POLICY Magazine - Winter 2018

POLICY WINTER 2018

Oklahoma’s Magazine

How Today's

DRONE-BASED INSURANCE SOLUTIONS Could Scale with BVLOS Flight

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WINTER 2018 | VOL. 55, NO. 15 EDITORIAL STAFF PUBLISHER Denise Johnson, CIC

MANAGING EDITOR Jerri Culpepper GRAPHIC DESIGNER Brandy Akbaran PRODUCTION EDITOR Laura Wolf

PROFESSIONAL STAFF

PRESIDENT/CHIEF EXECUTIVE OFFICER Denise Johnson, CIC CHIEF FINANCIAL OFFICER Malinda Day SPECIALTY LINES PROGRAM ACCOUNT MANAGER Cindy Munden, CISR E&O PROGRAM ACCOUNT MANAGER Cheryl Lyman WORKERS’ COMP PROGRAM ACCOUNT MANAGERS Susan Starr Niki Wigington COMMUNICATIONS COORDINATOR Laura Wolf EDUCATION COORDINATOR Ashley Henderson Select graphics courtesy of Freepik.com

POLICY is the official publication of the Independent Insurance Agents of Oklahoma. POLICY is published quarterly and distributed to all member agencies and other interested parties in Oklahoma. Manuscripts and contributions are welcome and will be considered for publication at the discretion of the IIAO Publications Committee.

Correspondence and advertising inquiries may be addressed to IIAO, P.O. Box 13490, Oklahoma City, OK 73113.

Ph: (405) 840-4426 or 1-800-324-4426

24

19

COVER

COLUMNS

24 HOW TODAY'S DRONE-BASED INSURANCE SOLUTIONS COULD SCALE WITH BVLOS FLIGHT

4 INSURTECH, BLOCKCHAIN, AI, IOT - WHAT TO MAKE OF IT ALL Chris Floyd, Chairman

FEATURES 19 HEAVY HITTERS – THEN AND NOW

7 2018 IN REVIEW: ASSOCIATION COMPLETES IMPORTANT MILESTONES Denise Johnson, CIC

12 WARNING SIGNS AND 28 INTERNAL PROCEDURES FUTURE INSURANCE LEADERS OF OKLAHOMA Tom Cooper COMPLETE PROGRAM 15 30 2019 EDUCATION CALENDAR 33 TOP WAYS TO USE CASH IN YOUR AGENCY 36 NEWSMAKERS

JUST SHOW UP Avery Moore, CISR

17 LEGISLATIVE ADVOCACY: ASSOCIATION BUILDING ON LEGACY BEGUN IN 1956 Gerald Keeton 22 LOOKING BACK AT EIGHT YEARS IN OFFICE John Doak

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WINTER 2018

POLICY 3

InsurTech, Blockchain, AI, IoT –

WHAT TO MAKE OF IT ALL

Chris Floyd, CRM CIC

CHAIRMAN

W

e are certainly living in a time of advanced technology that is changing the way we do business and the way we think about how we move forward in our business model.

The insurance tech buzz words for the year have been InsurTech, Blockchain, AI and IoT. To some independent agents this may seem overwhelming and challenging to get their arms around. To other independent agents this is an exciting opportunity to be innovative and embrace new ideas and technology long overdue in our space.

AI (Artificial Intelligence) seems like a futuristic term describing the last days of our world when robots take over. But it also reminds me of the less fearful and exciting times as a child watching “The Jetsons,” the popular future-predicting animation that originally aired in 196263 about George Jetson’s life, including flying cars and the robot maid, Rosie.

InsurTech refers to the use of technology to change the way insurance is delivered in a more efficient and cost-savings platform. Currently, most InsurTech companies are focused on the personal lines market. With the large amounts of venture capital and other private equity piling up, cash is king and widely available today to invest in such companies that are willing to exhibit a potential technology to be a disruptor in the insurance market place.

4 POLICY

Blockchain … what the heck is this?

In simplified terms, it is an online digital ledger that connects multiple parties, enabling them to execute transactions in a secure environment. Cryptocurrency such as bitcoin started with this technology for authentication. This technology is now being explored for other uses such as “realtime” claims and underwriting. However, many other uses are being explored for this type of Peer to Peer (P2P) platform.

AI (Artificial Intelligence) seems like a futuristic term describing the last days of our world when robots take over. But it also reminds me of the less fearful and exciting times as a child watching “The Jetsons,” the popular future-predicting animation that originally aired in 1962-63 about George Jetson’s life, including flying cars and the robot maid, Rosie.

All of us have grown up wondering when robots will be a major part of our lives. They already exist in our lives, but not in the shape and size as Rosie.

They exist today in applications such as manufacturing assembly, packaging, vacuuming your house, mowing your yard, transportation and even customer service.

The full potential is yet to be developed, but certainly on the move. AI will play a role in the future of our industry in certain ways. Some claim AI will enable a seamless automated buying experience using chatbots that can identify the customer geographic and social data to personalize the interaction, creating an efficient and less expensive distribution of insurance services.

WINTER 2018

IoT, or the Internet of Things, is basically the network and tools like Virtual Risk Consultant. Your association of devices used to transmit data through the internet recognizes the need for innovative tools and resources connecting physical devices to the computer. IoT is taking as it continues to seek out these products to bring to its shape in our world of insurance and risk management members. in an array of uses. Common uses today include smart Independent agents are by and large entrepreneurial, home applications for monitoring of smoke, fire and innovative and spirited with tenacity and resilience. Be water presence triggering alerts, vehicles monitoring for bold and courageous in finding ways to prepare and underwriting driver behavior and tracking of vehicles in embrace today’s changing world, and you may find the event of theft, health care monitoring of patients’ vital yourself not only succeeding, but leading the way into a stats to industrial applications in data management to new frontier in the way we serve our clients. n mitigate downtime.

Does this all mean the end is near for independent agents and brokers?

Not at all. It only means that we must be adaptable and embrace new technologies to enhance the services that we provide to our clients. We need to be open minded to technology solutions to improve operations that provide customer service in a way that our clients expect them. It means that we must educate ourselves, our staff and invest in future of our agency.

Founded in 1976, the tech giant Apple began as personal computer company, but today they are best known for the iPhone and are now one of the largest companies in the world because they chose to adapt in how they delivered digital content. The Walt Disney Company’s humble beginnings started in 1923 as a small animation company but evolved into a global conglomerate by changing the way it delivered entertainment. However, for every success story of companies that The cannabis industry presents a myriad of exposures in need of adapted to change and survived, if not specialized coverage. Midlands provides a broad, flexible policy to thrived, there are many more that died meet the needs of each industry segment in this complex and evolving because they were not willing to. industry.

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WINTER 2018

POLICY 5

2018 IN REVIEW:

ASSOCIATION COMPLETES IMPORTANT MILESTONES

M

erry Christmas! I can’t believe it’s almost 2019!

Where did 2018 go? As of this writing, we have completed some very important milestones at the Association: • We combined our Young Agent and Fall Conference and did a “Reunion Tour” at Shangri La at Grand Lake. It was a great time of networking among those who “have been there before” and those experiencing Grand Lake for the first time.

• Our Board held a Strategic Planning meeting in mid-October to make decisions and determine the direction of our organization over the next four years. Our Board, led by Chairman Chris Floyd, is a very innovated, futuristic-thinking group and is looking for ways to benefit our members of tomorrow.

• We’ve upgraded the majority of technology in our offices. We were living about a decade behind and now feel that our systems are up to date and will create more efficiency in our operation.

I had an interesting encounter with a man who came by my office in early October to drop off some documents he had found in his father’s files. Harlan Pinkerton Sr. had been the OAIA president from 1958-59 and had written a letter to the OAIA Legislative Committee in March of 1957 stating his frustration with the Oklahoma Legislature and the passage of House Bill 501, which would put into place the Insurance Code for our state.

As always, there was opposition, as he stated, “If the delaying tactics continue it is possible the legislature may give up in disgust and forget the entire bill or they could run out of time or if a due pass motion is offered for the entire Code it could pass or fail. In other words, at the present time, the Code seems to be in the laps of the gods.” After working on various legislative bills over the past few years, I realize that things are not much different than they were in 1957, including our need to be actively involved in the process.

Also included with the letter was a follow-up from WINTER 2018

Denise Johnson, CIC

PRESIDENT/CHIEF EXECUTIVE OFFICER

one of the Legislative Committee members stating to Mr. Pinkerton that, “If agents would cooperate with the same degree of enthusiasm and interest that you are putting into the job, we would have no trouble.” It shows that even in 1957 our Association was highly involved in Legislative Advocacy and understood how important it was to be the voice of our industry.

Today is no different; there are as many issues on the forefront today that are as important as the Insurance Code of 1957. It takes ALL of us to make it happen. There are so many ways that you can contribute to our future: • Give to InsurPAC and OKPAC! It’s your voice for our industry to our Legislature (even in 2019).

• Get involved in a committee or task force – we need your input!

• We want to hear from you – you are our eyes and ears in the field.

I love history … whenever I’m looking for a book, I tend to gravitate to historical relevance. I think it’s important to find out how we got here so we know where to go. Remember, “the electric light did not come from the continuous improvement of candles.” We have to dare to move forward and innovate from where we’ve been. I’m very excited about our future and see many possibilities for our industry.

As always, contact me with any of your thoughts; I would love to hear what you have to say. From my family to yours, I want to wish you a very Merry Christmas and a Happy 2019! n

POLICY 7

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OkPAC CONTRIBUTORS OkPAC is IIAO’s political action committee. It provides financial support for state elected officials who will provide support for or have shown support of issues affecting the insurance industry and to those who share our business philosophies. Only individuals or partnerships can make contributions to OkPAC. Under Oklahoma law, OkPAC can accept no contributions from corporations.

Fred Barker Jennifer L. Beale Wes Becknell Stewart Berrong Bob Bramlett Nanette Bramlett Mark Burger Jeff Burton Amy Campbell Mark Carlin Jim Carson Kent Casteel Danny Charlton Lydia Christine Scott Cornelius John Crawford Malinda Day Dave Deardeuff Rose Coco Duerksen

2018

David Eaton Phil Eitzen William D. Evans Nicole Frazier Karen Garcia Janice Gilley Vaughn Graham Vaughn Graham Jr. John Hall Dudley Hallaway Chris Hays Rene Hernandez Latisha Hornbeck Gary Jarmon Dana Johnson Denise Johnson Gerald Keeton Megan Krewall Brian Land

Guy Landes Daniel Lee Thad Leonard Pat Mandeville Robert McDown Kelly J. Miller Jon Moon Todd Moon Avery Moore Patrick Moran Mike Mosley Larry Neal Maria Nease Daniel O'Neil Brad Owen Eugene Phillips Horace Phillips Stephen M. Poleman Promotions LLC

Barbara Rader Kathy Reeser Kyle D. Reser T. J. Riley John Rogers Michael Ross John Schramm Andrew Siminerio Daniel L. Somers Kassidy Smith Rex Stachmus Bob Strunk Joe Strunk Linda Sullivan Richard Teubner Ryan Teubner Heidi Walker Edward Young Brenda Zimmermann Contributors as of 11/2/2018

InsurPac CONTRIBUTORS InsurPac is IIABA’s political action committee. It pools the voluntary and individual financial contributions of thousands of independent insurance agents to help elect candidates to Congress who share IIABA’s business philosophies. InsurPac is the largest property-casualty insurance industry PAC in the country.

Cyd Allen Neil Barfield Wes Becknell Nanette Bramlett Robert Bramlett Jr. Travis Brown Jeff Burton Paul Thomas Caraway Mark Carlin Cole Scott Cornelius Dave Deardeuff Jenny Dotter

2018

David Eaton Philip Eitzen William Evans Chris Floyd David Gammill Vaughn Graham Vaughn Graham Jr. Charles Harris Tony Holmes Gary Jarmon Denise Johnson Gerald Keeton

Guy Landes Thad Leonard Mark Long Patrick Mandeville Mark McPherson Kelly Miller Michael Mosley Larry Neal David Allen Paine Steve Poleman Nancy Pugh Kathy Reeser

Kyle Reser Michael Ross Jane Seals William Smith Jr. Daniel Somers Mike Spaan Bob Strunk Joe Strunk Belynda Tayar Richard Teubner Ryan Teubner Ed Young Contributors as of 11/2/2018

Is your name not on the list? Use the contributor’s statement on the back of this page to donate.

WINTER 2018

POLICY 9

Insure Your Future!

InsurPac

OkPac

Independent Insurance Agents & Brokers of America c/o IIAO, PO Box 13490, OKC, OK 73113 P: 202/863-7000, F: 405/840-4450 InsurPac@iiaba.net

Independent Insurance Agents of Oklahoma IIAO, PO Box 13490, OKC, OK 73113 P: 405/840-4426; F: 405/840-4450 info@iiaok.com

_____________________________________________________________________________________________________________________

OkPac Contribution  Yes, I want to INSURE MY FUTURE with a Personal Contribution to OkPac! (Check contribution below.)

 $5000 Millennium  $250 Pioneer

 $2500 Platinum  $150 Founders

 $1000 Centennial  $100 Young Agent

 $500 Gold  Other $_______

InsurPac Contribution  Yes, I want to INSURE MY FUTURE with a Personal Contribution to InsurPac! (Check contribution below.)

 $5000 Millennium  $250 Pioneer

 $2500 Platinum  $150 Founders

 $1000 Centennial  $100 Young Agent

 $500 Gold  Other $_______

_____________________________________________________________________________________________________________________

Contributor Information Name ____________________________________________________

Occupation ______________________

Agency _____________________________________________________________________________________ Address ____________________________________________________________________________________ City _________________________________________

State _____________ ZIP ______________________

Phone_________________________________ Email ______________________________________________ Declaration: The contribution listed above was freely and voluntarily given by me from my personal property. I have not, directly or indirectly, been compensated or reimbursed for the contribution listed above.

Signature ______________________________________________________________

Date ______________

_____________________________________________________________________________________________________________________

Payment Information

(All contributions must be made by PERSONAL check or PERSONAL credit card.)

 Personal Check – Separate personal checks made payable to InsurPac and OkPac. $____________ to InsurPac

$____________ to OkPac

 Personal Credit Card – One-time personal credit card contribution. $____________ to InsurPac Credit card information:

$____________ to OkPac  MasterCard

 Visa

 American Express

Credit Card Number ________________________________________________ Expiration Date ____________ Name as it appears on card _____________________________________________________________________ Contributions or gifts to InsurPac and OkPac are not deductible as charitable contributions for purposes of federal income tax.

Federal and State law require us to use our best efforts to collect and report the name, mailing address, occupation and name of employer for each individual. Your contribution should be considered strictly voluntary. Any corporate contributions are prohibited.

10 POLICY

Contribute online at https://insurpac.formstack.com/forms/insurpac

FALL 2015

IIAO LEADERSHIP CHAIRMAN Chris S. Floyd, CRM, CIC Brown & Brown Insurance Professionals, Pryor

CHAIRMAN-ELECT Jeff Burton, CIC, CPCU, CRM INSURICA, Oklahoma City

TREASURER Christopher K. Mosley, CIC Mosley Agency Inc., Chickasha

SECRETARY Stewart L. Berrong, CIC, CRM Ed Berrong Insurance Agency Inc., Weatherford

STATE DIRECTOR Gerald W. Keeton Cole, Paine & Carlin, Oklahoma City

IMMEDIATE PAST CHAIRMAN Joe L. Strunk, CIC, CAPI Alexander & Strunk Inc., Oklahoma City

DIRECTOR Heidi Nease-Walker, CISR Nease Insurance Agency LLC, Okeene

DIRECTOR Vaughn Graham Jr., CIC Rich & Cartmill Inc., Tulsa

DIRECTOR Jerrad Coots Burrows Agency, Claremore

YAC CHAIRMAN Avery Moore, CISR ECI Agency, Piedmont

IIAO MISSION STATEMENT The mission of the Independent Insurance Agents of Oklahoma, working in the public’s best interests, through active member participation, is to be the unrelenting advocate of independent insurance agents and to fulfull the education, political and business needs of its members.

ABOUT IIAO The Independent Insurance Agents of Oklahoma is the largest insurance trade association in Oklahoma. With more than 475 independent insurance agencies, we represent nearly 3,000 independent insurance agents and their employees and more than 100 company members. IIAO member agencies range in size from one person to some of the largest agencies in the region.

Founded in 1906 as the Oklahoma Association of Local Fire Insurance Agents, IIAO is a result of the consolidation of the Independent Insurance Agents of Oklahoma, Inc. (IIAO) and the Oklahoma Association of Professional Insurance Agents (OAPIA) on Jan. 1, 1992.

IIAO policy is set by a board of directors elected at the annual conference. Policy is implemented by a professional

staff located in Oklahoma City. IIAO’s mission is carried out through a variety of programs designed to enhance the business of independent insurance agencies.

IIAO is an active advocate on behalf of independent agents before legislative, regulatory and judicial groups in Oklahoma and at the federal level.

IIAO is affiliated at the national level with the Independent Insurance Agents and Brokers of America with offices in Alexandria, Virginia, and Washington, D.C. IIAO is an excellent source of information through POLICY magazine, published quarterly, and the Oklahoma Agent, a monthly newsletter of time-sensitive material for its members.

WARNING SIGNS AND INTERNAL PROCEDURES

Tom Cooper, Attorney at Law PIGNATO, COOPER, KOLKER & ROBERSON, P.C.

A

case out of Georgia recently caught my attention, not because it involved an E&O claim against an agent, because it also involved the E&O insurer’s denial of defense and indemnity to the agency due to the agency’s error in reporting the claim against it. The case caused me to think about the bigger picture here. That is, agencies and their producers are constantly concerned with their customers’ risks and how to best protect against those risks.

“Despite modern technology, automated processes and the like, your business is still one built on the strength of your relationship with each customer. So, it is not uncommon for an agency to devote great time and attention to dealing with its customers’ needs. But, sometimes the agency’s own needs suffer..”

Despite modern technology, automated processes and the like, your business is still one built on the strength of your relationship with each customer. So, it is not uncommon for an agency to devote great time and attention to dealing with its customers’ needs. But, sometimes the agency’s own needs suffer.

In the above-referenced lawsuit, the customers of the agency requested the

agency to procure a property policy.

The policy was procured, but there was a dispute as to whether the agency ever delivered the policy to the customers.

During the policy period, the customers’ property was vandalized. The customers submitted a claim to Hanover, but Hanover denied the claim, stating that the insureds had failed to comply with the policy’s fencing requirement.

The customers turned their ire toward the agency and sent a demand letter directly to the agency. The letter asserted that the agency was negligent by failing to provide them with a copy of their insurance policy, and by failing to make them aware of the fencing requirement in the policy. (Absent some sort of misrepresentation by an agent as to the terms of an insurance policy, an insured still has a duty to read and know the contents of the policy. Still, as we all know, that does not prevent an insured/customer from claiming otherwise when a claim has been denied.)

The demand letter was received by a clerical worker at the agency. The clerical worker glanced at the reference line of the letter, saw that it pertained to the property damage claim and simply placed the letter in the agency file. The clerical worker did not understand that the letter was a demand upon the agency to pay the claim continued on page 14

12 POLICY

WINTER 2018

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WARNING SIGNS AND INTERNAL PROCEDURES due to the agency’s alleged wrongdoing, and therefore called no one’s attention to the letter.

A couple of months later, the customers filed suit against the agency. The agency notified its E&O insurer, Republic-Franklin, and began assembling the agency file for purposes of litigation. While reviewing the file, the principals of the agency discovered the demand letter.

The principals notified Republic-Franklin of the letter, but made it clear they had been unaware of the letter and its content. Nonetheless, Republic-Franklin denied the claim on the grounds that the agency had failed to give timely notice. The E&O policy, which of course was on a claims-made form, provided that the agency should “immediately” send the insurer copies of any demands received in connection with a claim or suit. Without the benefit of defense or indemnity, the agency settled the claim with its customers, then filed suit against RepublicFranklin for breach of contract and bad faith.

The agency’s lawsuit against Republic-Franklin did not get far. The court granted the insurer’s motion to dismiss,

continued from page 12

noting that the agency failed to comply with the notice provision in the E&O policy. In claims-made policies, timely notice is a “condition precedent” to coverage.

The fact that the agency’s clerical employee did not understand the importance of the demand letter was of no consequence. It was undisputed that the letter was received by the agency, and this was sufficient in the eyes of the court.

The moral of the story here is to take the time to look inward at your own policies and procedures, especially when dealing with customers whose claims have been, or are about to be, denied by their insurer. Happy customers are those whose claims are paid. Conversely, when a claim is denied, customers (and their lawyers) start looking for another source of recovery. Any agency in this situation should take special care to carefully monitor any and all correspondence from disgruntled customers. n

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WINTER 2018

JUST SHOW UP

L

ast week I received a phone message from our office that a fellow agent had called. It was a Friday, so I was going on my way and looking forward to the weekend. Without thinking too much, I dialed up the number and returned the phone call. After a few minutes that agent got to the real reason for calling. “Avery, I just wanted to give you a heads-up; I called on one of your accounts this morning.” I don’t know if you’ve ever had that gut-sinking, kicked-in-liver, anxiety-crawling-up-your-neck moment, but I can tell you it’s not fun. This was a goodsized client, and like most agents, I don’t like to lose. As I’m dreading his next words, suddenly the conversation switches directions. “I called on your client and as soon as I found out it was you, I told them they had a great agent and I went on my way.”

I’d be lying if I said this wasn’t the first time this has happened. If you’re reading this article, odds are you’ve probably experienced something similar. Why is that? Well, if you’re reading this article you’re obviously plugged into the association. If that’s the case, then you know the importance of community.

Let’s talk about millennials for second. I am a millennial.

If you’re younger, like me, did you know the older generation loves to talk about us? We must be riveting. We do things a little different, we’ve always had technology at our finger tips, and we’ve seen those before us be successful and expect the same of ourselves. Millennials often get a bad wrap on more than one account, but specifically about engagement … ESPECIALLY within associations. I have heard everyone speculate why we don’t join. Instagram.

Facebook. LinkedIn. … It’s said that we don’t join because social media has enabled young professionals to network without the association. I’ve heard that it’s because you can tell the vitality of an organization by their hair and all hair in associations is gray. Both of these might be true, but there’s more to it.

I’m going to take my association hat off for a second.

There was a time that I was very much anti association. I was concerned about building my book and that took up enough time and energy as it was. I didn’t want to add another thing to my plate. I received emails from the association, but there was nothing that I couldn’t live without. To be honest, WINTER 2018

I thought I KNEW the association. Anyone else been there? I think back to what changed my mind…

Think about the time Avery Moore, CISR you’ve walked into a YOUNG AGENTS group of people that you COMMITTEE CHAIRMAN are not super familiar with. Was it a good or bad experience? What was it that made it good or bad? If it was bad, you probably didn’t get a lot of value, people weren’t very welcoming, and maybe you only saw gray hair and couldn’t relate. …That’s all fair, right? Now think of a time you had a great experience. What was it that made it so great? Maybe you met that one person who would take you to the next step. Maybe the group was welcoming and you felt like you belonged. Maybe you had an idea of what this group was and learned that it was so much more. For me, one person changed my perception of what the association was. It wasn’t just this thing that wanted to suck the energy out of me because they needed volunteers. It was people who had names and they were focused on me and my success! These people were focused on growth and bringing others a long with them. It gave me people that were in the exact same foxhole as me day in and day out and knew what it took. Suddenly, when I found my people, the association’s value grew exponentially … but I had to show up.

Now, many years into active engagement, my involvement has surpassed a monetary value. I can’t tell you all the knowledge that I have gained and learned from others who have opened agencies, grown their books, and became successful. There is no price on it … it has helped me avoid mistakes that others have made before me, not to mention my involvement has helped me reach results faster than I would’ve on my own … as another perk, my community also protects what I’ve already worked toward because the association and its members have your back.

As I talk to other people starting out in the industry, often I ask them, if you could avoid some of the setbacks you’ll face and learn success quicker, would you? Their answer is always yes, and that’s what the association is. n

POLICY 15

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LEGISLATIVE ADVOCACY:

Association Building on Legacy Begun in 1956

H

arlan S. Pinkerton Sr. was president of the Oklahoma Association of Insurance Agents Inc. from 1956-1957. Legislative advocacy was alive Gerald Keeton and well in 1956, as he and our attorney, legislator G.M. STATE DIRECTOR Fuller, authored and ultimately passed House Bill 501, the Insurance Code, which is still in use today.

Recently, Mr. Pinkerton’s son brought to the Sixty-one years have passed since the Association office two letters from that time, one passage of House Bill 501, but the from Mr. Pinkerton, which spoke of their effort legislative advocacy provided by both and struggles to pass the legislation which, after the Independent Insurance Agents of many meetings and speeches, was finally passed Oklahoma and the Independent Insurance in 1957.

Agents and Brokers of America is as Sixty-one years have passed since the passage strong, if not stronger, than ever. of House Bill 501, but the legislative advocacy provided by both the Independent Insurance Agents of Oklahoma and the Independent as “pass through” income, and this law provides for a Insurance Agents and Brokers of America is deduction and relief in this area. The problem is that as strong, if not stronger, than ever. Locally, Denise there are “special classes” of businesses that would not Johnson, our lobbyist Jami Longacre, the legislative be permitted to benefit from this deduction, and the committee and others are very active in analyzing fear was that insurance agencies would be included as a proposed legislation crafting new legislation, as needed. special class. Due to the hard work of IIABA, insurance The most recent legislation for which we were agencies are not included and can benefit from this new victorious is the Affidavit of Exempt Status, which allows, law. This can be huge for some of our members. This is for instance, a small contractor from excluding himself just one example of the legislative advocacy provided by or herself from workers’ compensation. This was a great service to not only those folks, but our accounts who may IIABA. While this is all very interesting, and we are grateful want to employ them and not deal with a requirement to for those who provide this advocacy for us, there is carry workers’ compensation or picking up their payroll something you can do to contribute to the effort. When at audit. Many times, bills introduced are not in the best asked to contact your legislator, please do so and, when interest of either our members or the public in general, asked to give, please do. We must support our state PAC, and they must be changed or defeated. We work hard in called OKPAC and our national PAC, INSURPAC. It is that area and at times call on you to help by contacting vital that we support the campaigns of the legislators who your legislator. will listen to us and favor us with their help.

Nationally, Charles Symington in the Washington, Along with others, I have been to D.C. many times D.C., office of IIABA works very closely with the and have visited with a host of legislators, and I believe legislators in D.C. on our behalf. An example of a recent that it makes a difference. With your help both on a victory is included in the tax reform bill proposed and grassroots level and financially supporting OKPAC and passed by the Trump administration. Most insurance INSURPAC, we can change things. n agencies, due to their structure, have what is known WINTER 2018

POLICY 17

2018 HEAVY HITTERS PROGRAM

A Commitment to Young Independent Agents Take the Swing!

2018

Together, Your Future is Our Future 2018 Heavy Hitters Program Union Standard is committed to working with young independent agents because their future is our future. Investing in the education and development of the next generation of agency professionals will help move you up the leaderboard. Our Heavy Hitters Program will provide the support necessary to achieve the real goal of a hole-in-one in mutual success.

We recognize the need to foster new talent to perpetuate the independent agency system, as well as provide our best young agents an even greater competitive advantage.

Interested in participating in our Heavy Hitters Program?

Do you want to own the leaderboard?

Contact your Regional Sales Director, Wes Becknell, today.

A M

BEST

Union Standard’s Heavy Hitters Program – Preparing Agents for Tomorrow 1601 NW Expressway, Suite 820 | Oklahoma City, OK 73118 P 405-843-1555 | TF 800-934-9150 | F 405-840-0654 | usic.com Union Standard Insurance Group is a member company of W. R. Berkley Corporation, an insurance holding company that is among the largest commercial lines writers in the United States.

YOUNG AGENT SPOTLIGHT presented by

HEAVY HITTERS – THEN AND NOW

By Jerri Culpepper

Wes Becknell

A

Candice Richardson

s Union Standard’s “Heavy Hitters” program approaches its 10th anniversary – it was started in 2010 and launched in 2011 – Wes Becknell, one of the program’s facilitators, thought now a good time to look at the program’s beginnings, successes and goals for the future.

Becknell, regional sales director for Union Standard Insurance Group’s Oklahoma and Arkansas regions, recalled that when the program was launched, it initially was called “Building the Next Generation.” It was quickly changed to Heavy Hitters, which is trademarked.

Like most really good ideas, the mentoring program was the brainchild of several people.

“It began in our local offices, and soon after, as we put some organization behind it, it grew to the other branch offices. A lot of our best ideas come from our offices, so having the groundswell of support with underwriters, sales and management has been key to its longevity,” said Becknell.

“We as an organization feel that investment in the next generation of producers is essential for any carrier to succeed,” he said. “In addition, our research had shown that many of our existing agency partners were going to

Ryan Teubner retire or step aside soon, and we needed to get to know the next generation and what their needs are from a carrier.”

In selecting young agents for the program, the regional sales directors in conjunction with senior leadership look for individuals who “are looking for help in and need some mentoring,” Becknell said. “We do our best to invest our time and resources to help them. Ideally, they have been in the business three to 10 years and are either trying to validate within their agency or about to. Our goal is to work and establish a deep rapport so that they know we are there to help them flourish.”

Union Standard holds a contest every year from Jan. 1 to Oct. 31. “We have as many of the participants as can come to our home office the first week of November for a ceremony, where they have dinner with the president of the company, tour our offices to see how a carrier is run and finally award prizes for the most premium written. The overall winner this year will receive a WWE championship belt.”

Each year, a different sports theme is selected; this year, it’s golf. The previous two years, it was boxing, and each competitor received a pair of real boxing gloves for their office. continued on page 20

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POLICY 19

YOUNG AGENT SPOTLIGHT

continued from page 19

“In previous years,” Becknell said, “we had our agents receive customized Louisville Slugger wooden bats with their names. We try and make the contest personal and give each person something that they will enjoy putting in their office. Though intended as a competition between agents, coming to the home office has allowed our agents to build relationships with others who are doing what they are doing and facing some of the same struggles and obstacles of building a book of business.”

Heavy Hitter participants are offered free training throughout the year on various topics. Union Standard, along with their external law firm, also hosts Mock Trials, which Becknell describes as “fun local learning events.”

“We take claims that have occurred within our other Berkley companies and use them with our external counsel to walk through a trial that we have incurred. Those who attend, both Heavy Hitters and select agents within the territory, have a chance to guess what the verdict would be prior to revealing the actual outcome,” he said. “Our outside counsel will even act out the trial and keep the participants engaged in the event. It goes by fast and the response by our agents has been overwhelmingly positive. One example was from when the ice fell from off the roof from AT&T Stadium in Arlington prior to the Super Bowl.”

Becknell says longtime goals for the program are to continue to support the growth and development of young agents as they grow their books and become the next generation of leaders within the industry.

“By being a resource for them, we can help them succeed and make this a lifelong career where they can help make change for the betterment of their industry,” he said.

“We want to build relationships with the next generation of leaders and find ways to help them. It’s been a win/win for US.” n

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Heavy Hitter Recipients Share Thoughts Two recent Heavy Hitter recipients were asked to talk about their experience: what winning this recognition has meant to them and what they think of the program after taking part in it.

Upon learning of his selection as a Heavy Hitter in 2017, Ryan Teubner, CIC, a producer with Rich & Cartmill in Oklahoma City, said that it was “definitely a nice surprise … Whenever you are featured in an article that has the rich history and tradition such as the Union Standard Heavy Hitter feature, it is always an honor.”

Describing the programs as “fantastic,” Teubner said he has “told everyone at Union Standard they should continue it for the foreseeable future, too. It provides Young Agents an avenue with which they can build a relationship with a carrier and truly understand all the facets within the industry from a carrier perspective.”

He added, “Further, the events they put on are top-notch and are family-oriented, too. Having a company show they welcome your family to events is huge for me, personally, because I know I couldn't do what I do without my family supporting me 100 percent.”

Candice Richardson, CIC, CISR, a producer with the Sullivan Insurance Agency who has been recognized twice, in 2017 and 2018, as a Heavy Hitter, said she felt “incredibly grateful” to be selected both times. “I have worked hard to get to where I am today,” she said.

“I have thoroughly enjoyed the relationships that I have made along the way, but I would have to say that the Union Standard team has been one of the best to work with!”

Describing the Heavy Hitters program as motivational, Richardson added that Union Standard also has worked to make the program “fun and exciting,” with added incentives and an overall goal to win. “So, getting out there to write new business is only a win/ win for us all,” she said, echoing Becknell’s concluding thought above about the program.

She added: “Times are changing so quickly within our industry.

All of the new technology and social media is making a huge impact in just about every aspect of the professional world. I’ve heard it time and time again that the only thing that separates us from the rest are the relationships we make. I can honestly say that Union Standard is holding up their end of the bargain and doing all they can to continue to grow those relationships. I’ve enjoyed being a part of the program, I’m honored to be a part of the Union Standard family, and I look forward to continuing to build this relationship and to see what the future holds!”

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LOOKING BACK

AT EIGHT YEARS IN OFFICE

John Doak

OKLAHOMA INSURANCE COMMISSIONER

I

t’s hard to believe that my time as Oklahoma insurance commissioner is nearly over. The past eight years have flown by. We have crisscrossed the state to assist severe storm victims, put an end to fraudulent insurance scams and passed landmark legislation designed to help businesses and consumers. Here’s a look back at some of our proudest achievements.

Helping Consumers Since 2011, our office has recovered $27,675,828 for Oklahoma consumers.

The complaints filed with our office vary in size and scope but each one has a unique human element. Each complaint matters because we know each complaint is personal.

One of my favorite success stories is Lily Rhodes. The Tulsa teenager had to have her arm amputated after an all-terrain vehicle crash in 2016. Our department stepped in after her insurance company refused to pay for a high-quality prosthetic arm. With our help, Lily was able to get a top-of-the line model that includes a bionic hand with 14 different programmable grip patterns.

That’s just one example of the important work our Consumer Assistance Division does on a daily basis.

Lost Life Policy One initiative that we started in Oklahoma is now helping consumers across the country. We launched our Lost

22 POLICY

Life Policy Locator Service in 2015 to help Oklahomans find a missing life insurance policy or annuity contract left by a deceased loved one. The free service allows us to bridge the gap between insurance companies and those who think they may be entitled to policy benefits.

We saw great success with the service and suggested the National Association of Insurance Commissioners create something similar that allows consumers to search for lost policies all over the country. The national service kicked off in November of 2016, and it’s been a huge success as well. Oklahomans have submitted 629 requests resulting in $6,950,129 in recoveries. Nationwide, the NAIC has received 79,042 requests and located more than $317 million in lost policies.

To know that we had a hand in providing so many families with at least some comfort after a painful loss is extremely humbling.

May 20, 2013, Tornado Outbreak No matter how many times tornadoes wreak havoc in our state, I am always taken aback by the power of Mother Nature. That was never truer than on May 20, 2013, and the days that followed. The EF-5 tornado killed 25 people, destroyed 1,150 homes and caused an estimated $2 billion in damages. The monster storm obliterated subdivisions, businesses and even two schools.

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Commissioner Doak touring tornado damage in Moore on May 21, 2013

Commissioner Doak at the 2018 National Tornado Summit in Oklahoma City

Our team immediately sprang to action. The Anti-Fraud Unit went door-to-door in the damaged neighborhoods to warn people about disaster fraud. We set up an insurance village for consumers to come file their claims and talk to our attorneys and consumer assistance representatives. We implemented an identification and badge system for adjusters and issued 2,967 licenses in the two weeks after the storms. Later, we held a series of town hall-style meetings for storm victims. We used every resource we had to help consumers recover from that catastrophic event.

National Tornado Summit When we began planning the first Tornado Summit in 2011, we thought we’d be lucky if 100 people showed up.

We had 600! The interest highlighted the impact tornadoes and severe weather has had not just on our state but on many others. By bringing together insurance professionals, emergency managers, weather experts and regulators, we hoped to better plan for, respond to and recover from catastrophic storms. The reaction has been fantastic. Now we welcome about 1,000 people each year to Oklahoma City for the event.

After producers and adjusters told us they wanted more content, we expanded the conference to include other disasters, including wildfires, active shooters and earthquakes. This is a great event that I hope continues for years to come. The 2019 conference is scheduled for March 4-6. Registration is now open at www.tornadosummit.org.

Building Better Homes One topic that has been addressed at the National Tornado Summit is home construction standards. At the

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Commissioner John Doak, Pam Rhodes, CPO Scott Stromberg, Lily Rhodes and BCBS of Oklahoma President Ted Haynes at Hanger Clinic in Tulsa on Feb. 22, 2016

2016 conference, the Insurance Institute for Business and Home Safety launched its FORTIFIED Home High Wind and Hail programs. The programs are designed to help homeowners build safer, stronger new homes and retrofit existing homes to make them more resistant to high winds and hailstorms. IBHS engineers believe property damage to homes from EF-0 and EF-1 tornadoes can be virtually eliminated if they are built or retrofitted using FORTIFIED standards.

A year later, I pushed for the passage of House Bill 1720, which requires insurance companies to offer discounts to Oklahomans who build or retrofit their homes to FORTIFIED standards. Those discounts are now a reality, giving families even more incentive to build more tornado-resilient homes.

Other Highlights • Passing the Insurance Business Transfer Law to allow insurers to more efficiently divest blocks of business.

• Transferring $46.5 million in unspent funds from our revolving fund to the general fund.

• Recovering $5,252,802 in fraud investigations and referring 334 cases for administrative action or criminal prosecution.

• Testifying before Senate committees about insurance fraud and Oklahoma’s experience with the federal exchange.

• Seeing OID employees earn 150 professional designations.

It has been an honor to serve the public over these past eight years. It is my sincere hope that the work we’ve done will improve the lives of Oklahomans for years to come. n

POLICY 23

FEATURE

DRONE-BASED INSURANCE SOLUTIONS How Today's

Could Scale with BVLOS Flight

by Daryl Watkins

F

or several years, insurers have been using drones to gather data about asset conditions that is unprecedented in precision and objectivity—a practice which is transforming the claims cycle, making it faster and safer for adjusters to observe, analyze and assess.

Already, drones have significantly reduced the cost, time and risks associated with insurance operations.

But the greatest benefits may come from flying drones beyond visual line of sight (BVLOS).

BVLOS flights are performed outside a drone operator’s visual range, allowing the drone to cover far greater distances than in a typical line-of-sight commercial flight. By operating drones up to dozens of miles away from the point of deployment, insurers could change the economics of high-fidelity property and asset data collection.

Why BVLOS? Residential insurers could use BVLOS drone flights to capture high-resolution pre- and post-loss data for entire neighborhoods and larger regions of a locality.

24 POLICY

Additionally, in the critical hours immediately following a catastrophe, adjusters could fly drone missions deep into a disaster area to assess damages and begin the claims process. As a result, an insurer’s clients receive information about their property quickly, ultimately helping them recover and rebuild faster.

Recent safety research conducted by PrecisionHawk as a part of the Pathfinder Initiative—a three-year study focused on accelerating discovery and informing regulations on drones chartered by the Federal Aviation Administration — reveals a path toward realizing the many gains of BVLOS. The research found that BVLOS drones could unlock cost savings for insurers by: Improving data quality. Compared to traditional spot photos or manned evaluations, the aerial data obtained through drone missions is more comprehensive and precise. Improved precision also protects insurers against fraud.

Enhancing efficiency. A large majority of claims data is unstructured, requiring time-consuming and

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FEATURE

Leading companies are already establishing best practices for BVLOS missions, and third-party contracting options are beginning to address drone-based data collection. costly visual inspections from human evaluators. By implementing drone flights as a regular business practice, organizations can easily replicate a flight pattern at any point in time, regardless of who conducts the assessment. This practice will yield a better overall assessment of a property.

Increasing safety. Drones are able to inspect and analyze specific areas of a commercial or residential property that a traditional inspector may not be able to assess due to safety regulations or concerns.

Reducing claims processing time. Slow claims processing time is the primary driver of low satisfaction scores for insurers, according to a 2017 J.D. Power study. Flying BVLOS enables insurers to respond quickly and begin the claims process sooner.

Better disaster response. 40% of all catastrophic losses occur as a result of a tropical storm or hurricane, according to a report from Cognizant, a provider of information technology, consulting and business process outsourcing services. In responding to a natural disaster, BVLOS flight could enable companies can gather visual data quickly, even if the area is unsafe to reach on the ground, in order to update displaced residents who want to know what is happening at their homes and businesses.

Additionally, a comprehensive survey could identify areas of greatest need and enable companies to direct resources to help policyholders plan, recover and rebuild.

The Path Forward But gaining approval from the FAA for BVLOS operations can be difficult. In fact, 99% of all Part 107 BVLOS waiver applications submitted by commercial operators have not been approved, leaving the industry locked out from realizing the technology’s full potential.

The Pathfinder research provides a foundation for insurers to realize the potential of BVLOS missions by establishing standards and best practices. Part WINTER 2018

of the study focused on how drone pilots could and would detect aerial intruders — manned aircraft flown by FAA-certified pilots — and determine what action to take. More than 600 flight approaches were conducted by 75 drone operators in the field and an additional 70 pilots flew additional missions through simulations to study 20 factors.

The study demonstrated that flying a drone is the easy part. What was more challenging was providing the safety ecosystem required for BVLOS flight — the underlying support systems and infrastructure. These three necessary components for successful BVLOS operations emerged: Detection: Technology must be able to identify cooperative and non-cooperative aircraft and to take evasive action accordingly. Additionally, drones must be equipped and deployed with technology to provide real-time status alerts during operations to indicate reduced functionality, such as lag, latency and failure.

Safety: Drone pilots must be educated and knowledgeable of existing airspace classes, temporary flight restrictions and no-fly zones. They must also be able to conduct pre-flight checks of all hardware and execute in-flight operations.

Training: Pilots must demonstrate capability operating unmanned aerial vehicles in the visual line of sight before receiving BVLOS training.

Leading companies are already establishing best practices for BVLOS missions, and third-party contracting options are beginning to address dronebased data collection.

As carriers and adjusters adopt the practice, the outcome will be better customer engagement, more competitive service offerings and greater margin on premiums. And all of that’s good news for insurers, insureds and insurance agents alike. n Daryl Watkins is vice president of enterprise drone solutions at PrecisionHawk. Reprinted with permission from the Oct. 1, 2018, issue of IA. POLICY 25

CONFERENCE SNAPSHOTS PHOTOS TELL THE STORY OF A SUCCESSFUL IIAO CONFERENCE IIAO’s Fall/Young Agents Conference: Reunion Tour Oct. 24-25, 2018 | Shangri-La Resort

Alysia Jackson and Adriane Stachmus with One General Agency pose at their booth during the 2018 Fall/ Young Agents Conference Trade Show.

IIAO’s CEO Denise Johnson presents Carrie Batchelor with AmTrust Financial with the Company Representative Trade Show Drawing prize.

Denise Johnson presents Lydia Christine, of Alexander & Strunk, with the Agent Trade Show Drawing prize.

Young Agents Chairman Avery Moore presents Rene Hernandez, CPC Insurance, with his honorary graduation certificate. Hernandez was honored with a graduation ceremony at the conference as he ages out of the Young Agents program.

CompSource Mutual’s Mark Gruber, Josh Thomas and Brad Owens pose for a photo during a break in conference sessions. Thomas was recognized for his completion of the Future Insurance Leaders of Oklahoma program.

Avery Moore, Melissa Manus (Fourth Insurance) and Timothy Harlin (TrustPoint Insurance) during the panel. The panels featured young agents, along with seasoned ones, discussing their thoughts on the future of the insurance industry.

Avery Moore (dino suit) and Chris Floyd during the opening of the conference, pictured alongside Insurance Commissioner-elect Glen Mulready.

Tom Perrault (Rich & Cartmill, Inc.), Avery Moore, Chris Kennedy (Brown & Brown), Brad Fast (CNA Insurance) and Zach Garrison (BITCO Insurance Companies) pose between holes on the golf course at Shangri-La.

26 POLICY

WINTER 2018

Save the Date!

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POLICY 27

FEATURE

Future Insurance Leaders of Oklahoma

Complete Program D

esigned by Chris Floyd of Brown & Brown Insurance Professionals, Pryor, and the Oklahoma Young Agents Committee, the Future Insurance Leaders of Oklahoma program was launched in 2008. IIAO was the first association in the nation to offer a young agents leadership program.

FILO is designed to help participants develop a key understanding of the industry as a whole, aid in the development of tomorrow’s industry leaders by exposing participants to a variety of insurance operations and encourage participants to become future leaders in the insurance industry and in their community. FILO consists of six program modules and participants must complete all six modules: •

IIAO Association and Government Affairs

•

Sales & Marketing

• Leadership

FILO Class of 2018 members at the Regional Food Bank of Oklahoma on Nov. 2, 2018. From left: Garrett Moore, Trevor Sheltey, Josh Thomas, Krista Kautz, Wes Becknell, Julie Hamill and Young Agent Liaison Laura Wolf

• Underwriting •

Regulatory Affairs & Department of Insurance

•

Community Service Project

FILO candidates must be a Young Agent (under 40 years of age or in the business less than five years), their agency or company must be a member in good standing of IIAO, and each candidate must have an active P&C license.

FILO is offered every two years and accepts 15 agent or company participants. For more information, contact info@iiaok.com.

Please join IIAO in celebrating the individuals who completed the FILO program as part of the Class of 2018:

Heather Bryson, CISR The Arrow Group | Broken Arrow Thomas Perrault Rich & Cartmill Inc. | Tulsa Julie Hamill The Carpenter Agency | Stillwater Trevor Sheltey Rich & Cartmill Inc. | Oklahoma City

Wes Becknell Union Standard Insurance Co. | Oklahoma City

Krista Kautz Berrong Insurance Agency | Weatherford

Garrett Moore The Insurance Place Agency Inc. | Ardmore

Josh Thomas CompSource Mutual | Tulsa

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WINTER 2018

Special thanks to our

2018 PaRtneRS DiamonD Deluxe

IIAO

Platinum

GolD

Central Insurance Companies CNA Insurance Liberty Mutual Insurance Mercury Insurance Group Columbia Insurance Group MJ Kelly Company

One General Agency Progressive Safeco Taber Brokerage LLC

SilVeR

National American Insurance Company The Hanover Insurance Group

BRonZe Acton AF Group Amerisafe Amtrust Financial / Republic Group BITCO Insurance Companies Chubb Group of Insurance Companies

EMC Insurance Companies Equity Insurance Company Farmers Alliance Mutual Insurance Co. ICW Group Patriot National Underwriters / Old Glory Insurance Company Graham-Rogers, Inc

Philadelphia Insurance Companies Risk Placement Services The Hartford Westphalen Insurance Services Inc. Stonetrust Commercial Insurance Company Accident Fund Insurance Company

L A C N

IO T A UC

D E 9 201

R A D EN

For a complete list of courses or information on registration, please visit our website at www.iiaok.com/education.

Questions? Email education@iiaok.com or call (405) 840-4426.

Feb. 20

Feb. 21

CISR Commercial Casualty I (Tulsa) CE: 7 credits

CISR Insuring Commercial Property (Tulsa) CE: 7 credits

March 6

March 7

CISR Insuring Personal Auto Exposures (OKC) CE: 7 credits

CISR Elements of Risk Management (OKC) CE: 7 credits

March 20-22

April 24

CIC Commercial Property (Tulsa) CE: 16 credits

CISR Commercial Casualty II (Tulsa) CE: 5G, 1E, 1L

April 25

May 8-10

CISR Agency Operations (Tulsa) CE: 7 credits

June 12

CISR Personal Lines - Misc. (OKC) CE: 7 credits

July 17-19

CIC Commercial Multiline (Tulsa) CE: 16 credits

August 7

CISR Insuring Person Residential Prop. (Tulsa) CE: 7 credits

September 4

CISR Commercial Casualty I (OKC) CE: 7 credits

September 18-20

CIC Commercial Casualty (OKC) CE: 16 credits

December 4

CISR Insuring Personal Auto Exposures (Tulsa) CE: 7 credits

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CIC Agency Management (OKC) CE: 7 credits

June 13

CISR Insuring Commercial Property (OKC) CE: 7 credits

August 6

CISR Life & Health Essentials (OKC) CE: 7 credits

August 8

CISR Elements of Risk Management (Tulsa) CE: 7 credits

September 5

CISR Commercial Casualty II (OKC) CE: 7 credits

October 16-17

James K. Ruble Seminar (Stillwater) CE: 16 credits

December 5

CISR Insuring Commercial Property (Tulsa) CE: 7 credits

WINTER 2018

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TOP WAYS TO USE CASH IN YOUR AGENCY Learn How to Manage Your Liquidity and Earn Top Returns

By David Tralka

I

f your agency is doing well, you’re likely sitting on some cash that you can invest back into your business. But what’s the best way to use this capital? And how do you decide when to use your own funds versus borrowing from a bank?

I often tell agency owners the first step is to ascertain whether you are a lender or a borrower. Every agency falls somewhere on a continuum between being a provider and a user of capital.

If you’re a provider of capital, you’re making deposits and you have cash on hand. You need to pay attention to how you manage that liquidity. That means understanding the basics of cash management and the relationship you have with your bank: the fees, the return on your deposits, how much flexibility you have in moving money to capture yield. Those returns can add real value and can be used as a tool to improve your profitability.

Extra cash can be put to good use by investing in your agency, creating even more value and generating future returns when you decide to sell.

Squeezing even incremental returns from your cash flow can pay handsomely. It’s basically “free money” that goes right to your bottom line. Consider, too, the multiplier effect it has on agency value. Let’s assume your agency has a value of six times its cash flow and you’re able to increase your cash yield by $10,000. You’ve actually increased the value of your agency by $60,000 (because of the multiplier). That’s a pretty handsome return!

Putting extra cash to good use That extra cash can also be put to good use by investing in your agency, creating even more value and generating future returns when you decide to sell. I liken it to a home owner who’s received a bonus from her employer. She may be tempted to spend that extra cash on a dream vacation, but the better choice might be to replace the aging furnace in the basement. A new, energy-efficient furnace not only reduces heating bills, but it also adds value to the house. At some point the furnace absolutely will need to be replaced. But if the home owner has already spent her capital, she’ll be forced to borrow—making the purchase of a new furnace even more expensive and possibly tying up funds she may need for other things, such as a new roof or car.

The same can be said for your agency. If you’re doing a good job of managing your capital, you should have additional funds you can free up each month to invest in the equivalent of an energy-efficient furnace. Indeed, infrastructure is one of the smartest investments you can make in your agency and one of the first options to consider if you have additional cash on hand. Like the home owner, you may be tempted to put off spending on new equipment. Sure, the phones work, and you have computers. But how old are they? How efficiently are you running your office? New systems can increase staff productivity, reduce downtime, and improve customer service. Upgrading your equipment and software is continued on page 34

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POLICY 33

TOP WAYS TO USE CASH IN YOUR AGENCY

continued from page 33

essential to growth, and automation can make you more competitive and attractive to a buyer if you are selling your agency.

When I speak to owners who want to grow their agencies, they usually tell me their primary goal is to increase revenue. There are several ways to do that, the top ones being adding new producers and improving customer service, followed closely by advertising and referrals. Tapping your extra cash is the perfect way to grow in these areas.

Growing organically I’m a huge proponent of growing organically. Simply put, organic growth is the value you create when you invest in your own agency. Inorganic growth occurs when you purchase another agency or a book of business that someone else has developed. Organic growth is almost always your best bet. It has a better return because you’re not borrowing money and tying up your capital. Organic growth takes time and discipline, but it offers the highest rewards.

Although inorganic growth is an attractive strategy when agency values are rising, old-fashioned “sweat equity” still delivers a better return. McKinsey & Company published an interesting analysis last year, The Value Premium of Organic Growth, that bears this out. After looking at the performance of 550 U.S. and European companies over 15 years, McKinsey found that those with more organic growth generated higher shareholder returns than those whose growth relied more heavily on acquisitions. The main reason: Companies don’t have to invest as much up front for organic growth, and the return on capital is lower for inorganic growth.

To use our house analogy again, consider two home owners with identical incomes and nearly identical houses.

One has invested in her house each year whereas the other has deferred improvements in favor of a luxury car.

Five years go by, and each decides to sell her house. The first one is told by her real estate agent that the home will fetch top dollar and doesn’t need any work to get it ready for market. The second one is told she will need to spend $50,000 in upgrades just to make her house comparable to others in the neighborhood. Which home owner would you rather be?

Sometimes making improvements to your house, whether it’s new windows, carpeting, or an updated bathroom, isn’t very exciting. Yet the payoff is much greater than if you didn’t do anything at all. In the agency world, we measure that payoff in increased sales, new business, and profitability. Firms that enjoy high levels of organic growth also tend to have higher percentages of new commissions compared to the prior year, which is sometimes called sales velocity. Of course, commissions 34 POLICY

are just one measurement. You can also look at new leads, policies written, closing ratios, and retention rates.

Whatever you look at, chances are the agency owners who invested in their business are faring better than their peers who did not.

Organic growth also means finding ways to reduce costs and create greater efficiencies. Think about what happens when a national company buys a local agency.

The first thing it does is start evaluating expenses. The new owner invariably does the things you may have thought about but didn’t have the discipline to do yourself: reduce your staff, limit producer compensation, and invest in a new office management or CRS system.

Watching your expenses also frees up more capital that you can use to grow your agency. It allows you to invest in professional development for your team, add a customer service representative, or purchase additional advertising.

When Should I Borrow?

To be sure, there are times when even well-run agencies should think about borrowing. Instead of dipping into your working capital, it may make sense to borrow to pay the cost of bringing on a new producer or acquiring new office equipment. Even fast-growing agencies may decide to borrow for some expenses, such as buying a building versus leasing space.

Agency perpetuation and mergers and acquisitions are perhaps the greatest reasons why an agency might decide to borrow. As agency principals approach retirement, they begin to consider ways to pass their firm on to the next generation—whether that’s family members, their partners, or an outside buyer. These kinds of succession plans generally involve some type of borrowing. Agencies that are looking to enter new markets may choose to purchase a book of business or another agency. These acquisitions typically involve a loan or some type of buyout.

Remember, investing in your agency is a lot like investing in a house. The more you can “do it yourself,” the greater the returns and the more capital you’ll be able to retain to do other things you want, such as eventually retire. Having a plan for how to spend your capital prudently and strategically is the surest way to grow and successfully perpetuate your agency. n David Tralka is president and CEO of InsurBanc, a division of Connecticut Community Bank, N.A. He is responsible for keeping the bank focused on being an innovative provider of financial products and services for the independent agency community. An expert on agency mergers and acquisitions, agency perpetuation and financing, he has presented at numerous venues nationwide. This article originally appeared in Rough Notes.

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NEWSMAKERS Announcing the 2018 NextGen Under 30 Winners In 2018, there are 267 winners from 202 companies/organizations in 15 career categories of the professions, trades, business, public service and nonprofits.

NextGen Under 30 recognizes individuals who demonstrate talent, drive and service to their communities. Winners this year come from across the state, from Guymon to Durant to Tahlequah, in Tulsa, Oklahoma City and beyond.

Now in its eighth year and expanding its scope and state-wide reach, NextGen Under 30 recognizes and encourages the next generation of innovative, creative and inspiring individuals who push the boundaries in various categories of endeavor. In addition, award-winners are selected based upon their participation in and contribution to their communities. A panel of respected business and civic leaders serve as judges.

Members of IIAO who were recognized on the 2018 list: • Christin Cornelius, Frates Insurance & Risk Management • Avery Moore, ECI Insurance • Hayden Musgrove, Andreini & Company Congratulations to those who were recognized with this honor!

IIAO New Members

CONGRATULATIONS ON

20 YEARS! IIAO’s own Malinda Day celebrated 20 years with our association in November. Malinda’s dedication and organization is unmatched and has truly helped our association provide excellent customer service over the years. We love having Malinda on our team!

AGENCY MEMBERS Gold Buckle Insurance Alva Contact: Jessica Koppitz Free Will Agency Jenks Contact: Gregory Conover

Malinda Day receives award from Chris Floyd

Be a Newsmaker | What’s happening in your organization?

Celebrating an anniversary, opening a new branch, or have a staff member who has received an outstanding award? Send us your

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Stephenson Baggs & Guthrie, Woodward Contact: Chelsea Graham

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