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GREEN MOUNTAIN AGENT VERMONT INSURANCE AGENTS ASSOCIATION | January 2022

Vermont Insurance Agents Association is a statewide trade association representing nearly 100 independent insurance agencies in Vermont, with more than 900 employees. VIAA member independent insurance agents represent more than one insurance company, and as a result, can offer clients a wider choice of auto, home, business, life and employee benefits.t

Green Mountain Agent is a publication of

CONTENT ________________ January 2022

05 Letter from the President

600 Blair Park Road, Suite 100 Williston, VT 05495 Phone: 802-229-5884 Fax: 802-876-7912 www.viaa.org

12 Not Your Father's Agency 18 On the Hill

VIAA Officers President Michael R. Barrett

22 NewsFlash

Vice President Jessica Fleury, ACSR

24 I Know My Agency's Value, Now What?

Secretary/Treasurer Ian Sutherland, CIC, AAI-M National Director Ronald Bixby

30 E&O Corner

Directors

34 Commentary

Daniel J. Rodliff, CIC, CPIA, LUTCF Aislyn M. Allen, CISR Laurie Audy

38 Agency & Company News

Executive Director Mary M. Farley, MBA, AAIM

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LETTER FROM THE PRESIDENT ______________________________

January 2022 First, it is my hope that you all had a great holiday season and Happy New Year! A key focus for my time as the President of VIAA is to empower all members with the incredible tools and knowledge base, that is available as part of your membership. With that said, let me share with you some exciting news! We have partnered with Trusted to provide you with the opportunity to increase your online visibility on TrustedChoice.com. Over 36 million online shoppers have visited TrustedChoice.com to research their insurance options. This new partnership allows you to upgrade your basic listing to a Member Plus profile for free. A Member Plus profile has more advanced features than the basic profile listing that comes with your membership and helps drive more online insurance consumers to you. With a Member Plus profile, you get more prominent placement in the National Directory of Independent Insurance Agents and allows for your agency to be listed as a recommended agency after an online consumer completes the questionnaire on TrustedChoice.com with their insurance needs. Activate your profile for free at go.trustedchoice.com/memberplus. The process takes minutes to complete, as I just completed ours prior to writing this message!

Michael R. Barrett VIAA President

Plus, If you’re looking to up your digital marketing, you can upgrade to an Advantage subscription that gives you a bunch of SEO (Search Engine Optimization) power-boosting features, even more visibility on the 58,000+ content pages on TrustedChoice.com, and access to referrals and claim-it leads. Use promo code VTAdvantage5 for an additional discount on any Advantage subscription. Learn more at go.trustedchoice.com/ia. Remember, the Vermont Insurance Agents Association is your connection to incredible opportunities to empower your agency and staff. If you have any questions, you are welcome to reach out to me, mike@thebarrettagency.com. Stay well! www.viaa.org

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Not Your Father’s Agency

AGENCY MANAGEMENT

By Scott Freiday and Keith Mangini

Younger agents understand the value of building a book of business. They appreciate that steady cash flow derives from renewals, which in turn provides the capital they need to grow and expand their business. At the same time, they're willing to experiment with new forms of marketing, leverage the latest digital technology, create a presence on social media, and communicate with clients using mobile devices and virtual meetings. It's what General Motors would have wanted for Oldsmobile, had those ads really worked. Unlike the Olds brand, which languished for years before being retired in 2004, the independent agency system remains vital. A Strong Demand for Financing Even in the face of uncertainty during the pandemic, the demand for financing to acquire new business, expand agencies and develop producers is increasing—and we're seeing it all around the country.

Young agents are hungry to acquire books of business and become partial or full owners of an agency. The young owners we've worked with are extremely savvy. They know how to efficiently run a business and manage and develop teams. They're comfortable with new technology and know how to make the tough decisions required to grow an agency. Older agency owners are getting attractive offers from aggregators, but many of these owners would prefer to keep their agency within the family or perpetuate it to someone internally. They have tremendous pride in what they've built, and they want to leave a legacy. They're loyal to their staff and the communities they serve. They're willing to work with a younger producer to groom them for ownership and possibly provide seller financing.

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Not Your Father’s Agency continued

Younger Agents Need Willing Sellers The young agents we work with are typically in their mid-30s to early 40s. Some have been at the agency they'd like to acquire for 10–12 years. They may have worked their way up through the organization, taking on more management responsibility. Or they may be seasoned producers who've built a profitable book of business for their agency. They have the ambition, drive and smarts to run an agency, but as the song goes, “it takes two to tango." Without a willing seller, an acquisition can't occur. The common thread in all successful transitions is an owner who has a plan for how they want to pass on the agency. Having a perpetuation plan is the key to business continuity. When an agency is sold to an aggregator, it's often because the owner didn't have a plan. That's why it's important for owners to have meaningful conversations with their employees, so everyone is aware of how the agency will be perpetuated. Financing Is Critical for Young Agents Generally, young agents don't have the assets to acquire an agency, so financing is important for them. A bank may provide financing for part of the sale, with the owner financing the rest. Or the owner may give the agent shares in the firm as part of their compensation, reducing the amount the new owner has to borrow. Today, more owners are selling their agencies in stages, which has advantages for all parties. It allows the older owner to reap the benefits of a partial sale, but still retain control of the firm and potentially earn more when the rest of the firm is sold. It gives the new owner skin in the game because they have partial ownership and an incentive to help grow the agency during the transition. Young agents have varying needs. They may be seeking a loan to finance the down payment on an agency, purchase a book of business, acquire another agency or hire new producers.

From Dream to Reality Retiring principals can help this next generation of aspiring owners realize the dream of agency ownership. Older owners who actively recruit younger agents into their agency will be better able to identify and mentor a successor. That, in turn, will make the transition from old to new much easier. Younger agents who make their interest in ownership known and are willing to work hard to make it happen will be better positioned to achieve their dream. Automobile enthusiasts say the Oldsmobile brand died because it abandoned its older owners and failed to deliver on its promise to younger owners. The independent agency system stands in stark contrast: Regardless of your generation, it remains a coveted jewel to be treasured. Young agents are increasingly recognizing the unique value of agency ownership and are going after it. The Right Profile: Which One Are You? Here are four examples that illustrate how young agents are becoming owners or expanding their agencies: 1) The rising star. A promising young agent rose through ranks at her agency and was groomed to become its eventual owner. She started as a customer service representative, became a producer and then became operations manager. The principal didn't have any family members interested in the agency, so she was the natural choice to take it on. She financed 30% of the purchase, and the owner provided financing for the remaining 70%. The key is that the agent knew early on that she was in line to take over the company. She had a reason to stay and work hard at the agency. 2) The captive who went independent. An agent joined the captive market in 2012. He started to grow his business by acquiring other captive agency offices nearby and consolidating his operation into one location. He saw an

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Not Your Father’s Agency continued

opportunity to go independent and diversify his book of business. He needed the capital to make the switch. He is now working to acquire his first independent book of business. His story isn't unique. Many other agents learn the business and gain experience as captives then become independent. 3) The tech-smart owners. Young agents that are indicative of a new breed of owners have embraced technology to modernize agency operations. They acquired an agency with seed money from a family member, but now they need capital to repay their silent partner, hire new producers and grow. These owners have been very astute in their digital marketing to a younger clientele. They're harnessing technology to market online in multiple states and to integrate their management and accounting systems to stay on top of their operations. 4) The savvy specialist. A young producer built a profitable commercial lines book of business within a large agency over the course of about 10 years. He had grown the book to the point where it was generating $1 million in commission income. He wanted to use that book to start his own agency. He approached the owners and asked to buy the business. This is a good example of how young agents working at a large agency can leverage their experience to strike out on their own. In this case, there wasn't an ownership opportunity at the agency where he worked. So You Want to Be an Owner? Do you dream of starting an agency or acquiring an existing one? Here are five tips to help you prepare for ownership: 1) Make it known. If you're interested in acquiring the agency where you work, make your desires known to the owner. Having those conversations early on can smooth the way for eventual ownership. Or you may find out they're already planning on someone else to take over. Either way, you'll know where you stand and can adjust your plans accordingly. 14

2) Create a roadmap. If ownership is a possibility at your current agency, work with the owner on a transition plan. Be clear about the timing and terms of the eventual sale. Will you be vested over time in a profit-sharing arrangement? Will there be seller financing? 3) Find a mentor. Seek to enter a mentorshiptype relationship with the current owner. This gives you time to learn all the nuances of running the business and to gradually take on more management responsibility before the owner steps down. 4) Know what you're buying. If you're buying another agency, do your due diligence. Review the agency's financials, look at its operation, consider its markets and carrier appointments, inspect its books of business and look at key ratios, such as renewal rates. Make sure you're buying an agency that's in good shape and can generate the cash flow to pay off the financing. 5) Prepare to borrow. If you're borrowing from a bank, understand they will do their own financial analysis and will carefully examine all aspects of the target agency, as well as what you bring to the table as a buyer. Financing can be approved quickly if you've done your homework and can provide the necessary documentation the bank needs for underwriting. Scott Freiday and Keith Mangini are vice presidents and commercial loan officers at InsurBanc (insurbanc.com), a division of Connecticut Community Bank N.A. They have helped hundreds of agents finance acquisitions and grow their agencies. InsurBanc is a community-focused commercial bank specializing in products and services for independent insurance agencies. Organized in 2001 by the Big “I," InsurBanc partners with agents to help them optimize growth opportunities and manage their agencies efficiently.

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ON THE HILL: Big ‘I’ Webinar on Health Insurance Compensation Disclosure Requirements Now Available

Section 202 of the December 2020 omnibus government funding legislation signed into law by former President Donald Trump included new compensation disclosure requirements for health insurance agents and brokers. The requirements are slated to take effect on Dec. 27, 2021. The Big “I" and certain other major producer groups have met with U.S. Department of Labor officials and submitted a joint comment letter to the federal regulators, but no regulatory guidance on disclosures relating to group health plans has been issued to date. Agents and brokers who handle group health plans subject to the requirements will still need to comply with the new requirements— even in the absence of additional guidance or regulations.

requirements. The webinar features Brad Campbell, a partner at the law firm of Faegre, Drinker, Biddle & Reath LLP and former Assistant Secretary of Labor for Employee Benefits. Additionally, the Big “I" Government Affairs staff and the Office of General Counsel developed a working memo regarding health insurance compensation disclosure requirements based on currently available information. This memo will be updated to reflect any further developments. Watch the Member-Only Webinar Review the Working Memo

The Big “I" recently recorded a member-only webinar on the disclosure 18

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NEWSFLASH

Vermont Adopts New Rule Requiring Investment Adviser Representative Continuing Education

The Securities Division of the Vermont Department of Financial Regulation today announced the adoption of Vermont Securities Regulations (S2016-01) amended effective on December 16, 2021, which requires both state-registered and federal covered investment adviser representatives to complete annual continuing education requirements. Investment adviser representatives play an important role in the financial wellbeing of thousands of Vermont investors by providing advice on important financial decisions such as retirement planning. Unlike other financial services professionals, investment adviser representatives were not subject to continuing education (CE) requirements to ensure their knowledge and competence is maintained or expanded. Regulation S-2016-01 was adopted to address this professional development gap to further our protection of Vermont investors. Regulation S-2016-01 requires every investment adviser representative (IAR) 22

to annually complete 12 CE credits to maintain their IAR registration. The 12 credits must include 6 credits of Products and Practices courses and 6 credits of Ethics and Professional Responsibility courses. Regulation S-2016-01 takes into consideration other CE programs mandated by IARs that are dually registered as agents of broker-dealers and IARs whose professional designations are contingent on the completion of CE. It is intended to be compatible with other continuing education programs that seek to ensure its members stay current with industry matters relevant to the services and products offered to their clients. IARs must complete courses delivered by course providers that meet specific criteria established by the North American Securities Administrators Association (NASAA). This information can be found on NASAA’s website, and we recommend frequent viewing of the website for updates and information related to course availability. www.viaa.org

I Know My Agency’s Value – NOW WHAT?

AGENCY PERPETUATION

By Wallace bYCarey cAREY wALLACEreidy

In many cases agency owners wait far too long to learn the value of their agency. This delay is due to many factors including time, cost, fear, and the worst of all – they really don’t think that they need to know. The reality is knowing the value of your agency goes way beyond knowing just a number, it reveals several opportunities for agency owners to work on their business, not just in their business. Over the past 8 months, I have completed over 50 agency valuations, here are the most common actions that agency owners take once they learn what is driving the value of their agency and realize that they have the opportunity and power to maximize it. 5. Re-evaluate your Carrier Strategy Concentration with one carrier creates risk inside an agency. If an agency’s lead carrier changes their compensation, appetite, or rates the impact to an agency can be significant. Many agency owners

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take a closer look at their carrier strategy as a result of going through the valuation process and explore alternative options. In addition, those agencies that are spread too thin across many carriers explore implementing a strategy to maximize their carrier relationships by focusing on areas that will allow them to place business with key carriers and put themselves in a position to be eligible for contingency. By focusing on a carrier strategy, and agency owner can reduce their risk over time as well as relieve some pressure on their staff who may be struggling to keep up with too many carriers. 4. Put Producer and Employee Contracts in Place Having a high concentration of your book with a single producer or account manager creates risk. There is even more risk when there is not contract in place with that employee. Agency owners that work to put

I Know My Agency’s Value – NOW WHAT? continued in producer and employee contracts that define and protect trade secrets and also include non-compete and non-piracy language can mitigate their risk in this area. While the risk of losing business when a person leaves your agency still exists, these contracts if written appropriately can give the agency some recourse and also prevent an employee from attempting to take their customers with them just by making clear what the cost of this action would be. Any agreements that are put in place after the employee after the hire date will require consideration for executing the agreement. 3. Compensation Plans The largest controllable expense inside an agency is payroll. An agency’s staff is their most valuable asset and their biggest expense. Depending on the size of your agency, compensation and benefits will use over half of the agency’s resources. Understandably, this is an area that is most often adjusted in the valuation process. Many times, compensation plans are not tied to agency production causing the compensation to become out of proportion. It is difficult for an agency to invest in marketing, technology or additional staff when their current compensation plans are not healthy. Working to implement compensation changes requires time, great communication and a clearly defined pathway to success to do it correctly.

allocating resources. This is an incredibly valuable exercise and can uncover opportunities of where reallocations can be considered to invest in the areas that will drive growth and/or efficiency n the agency. #1 Document a Perpetuation Plan The number one action taken by an agency owner after going through the valuation process is documenting a perpetuation plan or putting a buy-sell agreement in place. Not having a plan for your agency is the number one risk especially for agencies that have a single owner past the age of retirement. Taking steps to formalize and document how the agency will be operated or sold should something happen to the current owner will minimize the risk and uncertainty that exists when a sudden life event occurs. Far too often, when an agency does not have a documented plan or agreement in place, confusion creates a delay and the agency is at risk of losing business while a plan is figured out, causing the agency value to decline. While it’s impossible to eliminate all risk inside an agency, those that the time to understand the factors that are impacting the value of their agency have the power to take action and maximize their agency value. For more information visit www.agency-focus.com

2. Reallocating Resources Part of the valuation process includes creating a pro forma financial statement that takes into consideration what the standard industry benchmarks are for main categories of expenses inside an agency. An agency owner that is not familiar with these benchmarks is able to easily see the areas where they are both over and under www.viaa.org

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C E O & R O N ER

Reacting to a Carrier Downgrade or Carrier Assessment Decision

ByBig “I” Advantage, Inc. and Swiss Re Americas

You placed the business in an approved market per your agency’s market selection process. In placing the business you informed your client of the available options with alternate markets, and if the policy was assessable, provided full details. In summary, you acted in a fully prudent manner by placing business in a market to protect both yourself from claim and your policyholder from financial loss. NOW, due to your agency’s current procedures that monitor the ratings and activities of your carriers, you discover that one of your carrier’s financial ratings has dropped significantly to a level below that approved by the agency’s selection process, or that it is considering assessing its policyholders due to financial problems. WHAT TO DO? The following checklist recommends actions to be taken to provide the best service to your policyholders while at the same time reducing the potential for claims against the agency. PROTECT YOUR POLICYHOLDERS Notify them in writing about what has happened and respond to any queries without delay. If a rating downgrade or potential insolvency issue, be prepared to explain the reasons given for the downgrade by referencing the comments of the rating agency. If an assessment issue, also notify any prior policyholders affected. If a potential insolvency issue, make them aware of what protection exists via any state or other guarantee fund. 30

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Keep policyholders informed as events transpire, including any open hearings that are scheduled. Let them know that you are concerned with keeping them informed. Keep informed as to what the carrier is doing to notify your policyholders of its actions. Use carrier supplied or approved notices whenever possible. Avoid conflicting information being sent to the policyholders. Inform the policyholders about the implications of a midterm coverage move, a move at expiration, or remaining with the current carrier. Explain the possible loss of unearned premium if the carrier does become insolvent and coverage must be replaced midterm or the possibility of short rate cancellation terms if moved prior to actual insolvency or in an assessment situation. Offer the policyholders the option to move coverage midterm, and if declined, advise them that you will investigate replacement coverage at renewal with their agreement. Let the policyholders make the decision regarding coverage. Have them confirm the option selected in writing. If coverage is moved midterm, attempt to secure prorated cancellation terms from the existing carrier due to the circumstances outside the policyholder’s control. Maintain positive relationships with both the carrier and policyholders. Policyholders

Reacting to a Carrier Downgrade or Carrier Assessment Decision continued

should understand that you are looking out for their interests by doing all you can do to protect and inform them. PROTECT YOURSELF Immediately review the facts concerning the ratings downgrade or assessment action using your agency’s market selection and review process. Decide on a course of action and apply it consistently to all policyholders. Document all decisions reached and develop a written plan to follow.

The information outlined is a guide to policies or procedures that are considered good minimal business practices. It does not include all potential controls and is not intended to warrant that claims will not be incurred if guideline elements are followed. This information is based upon general risk control suggested practices and is not intended to be, or represented as legal advice. Copyright © 2008, Big “I” Advantage, Inc. and Swiss Re Americas. All rights reserved.

Check with your Association concerning the issue and any recommendations or loss control measures it may recommend. Consult with your own legal counsel regarding your actions and the content of what is sent to policyholders. Document all actions taken by the agency in responding to the situation. Keep informed about the issue in order to answer policyholder questions without delay and to demonstrate full and accurate knowledge to the policyholders. In letters to policyholders consider using wording such as: “As we discussed when you selected this coverage option…” “Per the summary sheet provided you/that you initialed…” The intent is to remind them that THEY made the decision and were properly informed as to all options available. Maintain a positive relationship with the carrier. Avoid any negative references regarding it or its actions. Clear any correspondence with the carrier if required. Check your contract with the carrier to determine what your duties or limitations may be in regards to the issue. Be consistent! If you do something for one policyholder, do it for all of them. www.viaa.org

Another Certificate of Insurance Noose

William C. Wilson, Jr. CPCU, ARM, AIM, AMM is the founder of InsuranceCommentary.com. He retired from the Independent Insurance Agents & Brokers of America in December 2016 where he served as Assoc. VP of Education and Research and was the founder and Director of the Big "I" Virtual University for over 17 years. 34

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The first certificate of insurance (COI) article I can recall writing was in 2001, two decades ago. It followed a seminar I attended led by the late, great Don Malecki. That seminar and a series of articles led to a white paper originally published in 2006: Certificates of Insurance Resources Since that time, I’ve done dozens of seminars and webinars on COIs, the first being a webinar attended, based on our best estimate, by over 7,000 people. Over the next 10 years, I spoke extensively on the subject and things seemed to improve substantially through this effort and that of Big “I” state associations who worked to enact legislation and regulations dealing with the most critical issues. However, in the past year or two, I suspect with a new generation of players, things seem to be reverting to the pre-2010 days. For example, just recently an agent shared with me a series of documentation requirements from an upstream party for whom her insured was working. Among these requests was: A letter from the Subcontractor’s insurance broker(s) to [project manager] that the policies and coverage shown on the insurance certificate are fully in force and should the status of those policies and/or coverage change at any time for any reason whatsoever, the Subcontractor’s insurance broker(s) shall notify [project manager] within one (1) calendar day of such change(s).

expense, liability, or damaged, including legal fees and disbursements, resulting from those policy and/or coverage change(s). I would never recommend that any agency submit a document with such a broad indemnification statement. Nor would I advise any agency to provide any notice of a change in coverage. In fact, due to the lobbying efforts of the Big “I” association in the state where this construction project was taking place, there was a DOI regulation that says: “[I]t is improper to state on a certificate of insurance that a party will be notified if the underlying policy is cancelled if that party is not entitled to notice under the terms of the policy.” Many states have similar and even broader laws and regulations that prohibit agents from doing certain things or providing COIs or related documents like this. Some of these states make it illegal to even be asked to do so. At the end of the day, how you handle such requests is a business decision, but make sure your E&O policy limits are high, recognizing that such impositions on the agency essentially comprise a noose in which you are expected to stick your head through.

This letter shall further state that should the Subcontractor’s insurance broker(s) fail to comply with the aforementioned notification provision, the Subcontractor’s insurance broker(s) shall agree to indemnify, defend, and save harmless [project manager] from and against any and all claims arising out of such policy and/or coverage(s) changes, and further from and against any and all loss, cost

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COMPANY & AGENCY NEWS

IN MEMORY OF MJ FITZGERALD Mary Jane "MJ" Fitzgerald, 64, passed away at her home on November 23, 2021. She was born to the late George A. and Joyce (Huard) Jimmo on December 20, 1956 in Burlington, VT. She graduated from Burlington High School in 1974. She worked at Essex Agency, before that she worked for the Burlington Free Press. She enjoyed NASCAR, music especially rap and BTS, and above all else she loved dogs.

From David Holton, President of the Essex Group MJ Fitzgerald worked at The Essex Agency Inc for the past 22 years. MJ was a dedicated and loyal employee and did her job professionally and with a flair. MJ was so dedicated to getting the job done right and on time, she often came into the office on her vacation days and worked at night to stay on top of her work. MJ was an important piece of our organization and will be hard to replace. Left to cherish her memory are her cousins Maureen (Bill Barrett) Griffin, Anne Quinn, Matthew (Judy) Quinn, Michael (Nancy) Quinn, James Quinn, and Caroline Daniels, close friends Michelle and Rick Lincoln and their son Ross, her beloved pet Lola, extended family and many friends. She was predeceased by her parents, and sister Joanne.

Historic Montpelier Park Expanding Thanks to Donation from Union Mutual Union Mutual is proud to announce its support of a local historic public park with a large financial contribution, enabling the City of Montpelier to acquire additional land surrounding Hubbard Park. The comprehensive project involves more than just expanding the land comprising the park. According to the City’s website, the project also includes: Add neighborhood access to Hubbard Park for over 200 households. Protect the headwaters of two high priority rivers and over 12 acres of wetlands, helping improve drinking water for Vermonters and providing quality habitat for frogs and salamanders, black bears and moose. Provide easier (less steep) access into the park, creating opportunities for gradual trails into the heart of Hubbard Park’s hilly terrain. Expand opportunities to teach kids and adults about the natural world, adding to park areas that can host kids’ ECO classes, Vermont Master Naturalist courses, Vermont Youth Conservation Corps, and a host of other community education opportunities. Protect Montpelier’s parkland for generations to come. Protect the only 2 state-significant natural communities in Hubbard Park . Increase trails for Montpelier to capitalize on economic development through outdoor recreation. www.viaa.org