such as Linked In, make sure that your profile photo looks professional. I’m often invited to connect with other professionals and am frequently surprised by the poor quality and casual, “after-hours” look of some of the photos. Do you really think that a photo of you partying on a boat projects the appropriate professional image?

THE BOTTOM LINE Obviously, myths abound in our business and these are just a handful of the most prevalent. It’s your job to avoid them.

Don’t make them the future of your agency. Prove them wrong! Or you can ignore what you’ve just read, continue buying into them and watch what happens. It’s your choice.

COMPREHENSIVE COVERAGE IS OUR MIDDLE NAME. Only Burns & Wilcox has the depth and breadth of experience to deliver the right solutions right away.

Minneapolis, Minnesota | 612.564.1880 toll free 800.328.1693 | fax 612.564.1881

burnsandwilcox.com

Milwaukee, Wisconsin | 262.347.0266 toll free 800.544.5700 | fax 262.347.0440

Commercial | Professional | Personal | Brokerage | Binding | Risk Management Services

WHAT WOULD YOU DO IF YOU HAD A JOHN IMMORDINO, CIC, CRM RPLU, CIPP/US

vice president of professional liability, arlington/roe

A

ccording to previous Symantec research, 60% of small businesses will close within six months of a cyber-attack. Are you prepared to handle a breach?

One of the first questions that I ask my clients is “What would you do if you had a breach?” The response is usually along the lines of a glazed over look followed by their eyes rolling into the backs of their heads. I usually know at this point that I will need to educate my client. I will start by informing them that 60% of businesses fail to recover from a breach because they are not familiar with their state notification laws, the costs associated with a breach and the reputational harm that the business will incur.

To most business owners their reputation is one of their most important assets. Small business owners work in the same communities where they live, shop, go to church and where their kids go to school. When their clients give them their private informa-

tion they are expecting them to keep it safe. If they have a breach of this information, the local community will lose faith in that business. As a matter of fact, 38% of clients will leave after a breach and 46% of them will advise friends and family to be careful sharing information with that local business.

This is why my number one concern is to help my clients protect their information and prevent a breach from happening. Many insurance carriers will offer risk management web portals as part of their insurance policy. These are excellent resources for companies that need assistance in identifying and protecting their private information.

These portals also provide useful tools in training the business employees on the importance of privacy. Some of these same carriers will provide the insured with a public relations firm to help them announce the breach in a way that will mitigate their reputational harm.

When it comes to discussing privacy laws, I like to keep it simple. There

are numerous state and federal privacy laws that business must comply with but I usually focus on one, state notification laws. There are currently 47 different state notification laws. In a general sense, these laws state that if a business collects private information on state residents they are required to protect that information. If the business fails to protect the information and there is a breach, they must notify the effected individuals within a certain time frame. If the residents are not notified within that time period, the business can be assessed civil money penalties.

The challenge is determining when the business has to notify the affected individual and when the clock starts ticking. Most states specify that they must notify “without unreasonable delay”. Some states will actually provide a number of days that can range from 5 to 45 days. The new national legislation being proposed will be 30 days. So to keep from getting fined up to several hundreds of thousands

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of dollars, the business must notify as soon as possible.

The notification will consist of about three steps. The first thing is to find a forensic investigator and have him come in to assess the breach.

Forensics will determine what happened and identify the individuals whose private information has been compromised. This list will then go to legal counsel that specializes in privacy laws. They will determine which laws to comply with and how to structure the notification letter.

All states have specific requirements on how these letters need to be written. Once legal is complete, the letters are then mailed to the affected individuals. This is a complex process and it has to be completed in a certain time period. Because of this, I will generally place my clients that do not have a formalized response plan with a carrier

that will provide one for them. Several carriers will offer turn-key breach responses or the assistance from a breach coach to help you through the process.

The costs associated with handling a breach can cripple any business.

Depending on the report being reviewed, these costs can range from $1,000 to $13.7M. The important thing to remember is that the cost of the breach is not relative to the size of a company. The cost associated with each breach has to do with the type of information compromised, the regulatory climate and how the information was compromised. According to a 2014 NetDiligence report on 111 actual cyber liability insurance claims, the average claim payout is $733,109. This amount is inclusive of forensics, notification, legal guidance, public relations, legal defense, legal settlement, regulatory defense, regulatory fines and PCI

fines. Because the notification costs can vary so greatly, I will usually work with a carrier that will respond to the notification on a record count outside the limit of liability as opposed to a dollar value.

It has often been said that it is not a matter of if you will have a breach but when. Educating, training and insuring are the key components to helping your organization be part of the 40% survival rate. The Michigan Association of Insurance Agents has partnered with Arlington/Roe to offer their members the Big “I” Agents Cyber Secure Program. This program was developed for insurance agents to provide them with the tools to reduce their exposures and the insurance to respond to a breach. For more information on this product, please contact Kari Quimby at (517) 327-8037, kquimby@michagent.org.

Big “I” Names New Virtual University Director The Independent Insurance Agents & Brokers of America (IIABA or the Big “I”) has announced that Christopher “Chris” J. Boggs CPCU, ARM, ALCM, LPCS, AAI, APA, CWCA, CRIS, AINS, has joined its staff as Big “I” Virtual University director. Boggs will succeed Bill Wilson, CPCU, ARM, AIM, AAM, who has served in this role since 1999 and will retire at the end of the year.

“The Big “I” is proud to welcome Chris Boggs to our team as Virtual University director,” says Bob Rusbuldt, Big “I” president & CEO. “Chris is one of the leading academics and technical experts in our industry. We are confident that Chris will continue to build upon the excellent work and foundation established by the VU’s founding father, Bill Wilson.”

Boggs previously served as Wells Media Group, Inc. Academy of Insurance vice president of education.

“Chris is nationally respected for his expertise and more than 25 years of experience as an insurance and risk management educator, trainer and practitioner,” says Madelyn Flannagan, Big “I” vice president of agent development, education and research. “We also wish Bill Wilson a wonderful retirement and will greatly miss him. Bill has served the industry with distinction for more than 30 years and was instrumental in the establishment and success of the Virtual University.”

Prior to joining Wells Media, Boggs worked in numerous underwriting and account roles for Selective Insurance Company; Dean, Heckle & Hill; and McNeary, Inc. He is a well-respected insurance subject matter expert, speaker and author. Boggs is the author of six insurance and risk management books and hundreds of articles and research papers.

In addition to his numerous professional certifications, Boggs earned a Bachelor of Science degree in journalism from Liberty University in Lynchburg, Virginia.

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Take Your Kid to Work and Look What Happens Author: ACT News Staff

Ahh.

The imagination of a little boy.

Flying to the moon. Finding a colony of dinosaurs that survived. Building a lifetime career in insurance technology.

The independent agency channel has actually grown into an even more important channel for carriers to manage business, and new entrants into the sector are bringing in innovation that challenges the channel to adopt new technologies and service models to drive even greater business success,” he says.

Wait. What?

Doug Johnston, Applied’s well-known VP of Partnerships and Industry Relations and an ACT member, was this little boy. On one ‘Take Your Kid to Work Day’, his dad took him on a short tour of the Chubb Minneapolis branch office that was in the same building as his father’s independent insurance agency. That tour included Chubb’s computer room.

Well, it wasn’t exactly a room; the paper tape readers alone took up one floor of the building.

“I was fascinated by the technology,” Doug says. “I went on to do little jobs for my dad when I was 12 or 13 and got familiar with the agency’s order of business. In college, I took classes in computers and accounting and followed that with work at my dad’s agency and other agencies to add computers to their offices—mostly accounting stuff at that point.

“We have an opportunity to improve by evolution; we don’t need a revolution. Love and embrace, not rip and replace,” he says, noting—using Applied as an example—that much of what people are clamoring for already exists; we just need to help them leverage what they already have.

“In about 1985, I first read the user manual for Applied’s software ‘The Agency Manager,’ now referred to as Applied TAM. I was impressed by how much they knew about sales and marketing at the agency level,” he says. “I sent a letter to the owner of Applied—a small company at the time—and got hired a few weeks later. There were about 35 employees at that point. It was growing as fast as it could grow.

Part of what is challenging to Doug and many others in the industry is the faulty perception of the impact of technology.

Over the past five years, indeed, pundits and naysayers have been ringing the death knell for traditional insurers and agents, predicting that insurance- and financial-services technologies would disrupt—and by that they mean destroy—the independent agency channel.

“This industry is well over 100 years old in this country.

From the outside, it looks inefficient, but for what it does, it has evolved very appropriately. What does concern me is that, over time, the knowledge of the capabilities of the agency management system has diminished. I often hear at conferences people saying they wish they had this function or that. Today’s agents want their agency systems to manage agency functions such as sales automation, prospecting and pipeline management, customer self-service, mobile tools for employees and customers, agency business intelligence and analytics insights, CRM, and market access selections. All of those modern technologies are already available in our systems—ready to be put into action.”

“I’ve been hearing about the death of the independent agency channel my whole life,” Doug says. “‘We are completely inefficient. We are broken. They will light our whole world up.’ This mindset has been around forever. Today, it seems like there is discussion around a new distribution model emerging weekly to displace the independent agency channel. But those who say these things misunderstand our complexity and the efficiencies of our distribution model.

Some of the technology that has evolved through the years has been incredibly valuable, Doug says, noting that there’s been about an 8% to 10% overall industry expense reduction since download and automated direct bill commission processing have been adopted. He adds that 68% of Applied’s customers have moved their agency technology into the cloud and Applied manages that for them, offering further savings and efficiencies.

“The last 20 years have been a wild ride, the last five being the most challenging, I’d say.”

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Speaking of numbers, Doug is a strong believer in measurements to determine your success. Measure your retention, organic growth, profits, revenue and other account metrics and see if your agency improves as you integrate new workflow practices, he says.

By tapping into the full power of the agency management system, agencies can eliminate inefficient processing for their employees and customers. “Get rid of paper!” he says as an example. “Use e-signatures instead of ink, online policy access instead of mail, online invoicing and bill pay.

Download has scratched the surface, but we’re still managing reports as if they are paper. Over the next five years, we need to change the workflow to use the automation available to us. We can’t just plug electronic services into a paper workflow. The workflow itself needs to be upgraded. There are multiple ways to do this, and that is perfectly fine based on your local clientele and how they want to interact with you. Customizing to customers’ needs is a beautiful thing.

People don’t really want constant contact with their agent or insurer; they want competent care when it is necessary.

Each agency’s got to figure out that interaction on their own and customize their technology use to their own needs.”

After all, isn’t relationship what we’re all about in insurance? Security and relationships? That’s a primary aspect of Doug’s career passion. It’s not just the technology that

tickled his fancy as a youth; it’s how to ply that technology so it improves security and relationships.

“I wake up thinking of connection points in the industry—agencies, carriers, customers, solution providers and emerging technologies,” he says. “I also look at the 145,000 people firing up Applied’s core management systems. What do they need? What is in their mix of solutions, from Applied and others, and can it be better?”

And don’t forget education. This is one of Doug’s life themes. Part of that education is working with the next generation of insurance professionals.

“We work very closely with InVEST and have been huge supporters of its efforts for many years. As an example, over the past year, Applied created an agency automation curriculum for InVEST classrooms, adding agency automation education to their existing insurance education. We realized that it is critical for the next generation of agency employees to come into the industry as versed in technology as they are in insurance,” Doug says.

When asked about his personal mission for getting the industry and independent agency channel closer to their desired destination, Doug sums it up in one word: Education.

At Partners Mutual Insurance, we have one focus: building relationships. From listening and responding to our agents’ feedback, to building selfservice online tools to make it easier to interact with us effortlessly, we believe that it is our relationships that make our company stand out from the rest.

For information about becoming a Partners Mutual Insurance Agent please contact Chuck Becker at 800.388.4764 ext. 3484.

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| FALL 2016

We know what it took to build this business.

And we know what it takes to protect it.

Underwriters who know and understand what coverages are necessary to protect the business.

Loss prevention professionals who use a hands-on approach to help develop programs tailored to the individual business.

Claim reps with the expertise and technology to process claims quickly and efficiently.

As an Official Supplier of the Silver LiningÂŽ, you and West Bend will find the right insurance plan for your valued customers.

To find out more, talk to your West Bend underwriter.

The Bottom Line Independent

by Bob Skow, CPCU, CAE

Insurance Agents of Iowa

“WILL THE GECKO SLAY ALL INSURNACE AGENTS?”

I

remember reading a story a few years ago called “Will the Gecko Slay All Insurance Agents?” The author Don McNay made a statement I saved from the article about where agents would be in 5 years – “Many are being eliminated by their own companies in favor of the Internet and nonstop television advertising. Some companies, like GEICO, have never had them.” In part the article was asking with all the advertising GEICO was doing, combined with 800 numbers sales and the presence of the Internet if agents would be gone in 5 years?

The author concluded, “Other insurance companies are driving off their salesforce by reducing compensation, not training new agents and reducing resources.” So the question becomes, are carriers not understanding what consumers want when buying insurance…or is it agents who don’t understand? What I find incredibly interesting is GEICO facing a slowdown in Internet and 1-800 insurance buyers are making a major push to open corner street agencies around the

country. Check out their agent locator link at www.geico.com/about/agent-locator/ - where they state, “Sure, you can do it all online. But getting out of the house once in a while can be good for you. Our agent locator can help you find an insurance professional near you where you can do anything from ask a question to buy a policy. Just enter your address below.” So agents are important now?

Many Iowa agents recently received a letter which asks the agent to consider a career with selling for GEICO! The letter states: “GEICO, the fastest growing, and second largest private passenger car insurance company in the country, is opening several new local offices throughout the country – and we want you to apply to be our next GEICO Local Agent.

We seek an accomplished personal lines professional with an

entrepreneurial spirit who will exclusively represent GEICO and affiliated companies in his/her storefront location.”

The letter goes on and says, “Local Agents have been an integral part of GEICO’s remarkable growth, and now account for over 10% of GEICO’s 2016 new business sales.” What? Wasn’t this the company that just a few years

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ago ran ads focused on eliminating the middle man…you remember them don’t you? In fact, they were so negative towards agents that Big “I” Associations including Iowa questioned Insurance Departments on their potential violation of unfair advertising insurance trade acts with some of their ads. Boy have we come a long way – faced with the reality that many buyers still want an agent, GEICO maybe has realized insurance is not a commodity and the “better” clients understand the value an agent brings to the table.

What is weird is some companies are still reducing agent compensation and replacing it with the very model that GEICO has discovered doesn’t meet a significant number of insurance buyer’s needs. In fact, research would suggest the “better” larger personal lines risks and small businesses are wanting a relationship with an agent. Aren’t these the risks companies want? We also have discovered many consumers want and need an agent, not only when they buy, but when they have a claim. To better make this point let’s look at what J.D. Power who has long been the most respected benchmark survey company found in their October 2016 consumer study in reference to the changing role of insurance agents in which companies are making: “Changing Role of the Agent: While some insurance providers are reducing the agent’s role in the claims process, the study finds that 80% of customers who purchased their policy through a local agent still call their agent first to report or seek advice regarding a claim. Among customers who call their agent first, 64% say their agent reported their claim, while 20% are transferred by their agent to a call center and 16% are redirected.

Overall customer satisfaction is 882 when the agent files the claim, but slips to 858 when the customer is transferred to a call center and falls even further to 824 when they are instructed to contact the call center.”

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| FALL 2016

So, what is confusing to me is consumers want agents engaged when they buy insurance and if they have a claim.

Yet some carriers seem to be trying to reduce their role and their compensation for the work they perform contrary to consumer expectations. No question about it the services an agent provides cost money, not only at the time of a sale, but when the policy is serviced after the sale.

This begs the question – What can agents do?

In the January issue of ‘The Pipeline’ letter that Iowa Big “I” members get as a membership benefit there is a good article on “WHEN A CARRIER REDUCES COMMISSION - WHAT DO YOU DO?” The number one phone call topic placed to your state association in 2016 was this very question. The article in part covers some of the questions agents are asking, it states: “If an agency has a profit objective to build reserves for growth and asset value the reaction to commission reductions is to determine which operating

expenses could be reduced to secure agency profit levels without affecting service levels to the customer. In many agencies expenses are not controlled until a reason exists (like commission reduction) that will affect agency revenues.

Regardless of the ability to reduce operating expenses the agency should investigate whether the new commission rates are common in their territory or unusual. If the new commission rates are common and equivalent to most other carriers the choices are few, reduce expenses or the owners take less to allow them to pay their people and other expenses.

If the new commission rates are not equivalent to competitors it is time to go shopping for new carriers. The considerations for a carrier changes should be (in order of importance); 1) Are the products and coverage provided similar?

2) Are service levels (to the agency and to the customer) acceptable?

3) Is the pricing competitive in the territory and to the carrier being replaced? Competitive is NOT equivalent to lowest price.

Competitive means in the lower 50% of carriers providing that coverage in the territory.

4) Will the carrier sponsor a book of business conversion with underwriting assistance (taking the business as renewals instead of treating all of your customers as new business) and financial assistance to convert the book to the new carrier’s applications, system, etc.

Don’t fool yourself. There IS a cost associated with moving 50 or 500 or 5000 policies related to communicating the change to the customers and the administrative time to convert the accounts.

Some customers may be lost.

The time and risk should bear a 2% to 4% conversion cost without necessarily providing ‘found money’ to the agency.

We all recognize that commission changes imply lowering margins with which independent agents are expected to pay their bills and earn a living.”

While some companies are reducing agent compensation both in the form of commission cuts and profit share qualifications, they typically do so with the message agents need to become more efficient and reduce their expenses.

After all the margins are tightening is the message agents are told, and if the carrier is going to be competitive we have to reduce sales costs. In other words, do more with less! Yet agent’s costs are difficult to reduce; for example, one major agency management software company increased their monthly rates for 2017 eight percent!

Automation costs are significantly higher per client for smaller agencies

too, which may be offset with building/ rental costs, but if you get the point there is only so much you can cut. The margins are tight, and while commissions have been cut at what point does an agent say I cannot sell the product for this amount of compensation?

The biggest expense for agencies is salaries and benefits, owner and staff compensation is 55% on average of the total compensation income of the typical Iowa agency, which leaves 45% to pay for all the other overhead costs and make a profit. So simply telling agents to reduce overhead isn’t as easy as some would suggest. Maintaining

In December, IIAI held Town Hall meetings to help address the biggest issue facing agents – how to operate in the black. We invited National agency management expert, Dirk Nohre, CPA, CPCU. Dirk brings a volume of data to his presentations, and based in the upper Midwest he understands Iowa agencies and the premium averages for risks written in our state (there is a difference writing business in one of the lowest premium states in the Union then say California). A powerful slide Dirk presented is included within this article. For example, using data based on top preforming agencies he

“An independent agent basically is breaking even at 12% commission and losing money at 10%” licensed qualified staff comes with a cost and an E&O risk. When we visit with agency owners and ask what keeps them awake at night we hear three major concerns – maintaining and hiring staff, errors and omissions exposures and agency compensation.

While agents are trying to do their best to reduce expenses – the question is are carriers doing their share? What we have noticed is in some cases is the carrier’s administrative costs have gone up while agent’s compensation has gone down during the same period. This is frustrating – a good example, company staff compensation which 40 years ago was often below what the average agent compensation was paid. When I started in the business, many agents left the company ranks (I did) so they could make more money and be paid based on work performed – the more you sell the more you make. Look around, how many company people have become independent agents in the last few years? Not many. Once a great resource for talent, independent agents have found it often tough to compete with the benefit and compensation packages companies offer their employees in recent years.

took total expenses divided by number of accounts to come up with the breakeven commission amount per account for personal lines which he indicated was a minimum of $175.95.

His conclusion, it is a problem to write accounts that don’t bring close to $200 of commission income for personal lines clients. He mentioned that in his examples he used the best and most efficient operation numbers for agencies. He further broke down how commission income using the base line expenses of the best agencies shows an independent agent basically is breaking even at 12% commission and losing money at 10% (See his chart on next page). He went over multiple charts showing the percentages based on best practices for agent expenses per type of expenses, and then applied the percentages to a $500,000 gross commission agency. He also gave out numbers for a combined book of business (personal and commercial).

continued î

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Below is a slide from Dirk Nohre’s presentation to Iowa agents on compensation levels and impact to their bottom line.

PERSONAL LINES ANALYSIS Best in Class

Target Premium Commission Rate Gross Commission Income EXPENSES COMPENSATION Executive Sales Customer Service Administrative Support SUBTOTAL Payroll Taxes Benefits Pension Education TOTAL COMPENSATION SELLING Travel & Auto Meals & Entertainment Advertising & Promotion Contributions & Other TOTAL SELLING OPERATING Occupancy Telephone Office Supplies & Printing Postage Dues & Subscriptions Licenses, MVR & Taxes Insurance Professional Fees Equip, Lease, Repairs & Maint Automation Depreciation Bad Debts Miscellaneous TOTAL OPERATING SUBTOTAL EXPENSES PRECONTINGENCY PROFIT OTHER INCOME Contingency Income Interest & Investment Income TOTAL OTHER INCOME OPERATING PROFIT

| WINTER 2017

Example 2

Example 3

5.0% 25,000 5.0% 20,000 5.0% 16,667 5.0% 20.0% 100,000 20.0% 80,000 20.0% 66,667 20.0% 25.0% 125,000 25.0% 125,000 31.3% 125,000 37.5% 5.0% 25,000 5.0% 25,000 6.3% 25,000 7.5% 55.0% 275,000 55.0% 250,000 62.5% 233,333 70.0% 4.8% 24,000 4.8% 21,818 5.5% 20,364 6.1% 4.1% 20,625 4.1% 20,625 5.2% 20,625 6.2% 1.7% 8,250 1.7% 7,500 1.9% 7,000 2.1% 0.5% 2,500 0.5% 2,500 0.6% 2,500 0.8% 66.1% 330,375 66.1% 302,443 75.6% 283,822 85.1%

0.5% 2,500 0.5% 2,500 0.6% 2,500 0.8% 0.5% 2,500 0.5% 2,500 0.6% 2,500 0.8% 2.7% 13,500 2.7% 13,500 3.4% 13,500 4.1% 0.5% 2,500 0.5% 2,500 0.6% 2,500 0.8% 4.2% 21,000 4.2% 21,000 5.3% 21,000 6.3%

5.0% 25,000 0.5% 25,000 6.3% 25,000 7.5% 1.5% 7,500 1.5% 7,500 1.9% 7,500 2.3% 1.4% 7,000 1.4% 7,000 1.8% 7,000 2.1% 1.0% 5,000 1.0% 5,000 1.3% 5,000 1.5% 0.5% 2,500 0.5% 2,500 0.6% 2,500 0.8% 0.1% 500 0.1% 500 0.1% 500 0.2% 1.8% 9,000 1.8% 9,000 2.3% 9,000 2.7% 1.0% 5,000 1.0% 5,000 1.3% 5,000 1.5% 0.5% 2,500 0.5% 2,500 0.6% 2,500 0.8% 2.0% 10,000 2.0% 10,000 2.5% 10,000 3.0% 2.0% 10,000 2.0% 10,000 2.5% 10,000 3.0% 0.5% 2,500 0.5% 2,500 0.6% 2,500 0.8% 0.4% 2,000 0.4% 2,000 0.5% 2,000 0.6% 17.7% 88,500 17.7% 88,500 22.1% 88,500 26.6% 88.0% 439,875 88.0% 411,943 103.0% 393,322 118.0%

12.0% 60,125 12.0% (11,943) –3.0% (59,989) –18.0%

0.0%

0.0%

Mr. Nohre offered the agents who attended the session some great data to help them make informed agency management decisions. For some agents it will be tighten up your belts, others will look at targeting only accounts above a certain premium amount or not selling certain lines of business, while others will find companies who best fit their compensation

36 |

Example 1

$3,3,333,333 $3,333,333 $3,333,333 15.0% 12.0% 10.0%

100.0% 500,000 100.0% 400,000 100.0% 333,333 100.0%

8.0% 40,000 8.0% 32,000 8.0% 26,667 8.0% 0.0% – 0.0% – 0.0% – 0.0% 8.0% 40,000 8.0% 32,000 8.0% 26,667 8.0% 20.0% $100,125 20.0% $20,057 5.0% $(33,322) –10.0%

needs and work load expectations.

The information will hopefully help Iowa independent agents understand their management decisions and help them focus on making a profit in 2017.

It is after all about the bottom line.

Independent agent’s market share in Iowa grew again in 2016, so consumers understand the value proposition agents bring to the insurance product.

One thing I would bet is, independent agents will figure out how to do even better in 2017, figuring out the road to success is best paved with good data.

Those who improve their bottom line in 2017 will be challenged, but looking carefully at your income, expenses and compensation for products sold will never be more important.

There when it matters most to agents.

CLAIMS SERVICE

Le Mars understands that being able to deliver competitive, money-saving rates is only part of the value your clients look for in an insurance provider.

Clients also want to know their insurance company will be there if there’s an accident.

And because our claims service reflects your clients’ view of your agency, Le Mars Insurance Company makes sure we deliver claims service that is responsive and fair, helping your clients get back to normal.

Outstanding claims service, another way Le Mars is “There When It Matters Most” for independent insurance agencies.

To learn more visit www.donegalgroup.com or call Rob Faber at 800-545-6480.

Agency Risk Management Essentials:

Is your website doing more harm than good?

Your agency’s website is your “business card” to the world. Well managed, it can be the cornerstone of your operational and marketing strategy. If not, it can and will be used to strengthen a claimant’s E&O case against you.

The Swiss Re Corporate Solutions claims team has seen an increasingly emerging issue stemming from this evolving part of your business.

Seemingly harmless content on your website, emphasizing competitive advantages or certain expertise, can very quickly and unintentionally increase the agency’s standard of care resulting in a higher duty than normally required. That can be detrimental to your defense in a claim situation. To help mitigate the risk of an increased standard of care, we consulted risk management professionals with expertise in this area. Their suggestions are shown below. We hope you find these useful in creating and reviewing your agency website’s content.

✓

Do clearly specify in which states the agency is licensed.

✓

Clearly state the lines of coverage the agency writes (or does not write). For example: not all P&C agencies handle benefits lines.

✓

Do clearly state that misstatements or omissions of relevant information by the client can lead to price variation or even declination or rescission of coverage.

✓ ✓ ✓

Do clearly state that information requested to provide a quote or work on coverage will not be shared with carriers or with any other entity without the applicant’s permission.

Be clear: requesting coverage does not guarantee coverage can be provided. Coverage can begin only with specific statement by a licensed member of the agency staff.

Do clearly state by including a disclaimer that none of the information provided in the website is a guarantee that insurance will be provided or that the agency is obligated to procure insurance for the website visitor.

✓

Do obtain express written consent from your carrier(s) or any other entity(s) if you use their name or logo on your website.

✓

Do use a Privacy Statement on your website and be sure to encrypt any pages that collect Personal Identifying Information, such as an online quote form.

REMEMBER: Risk Management starts before the sale

✗

Don’t say the agency does things or provides services it does not do or provide.

✗

Don’t say that you can ensure that any claim will be fully covered.

✗

Don’t use terms such as “expert”, “specialists”, “best price”, “most comprehensive”, “fully covered”, or “partner”.

✗

Avoid terms promising absolutes such as “immediate response time”, “ALL lines of insurance”, “all risk”, “24/7”, “all carriers”, “addressing ALL of your coverage needs”, “constantly reviewing”.

✗

Don’t include client testimonials that show the clients’ names and identifying information without being sure the testimonial is specific to their experience thus avoiding an increase in your standard of care. Be sure to have their express written permission, along with a procedure to remove their testimonial if they are no longer a customer.

✗

Don’t launch a website without carefully reviewing the language, with an E&O risk management eye. Template agency websites or advertising firms simply may not have E&O on their radar. Involve your legal counsel in reviewing the language.

✗

Don’t have a quote mechanism (form-fill or Rater) and then fail to respond in a timely manner.

✗

Don’t use open text boxes for customers to type messages to you unless adequately encrypted. You have no control over the information entered in the text box. If a breach occurs during transmission of that message, your agency may be held liable for the release of Personal Identifying Information.

If you would like more information about websites and protecting your agency, as an IIABA member there are additional free member benefits available through the IIABA Virtual University and Agency Council for Technology. If you are also a Swiss Re Corporate Solutions/ Westport Insurance Company policyholder, you have access to the premier risk management website, E&O Happens.

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| WINTER 2017

WHY WALK

WHEN YOU CAN SOAR?

Swiss Re Corporate Solu ons policyholders: Don’t miss out on the invaluable risk management resources available exclusively to you. Log in to www.iiaba.net/EOHappens to access claims sta s cs, preven on tools, insigh ul ar cles and more.

THE BIG “I” PROFESSIONAL LIABILITY PROGRAM Prevent.

Our exclusive risk management resources help your agency avoid making common preventable mistakes.

Protect.

Our superior coverage through Swiss Re Corporate Solu ons and our experienced claims teams are in your corner in the event of a claim.

Prosper.

When you know you have the best agency E&O Protec on, you can focus on growing your most important asset–your business.

The Big “I” and Swiss Re Corporate Solu ons are commi ed to providing IIABA members with leading edge agency E&O products and services. IIABA and its federa on of 51 state associa ons endorse the comprehensive professional liability program offered by Swiss Re Corporate Solu ons.

Visit www.iiaba.net/EOContact to connect with your state associa on today.

Insurance products underwri en by Westport Insurance Corpora on, Overland Park, Kansas.

Westport is a member of Swiss Re Corporate Solu ons and is licensed in all 50 states and the District of Columbia.

.

INDEPENDENT INSURANCE AGENTS OF IOWA 4000 Westown Parkway, Suite 200 West Des Moines, Iowa 50266

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2017

INDEPENDENT INSURANCE AGENTS OF IOWA PROGRAMS SPONSORS

PLATINUM

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BRONZE

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GOLD

A special thank you to the following sponsors for supporting IIAI’S Conferences and Programs in 2017.

Motorist Insurance Group Nationwide Insurance Progressive United Fire Group

Great American Insurance Companies

Merchants Bonding Company

GuideOne Insurance

Partners Mutual Insurance Company

LeMars Insurance Company

Pekin Insurance

Accident Fund/United Heartland Acuity Auto-Owners Insurance Columbia Insurance Group Diverisified Crop Insurance Services Hastings Mutual Insurance Company International Ag Insurance Solutions M.J. Kelly Company of Iowa Markel Corporation North Star Mutual Insurance Company

ProAg Rain & Hail Insurance Services Inc. SECURA Insurance Selective Insurance Company SFM Mutual Society Insurance West Bend Mutual Insurance Company Western National Insurance Westfield Insurance

Independent

Insurance Agents of Iowa