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... x No Thanks Loading.. Making The Most Out Of An Agency Business Combination 4/30/2013 by CompleteMarkets Editor , Carol Hammes This content has not been rated yet. MAKING THE MOST OUT OF AN AGENCY BUSINESS COMBINATION by Carol Hammes It's what comes after the handshakes that counts. INTRODUCTION You've done the groundwork for a successful combination of agencies (acquisition, merger, or cluster) . But what comes after the handshakes will be even more critical in determining the eventual outcome. The initial evaluation and structuring process will determine much of what needs to be accomplished. Parties involved have made an emotional and financial commitment to invest in this course of action. You owe it to yourselves to follow through for as long as it takes to maximize the payback on this investment. Here's how: KEEP THE SELLER INTERESTED Most transactions involve at least one owner who is selling their ownership interest as part of the deal. In some situations, the buyers might prefer that a selling owner disappear (quickly) after the sale. However, it's usually better to have the sellers stay involved for a while by building a retention or growth incentive into the purchase price. If you want the seller to take a hike, don't include any incentive — except perhaps one that pays them to stay away! The simplest and most common incentive is to buy the book of business strictly on a retention basis. Determine the appropriate percentage using the pro forma cash flow that you developed and adjust this for timing considerations. If the seller wants the money over a shorter period, the percentage of renewal ...

... x No Thanks Loading.. Business Combinations: Surviving/Thriving With A Merger 4/30/2013 by CompleteMarkets Editor , Carol Hammes This content has not been rated yet. BUSINESS COMBINATIONS: SURVIVING/THRIVING WITH A MERGER by Carol Hammes These guidelines will help you meet the challenges of merging your agency. Most industry observers believe that the number of insurance companies will shrink by 50% within this decade, as the strategic need to reduce loss and expense ratios fuels mergers and acquisitions. Achieving economies of scale by reducing geographic spread or focusing on more profitable lines and products has become imperative for national and regional companies alike. In the long term, the trend of carrier consolidation and spinning off non-core business will probably be good for the Independent Agency System. But in the short term, it will create even more challenges for most independent agencies. Faced with consolidation among insurance carriers, the resulting change in operating/placement strategies, and the need to further streamline their internal operations, merger activity has also increased among independent agencies. Current business combination activity is so widespread that experts predict that the number of independent agencies will shrink from approximately 40,000 at the end of the year 2000 to only 20,000 by the end of 2005. Many small to medium-sized agencies are finding that they cant compete in a marketplace where insurance companies are requiring far larger premium commitments every year. Larger agencies, faced with perpetuation concerns and growth plateaus, are increasingly receptive to merger and acquisition overtures from larger agents/brokers, insurance companies, or financial institutions. Although the pressures of premium ...

... ) Please consider the following: 1. Would you recommend this company? 2. What about this company do you like/dislike? 3. Why did you choose this rating? Submit This Anonymously Submit Cancel Contact Us contact_phone Click to call Unfollow First name: Last name: Email: Are you sure you want to deactivate your CompleteMarkets Company Profile Deactivate Cancel Loading.. About Us Services Jobs PR Newsletters Employees Articles Blog Photos Group Connections Reviews IMMS Library Immerse yourself in our stacks. Take some time and browse through our library. We have thousands of articles, checklists, tip sheets, sales letters, and more! Communications Marketing Customer Service Planning Finance/Accounting Risk Management Human Resources Selling Legal and E&O Technology Life/Financial Services Glossaries Management Resources & Links Categories Popular Recent All Back Combine Incentive Compensation With Employee Evaluations 4/30/2013 12:00:00 AM by CompleteMarkets Editor , Al Diamond This content has not been rated yet. Wouldn't it be nice to have employees looking for more business to handle, or helping to innovate to permit more work to be accomplished without the addition of staff? An Incentive Compensation Program (ICP) accomplishes this goal — but it takes a few years of education to teach the employees that this is really as simple as it sounds. Al Diamond offers tips on how you can accomplish this. An Incentive Compensation Program (ICP) can remove the subjectivity from the process of increasing compensation for performance. ICPs are usually constructed based on advances in productivity (revenue per employee) combined with department and/or agency profitability. If ...

... x No Thanks Loading.. Combining Insurance And Financial Services: Reality Check 4/30/2013 by CompleteMarkets Editor , Carol Hammes This content has not been rated yet. COMBINING INSURANCE AND FINANCIAL SERVICES: REALITY CHECK by Carol Hammes After the Barnett decision in Florida and the subsequent passage of the Gramm-Leach-Bliley Financial Services Modernization Act, a flurry of activity began to create broader financial service organizations that provided insurance together with other products. Carol Hammes evaluates the bank/agency relationship. &# 160 Financial institutions have been in the insurance business for many years, with some states granting savings and loans and banks in small towns the right to have insurance departments and with seven large grand-fathered' national bank holding companies allowed to remain in the insurance business after most were shut off. There were more than 4,000 financial institutions in the insurance business before the courts and legislation opened the doors to the rest of them to take the plunge into combining the various types of financial services. Although most of these initial banks and S&Ls were only selling credit life and annuities, a number of them attempted to make a go of it in the Property/Casualty arena. In fact, back in the 1980s almost half of the members of the IIA of North Dakota were bank agencies. So, the convergence of banks and insurance isn't new. It's now become much more widespread and actually almost trendy. It was something that the banks had been fighting long and hard to do and something that most agents' associations had been dead set against — which made it all the more attractive for ...

... x No Thanks Loading.. Combine Incentive Compensation With Employee Evaluations 4/30/2013 by CompleteMarkets Editor , Al Diamond This content has not been rated yet. Wouldn't it be nice to have employees looking for more business to handle, or helping to innovate to permit more work to be accomplished without the addition of staff? An Incentive Compensation Program (ICP) accomplishes this goal — but it takes a few years of education to teach the employees that this is really as simple as it sounds. Al Diamond offers tips on how you can accomplish this. An Incentive Compensation Program (ICP) can remove the subjectivity from the process of increasing compensation for performance. ICPs are usually constructed based on advances in productivity (revenue per employee) combined with department and/or agency profitability. If the individual manages a larger book of business (i.e., service employees) or manages their function for a larger client base (i.e. administrative employees) while their department and/or the agency maintains appropriate profit levels, raises are automatic and can actually be tracked by the employees, themselves. If an individual is more productive and if the department and/or the agency is profitable, that individual shares in this success through salary adjustments corresponding to the productivity increase. The "Merit Raise" system in which we have been raised is often less concerned with merit than with management's perception of an employee, combined with the frank realities of budgetary limitations. A variety of rating systems have been developed to establish some form of objective criteria under which the merit system can operate. Unfortunately, ...

... x No Thanks Loading.. Combining Incentive Compensation With Employee Evaluations 4/30/2013 by Al Diamond , CompleteMarkets Editor This content has not been rated yet. An effective Incentive Compensation Program will benefit your staff - and your agency. An Incentive Compensation Program (ICP) is designed to remove the subjectivity from the process of increasing compensation for performance. We have written and assisted many ICPs and recommend that you contact Agency Consulting Group, Inc. should you want to construct one for your agency. The construction of ICPs is typically based on advances in productivity (revenue per employee) combined with department and/or agency profitability. If the individual manages a larger book of business (service employees) or manages his or her function for a larger client base (for instance, administrative employees) while the department and/or the agency maintains appropriate profit levels, raises are automatic and can actually be tracked by the employees themselves. Wouldn't it be nice to have employees looking for more business to handle, or coming up with innovations to permit more work to be accomplished without the addition of staff? An ICP accomplishes that goal-but it takes a few years of education to teach the employees that this is really as simple as it sounds. If an individual is more productive and the department and/or agency is profitable, that individual shares in the success through salary adjustments corresponding to the productivity increase. The system of merit raises in which most of us have worked is often less concerned with merit than with a combination of management's perception of an employee and the frank realities of the ...

... x No Thanks Loading.. External Growth With Successful Acquisitions 4/30/2013 by CompleteMarkets Editor , Carol Hammes This content has not been rated yet. EXTERNAL GROWTH WITH SUCCESSFUL ACQUISITIONS by Carol Hammes Be prepared to do an acquisition before the opportunity presents itself. INTRODUCTION Most agencies will have the opportunity to acquire or merge with at least one other agency during the next year. Market conditions are forcing the owners of smaller agencies to seek business partners in order to meet the needs of their clients more effectively. Owners of larger agencies who are tired of the hassles and perhaps fearful that agency values will continue to decline are opting for retirement sooner than they had originally planned. Merger and acquisition activity has been heating up in recent years, with current estimates indicating that 10 or 12 business combinations are being consummated every day. Whether you're actively looking for them or not, chances are that potential deals have been or will be presented to you shortly. Be prepared! An acquisition might be just the catalyst your agency needs to get off of dead center — or it could literally drive you into the ground. The temptation to seize upon an opportunity before the competition gets the chance to steal it away from you can be overwhelming. Many ill-fated business combinations have been made defensively. YOUR ACTION PLAN Because of the need to act quickly when an opportunity arises, it's important to have an action plan that will force you to assess the situation rationally, within the context of your agency's goals and objectives. A written set of questions and guidelines can take the emotional content out of the decision ...

... ) . These expenses are fixed, because up to a point they don't vary by book size. If 25% of these noncommission expenses are attributable to maintaining the agency, then fixed annual expenses per agency equals $31,450. Using the company's average results, the following expenses will be incurred on a small book of $250,000 written and earned premium: 70% loss ratio ($ 175,000) 14% commission rate (commissions for smaller agencies are lower due to lower contingencies) ($ 35,000) 15% LAE ($ 37,500) 12.75% (75% of 17%) noncommission variable expense ($ 31,875) Excluding the 25% of fixed noncommission expense per agency, total expenses equal $279,375 for a combined ratio of 111.8% . Including fixed expenses per agency, total expenses equal $310,825 for a combined ratio of 124%! As a percentage of written premium, fixed expense equals 12.58% of expense! Compare these results to the company's average book of $740,000 direct written premium per agency: 70% loss ratio ($ 525,000) 14.5% commission ($ 108,750) 15% LAE ($ 112,500) 12.75% (75% of 17%) noncommission variable expense ($ 95,625) Excluding the 25% of fixed noncommission expense per agency, the total equals $841,875, for a combined ratio of 112.25% . Add the fixed expenses per agency, and the total equals $873,325 for ...

... Seller: The vast majority of agencies are sold as an "asset sale." A "C " corporation asset sale is taxed twice. The IRS views the process as a two-stage event, even if you see it differently. As you might expect, the IRS wants a big piece of each stage. First, the corporation sells everything, including the book of business. This generates enormous income at the corporate level, all of which is subject to full corporate taxation. Even in smaller independent agencies, this tax usually represents about 34% of the sale price. Second, what's left is paid to you, the owner. Usually, this payment is a "long-term capital gain," so the IRS will want only 28% more. If this happens to you, the combined federal tax will come to 52.5%, not counting possible state and local taxes. Never forget, the buyer had to pay taxes on the money before paying you. Buyer: Since almost all the value of an agency comes from the book of business, the primary asset sold is an "intangible" asset, which must be deducted evenly over 15 years. So someone who buys an agency's assets for $150,000 can deduct $10,000 per year for 15 years. Oddly enough, most people don't get excited about deductions they can take 15 years from now. PLANNING ALTERNATIVES: HOW TO SAVE BIG BUCKS! There are a number of tools to improve an asset sale. An experienced planner can mix and match them to generate substantial savings. Non-compete agreement: If ...

... a formal partnership. Cluster members commonly retain ownership of their expirations and good will, and may continue to some extent to do business under their individual business names. A cluster' is not a recognized legal form of organization. The cluster agreement must spell out what the rights and obligations of the members are. I will first consider a simple unincorporated cluster. I will then discuss a cluster with an overlying corporation. A cluster retains many advantages of individual proprietorship. Members retain ownership and control of their individual businesses. Relative simplicity of operation is preserved. A cluster also may bring business advantages over a proprietorship. Members may be able to get assistance from other agents. Members may be able to share markets. Members may qualify for other benefits not available to individuals, such as all being combined for company profit sharing purposes, or better errors & omissions coverage. Members may share expenses and reduce their costs. Other members of the cluster may be potential purchasers of the agent's business on his retirement. A cluster brings risks as well. No corporate protection for lawsuits exists under an unincorporated cluster agreement. The cluster may be held to be a general partnership, with individual liability for debts of other members or the cluster. For this reason, the members must take care to avoid partnership appearances. They should continue to do business in their individual names, and with their own letterhead. They should also be certain that all members carry adequate insurance, and give evidence of coverage to other cluster members. The cluster agreement should protect individual members from raiding of accounts by other members, ...