The Benefits Of Having A Life Book - A Case History

This is a true story. A P/C agency owner sold his agency to a buyer who was not interested in, nor equipped to handle, the Life business. (Too bad.) So they agreed to deal separately with the P/C and Life books of business. The P/C book would be tracked, and paid for, during a two-year period, with adjustments for business which did not renew. (There was some attrition, as expected, but a good 90% of clients stayed on the books during the buyout period, a solidly happy result for buyer and seller.)

Since the P/C buyer was disinterested in Life business, the seller found a different buyer for the Life book. It was too valuable a property to be placed in an agency that would ignore it, for the seller had developed a respectable volume; second, since he was concerned about his insureds, he wanted the Life book to be in the hands of someone qualified to handle them properly; and third, he wanted someone willing to pay a decent price for the potential. Although he sold the Life book to another buyer, the P/C buyer had full access and unrestricted rights to sell Life products to the P/C book of insureds.

The sales agreement for the Life book specified that the seller would get a percentage of the renewal commissions, but nothing for new business written for those insureds by the Life buyer. Further, to protect the buyer of the P/C book in the event he should wake up to Life's potentials, the seller avoided granting anything resembling exclusivity of access. The P/C buyer and the Life buyer knew that the other could sell Life products to the insureds common on both customer lists.

Years later, the seller remarked that he had hoped the Life income from the sale would last as long as two or, with luck, three years. Surely, he thought, by then the Life policies would be replaced. After all, most of the business was written on target accounts-pensions, executives, professional people, groups. And there were no contractual restraints on any account. The entire book of business was wide open to the Life agent who bought it, the P/C agent who bought access to the insureds, and any other agent in the area who might solicit the business. Other pressures included new products, tax law, and IRS rulings. Surely, he thought, this book of Life business would disappear soon.

He was wrong. Here's the record of his share of renewal commissions:

Astoundingly, the book of business not only survived, but grew, even though the writing agent-the seller-had moved 1,000 miles away! Growth was due to increasing premiums on Group and Term products, pension plan additions, and automatic conversions.

Even more astounding is that this attractive but obsolescing book of business remained virtually untouched. Keep in mind, the book was cared for by not one, but two insurance firms with free access to the insureds and the opportunity to look after their insurance needs.

Several observations may be made:

• The seller was wise to develop the Life business as a separate source of income.
• The P/C buyer missed an important profit center literally in his hand, by failing to address the Life potential of the agency.
• The buyer of the Life book is a mystery, unless he was one of those dinosaurs refusing to replace any Life policy, regardless of how much improvement the replacement may bring to the policyholders.
• That city is very much like yours in having vast amounts of obsolete Life business virtually begging for professional review and improvement.

How many good Life prospects are among your P/C insureds? What are you going to do about it?