Tn digital summer18

Summer 2018 • Tennessee

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INSIDE THIS ISSUE 7

Private flood

11

Important sales talks

19

Hit your targets

INSURANCE AGENCY M&A MARKETPLACE

Where we are; where we’ve been; and where we are going

TEAM UP WITH MidSouth Mutual Create a Win for Your Agency and Your Clients MidSouth Mutual provides workers’ compensation insurance, risk management resources and claims services to drive success for your agency and your construction clients!

We are growing throughout the MidSouth and Midwest. Soon even more states will be added.

We pleased to report MidSouth Mutual has earned an “A” Exceptional rating from Demotech, Inc. We leverage our deep knowledge of the construction industry to the direct benefit of our agency partners and construction industry clients.

MidSouth Mutual Insurance provides independent insurance agents and their clients throughout the region superior workers’ compensation insurance products backed by a commitment to exceptional service. As we continue to grow, MidSouth Mutual is clearly focused on managing the fundamentals of our business intelligently as part of a strategy of sustainable quality growth.

The company is committed to doing business the right way in service of our clients. We encourage you to learn more and contact us today!

Examples of clients we serve include: HVAC Contractors Building Suppliers Dozing Services Road Contractors

Bricklayers Electricians Plumbers Painters

Carpenters Framers Dry Wallers Landscapers

MidSouth Mutual provides insurance to clients in Alabama, Arkansas, Georgia, Indiana, Kentucky, Mississippi, Nebraska, North Carolina, Tennessee, and Oklahoma.

Masonry Insulation Cabinetry Flooring

www.midsouthmutual.com

Contact Wendy.Cox-Vetitoe@bwood.com or 615-263-1763 or 800-524-0604

Departments 4 Summer 2018 • Tennessee

In brief

7 Tech 11 Sales 23 E&O 26

Readers’ service and advertising index

27

Officers and directors directory

Cover story 14 Insurance agency M&A marketplace Where we are; where we’ve been; and where we are going

Feature 19 Hit your targets Three ways agents can shape carrier decisions

Statements of fact and opinion in PIA magazine are the responsibility of the authors alone and do not imply an opinion on the part of the officers or the members of the Professional Insurance Agents. Participation in PIA events, activities, and/or publications is available on a nondiscriminatory basis and does not reflect PIA endorsement of the products and/or services.

President and CEO of PIA Management Services Inc. Mark LaLonde, CPIA, CIC, AAI; Executive Director Kelly K. Norris, CAE; Communication Director Mary E. Christiano; Senior Magazine Designer Sue Jacobsen; Member Information Manager Jaye Czupryna.

Postmaster: Send address changes to: Professional Insurance Agents of Tennessee, 504 Autumn Springs Court, Suite A-3, Franklin, TN 37067.

“Professional Insurance Agents” is published quarterly by PIA Management Services Inc. PIA Management Services, 25 Chamberlain St., P.O. Box 997, Glenmont, NY 12077-0997; (518) 434-3111 or toll-free (800) 424-4244; email pia@pia.org. ©2017 Professional Insurance Agents. All rights reserved. No material within this publication may be reproduced—in whole or in part—without the express written consent of the publisher.

Cover design Patty Dykeman

In brief

from the executive director

But, it is all the way in Memphis ...

We understand. For some of our members and representatives, Memphis seems like a great distance. But, this convention should be on your list of “can’t miss” events.

As we approach the PIA of Tennessee Annual Convention and Trade Show on June 28-29, we realize the convention is an investment of your time and money, but here are just a few of the rewards:

PIA has always been known as an extended family. The relationships between agents are strong and supportive.

PIA is group of colleagues to whom an agent can reach out for advice, assistance and ideas in this ever-changing industry. There is no way to understand this dynamic until you experience it for yourself. The best place to experience it is at convention.

Education. You will go home with numerous ideas that you can put into practice in your agency, including: how to use social media in marketing; how to market yourself; ways to grow commercial-lines production; common mistakes that can lead to errors-and-omissions claims; and what the FBI knows about cyberthreats.

Networking. The convention will offer you the opportunity to meet and deepen relationships with carriers, industry-related vendors and other agencies at a themed trade show, receptions and events.

Charity. Support the families helped by the Exchange Club of Memphis at our annual golf tournament, which will be held in memory of our beloved Herbert Montgomery.

Recognition. Participate in the announcements of Agent of the Year, Representative of the Year, Glen Page Distinguished Service Award, CPIA designation conferrals, as well as numerous door prizes.

Fellowship. Enjoy comradery with fellow agents and reps at our President’s Dinner at the Elvis Presley Museum, literally surrounded by Presley’s collection of famous cars, equipment, gold records, costumes and memorabilia.

Beauty. If you have not seen the brand-new Guest House at Graceland resort, you are missing one of the crown jewels of Memphis. Modeled after the Graceland Mansion, the resort displays the style of Graceland with modern-day flair and décor.

For years, the PIA convention was known as an event that agents looked forward to attending with their families— something that made the event significantly different from typical conventions or trade shows. For many agency owners, the PIA convention became part of the family vacation planning. In the past two years, we have revived this model. This convention offers you the opportunity to book your rooms for an extra two to three days at the same great rate, so you can bring your family to enjoy the facilities and local attractions.

4

If, for some reason, you have not yet registered for the convention, it is not too late. Check out the convention website at http://www.PIATNconvention.com.

If there is anything that we can do to assist you or your organization, please contact us at (615) 771-1177.

Professional Insurance Agents magazine

platinum partner profile

Capital Premium Financing Inc. 12235 South 800 East

Trust & Respect. We are keenly aware that trust is a critical asset that can only be built and maintained by our conduct as individuals and as a company. We appreciate and highly value each other as individuals and we are firmly committed to treat all people (both inside and outside our company) with dignity and respect.

Draper, Utah 84020 www.capitalpremium.net

Communication. We communicate with others in open, direct and constructive ways. We strive to listen with understanding, we encourage and value problem-solving feedback, and we exert our best efforts to communicate in such a way that positive energy and goodwill are the result.

Senior executives Matt Libutti, national sales manager

Accountability. We are open and honest about our weaknesses and mistakes and we highly value the process of recognition and improvement.

Todd Hassell, territory director

Tennessee staff

Competitiveness. We are passionate about what we do, we radiate enthusiasm and confidence in all of our dealings and we honestly believe that we are the very best in our industry.

Joe Clayton, regional manager (423) 618-0094 jclayton@capitalpremium.net

History Capital Premium Financing Inc. was founded in 1988 as a specialty lender that provides financing for certain types of insurance premiums paid by commercial enterprises, and is made up of a highly qualified team of professional financial managers comprising combined commercial banking, investment portfolio management and financial institution regulatory experience of over 150 years.

Philosophy Capital Premium Financing Inc.’s core values and guiding principles, include the following: Honesty & Integrity. We always strive to do “The Right Thing.� We are truthful and accurate in all of our dealings, both internally and externally.

Hard Work & Discipline. We have a bias for action, we look for ways to help without being asked and we individually take the initiative to find ways to support and improve the company.

Compliance. We strictly comply with all laws, regulations and contractual obligations that pertain to our company.

Fairness & Kindness. We are kind and considerate to all individuals and actively seek to understand the perspectives and needs of others.

Excellence & Professionalism. We are committed to being professional, polished and organized in the way that we conduct our business. We are a learning organization that is committed to maintaining excellence through the process of constant improvement.

PIA of Tennessee and Capital Premium Financing Inc. proud partners for independent agents

www.piatn.com

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platinum partner profile

Mountain Empire Agency Alliance 1524 Bridgewater Lane

throughout the region. MEAA attributes its success to its outstanding member agencies, unrivaled support and services to their members and the stellar SIAA model of distribution and growth. In fact, at the 2015 annual MEAA meeting, Mountain Empire distributed more than $2.5 million dollars in excess profit-sharing and growth bonuses to its members. That $2.5 million is money that is above-and-beyond normal commissions received by MEAA members from their carrier appointments.

Kingsport, TN 37660 (866) 264-1292 www.meaa4u.com

Senior executives Keith Sims, chief executive officer Aaron Hammons, director of member services

Robert Wells, Middle/West TN territory manager, rwells@meaa4u.com, (615) 519-9885

MEAA brings direct access to more than 27 of the nation’s top carriers with reduced appointment requirements. MEAA’s Training and Learning Center offers continuing-education credits, mentoring, stability and assists members with everything from buying books of business; agency management systems; conventional and digital marketing resources; and even daily operations such as hiring new employees or marketing campaigns.

History

Why you should use MEAA

Mountain Empire Agency Alliance is a master agency in the largest network of independent insurance agencies in the world, SIAA, Strategic Independent Agency Alliance.

We are not a broker, cluster or aggregator.

MEAA has $7.4 billion in premium, resulting in the largest profit-sharing returns for its members compared to other organizations. It does not have a noncompete clause, if you decide to leave you keep everything MEAA helped you build. Additionally, you have access to complete commercial-lines training programs integrated with direct target marketing matched to carrier training.

Plus, 100 percent of the commission comes from the carrier to you. Finally, MEAA is the only national organization that controls such a huge market share of the industry, which offers you stability and protection during the uncertain changes coming in the industry.

Aaron Sims, vice president of business development

Tennessee staff Beth Roe, regional vice president recruiting NC/TN/ VA, broe@meaa4u.com, (423) 612-0683

Members retain ownership of their agency, and retain their direct contracts with the carriers. SIAA is home to more than 5,500 member agencies that collectively write in excess of $6 billion dollars in premium through some of the most popular and sought after carriers (e.g., Nationwide, Travelers, The Hartford, Safeco, Liberty Mutual and Grange).

MEAA is operated through the Price & Ramey Group in Kingsport, Tenn., which opened its doors in 1914.

In 2008, SIAA encouraged the agency to join SIAA as a master agency in the Tennessee, Virginia and North Carolina territories. Within a few months, MEAA was formed by Keith Sims, the owner of Price & Ramey.

Since 2008, MEAA has been one of the fastest growing master agencies in the entire nation.

MEAA is home to more than 100 fully independent member agencies that write over $200 million in premium 6

MEAA/SIAA never touches members’ commissions.

MEAA brings additional revenue through quarterly bonuses, local and national level profit-sharing, preferred commission schedules, and even growth bonuses, all with no minimum premium requirements.

Appetite MEAA looks for prospective dedicated agencies that want to grow, larger agencies that are interested in additional revenue sources, and we have the resources with SIAA’s Foundation Program to help an experienced agent build and agency from scratch.

If you are interested joining MEAA/SIAA, call Robert or Beth or visit www.meaa4u.com.

Professional Insurance Agents magazine

Tech

dan corbin, cpcu, cic, lutc Director of research, PIA Management Services

Private flood gets personal Insurance Services Office Inc. is introducing a new Personal Flood Program that will serve as a standard for the private personal flood insurance market. Major changes are itemized below.

Policy form The FD 00 01 Personal Flood Policy (with an edition date of November 2018) makes available dwelling-type coverage for the single peril of “flood,” as defined in the insert (found on page 9). This peril includes the backup of sewers or drains caused by a “flood.”

Coverage A–Dwelling covers the dwelling, attached structures and building materials located in a fully enclosed building on the premises or adjacent to the premises. It does not cover pools, hot tubs (unless bathroom fixtures),

underground structures or equipment, fences, patios and decks. The loss will be settled based upon the replacement cost of the property.

Coverage B–Detached Garage covers a detached garage only and for a limit of 10 percent of the Coverage A limit. This amount is included in the Coverage A limit, so there will be a single limit for Coverage A and Coverage B. The loss will be settled based upon the replacement cost of the property.

For Dwelling and Mobile Home Insurance, put your trust in a company that has been insuring homes for over 50 years.

20 %

CO NEW M BU M SI IS NE SI SS O N

Our Products: • Dwelling Fire/Mobile Home • Comprehensive Mobile Homeowner’s • Limited Homeowner’s

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20% New & 15% Renewal Commission AAIS Policy Forms Direct Contract with National Security Partnership Profit Sharing Fast Online Policy Issuance Easy Payment Options

National Security has provided competitive, affordable insurance to policyholders for over 50 years, but we also provide a lot for our agents, with competitive commissions, excellent customer service and experienced company adjusters. As an admitted Southeastern based regional company, National Security prides itself on fast, efficient service from a friendly small town company, and online access for all agents, providing fast quotes, online policy issuance, online dec page printing, and real-time policy information.

Find out more by calling Sharon at 1-800-239-2358 x213 or visit nationalsecuritygroup.com.

www.piatn.com

Elba, Alabama

7

Coverage C–Personal Property covers personal property (including guests) located inside a building at the described location. It does not cover personal property located below ground (e.g., basements) or below the lowest elevated floor, with the exception of portable air conditioning units, clothes washers, dryers, refrigerators and freezers. Many of the usual special limits apply for certain property, but there is no coverage for money. The insured must choose a Coverage C limit (similar to the Dwelling Program) and the loss will be settled based upon the actual cash value of the property.

Loss Assessment covers the insured up to $1,000 for an assessment made by a corporation or association of property owners for damage by “flood” to the property collectively owned by its members.

Coverage D–Loss of Use covers additional living expense and fair rental value when the dwelling is damaged by “flood” and the insured can no longer reside in it. It also covers up to two weeks of additional living expense and fair rental value if a civil authority prohibits use of the dwelling as a result of direct damage to neighboring premises.

FD 02 01 Conforming Condition brings the policy into conformity with provisions of the National Flood Insurance Program policy (to the extent they might differ) with respect to property mortgaged by a regulated lending institution and located in a Special Flood Hazard Area.

Additional coverages Debris Removal is covered within the limit for damaged property, plus an additional 5 percent of the damaged property limit.

Reasonable Repairs are payable to protect covered property from further loss after suffering damage by “flood.”

Property Removed provides up to $1,000 coverage (without deductible) to relocate covered property in order to protect it from damage by an anticipated “flood.”

Sandbags, Supplies And Labor covers the expense up to $1,000 (without deductible) to protect a covered building against damage by an anticipated “flood.”

Improvements, Alterations And Additions made at the expense of a tenant are covered up to 10 percent of the Coverage C limit.

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10979_02 2018 PIA of TN Ads-$_4.75x3.5.indd 1

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12/12/17 10:36 AM

Professional Insurance Agents magazine

Endorsements

FD 02 02 Increased Cost Of Compliance Coverage adds increased cost of compliance coverage equivalent to the NFIP coverage in the amount of $30,000, and allows the policyholder to designate a higher limit if desired.

FD 02 03 Broadened Cancellation Notice provides 45 days’ prior notice of cancellation to the policyholder when nonpayment occurs, or for other reasons, if the policy has been in effect for less than 60 days and is not a renewal. The mortgagee will be notified at least 45 days in advance in all cases.

FD 04 01 Loss Assessment Increased Limits allows for an increase in the limit for loss assessments in excess of the base amount of $1,000.

FD 04 02 Broadened Coverage For Dwelling And Other Structures replaces the Coverage B provisions in the policy, providing coverage for structures other than a garage and designating the 10 percent of the Coverage A limit to apply as additional insurance. It also provides an additional limit of up to 5 percent

of the Coverage A limit for trees, shrubs and plants.

FD 04 03 Other Structures On The Described Location–Increased Limits allows a specific other structure to be described and assigned its own limit apart from the 10 percent Coverage B limit. If this form is endorsed on the policy, the FD 04 02 form also must be endorsed.

FD 04 04 Structures Rented To Others–Described Location allows a specific other structure rented to others to be described and assigned its own limit apart from the 10 percent Coverage B limit. If this form is endorsed on the policy, the FD 04 02 form also must be endorsed.

FD 04 05 Permitted Incidental Occupancies–Described Location can be used to remove the $2,500 limit for personal property used in a described incidental business and/ or cover a designated other structure used for a described incidental business.

“Flood” means: a. A general and temporary condition of partial or complete inundation of normally dry land areas due to any of the following: (1) Overflow of inland or tidal waters from a natural or man-made body of water, including: a) Waves, such as tidal wave and tsunami; b) Storm surge; and c) Spray from any such overflow; all whether driven by wind or not; (2) Unusual or rapid accumulation or runoff of surface waters from any source, including release of water from a: a) Dam; b) Levee; c) Seawall; or d) Other similar boundary or containment system; or (3) “Mudslide or mudflow” caused by flooding as defined in 5.a.(1) and 5.a.(2) above. b. Collapse or sinking of land along the shore of a body of water as a result of erosion or undermining caused by waves or currents of water which exceed cyclical levels and cause flooding as defined in 5.a.(1) above.

FD 04 06 Supplemental Personal Property Coverage broadens coverage by removing the limitation for personal property located below ground (e.g., basements) or below the lowest elevated floor.

All flooding in a continuous or protracted event will constitute a single occurrence of “flood.”

FD 04 07 Personal Property Replacement Cost Loss Settlement changes the loss settlement for personal property from actual cash value to replacement cost.

FD 06 01 Mobilehome makes coverage accommodations for the unique exposures of a mobile home.

FD 04 08 Ordinance Or Law Coverage adds coverage for the increased costs incurred by the enforcement of any ordinance or law regulating demolition or construction of a damaged structure and the demolition and reconstruction of the undamaged part of a covered structure.

FD 17 01 Basic Unit-Owners Coverage accommodates the unit owner by insuring both the unit owner’s Coverage A items and one detached garage under Coverage B. The Coverage B limit for the garage is 10 percent of the Coverage A limit and is included in the Coverage A limit. It also provides primary coverage for the association’s deductible when the association is responsible for the amount of loss that exceeds its deductible.

FD 17 02 Broadened Unit-Owners Coverage offers an alternative to FD 17 01 by covering other structures (besides a garage) owned by the insured at the described location and including them in the Coverage A limit without a separate Coverage B limitation. It also provides primary coverage for the association’s deductible when the association is responsible for the amount of loss that exceeds its deductible.

Corbin is PIA Management Services’ director of research.

www.piatn.com

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The most important sales conversation There is an overlooked aspect of sales success to which people pay little attention: It is self-talk. The most important conversation is the one you have with yourself. The words and language you use both reveal and reinforce your beliefs about yourself and the world, which is why it’s so important. Those beliefs dictate the action you take, or don’t take, and ultimately determine success or failure. If you have a problem selling, you more than likely have a self-talk problem. The difference between the top salespeople and everyone else, is that the top people became aware of their negative self-talk and beliefs and reprogrammed their language and beliefs to positive ones—or they were one of the lucky few who received positive programming right from the start (which is the exception). Most of us received negative programming growing up. If you want to become a champion, you need to ensure that your self-talk is positive, upbeat and supports you. Below are some tips that will help you identify and solve possible self-talk issues: Step 1: Awareness. Like everything else in life, awareness is step one. You can’t fix a problem you don’t know you have. If you are overweight, but you don’t think you are, the problem won’t get fixed. If your finances are wrong, but you don’t know there’s a problem, you won’t get them right. If you have a self-talk problem, you need to be aware of it before you can change it. The first thing you want to do is monitor your self-talk. What do you catch yourself saying about yourself and the world around you? Are most of your conversations negative or positive? Do you find yourself saying negative things about the economy, your particular market, your industry or your product? How about your self-talk about you? Do you believe you aren’t smart enough, young enough, old enough, that you don’t have enough energy, have too much energy, that bad things always happen to you or that the odds are always stacked against you? Your beliefs will be your reality.

Step 2: Getting your self-talk right. If you realize you have a self-talk problem, here are some ways to work on it: Positive affirmations. Many people are familiar with affirmations and they have tried them in the past or they use them currently. In a nutshell, positive affirmations are a series of positive statements that reinforce a belief you want to have about yourself. For example, if you want to have more self-confidence, you might use affirmations such as: “I am confident,” “I believe in myself,” “I

www.piatn.com

sales

john chapin President, Complete Selling

feel my confidence increasing every day,” and other similar statements.

Positive afformations. Noah St. John, who is an expert on business and personal growth, coined the term “afformations” in his book The Book of Afformations. Afformations are similar to affirmations, but they are in the form of questions rather than statements. For example, if you wanted to have more self-confidence, you would use questions such as: “Why am I so confident?,” “Why is it so easy for me to believe in myself and do the things I need to do?,” and “Why do I have so much talent and ability?” The theory is that while your brain may be able to argue with a statement (affirmation), such as “I am confident,” it searches for an answer to the question when you ask, “Why am I so confident?”

There are four ways to work with affirmations and afformations: listening to a recording of them, reading them, writing them and saying them to yourself either out loud or silently.

If you are vocalizing them, you want to say them with as much feeling and emotion as possible. It’s best to work with affirmations and afformations first thing in the morning, right before going to bed, and then, if you can a few times during the day.

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Psycho-cybernetics. The most popular psycho-cybernetic technique to shift self-talk is to cancel out negative statements. You do this by saying the word “cancel” after you catch yourself saying something negative and then following the word “cancel” with a positive statement. For example, if you catch yourself saying, “Why do things always go wrong for me?,” you’d say “cancel” out loud if possible, and then follow that with either an affirmation (“Things always go right for me”) or an afformation (“Why do things always go right for me?”)

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*Policyholder retention rate based on voluntary business that we elected for renewal quote: 92.7% in 2016.

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Professional Insurance Agents magazine

Clean up your environment. It’s important to eliminate negatives and negative people from your environment. Where you end up five, 10, 15 years from now will be influenced by who you hang out with and what you put in your brain. You cannot watch the evening news and be positive. You also cannot hang out with negative people and have positive self-talk for any length of time.

Finally, keep in mind that everyone has some negative self-talk occasionally. In fact, the majority of champions have had self-talk problems caused by major self-esteem and self-confidence issues. Many were plagued by insecurities that were constantly reinforced with negative self-talk. The key is that they recognized it and did something about it and that’s the key for you too. Become aware of these thoughts, catch yourself in the act and then shift the conversation and reinforce the positive until it becomes your new habit.

This does not happen overnight and takes work, but if you commit yourself to positive words and language, you should see a fairly substantial and positive shift in about 30 days.

And, if you need more help with selftalk, consider reading: What to Say When you Talk to Yourself by Shad Helmstetter.

Chapin is a sales and motivational speaker and trainer. For his free newsletter, or if you would like him to speak at an event, log on to completeselling. com. He has more than 29 years of sales experience as a No. 1 sales representative and is the author of the 2010 sales book of the year: Sales Encyclopedia.

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It’s a relationship you can always count on.

www.emcins.com ©Copyright Employers Mutual Casualty Company 2018. All rights reserved.

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Professional Insurance Agents magazine

TIM CUNNINGHAM AND DAN MENZER Principals, OPTIS Partners LLC

Insurance agency M&A marketplace

Where we are; where we’ve been; and where we are going

F

or anyone following the merger and acquisition activity in the insurance industry, one has to wonder, “Will this continue forever, or when will it stop?” To say we’ve seen a spike in the acquisition activity would be an understatement of what’s happened over the past 10 years, but the real issue for both buyers and sellers, is where the market is headed.

www.piatn.com

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Before trying to answer those questions, let’s take stock in where we are; where we’ve been; and what’s happening in the world around us.

Prior to 2008, the information on agency M&A activity was prepared by various industry consulting firms suggesting transactions of between 200-250 per year, although supporting details are not readily available. Since 2008, we have maintained a database of all reported U.S. and Canadian insurance agency acquisition activity, which we believe to be credible data, albeit still not complete. Not all transactions are reported, so we’re only getting a partial picture of the activity. We also believe there is more information published today than in years past about acquisition transactions, especially among privately owned agencies, which has some impact on the totals. However, activity of the top buyers has been reflected in the reported transactions.

Summary of agency acquisitions by year 700

604

600 500 400 300

297

291 184

206

2009

2010

200

326

457

461

2015

2016

362 270

100 0

2008

2011

2012

2013

2014

2017

Source: Optis Partners

Chart 1

There was modest growth in agency M&A activity through 2008 when we recorded 297 transactions. The recession impacted the insurance brokerage community significantly, knocking the 2009 activity below any previous level since 2000. However, since 2009, M&A activity has rocketed forward at a 16 percent CAGR through Dec. 31, 2017. The 2017 year alone showed growth of over 30 percent—only surpassed by the 41 percent growth from 2010 to 2011. (See Chart 1.)

What hasn’t changed in the past several years is the number of top agency sales. Five agencies from the Business Insurance Top 100 (from 2011) sold to other agencies in 2012. Also in 2017, five of the prior-year Top 100 sold, in between, sales of the prior year Top 100 ranged from four (in 2014 and 2016) to seven (in 2013 and 2015). Industry consolidation is coming from both the top end and beyond, but the vast majority of the growth in the number of transactions is from the smaller end of the scale.

Outside of the insurance brokerage world, the global M&A activity has not seen the same kind of change. William Blair, a global investment banking firm, published a report of global M&A activity through June, 2017, which showed that total M&A deals peaked in 2011 and have actually declined since then. It also identified transactions by U.S. private-equity buyers, also declining from a peak in 2014. It would seem the explosive growth in M&A

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Professional Insurance Agents magazine

activity we’ve seen over the past 8-10 years in the insurance market has not been shared across all other segments of the economy.

Drivers of agency M&A activity There are a number of factors that seem to be driving the current M&A activity, including the following: An adequate supply of potential sellers. This is largely tied to the baby-boomer group of agency owners who are reaching retirement age that need to exit the business. This age group likely has another 5-10 years before trailing off. Internal transactions have suffered from the lack of people and planning, leaving only one option available to agency owners to capitalize the value they’ve built up in their agency.

The insurance agency business is an attractive business for investors. It doesn’t require a lot of capital (i.e., versus a manufacturing business), the revenue is largely renewal based, and the profits are reasonably stable and predictable. This isn’t likely to change in the foreseeable future, and hence the attraction from the private-equity buyers. There are more private equity-backed buyers today than we’ve seen in the past and more popping up every week, and they all want to get their investor’s money put to work. Some are insurance industry specific, while others are generalists who see the industry as a sound investment opportunity.

Access to low-cost capital. There is plenty of historically low-cost debt and equity capital available in the marketplace to fund the buyer community, whether they are privately owned or backed by

private-equity partners. As we saw in the recession in 2008-09 when capital became tight, this was one of the factors that helped explain the drop in M&A activity shown in the Chart 1. While there’s no indication of capital crunch in the future, this can be impacted by a variety of global economic or geopolitical events completely outside the control of the marketplace.

Economic factors.

General economic and insurance underwriting considerations have been favorable for several years, so there’s optimism about the business environment that many are willing to invest in and expect it to continue.

Even with all the weather events in 2017 depressing insurance underwriting results, the expectation is that this will prolong the stable pricing across many property/casualty lines of business instead of a potential soft market and pressure of agency commission revenue.

Internal value vs. street value.

In part a result of all of the above, the current valuation environment is yielding purchase multiples from third parties in excess of historical levels, and much higher than valuations used for internal ownership transactions. This valuation gap often is difficult for owners to pass up, thereby pursuing the sale of the agency to an outside party instead of an internal perpetuation transaction.

The combination of these factors has helped create both the supply and demand for insurance agencies, and continues to drive the M&A activity.

Changes in any of these factors could put a damper on the activity levels, but other than the modest increases in interest rates, there’s nothing in the near term expected to change any of the above attributes.

Agency values, transaction structure As noted above, agency valuations from third-party buyers has been as aggressive as we’ve ever seen over the last few years, with continued pressure from the sell-side to match or improve upon previous offers, and often a willingness on the part of the buyers to reach to meet the expectations of the sellers.

Part of the aggressive pricing is purely the competitive nature of the process, with many sales being looked at by more than one buyer. When multiple parties are involved, sellers have the opportunity to confirm they are getting a fair price for their business compared to only talking with one buyer, as well as exploring the cultural and operational fit for the firm with the different buyers. And even in those situations in which the buyer and seller are dealing direct with each other one-on-one, sellers have valuation expectations based on stories, rumors and hearsay that may or may not be reasonable, but they’re certainly higher than they were in years past.

One of the other interesting observations in transaction structures over the past few years has been a modest change in the distribution of the purchase price between the guaranteed value to be delivered at the closing of the transaction versus risk/incentive-based consideration paid at some point in the future. Recently, we have seen a greater emphasis placed on higher guaranteed purchase price payments and less incentives available in the performance based earnouts as buyers compete for the seller’s business.

The succession people dilemma The increase in agency M&A transactions is due in part to the lack of ownership succession planning by current agency owners. Some of this is a conscious decision, but some also is related to the lack of young talent coming into the industry that can be developed into future leaders and owners. Without the next generation of people willing to dedicate themselves to the independent agency world, current owners have no other option but to sell their agency.

Some of the largest brokers and some independents have made huge commitments to engaging and recruiting the Generation X, millennials, or the iGeneration into the insurance business. But, for many small privately owned agencies, finding the right people at the right time and being able to motivate and develop them into future leaders of the firm is a monumental task, in addition to a significant investment with often questionable returns. And, when the value of selling to a third party can generate 20-40 percent more value than selling to the future generation, the decision of which path to follow is almost a slam dunk.

Buyers have the same concerns of where the next group of leaders is going to come from, especially the most active buyers, since many of their acquisitions are essentially exit strategies for the seller. Generally, that gives the buyer two-to-four years to find replacement positions and transition the client relationships. Without the influx of new people able to lead, sell, manage and motivate, buyers could face the same issues their acquisition targets had before they sold—but on a much bigger scale.

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What does the future hold?

Looking back at the drivers of M&A activity, there is little that is likely to change in the near future, barring some kind of geo-political or economic disasters. However, this is what we could expect: Interest rates. We do expect to see a continuation in the interest rate increases, which will most likely have some impact on pricing. But just like the tax change in 2012 that caused a temporary reduction in agency transactions, sellers fairly quickly absorbed the impact on their taxes and proceeded forward in a sale if that was their plan.

Acquisition multiples. Acquisition multiples will likely remain high until something significant changes, within the industry or outside. As long as the private-equity investors remain content with their returns, the market can support the current level of purchase multiples. However, if future investors and recapitalization partners aren’t willing to pay based on the higher multiples, the agency buyers will have to reduce their purchase multiples to maintain the arbitrage between their buying price and selling price.

Replacement talent. The active buyers will continue to need to invest in new and replacement talent to transition the planned exits of their acquired M&A partners.

No slowdown of M&A. We would not be surprised if the actual number of announced transactions in 2018 falls short of the 604 announced in 2017, but don’t expect this to be a sign of a M&A slowdown. With the

Your association is also your own private ad agency.

Logos Branding Graphic design Newsletters Printing on site Mailing services Consumer pieces Trade-show displays Member discounts! (800) 424-4244 • creativeservices@pia.org

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Professional Insurance Agents magazine

start up of Alera in 2017 (23 transactions on Jan. 1 followed by another 15 during the year), 92 transactions by Acrisure and 49 by Hub International, there would seem to be a fairly significant amount of integration and acquisition digestion that may need to take place this year.

However, like all good things, this seller’s market won’t last forever. At some point, for some reason, valuations and multiples will come back down to something closer to historical levels. Just like the stock market doesn’t climb forever, there will be a correction. If you are starting to think about your exit plans, consider the possibility that waiting may cost you more value than you can accumulate over the next couple years.

If you are a buyer, be diligent about your financial modeling and cash flow projections and don’t be afraid to walk away from a deal that feels too rich. It probably is.

Cunningham and Menzer are principals with OPTIS Partners LLC (www.optisins.com), a Chicago-based investment banking and consulting firm providing M&A, valuation and strategic consulting services to firms in the insurance distribution sector. Reach Cunningham at (312) 235-0081 or by email at cunningham@optisins.com.

Reach Menzer at (630) 520-0490, or via email at menzer@optisins.com.

kirstin marr President, Valen Analytics

Hit your targets Three ways agents can shape carrier decisions

Insurers create shareholder value largely by collecting premiums and then incorporating a wide variety of investment vehicles to increase the value of those premiums. However, due to the current economic and political climates, the insurance industry finds itself at a crossroads.

Traditional investments, such as bonds, aren’t providing as high a yield, and insurers are unlikely to go after higherrisk investments. Instead, they are investing in their core businesses and technology to increase new business and retention, leading to more premiums collected. Simultaneously, insurers must improve their underwriting profit to make up for the lower investment yields.

This environment is creating new opportunities for enterprising agents, who can bring extra value to their carrier partners and, ultimately, build a new book of business by serving as a source of feedback from the front lines. Following are three ways agents can be effective in this role.

No 1: Underwriting profits, hit growth targets Professional, independent insurance agents can partner with their insurers to meet increased underwriting profits and hit growth targets. Agents can share reporting with their insurance partners, going over a detailed analysis of their current and prospective business. Today, agents also can ask their partners to share ideas for targeting, and offer updates as they make shifts in their new business and renewal strategies.

Using analytics, insurers have the ability to identify potential customers and businesses that would qualify as good risks more accurately. For an agent, this information is invaluable for expanding their potential pool of ideal customers, and is mutually beneficial for insurers. By working with agents to identify and approach customers who are likely to be low risk (and long lasting), insurers can improve the performance and stability across their book of business. Stable performance is key in today’s investment environment.

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Agency E&O Let us do all the work

With several carriers to offer, we are your

one stop shop

In short, agents can gain more insight into how their business partners are operating, and adjust their own goals to align with the goals of their insurers.

No. 2: Offer recommendations Capitalizing on their view from the front lines, agents can serve as a de-facto “voice of the customer” for insurers looking to improve their customer experience. Agents can report on the feedback their customers share, discussing everything from whether customers feel they’re receiving an appropriate level of information, through how customers view the whole industry. Today, customers are bombarded by a wide range of user experiences; from Amazon’s Alexa ordering a product refill, to the more complicated process of buying commercial insurance.

Agents may feel trepidation over providing customer feedback to their carriers. After all, how many agents can articulate effectively the differences in a user experience, while extolling the virtues of one company’s approach versus another’s approach? This isn’t the point. A recent study found that more than a quarter of insurers don’t even offer their customers a web experience that’s optimized for mobile devices (e.g., tablets and smartphones). The feedback that agents should provide does not need to focus on tiny details, but macro-level components that insurers haven’t yet been able to deliver.

Feedback also shouldn’t be limited to end-customer interactions. Insurers often have IT and development teams that are able to improve processes for internal customers. It isn’t uncommon for underwriters to use a combination of desktop computers with multiple monitors and mobile applications tailored to their tablet, to be more effective in their role. Insurers can build similar experiences for their agents.

Their direct-customer interaction allows agents to help their insurer partners gain valuable perspective on the everyday experiences of their customers, many of which are provided by companies outside of insurance (e.g., Amazon or Google).

No. 3: Encourage transparency As a buzzword, “transparency” has gained momentum in a variety of industries. For example, companies like Google and Facebook have decided to allow third-party audits on their audience measurements, to promote transparency.

However, more than any other industry, the insurance space suffers from a debilitating lack of transparency.

Contact Tina Nickell, CPIA 615-771-1177

Often, customers are confused about which factors have the most influence on the value of a quote, the ramifications of what is excluded, and what will be covered on a claim. According to the National Association of Insurance Commissioners in 2008, 51 percent of consumer complaints relate to claims.

If the claim situation isn’t fixed, the consumer or small-business owner won’t have a better impression of their experience with an insurance transaction.

Agents can help to facilitate clarity between insurers and their customers.

advantageservices@piatn.com

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Professional Insurance Agents magazine

This goes back, in some part, to how agents can offer feedback to shape experiences. If agents hear concerns over one particular piece of the customer lifecycle, like claims, they should notify their insurer partners to build or incorporate technology that easily remediates these concerns.

One of the reasons why Lemonade has been successful in its early returns has to do with the way the company has been transparent about all of its dealings. Lemonade has posted numbers pertaining to its income; how it views risk levels across its policies; and of course, the dollar amount donated to charity. The company also has provided guidance on which products are being built in the near term, all of which are largely based on customer feedback. Metromile, a vehicle insurance company,

also has been successful promoting transparency, charging customers varying rates based on how much time they actually are driving.

Insurers are facing enormous pressures and new challenges related to shifts in the political and economic climates. Agents also face new pressures, including threats from online distribution startups. By working together, agents can take an important consultative role in creating a new customer experience that addresses the entire length of a customer engagement. This approach can mitigate the risk of online quoting services, which can’t address claims handling and transparency. Agents have an opportunity, and a responsibility, to help their insurance partners remove friction from the customer lifecycle, leading to longer lasting customer relationships.

Marr is the president of Valen Analytics, an Insurity company, and provider of proprietary data, analytics and predictive modeling for property/casualty insurers.

Prior to her role as president, she was the chief marketing officer of the company, and one of the pioneers of the Insurance Careers Movement coalition, a grassroots initiative of more than 1,000 insurance organizations in 25 countries raising awareness of what insurance has to offer millennials. Before joining Valen, Marr ran B2B marketing for internet technology pioneer and market leader, HomeAdvisor. She has a passion for building companies that invent leading-edge technologies to improve customers’ lives and solve the inefficiencies that exist in traditional marketplaces.

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Plans available include:  Basic Term Life**  Voluntary Term Life  Dependent Term Life  Hospital Indemnity  Long Term Disability  Short Term Disability  Business Overhead Expense  Accidental Death & Dismemberment

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21

2018 PIA of Tennessee Convention Join us for the Annual Convention in Memphis,TN June 28th-29th. To make your stay memorable and beneficial there will be many fun activities, opportunities for professional development/CE, and networking.

Register and reserve your hotel TODAY at www.PIATNconvention.com

Location The Guest House at Graceland celebrates Elvis Presley and his legacy. It is the most significant enhancement to Graceland since it opened to the public in 1982.

Trade Show The trade show's theme this year will encompass "The King" himself.

With door prizes to agents and exhibitors, this will be an event you won't want to miss.

Networking Meet local Main Street America agents from all across the state. Find out what they're doing to grow their agencies.

Golf The Golf Tournament will be hosted Friday afternoon, June 29th, and benefit a local Memphis charity.

Professional Development The 2018 PIATN Convention will host great speakers who are nationally known and provide the opportunity to earn CE credit.

Social Events There will be multiple opportunities throughout the conference to socialize, such as the Welcome Reception, Presidents' Dinner, and others.

Dangers of signing your client’s name What do the following have in common: dynamite; plunging over Niagara Falls; and signing a client’s name to an insurance document? All are activities that most insurance professionals would avoid. However, we see errors-and-omissions claims involving allegations of agency personnel signing clients’ signatures to insurance documents.

As dangerous as dynamite?

The practice of signing a client’s name for him or her is dangerous because insurance documents requiring client signatures, such as applications: • typically have a provision stating the client is verifying the contents are true and accurate; and • is routinely considered part of the insurance contract.

If a misrepresentation or inaccuracy is on the application, the carrier often will rescind the policy rather than cover a loss. When the coverage is denied, the client will likely sue the agent.

Having the client sign an application provides a strong defense to the agency in the E&O context. The client has verified that the information in the application is true and accurate. However, if the signature on the application is not the client’s signature, it “lights the fuse” for the client to allege that it was the agency and not the client that made the misrepresentations on the application.

As dangerous as Niagara Falls?

Going over the falls can be ruinous. Under the Niagara Parks Act, it also is illegal to go over the falls.

Likewise, signing someone else’s name to a document verifying the accuracy of the information contained in the document exposes you to liability. It also is prohibited by law and can result in the nonrenewal, revocation or suspension of your license.

For example, New York Insurance Law Section 2110 provides in relevant part: Revocation or suspension of license of insurance producer, insurance consultant or adjuster (a) The superintendent may refuse to renew, revoke, or may suspend for a period the superintendent determines the license of any insurance producer, insurance consultant or adjuster, if, after notice and hearing, the superintendent determines that the licensee or any sub-licensee has:

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E&O

daniel j. hammond, cpcu, ais, aic, ains, ARe Director of errors & omissions claims, Utica National

(10) forged another’s name to an application for insurance or to any document related to an insurance transaction; You will find nearly identical language in the Insurance Law of most states.

Likewise, the predisposition of a jury is to rule in favor of a party of which advantage has been taken. If the jury believes that the agent took advantage of the client by forging a signature and the contents of the application, they will likely conclude that the client was wronged. In the eyes of a jury, this may be the deciding factor in returning a verdict for the client. Remember: In a typical E&O suit, the client who has suffered a loss with no insurance seeks to recover the loss from the agent.

The effect on E&O coverage?

Signing your clients name can jeopardize the availability of your agency’s E&O coverage. As you can see, agents who sign the names of others on insurance documents are engaging in a dangerous activity with a significant downside. Protect yourself and your business by avoiding this practice at all costs.

Hammond is the director of errors & omissions claims with Utica National.

23

HOW CYBER INSURANCE CAN PROTECT YOUR BUSINESS The need for cyber insurance is real.

Cyber insurance protects businesses from computer, network and Internet based risks. The policy covers both first and third party loss. Every business that uses the Internet, accepts credit cards, or uses a system network needs cyber insurance.

If you answer yes to any of these questions, you need a cyber insurance policy: • Does your business accept credit card payments?

• Does your business bank online?

• Does your business use Facebook, Twitter, or LinkedIn? • Does your business store sensitive customer or employee data?

YOUR CYBER EXPOSURE

HOW OUR CYBER INSURANCE POLICY RESPONDS

SOCIAL ENGINEERING An employee is tricked into sending money to an imposter pretending to be a company manager, customer, or vendor.

Reimburses you for the money lost from a social engineering scheme.

FUNDS TRANSFER FRAUD A hacker breaks into your computer system and gains access to your online banking account. The hacker uses his access to request a funds transfer.

Covers the money lost but not reimbursed from a criminal fraudulently issuing instructions to your bank to electronically transfer funds.

RANSOMWARE An employee unknowingly opens a link in an email that Covers the ransom in excess of the deductible to unlock contains a computer virus. The virus immediately begins your files after consultation with the Insurer. encrypting files on your network. The criminals reach out to you demanding $5,000 in return for unlocking the company’s files.

NETWORK INTERRUPTION A computer virus brings down your customer order system.

It takes three days before technicians can get it up and running again.

Reimburses lost profits and any extra expenses incurred while systems were down after an initial 8-hour down time threshold.

DATA BREACH A hacker gets past your security controls and breaches your network. Customer data records which included sensitive personally identifiable information were stolen. However, the extent of the breach and number of records implicated is undetermined without further security review.

Covers: • Legal fees, security experts, PR consultants, notification costs, and identity theft protection for customers impacted by the breach; • PCI fines and penalties; and • Defense and settlement costs for related lawsuits.

NETWORK SECURITY Your website was hit with a virus that flooded your network Covers lawsuits brought by those customers impacted by with 10 times the normal traffic, rendering your system the virus transmissions and covers the cost to repair any inoperable. The virus was transmitted to several key customer damage to your data files. websites, bringing their systems down as well.

MEDIA LIABILTY A customer posted a complaint on your Facebook page. An employee posted a reply accusing the customer of lying.

Covers content related lawsuits for defamatory and slanderous comments made by your company on its social media accounts.

PIA office (615)-771-1177

FOR MORE INFORMATION, CONTACT: advantageservices@piatn.com © ABA Insurance Services Inc. dba Cabins Insurance Services in CA, ABA Insurance Services of Kentucky Inc. in KY, and ABA Insurance Agency Inc. in MI. 092017. All coverage descriptions and claims examples are provided for informational and educational purposes only and are not a representation as to coverage for any other claim. Coverage for any claim is determined upon the specific facts of the claim, the terms and conditions of the policy and applicable law. For details on the coverage provided by your specific contract of insurance, please refer to your policy. Coverage is subject to underwriting guidelines. Limits may be capped for underwriting reasons.

Professional Insurance Agents magazine

2018 Partners

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504 Autumn Springs Court Suite A-3 • Franklin, TN 37067 Phone: 615-771-1177 • Fax: 615-771-3456 Contact: Kristopher Fisher, kfisher@piatn.com Visit: www.piatn.com

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PIATN Agency E&O PIATN Convention 2018 PIATN Cyber Insurance PIATN Trust Utica National Insurance Group West Bend

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Enhance your ad with the impact of color.

Reach our sales representative at (800) 875-7428. .

Directory

PIATN officers and directors OFFICERS

President Adam Cox, CPIA Alder & Cox Insurance 2110 Northpoint Blvd.

Hixson, TN 37343 (931) 503-0015 acox@aldercox.com President-elect Dedric Pearson Pete Mitchell & Associates 4216 Millbranch Road Memphis, TN 38116 (901) 345-6176 dedric.pearson@petemitchellins.com Vice President Tom Gernt, CPIA Art E. Gernt Insurance Inc. 171 Lantana Road Crossville, TN 38555 (931) 200-0110 tom@gerntinsurance.com Secretary Tina Hutsenpiller, CPIA Hutsenpiller Insurance 13085 Lebanon Road Mt. Juliet, TN 37122 (615) 218-8370 tina@hutsenpillerinsurance.com Treasurer Leighton G. Bush, CPIA Bush Insurance and Financial Services 278 Seaboard Lane, Ste. 10 Franklin, TN 37067 (615) 794-9668 leighton@bushinsurance.com Immediate Past President Doron Claiborne, CPIA Claiborne & Taylor Insurance P.O. Box 10099, 319 West McKnight Drive Murfreesboro, TN 37129

(615) 893-5064 doron@claibornetaylor.com

NATIONAL DIRECTOR

June W. Taylor, CIC, CPIA, CPIW Wilkinson Insurance Agency Inc. P.O. Box 159, 205 Highway 76 White House, TN 37188 (615) 672-4439 june.taylor@wilkinsonins.com

DIRECTORS Greg Augustine The Augustine Insurance Group 111 North Riverside Drive Clarksville, TN 37040 (931) 503-0015 gaugustine@aol.com Neal McConnico Clay & Land Insurance P.O. Box 17356, 866 Ridgeway Loop Road, Ste. 200 Memphis, TN 38187 (901) 767-3600 neal@murphyinsure.com Mike Morat, CPIA, LUTCF Mike Morat Insurance Services 2021 South Germantown Road Germantown, TN 38138 (901) 755-8858 mmorat@aol.com William “Bill” Oldham Oldham & Cox Insurance 9724 Kingston Pike, Ste. 1401 Knoxville, TN 37922 (865) 769-2332 bill@oldhaminsurance.com Josh Witt The Insurance Group LLC P.O. Box 32454 Knoxville, TN 37930 (865) 670-0911 jwitt@insgrp.net

STAFF

Kristopher Fisher, CPIA, LUTCF Executive Director & CEO (615) 771-1177, ext. 2 kfisher@piatn.com Tina Nickell, CISR Member Services Representative (615) 771-1177, ext. 5 tnickell@piatn.com Kelly Smagacz Executive Administrator (615) 771-1177, ext. 4 ksmagacz@piatn.com Sandy Clive Member Services Coordinator (615) 771-1177, ext. 3 advantageservices@piatn.com

The PIA Branding Program

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Local advertising for Local Agents Serving Main Street America

SM

How does a Professional Insurance Agent separate himself or herself from the pack in a crowded insurance marketplace? Simple.

By taking advantage of PIA’s new print advertising program.

Best of all, this powerful branding tool is available free and exclusively to PIA members, as part of their PIA membership. Company sponsorship of the PIA Branding Program is also free.

PIA has created a series of ten print advertisements that PIA members can run in local publications or print as flyers. These ads focus on the combination of choice and personal support and service that make PIA members Local Agents Serving Main Street America.

Learn More

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These attractive ads can be customized with agency logos and contact information and (optionally) a company logo. There are four general agency ads, two homeowners ads, two auto ads and two commercial lines ads, with numerous variations, sizes, color as well as black and white ads, making a total of 227 ads in all.

National Association of Professional Insurance Agents 400 N. Washington St. • Alexandria, VA 22314-2353 (703) 836-9340 (phone) • (703) 836-1279 (fax) www.PIANET.com • piabrandingprogram@pianet.org

Whether you’re a PIA member now, you’re an agent who has yet to join, or you’re interested in company sponsorship, head on over to PIA National’s website to see the ads and get all the details about the PIA Branding Program: www.pianet.com/piabrandingprogram