https://completemarkets.com/Article/article-post/2254/ALTERNATIVE-RISK-FINANCING-NOT-JUST-FOR-FORTUNE-500-COMPANIES/
Alternative Risk Financing: Not Just For Fortune 500 Companiesr>ALTERNATIVE RISK FINANCING: NOT JUST FOR FORTUNE 500 COMPANIES by Greg Ryan and James Bukowski Grow revenues and earnings by offering alternative risk financing to selected clients. Large corporations and government agencies generally use some type of alternative risk financing for their property and liability loss exposures. Medium-sized and smaller companies usually buy Commercial insurance for this purpose. However, alternative risk financing is not just for Fortune 500 companies. Many other firms can enjoy some of its benefits, such as improved cash flow and a lower total cost of risk. This article offers s a basic overview of risk financing concepts for medium-sized firms (generally, those with fewer than 1,000 employees). After surveying the principal types of risk financing alternatives, we’ll outline the decision-making process and components for implementing such a program. The article will use these definitions: Risk financing: The use of insurance and other techniques to pay for loss obligations. Alternative risk financing: The self-assumption of risk, combined with insurance, to finance a company’s property and liability losses; a formal program for managing and paying for an organization’s losses, usually for a defined period. COMPANY SIZE The first question owners and managers of medium-sized firms ask is “How large must my business be to use alternative risk financing?” Size isn’t very important. The main criterion is losses. As a rule of thumb, alternative risk financing requires approximately $500,000 in annual incurred losses in one line of insurance — for example, Auto, General Liability, or Workers Compensation. Losses in this line should be reasonably predictable, and the firm should be reasonably able to accept risk. Internal management discipline and a willingness to commit the appropriate resources are also required. The losses should have these characteristics: Reasonably predictable Not extremely volatile Not exposed to a catastrophic loss High frequency and low severity “High frequency and low severity” means that the number of losses should be at least several dozen per year, of which most are less than $50,000. As a case in point, a large hotel would probably experience many small Workers Compensation claims but relatively few, if any, large claims. A bank can also expect to have numerous low severity Comp claims. Alternative risk financing usually involves loss severity — the exposure to large losses — by purchasing excess insurance or reinsurance. INSURANCE LINES The other question asked most often is “What lines of insurance are best for alternative risk financing?” Casualty lines — Workers Compensation, General Liability (including Products), and Auto Liability — are the best candidates for alternative risk financing. Workers Comp and Liability claims tend to be paid over long time frames, one to five years or more. Insurers of these lines generate substantial investment income on their reserves until losses are fully paid. Mid-size companies using alternative risk financing can earn the investment income on reserves that was formerly earned by an insurance company. ALTERNATIVE RISK FINANCING OPTIONS Insurers have developed many colorful titles for what amounts to a handful of alternative risk financing techniques. Methods range from guaranteed cost (for risk-averse firms) to self-insurance and captive insurance (for firms seeking the ultimate in control over the risk management and financing process). These techniques include: Guaranteed cost Retrospective rating Large deductible Self-insurance Captive insurance This chart summarizes the main features of these alternatives: Analysis of Key Risk Financing Alternatives Rating Scale 1-5: 1 = least favorable; 5 = most favorable Guaranteed Cost Retro/Rating Large-Deductible Self-Insurance Fronted Cost ...sis of costs and losses, including insurance market pricing. Companies willing to commit the necessary resources will probably enjoy improved cash flow and cost savings. The extent of improvement and the degree of control over the risk management process will vary, depending on the firm’s internal management practices and organizational suitability. Reproduced with permission from riskVue, a free monthly online magazine for risk and insurance professionals.
https://completemarkets.com/Article/article-post/473/The-State-Of-Risk-Management-Education/
The State Of Risk-Management Educationr>
Professional designations are conferred by a professional body that has specific entry requirements, such as a code of ethics, a set of practice standards, educational objectives, and industry experience and involvement.
Here are some current risk-management educational programs:
ASSOCIATE IN RISK MANAGEMENT (ARM)
Behind the Program: Insurance Institute of America (also offers up to 20 other insurance associate designations and the CPCU)
Prerequisites: None
Program Format and Exam: Self-study or 14-week preparation courses. Examinations are administered nationally three times per year. Beginning in December 2000, ARM students will be able to take computer-based exams any time, at locations that have yet to be determined.
Subjects Program Covers:
Essentials of risk management
Essentials of risk control
Essentials of risk financing
Continuing Education Requirements: None
Cost to Complete Program:
Books: $125 per course
Exams: $96 each
Classes: Locally sponsored classes average around $290 each
Total: Self-study-up... Up to $3,300 (not including books)
Program Director: Amy Geffen
Web Site: www.rims.org
E-mail: Send E-mail to Amy Geffen
CHARTERED PROPERTY AND CASUALTY UNDERWRITER (CPCU)
Behind the Program: The American Institute for Chartered Property Casualty Underwriters (AICPCU)
Prerequisites: Three years of experience in the insurance industry
Program Format and Exam: Self-study or classes. Exams are given three times per year in centers across the country.
Subjects Program Covers:
Ethics
Insurance perspectives and insurance contract analysis
Personal insurance and risk management
Commercial Property insurance
Commercial Liability insurance
Insurance operations
Legal environment of insurance management
Accounting and finance
Economics
Related studies
Continuing Education Requirements: Not required, although it's available
Cost to Complete Program:
Exams: $119 each
Books: Up to $1,000 total materials
Classes: $320 per class
Total: Self-study-up to $2,200; with classes-up to $5,100
More Information: Visit www.aicpcu.org or contact George Head
FINANCIAL RISK MANAGER (FRM)
Behind the Program: Global Association of Risk Professionals, an international not-for-profit organization in financial risk management
Prerequisites: Minimum of two years of experience in financial risk management or related field. Must be an active member of GARP.
Program Format and Exam: Self-study. GARP offers a study guide and a review course that's available only in New York, London and Japan. The course takes place over a one-month period leading up to the exam.
Subjects Program Covers:
Quantitative analysis
Capital markets
Market risk management
Credit risk management
Operational and integrated risk management
Legal, accounting, and tax risk management
Regulation and compliance
Continuing Education Requirements: None. Must pay GARP annual membership fees
Cost to Complete Program:
Examination fees: $300
Required books: $500
Prep classes: $750
Total: Self-study -- $800; with review course -- $1,550
More Information: Visit www.garp.com
RISK MANAGEMENT FOR PUBLIC ENTITIES (RMPE)
Behind the Program: Public Risk Management Association and the Center for the Advancement of Risk Management Education (CARME), a division of IIA
Prerequisites: None
Program Format and Exam: Self-study. Order the RMPE textbook and course guide, study them, and take the exam. You must register for the exam and select someone to administer it and return it to CARME to be graded.
Subjects Program Covers:
Risk management from a public entity perspective
Public entity exposure identification and analysis
Risk control
Claim and litigation management
Risk-financing resources
Pooling for public entity risk financing
Continuing Education Requirements: None
Cost to Complete Program:
Textbook, course guide, and exam fee all-inclusive
Total: $145
More Information: Visit www.aicpcu.org or contact George Head
Adapted from riskVue, the free monthly online magazine for risk-management and insurance professionals. See the lastest edition of riskVue at www.griffincom.com/riskVue/riskVue.htm.
Volume 20, Issue 8 of The Risk Management Letter discusses and analyzes these risk-management educational programs. To order an issue reprint, call (949) 752-1058.
RML Interactive, the online supplement to The Risk Management Letter, has links to interviews with program directors, conversations with students and instructors, and additional program information.
https://completemarkets.com/Article/article-post/71/Discovering-New-Niche-Programs-In-Commercial-Lines/
Discovering New Niche Programs In Commercial Linesr>Niche programs in Commercial Lines are an outgrowth of the Property/Casualty insurance industry's efforts to tailor insurance products for designated insureds.
Some examples are accountants' Errors & Omissions (E&O) Liability, Tax Preparers' E&O, and programs for public libraries, ambulance companies, homes and services for the aging, auto repairs, contractors, car washes, boards of education, credit unions, contractors who install water-based sprinkler systems, law firms, school bus operations, and loggers.
New niche programs in Commercial Lines are created in response to legal events, as opposed to regulation (e.g., Prop. 103). A case in point: The July 1995 California Supreme Court opinion of Montrose Chemical Corp. v. Admiral Insurance Co. caused contractors' defect claims to be covered, even though they had not been covered previously. From an underwriting perspective, many carriers and their reinsurers said, 'We don't write contractors in California because of the Montrose decision.' Others, however, saw an opportunity to design a General Liability insurance product for California residential contractors that build condos or tract houses.
As an agent, you must be aware of opportunities in the marketplace. The best way to discover new niche programs in Commercial Lines is to pay attention to 'market voids.' Listen for consistent exclusions by all carriers. The new niche program is created by changing the language of the po...of 15%, with an additional commission for meeting higher premium volume levels for the niche programs. Since the niche product has strict guidelines, sales are of paramount importance, and rewards are tied directly to premium production. The more business your retail agency writes within the niche guidelines, the more commission it will receive.
In trying to find new niche programs in Commercial Lines, pay attention to the establishment of new professions. A recent example is the creation of a new association for the personal chef. More than 7,000 personal chefs are now working in the United States, with most in California. What is a personal chef? How should the Professional Liability be structured for the personal chef? How do you price the expense? What have been the losses in this profession? A new profession is a new opportunity. Most professional chefs don't realize it, but they're going to need insurance. Isolate the expense-to-risk ratio for this new profession. Solicit the association for a Group program.
An abundance of opportunities exists for new niche programs in Commercial Lines insurance. It's up to your agency to find them!
https://completemarkets.com/Article/article-post/1856/HOW-MUCH-CAN-YOU-RELY-ON-YOUR-CONSULTANTS-LAWYER/
How Much Can You Rely On Your Consultant's Lawyer?r>HOW MUCH CAN YOU RELY ON YOUR CONSULTANT'S LAWYER? by Gary Lawson, JD, LLM, Bruce Campbell, JD, and Gavin Kahn, Esq. A common practice in business today is for companies to focus on the core of their businesses while hiring third parties or consultants to handle many ancillary activities. For example, businesses that do not specialize in investing hire third parties to make investment decisions for them. Still other companies hire consultants to assume the liability for risky activities. An example of an attempt to shift risk to consultants can be seen in the direct marketing business. Frequently, the direct marketing company ('the Company') relies upon consulting firms to review, if not structure, a variety of marketing programs and promotions. It is common for the direct marketing consultant to obtain a legal opinion from a law firm that is chosen by the consultant. The..._______________________ ADDRESS YOUR FAX TO THE RISK MANAGEMENT LETTER at (714) 955-1929. Special trial subscription not available to existing or previous RML subscribers.
https://completemarkets.com/Article/article-post/620/The-Facts-Of-Life-About-Personal-Lines-And-Having-A-Well-Trained-Staff/
The Facts Of Life About Personal Lines - And Having A Well-Trained Staffr>
Now more than ever, the generation of Personal Lines as a viable part of your agency will be dependent on three things:
a variety of markets in the mid-price range or below
the ability of your staff to sell and close
the knowledge base of your staff and how they manage customers on the telephone
Once upon a time, insurance buyers who wanted Auto and Homeowners insurance found it necessary to visit their insurance agents (or be visited by them in their homes) to protect their property and liability properly. Once upon a time, you had to visit a travel agency to arrange for a vacation. Once upon a time, the airlines had local offices to permit travelers to purchase, pay for, and pick up tickets.
The days of visiting airlines, travel agents, or insurance agencies are fast disappearing. Why? Airline tickets, vacation packages and Personal insurance have become commodities, available in similar fashion from many vendors. Does that mean that Personal Lines agencies will soon be defunct?
Maybe, but not necessarily.
Where people will get their insurance will depend on how easy it is for them to get the desired services. If you can make the quoting and purchase of Auto or Homeowners insurance as easy as getting reservations and tickets on an airline, your agency will succeed. If not, you will lose market share to those who make buying insurance as easy as possible.
I can get airline tickets by phone as easily from my travel agent as I can from the airline. And my travel agent guarantees the lowest available rate. The best will even monitor the rate until flight time to determine if a lower rate becomes available. I will certainly continue to use my travel agent because, unlike the airline itself, he can check on all airlines and represents my interest as much as he does that of the airline. I could use the Internet-but frankly, it's too much trouble, and my travel agent can do it faster and more efficiently. It's his business, not mine.
Vacation packages are complex and changing. Yet they too have become commodities. I use travel agents for this purpose, as well, because I assume they have access to all of the most recent vacation programs, while I would struggle to find them online.
Insurance agency operations are similar to both the ticket agent and the vacation planner. Insurance can be as simple as a competitive quote or as complex as designing a program to fit my special needs. The decision regarding what I need is mine (not the insurance agent's). The faster the agents can understand this, the faster they will write my insurance. Yes, I may need more or different coverage. I may even have been told that before and had forgotten (or disregarded the fact due to the extra cost). But I neither need nor want a lecture from another agent about things that I should insure. All I want is a comparative quote with as little pain as possible. If I want more, your prompting questions will open the way for me to ask. That's how tailored insurance programs can mature.
Here are issues that will determine if you will survive the next 10 years in the Personal Lines business:
Insurance companies are struggling to advance their automated systems for quoting and for policy generation. Agencies are also struggling to gain efficiencies in the handling of their Personal Lines. As we all know, the outcome of our efforts in this area leave a great deal to be desired. The industry (carriers and automation vendors) have not made it easy to rate and update policies over different systems through a single, integrated program. The rating vendors, sometime owned by insurance companies or automation vendors, are complex and time consuming to use and understand. Although progress is being made (and some of these problems are out of the individual agent's control), the survivors are becoming much more proficient and proactive in their automation efforts. For instance, some agencies are 'live-testing' a variety of rating vendors each year to determine which are easiest to use. The employees, not the owners, decide the ease of use. The employees...s (does the employee manage the client properly?).
Technical Skills. Qualified Agency Consulting Group, Inc. staff determine whether the employee understands the coverages of basic-needs clients and the more complex accounts. This education process aids the agency in its E&O defense.
Sales Skills. We will provide a number of challenges and objections to overcome, and critically analyze the employee's ability to ask for and close the sale.
Telephone Skills. We will closely monitor the employee's telephone attitude and demeanor as the call progresses. We'll measure and report the telephone strengths and weaknesses encountered to permit the agency to institute further training as necessary.
Costs: Quarterly calls with reports to the agency owner will cost $500 per year (prepaid). If multiple calls are desired (to test multiple or specific employees), the costs increase accordingly. If the agency owner prefers to administer the tests locally, Agency Consulting Group, Inc. will provide the screening tool used by us in our standard evaluation for $1,000 (unlimited use by the licensed agency only).
The Sales Skills Test is provided by Agency Consulting Group, Inc. as a tool to help insurance agency principals to identify skills that require further training. It's not intended to be a personnel evaluation tool and should never be used as such.
https://completemarkets.com/Article/article-post/985/ERRORS-AND-OMISSIONS-CONSIDERATIONS/
Errors And Omissions Considerationsr> ERRORS AND OMISSIONS CONSIDERATIONS by Carol Hammes The old saying 'The cobbler’s children go unshod' could apply to many insurance agencies today. Thousands of agents don’t carry any E&O insurance at all, and many more might not have the right coverage. Although they analyze risks and review policy forms to give their prospects and clients the best and most comprehensive insurance plans, they often don’t give their own situations the same type of evaluation. With the expanded responsibilities that agents have taken on, such as fee-based consultative services or providing underwriting decision-making assistance for insurance companies, comes additional professional liability exposure. The available E&O coverage has been changing dramatically, too. There’s no standard policy anymore, and having the wrong coverage can literally bankrupt a firm. If a claim isn’t covered by the policy or is in dispute, the legal costs alone ca...the people in the agency must have the freedom to sell and service insurance. If you want to be completely free of the risk of a lawsuit, you’ll need to shut your doors. If you stay in business, you take a certain amount of risk. Deciding how much risk is up to the agency principals. Set up procedures that will treat customers fairly and respect their intelligence and decision-making capabilities. Keep them informed of good news and bad in a timely manner. And meet their needs with courtesy and professionalism. A satisfied insured is less likely to call a lawyer if things don’t go their way. The late Carol Hammes, principal of the Middleton Group, was one of the Independent Agency System’s most widely respected management consultants. She will be sorely missed. Reproduced, with permission, from The Middleton Letter.
https://completemarkets.com/Article/article-post/181/Workers-Comp-Underwriting-Trends/
Workers Comp Underwriting Trendsr>
At the end of the last decade, most companies weren't focusing on changing their Workers Compensation programs. Prices had been decreasing or were flat for many years, and coverage was easy to come by. Now the Workers Compensation market is beginning to change. Risk managers will see the following underwriting trends during the next few years:
Trend 1: The market appears to be shifting. During the 1990s Workers Compensation pricing conditions were the softest that almost anyone can remember. The popularity of guaranteed cost programs exploded, and many risk managers were able to remove liabilities from their balance sheets at attractive prices. Now there are indications that the market is firming.
The National Council on Compensation Insurance (NCCI) reported an industry pure loss ratio of 71.2 % for the third quarter of 1999, compared to 59.1 % in 1997. When these statistics were announced, NCCI President and CEO Bill Schrempf stated, 'Free market competition, declining reserves, and a growing challenge to existing benefit levels across the country continue to place pressure on the market.'
Workers Compensation pricing has not yet fully responded to industry pressures. Currently both reinsurers and carriers, after reporting less-than-ideal bottom-line results, are evaluating and changing their underwriting and pricing practices.
Trend 2: Use of alternative programs is increasing. The changing market has renewed many companies' interest in taking on larger retentions rather than purchasing first-dollar Workers Compensation coverage. Large-dollar deductible programs and other alternative risk financing mechanisms will be more widely used in the early 2000s.
Perhaps a company's goal for alternative rating plans will be to find the right level of risk to retain. Previous trends in Workers Compensation pricing had sometimes fluctuated between the extremes - from standard premium plans to high excess-of-deductible layers and back to guaranteed cost. In the coming years, risk managers may find middle excess layers and moderate aggregate limits more appropriate win-win solutions that are preferable to all-or-nothing risk positions.
As organizations retain greater levels of risk, the need to manage that exposure becomes paramount. Using captive insurance subsidiaries may become more prevalent in the years ahead. In addition to potential tax benefits, captive arrangements offer substantial flexibility to meet changing risk financing needs. As a separate corporate entity, a wholly owned captive also enhances an organization's management perspective.
Trend 3: Integrated disability management programs are more common. Integrated disability management programs are being more commonly explored and used today by all sizes and types of companies. Market conditions are allowing a different perspective to finally take hold, not just with risk managers but also with CFOs and benefits managers.
These programs typically include a combination of two distinct components: a Workers Compensation contract and a short-term and long-term disability program. When such a program is implemented effectively and for the right organization, risk managers can expect to see improved claim results, administrative efficiencies, consolidated reporting, improved return-to-work outcomes, and elimination of claims double-dipping into one or the other program.
Many companies are taking a comprehensive approach to their Workers Compensation program. This means applying best practices and the program's core concepts - such as incident prevention, illness and injury treatment, and return to work - to all health- related incidents that affect employee productivity. Advances in technology give underwriters and risk managers access to the merged data necessary to fully understand employee exposures.
These underwriting trends may take a few years to become clearly visible to all risk managers. Today, the only clear trend is that change is happening. In the new Workers Compensation marketplace, successful programs will result when risk managers work closely with all areas of their organization to understand the unique exposures and develop a partnership to manage all employee-related risks.
...
https://completemarkets.com/Article/article-post/2564/Its-a-Small-World-Doing-Business-Abroad/
It's a Small World: Doing Business Abroadr>The international insurance market offers a variety of benefits to independent agents and brokers. It provides a perfect tool for solidifying your Commercial Lines accounts and insulating them from inroads being made by alphabet house brokers. International insurance operations also offer an entree to new product lines and markets that will expand your facilities abroad. For example, U.S. agents can introduce their expertise in such lines as Auto, Medical, Surety, and Workers' Compensation to third-world countries that are privatizing these coverages. Canadian brokers can expand their expertise in out-of-country private Medical insurance and, potentially, Workers' Compensation.
Doing business abroad can introduce agents and brokers to new international markets, both primary (with such carriers as AGF, Allianz, Generali, and Winterthur), and reinsurance/variable insurance programs (financial reinsurance, stop-loss reinsurance, catastrophe reinsurance, etc.). The international market encompasses the national accounts division of major companies, offering creativity, capacity, and flexibility, enabling the agent or broker to approach accounts on a broad basis. Examples include Aetna, AIG, Chubb, Great American, The Hartford, and Reliance National.
Agents and brokers can access the captive market either by establishing a captive for a corporate client or renting a captive to facilitate international exposures, self-insured retentions, and a potential profit center. The international market has captive facilities in such locations as Bermuda, Barbados, Ireland, Guernsey (the Channel Islands), and Luxembourg.
BUILDING EXPERTISE AND INTERNATIONAL KNOWLEDGE
AIG Chairman Hank Greenberg highlighted the success of operating internationally at the 1992 IMMS convention in Scottsdale, AZ. Greenberg has led his very successful organization to develop business in China, the United Kingdom, Europe, South America, Canada, and the United States. For example, AIG has extended its expertise in financial banking to U.S. corporate clients that do business in Asia but find their U.S. bankers unwilling to take the risk of providing financing abroad. Similarly, many IMMS members are large surety brokers with a wealth of expertise and knowledge of their corporate clients. They can extend this expertise internationally by working with companies such as AIG, which understand foreign markets.
FREE TRADE AND THE WORLD INSURANCE MARKET
The U.S.-Canadian Free Trade Agreement has accelerated the growth of Canadian firms into the United States, while mid-sized U.S. firms have expanded into Canada. There has been some growth in Mexico but not to the extent experienced in Canada and the U.S.
Anticipating passage of the Free Trade Agreement, many companies began to position themselves in the Canadian market during the early 1980s. They saw Canada as an entry-point for export into the United States because Canadian laws are less punitive, particularly in the areas of product liability. Many of these firms are insured by the multinational alphabet-house brokers who provide extensions of coverage from a master program established in Europe or Japan.
A few IMMS members have succeeded in meeting some of the essential insurance requirements in such lines as Products Liability through major insurers in Canada, particularly those with operations in the United States. Agents have been able to access U.S. insurers that frequently include Canadian exposures under their U.S. coverage.
European insurers are following their European manufacturing accounts into North America. Canadian brokers and U.S. agents are involved in placing insurance in Canada or the United States on behalf of the European insurers and their clients. Generally, European insurers believe in long-term arrangements and are eager to work with IMMS member agents and brokers to facilitate this business.
The trend is to ensure an international account with a major insurer that will issue policies in the various countries either through its own subsidiary or with a friendly insurer, participating in the risk taking. The underwriting is done centrally from the parent insurer with a broker appointed in the foreign country based on regulatory requirements and facilities under the direction of a master broker.
THIRD WORLD INVESTMENT AND INSURANCE
The insurance industry has traditionally followed the growth of other industries. Investment from the United States and Canada in such developing regions as Eastern Europe, South America, and Asia offers opportunities to insure the manufactured and exported products. A recent example is Canadian investment in manufacturing portable sawmills in Eastern Europe, which are exported to 20 countries, including the United States and Canada. The Canadian client has requested insurance for the sawmills. In this regard, the coverage can be placed in the Canadian, U.K., or U.S. markets.
ALL BROKERS AND CARRIERS AREN'T CREATED EQUAL
Here are a few recommendations for choosing a CORRESPONDING BROKER:
Look for individual expertise and enthusiasm.
Set an equitabl...competing actively on a global basis. For example, all of the Ford Windstars for the North American market are now made in Oakville, ONT. Such economic activities result in Canadian IMMS member brokers working with IMMS member agents in the United States to insure these accounts.
This business can be expanded in Life & Health insurance, pension consulting, and possibly placement of insurance in emerging third-world countries. Such nations as Argentina, Brazil, Chile, China, the Czech Republic, Malaysia, Mexico, Thailand, and Vietnam are on a fast track for economic development. This growth offers a perfect opportunity to expand the IMMS network, with U.S. and Canadian members leading and coordinating the Commercial accounts for business extended or originating in these countries.
MAKING YOUR MOVE
Here's some advice for any agent or broker who'd like to have a piece of the action in the international insurance market:
Target your existing and prospective clients who either export or provide work for international companies on a joint venture or licensing basis.
Identify their exposures: Auto, Health, Marine, Products Liability, Workers' Compensation, and so forth.
Make an arrangement with IMMS correspondent brokers principally in the following states: California, Illinois, Maryland, New York, Texas, Washington, D.C., Washington State.
Try your first account with the corresponding broker before aligning on a permanent basis.
Create a system to follow in placing your international accounts.
Identify key individuals in the brokerage to handle the international accounts.
Reach an agreement with the corresponding broker on the priority of international accounts.
Visit your corresponding broker in advance and frequently thereafter.
Talk to selected insurers about facilitating international accounts.
https://completemarkets.com/Article/article-post/218/Trade-Secrets-What-Are-They/
Trade Secrets: What Are They ...r>It’s important to identify what can be considered a “trade secret” and why trade secrets are the most valuable assets of an agency - and thus worthy of having their confidentiality protected. The insurance industry speaks in terms of “books of business” or “expirations” or “customer lists.” Federal and state courts have ruled that “expirations” are property and, as a body of information contained in the files of each individual insurance agency’s accounts, these “trade secrets” represent valuable assets. Thus, the trade secrets (i.e. the book of business, customer lists, etc.) embody the agency’s true value.
Just how does an insurance agency, or any other service firm, protect the time and resources spent in developing the knowledge of individual accounts that, if revealed, would benefit a competitor? The answer begins with executing a properly drafted employment agreement with each of the agency’s employees and producers.
The employment agreement, or producer agreement, should address the issue of confidentiality of information in order to prevent a former employee from misappropriating confidential information and using it in an unauthorized manner to the agency’s detriment. Those agreements must be equitable for both parties and must balance the agency’s desire to protect its trade secrets and confidential information with the departing employee’s wishes to stay in the business of their common calling and to use their innate skills in pursuing their insurance career with another employer.
An agency’s employment agreements and producer agreements should also include well-crafted non-competition or non-piracy provisions that meet the test of the jurisdiction(s) in which the agency operates. Although this article does not address the specific requirements and limitations of such restrictive covenants. They’re closely related to the protection of trade secrets and confidential information.
What constitutes the confidential or trade secret information that requires protection, and how does it play a part in giving the employer a competitive advantage? Some information about any insurance account is available in the public domain, such as the firm’s Web site, advertisements, and other sources of information. This type of information is generally not confidential information, nor worthy of protection as trade secrets.
What are Trade Secrets?
A trade secret may consist of any formula, pattern, device, or compilation of information that is used in one’s business and that provides an opportunity to obtain an advantage over competitors who don’t know or use it. A trade secret is a process or device for continuous use in the operation of the business. It might be a formula for a chemical com-pound, a manufacturing process, or a list of customers.
When money and time are invested in the development of information and procedures that are not generally known, trade secret protection issues exist. Further, when an effort is made to keep information from competitors, trade secret protection is warranted.
Trade secrets are not limited to secret formulas. In fact, “absolute secrecy” is not a prerequisite; only “substantial secrecy” is required. The definition of trade secrets is quite broad, and may include any of the following:
Customer or client lists, billing information, customer and client preference information, and contact lists
Pricing information and marketing plans
Computer programs and data compilations
Training and service manuals
Vendor information
The exact language used to define a “trade secret” varies by state. However, three factors are common to such defini-tions. A trade secret is some type of information that:
Is not generally known to the public
Confers some sort of economic benefit on its holder
Is the subject of reasonable efforts to maintain its secrecy
Some of the factors courts consider when determining whether information is a trade secret are:
The extent to which the information is known outside the agency
T...that could qualify as “confidential information”, and thus be worthy of trade secret protection:
What is the ownership of the insured company, and who among the owners controls the insurance program?
Who is in control of the insured company today, and who will control it in the future?
What is the financial condition of the insured company
Who are the insured’s major clients and/or vendors?
Does the insured company require specific coverage modifications to meet the contracts normally executed with its customers?
What is the claims history of the insured company?
Has the insured company had any lawsuits filed against it, and what is the nature and current status of those lawsuits?
What loss control measures has the insured initiated?
Does the insured manufacture products, or modify or assemble the products of others?
What products or services of the insured cause major exposures?
What is the history of the insured’s workers’ compensation and/or general liability experience modifiers?
Does the insured carry specialized Products Liability and/or Professional Liability coverage?
Does the insured need contingent Business Interruption coverage?
Stay Vigilant!
Although the confidential information and trade secrets you need to protect might be as simple as customer lists and client information, it’s essential that you take effective steps to protect this information from misappropriation.
Consult with an attorney who is well versed in matters of confidentiality, non-disclosure, and employment practices to assist you in devising and implementing an information protection program.
Should you encounter a breach, or threatened breach, act expeditiously to retain competent counsel to take immediate action to protect your competitive advantage. A trade secret, once lost, is gone forever.
https://completemarkets.com/Article/article-post/2573/Characteristics-of-the-Most-Successful-Independent-Agencies/
Characteristics of the Most Successful Independent Agenciesr>Ten years ago it took $5 million in total agency revenues and about $30 million in Property/Casualty premiums to land on the top 100 agency lis...ed in such deals. Although the initial price or possible return might seem irresistible, the end result might not be what the principals want to take on. Go back to your original business plan and make sure that this choice fits with what all the owners want, both personally and for the agency.
FINANCIAL STABILITY
Remember that the financial stability of the firm is critical both for external and internal perpetuation options. You must maintain a current ratio (current assets divided by current liabilities) in excess of 1.1:1. The trust ratio that’s usually measured by dividing current assets by insurance company accounts payable (including pre-billed items) should be above 110%. Otherwise the agency could be out of trust and thus have little value to any buyer. If you want to operate as a going concern in the future, having enough working capital is critical.
Another measurement of financial stability is tangible net worth. To obtain this number, subtract intangible assets (expirations, goodwill, and covenants) from stockholders’ or partners’ equity. In a well-managed agency the result should equal at least one month’s expenses.
POSITIVE ATTITUDE
Probably the most important characteristic of successful agencies is that all of the owners are able to maintain a positive attitude despite adversity. Through market turns and employee turmoil it’s easy to lose sight of sales opportunities. It’s absolutely critical that the principals remain calm and focused on the agency’s goals while dealing with minor personnel or company issues before they become major. An ignored spark can easily turn into a big fire that can and will consume every one in the agency.