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...the American Association of Art Appraisers and did not find his name. She call...-a dear man, one of the finest art appraisers who ever lived.' 'Where can I find him? A friend needs to speak to him about an appraisal he did.' 'That will be difficult. He died on Midway Island in 1943.' The insured had made only one mistake: She had used the signature of an appraiser long dead. Underwriters instructed the adjuster to deny the claim because of fraud. They further instructed the adjuster, because of the insured's advanced age, not to report the attempted fraud to the police or the Bureau of Fraudulent Claims. A month later, a lawyer called to inquire about a potential settlement. He implied that it would be unwise for an insurer to litigate against a poor little old lady. The adjuster merely repeated the denial and asked that before counsel filed a lawsuit, he determine the date of McCarthy's death and the location of his coffin. He explained to the lawyer that it's difficult for a man who died in 1943 to sign a fine-art appraisal in 1991. The lawyer did not file suit and a fraud was thwarted. The insurance company put some excitement into the dull life of an 82-year-old widow. Little harm was done and the adjuster has a story about a fraudulent claim that will top those of all his contemporaries. Because they rescinded the policy, Lloyd's returned the premium. People from every level of society, every race, creed, age group, or country of origin commit insurance fraud. Few people look like thieves. The most innocent looking present fraudulent claims while the most criminal looking will be honest. Insurers must conduct a thorough investigation without bias, to stop the criminal actions of sweet old ladies. If not, crime will succeed: The innocent ex-con will lose the indemnity to which he is entitled, and the criminal grandmother will recover.

... because this is where human error may creep in. Proof of database quality-control procedures is the single most important factor in admitting computer records into evidence. Measurement can be a powerful tool to motivate groups. By publicly tracking progress toward a department's service goals and standards, you can recognize achievement and build enthusiasm. Let's say your agency has set 24 hours or less as the standard turnaround time for all Commercial binders and certificates. Measuring turnaround time for a month will help you track progress toward the service goals. When the department meets or exceeds standards, celebrate the achievement. In problem situations, when turnaround time consistently falls below the goal, tracking may indicate that more realistic targets should be set. Use action planning in the annual performance appraisal process and interim reviews to monitor and motivate individual performance ... staff positions. Performance tracking involves four interrelated activities: Setting goals Setting and communicating standards Measuring performance against goals and standards Managing people, resources, and work based on progress or lack of progress You can use these same performance-measurement activities in agency operations to monitor the establishment and continued employment of automated, cost-effective workflow procedures. To incorporate performance measurement and monitoring into both day-to-day supervisory responsibilities and the agency's performance appraisal system, several aspects should be considered. MEASURING AND MOTIVATING STAFF ADHERENCE TO PROCEDURES Your agency's achievement of service goals and its protection from E&O exposure depend on whether staff members conform to standard operating procedures. Say you want to ensure you're getting the results you want-for example, to increase customer satisfaction through rotational servicing. Monitor for consistent use of system diary notes and suspense. Managing the ...

...raisals by qualified, reputable appraisers eliminate inflated values because they require specific descriptive information, and they put the insurer in a much better position in the event of a dispute. ...

...Lines at a higher multiple than Commercial Lines. This isn’t because Pe... book tends to be higher than on a Commercial Lines book when it’s sold. CONTINGENCY BONUS Most people don’t include the contingency bonus when valuing an agency because it’s unpredictable, and isolating what portion of a future contingency bonus received is generated by an acquired book of business is very difficult. Assigning a zero value discounts the contingency bonus too much. A book of business that shows a solid history of good bonuses has a good chance to continue to do so in the future. It might be more difficult to value, but that book is certainly worth more. LIFE/HEALTH COMMISSIONS These commissions are often ignored when valuing an agency since renewals are typically a small fraction of the first year’s commission. Future cash flow relies more on future efforts than on renewal commissions. As with the contingency bonus, a zero value discounts Life/Health commissions too much. Even small renewals have intrinsic value. If a significant portion of first-year commissions are due to leads generated from existing Property/Casualty accounts, then access to those leads is also worth money. SPECIAL FACTORS A book that has not been serviced in years can be a gold mine since a good agent can service these accounts and probably pick up a lot of additional sales in the form of new products sold. These accounts might be more likely to put the account up for bid when the agent changes, and large accounts are a major target for the competition anyway. SURPLUS ASSETS A certain level of fixed assets and working capital is needed to support ongoing operations, but possessions alone don’t add to the value of the business. Assets above this level increase the value of the business, and below this level decrease its value. An agency’s approximation of this number is “net book value,” an accounting term that simply means assets minus liabilities. Many owners value their agencies as some multiple of commissions, plus net book value. This is a close estimate of an agency’s value, since it usually doesn’t need assets much above its liabilities in order to operate. The industry usually values agencies in terms of multiples of commissions. These rules of thumb are useful in general terms, but don’t work when applied in specific circumstances. Fortunately, you can use the basic concepts just explained to compute a multiple that fairly reflects the value of an agency. PRICE VS. VALUE “Price’ and “value” are different from each other. Due to the tax code, the value of the agency is likely to be divided into several different components when you buy or sell it. Among other business benefits, dividing the value into parts can reduce taxes for both buyer and seller substantially. To take a common example, the value might be divided into a covenant not to compete, an employment contract, and a price for the stock or assets of the business. In this example, the value would be substantially higher than the price. Why does this matter? Because failure to keep the difference clear at every stage in the negotiation can create a tax disaster. For instance, if buyer and seller reach a written agreement on the price and then turn it over to the lawyers and accountants to structure, they might well find the IRS claiming that the agreed price controls. The tax consequences could be disastrous. Since structuring the sale involves tax trade-offs for both sides, you might often find that tax improvements for one side result in more taxes for the other side. If you can rise above the natural desire of attorneys and accountants to seek gain for their client at the expense of each other, balancing these tax effects can help both sides improve their after-tax cash flow. This type of tax planning can easily change the price. A SEVEN-STEP VALUATION PROCESS Step 1: Compute surplus assets, as defined above. For simplicity, you might want to take net book value straight off your balance sheet. Step 2: Estimate future cash flows. This requires carefully checking the book and making your own estimates of likely future retention, rate increases, contingency bonuses, related product sales, etc. Step 3: Estimate costs. If you’re doing your valuation in terms of a multiple of commission, you’ll want to estimate costs as a percentage of revenue. If you’re buying an agency to merge with an existing operation, be sure to estimate the full cost of servicing the acquired accounts plus reasonable pay for your own efforts. Step 4: Compute cash flow. Subtract the estimated costs from the estimated revenues to get the cash flow. Don’t forget to estimate taxes. Step 5: Select a capitalization rate (probably between 15% and 20%). Step 6: Compute the current value of the future cash flows. Take each year’s cash flow and discount it back to the current using the capitalization rate. Step 7: Add the result in step 6 to the result in step 1. This is your valuation.   CONCLUSION Because the actual computations can be complex, you might not want to do them yourself. But you should be familiar with the key concepts presented here even if you never actually value an agency yourself. This is especially true if you are dealing with a valuation professional who is not already familiar with the Property/Casualty industry. Valuing an agency is not the same as valuing most businesses. Larry Morrison, CPA, can be reached at the Business Transition Network, Bellevue, WA, Phone (425) 957-4754, Fax (425) 603-9149, or e-mail btnmorrison@qwest.net.

... business or your family? Get quality appointments - Save yourself a whole lot of time & money when you use our directory of carriers, wholesalers and service providers. Negotiate lucrative contracts with carriers and wholesalers. Net result. More revenue for your agency! Clients & Prospects will research you, your co-workers and your agency here. The most comprehensive online insurance industry reference library for - Personal Lines Professionals Commercial Lines Professionals Life/Health & Benefits Professionals Online newsletters and content that you can use for your clients and social media efforts. Ability to attach leads and clients to your specific market searches, with e-mail alerts for all the market, articles, blogs and people searches you make. And much more! All Articles by CompleteMarkets Editor Monetization type: None Comments (0 ) There are no comments ... determined before he would insure them. As the broker began to describe the 12 stones, the underwriter smelled a rat-a rat about 15 years old. HOW IT HAPPENED In the early 1980s, a man in Tucson reported finding a large, unpolished stone in a shoe box being used to prop open a door. The stone, later named Star of Nyasa, ' was an unpolished sapphire and was appraised in 1983 at approximately $12 million. Other stones were added, and the group became known as the King Solomon Collection. The story of this rare find quickly swept through the jewelry industry. The $12 million appraisal was done by a member of the respected American Gem Society, but it turned out that his opinion of the values was greatly skewed. One professional appraiser declared that the ...

...nus program that compensates my Commercial Lines CSRs fairly?' CSRs have evolv... Average Growth Productivity ...

The "Mother-Child" Commercial Lines Sale
THE 'MOTHER-CHILD' COMMERCIAL LINES SALE by Alan L. Shulman, CPCU When you attempt to sell Commercial Lines, you can project yourself as ... specific insurance company. Your Commercial Lines marketing and sales efforts will be enhanced by offering unique combinations of insurance protection and target-focused services, instead of simply selling off-the-shelf policies. Use your knowledge, experience, and contacts to build a database of 'mother-child' targets. Then  solicit them aggressively. Don't ever expect to attain the perfect program. Ask each prospect which of your services are important to them and which are not. Modify your list of services as the marketplace requires. Remember, since your program is completely in-house, you can make key changes on a moment's notice! Portions of this article are reprinted with permission from Agency Ideas newsletter.

... V. Business Automobile VI. Commercial Property VII. Equipment Floater VIII. Installation Floater IX. Commercial General Liability X. Commercial Crime XI. Umbrella Liability XI...mpensation $ Business Auto Commercial Property Commercial General Liability Umbrella Liability TOTAL PREMIUM: $ Payment Plan: RECOMMENDED OPTIONAL COVERAGES HIRED AUTO PHYSICAL DAMAGE Comprehensive Deductible: Collision Deductible: Premium: EMPLOYEE BENEFITS LIABILITY Claims-Made Number of Employees: Each Wrongful Act: $1 million Total Limit $1 million Deductible $ 1,000 UMBRELLA Limit of Liability Premium Limit of Liability Premium ENERGY SYSTEMS Limit Deductible Premium "ALL SYSTEMS GO" Business Equipment Protection KEY PRODUCT FEATURES Total Systems approach, including: Heating Systems Cooling Systems Electrical Systems Mechanical Systems Computing Systems Communication Systems Limitless Policy, including: Property Damage Business Interruption Extra Expense Consequential Damage No Sublimits on: Water Damage Ammonia Contamination Expediting Expense Sublimits of: Additional Expense $25,000 Business Interruption 12 months Single Combine Deductible Spoilage Settlement on Selling Price Off-Premise Power coverage included Eligibility to Building Value of $18,750,000 Designed for "Main Street," Non-Manufacturing Accounts SAMPLE LETTER: PRESENT CLIENTS (Just put this letter in your word processing system and send it out on your personal letterhead.) Date Name, Title Company Name Address City, State, ZIP Dear [name]: An important new form of business protection has just come on the market, and I wanted to make sure you knew about it. Until now, most property or fire insurance policies specifically excluded accidental breakdown coverage for computer systems, telephone equipment and fax machines, duplicating equipment, and other critical business systems. All that has changed. One of America's oldest and best respected insurance companies, The YYY Company, has introduced a policy called "All Systems Go." It protects all the equipment I've mentioned, plus your heating, cooling, and electrical systems. "All Systems Go" reimburses you for the repair or replacement of failed or damaged systems. It also compensates you for lost revenue or spoilage caused by equipment breakdowns. One of the best features of this policy is its low cost. It's a good value, especially compared to what an equipment breakdown could cost you. I'll call shortly and give you a few specifics on how this protection can enhance your property insurance portfolio. Cordially yours, [YOUR NAME] ACCOUNT SERVICING TEAM Account Executive: NAME OFFICE PHONE Account Assistant: NAME(S) Claims Reporting: NAME(S) ALL CLAIMS REPORTING USE WATTS LINE NUMBER: (800) 555-XXXX XXX & Company Street Address City, State Phone: Fax:

Outsource Claims Management & Realize Reduced Costs
Within most agencies and insurance companies, claims servicing ranks near the bottom of the organizational hierarchy. Why? One reason: Claims don't bring in revenue. For agencies, the primary source of revenue is commission on premium sales. For insurance companies, it's the return on invested premium dollars. Here's another reason: Most resource dollars have already been spent for account acquisition and policy management-making claims organizations suffer in a number of ways (for instance, inferior automated systems and nonprofessional staff). This situation has created a cycle of low performance, with consumers ultimately bearing the cost and aggravation of an ineffective business model. CASE HISTORY Let's examine the process for handling Auto Physical Damage claims as it might happen today. Here's the experience of someone we'll call Joe: Joe bought his Auto insurance from Midwest Insurance through the Middletown Agency, whose principal is Joe's lifelong friend. Last month, Joe was in an accident that damaged the right rear side of his new Mercedes. He called Midwest, who took the accident report and called a tow truck, which took the car to ABC Body Shop. Midwest then referred the claim to the Middletown Agency. When Joe called the agency to inquire about ABC, he was referred to Sally, who handles claims. Sally said that Middletown would never recommend ABC and that he should take the car to Prime Auto Body or Top Notch Auto Body-the agency's usual recommendations. Joe had the car towed to Prime. ABC told him that they would send him a bill for an appraisal, which they were authorized to perform based on the tow job order. Prime performed its own appraisal, which was sent to Midwest and Middletown. Midwest then informed Middletown that Joe had to use ABC (because its appraisal was lower) or that Prime had to match ABC's price (which was based on after-market parts). Prime refused to lower its appraisal, which was based on OEM parts. After three weeks, Midwest agreed that Joe could have the car repaired at the body shop of his choice, but insisted that he accept after-market parts. Joe refused. He called his old friend Bob at Middletown Agency and asked for help. Bob was unable to resolve the issue with Midwest. After a heated discussion, Joe decided to have the car repaired at Prime and pay the difference between the Prime and the ABC estimates. Repairs were finished in six weeks, but when he picked up the car, Joe noticed that it didn't handle properly. An inspection by the Mercedes dealer revealed that damage to the wheel assembly had never been repaired. Joe returned the car to Prime, who began renegotiations with Midwest. After four weeks, Prime was able to complete the repairs. What was the final result of the claims experience? As a result of this claim, not only did Joe have to pay $2,800 to get OEM parts, but the time he devoted to solving the problem came to $3,500 in lost earnings. (As a corporate tax accountant, Joe's time is billed at about $350 per hour.) His irritation was immeasurable. Midwest Insurance and the Middletown agency lost a good client. And Bob nearly lost a friend. While Joe's example may seem exaggerated, it does happen and it illustrates how flawed the system is. But there's a better way. It's called 'managed auto care,' and a number of companies provide it to insurance companies and self-insured fleets. MANAGED AUTO CARE To understand managed auto care, let's examine how one company, First Priority Group (FPG), of Plainview, NY, handles its managed auto care program. For the past 16 years, First Priority Group has been providing managed auto care services to self-insured fleets for Fortune 500 companies. Under the FPG service model, a driver in an accident simply calls FPG's 800 number, where the report is taken and all service arrangements are made. Services include towing, door-to-door pickup and delivery of the rental car, appraisals, scheduling, repairs, a lifetime warranty on the repairs, and enrollment in the company's Driver Shield™ program: a package of services valued at about $400. FPG has developed a network of more than 2,400 body shops that are certified and under contract to perform repairs according to strict industry standards. FPG routinely performs quality audits with customers and unannounced on-site inspections of the shops. Any shops not meeting the company's performance guidelines are dropped from the network. The company is able to improve quality and reduce claims costs in several ways. The company electronically accesses digital photos and appraisals of auto damage directly from the body shops. FPG then validates the appraisals using industry-standard appraisal- and repair-estimating software. Discrepancies are resolved on the spot. The repair is scheduled, and all service arrangements are made for the insured. Once the repair is completed, inspections are performed to ensure quality. Payment is made to FPG, which then pays the body shop after deducting a small processing fee. FPG's organization includes a special subrogation and salvage division, which ensures capture of all available claims dollars. The company's tight estimating and quality-control process results in repair cost reductions of 10% to 30% (compared against industry averages). In addition, the repair cycle is significantly reduced, thus saving rental fees and reducing customer inconvenience. For self-insured fleets, there's no insurance company involvement throughout this service cycle. Does FPG achieve the same results working with insurance companies? Yes, but it takes the insured's cooperation. In most states, insurance companies are not permitted to require use of a particular shop. That choice is left to the insured. Consequently, FPG must convince the insured to use one of its shops. This happens about 30% of the time, and when it does, results are the same as for self-insured fleets. The auto managed care program with insurance companies is called 'Direct Repair Program' (DRP). The benefits for insureds under DRP are the same as they are for self-insured fleets. The benefits for agencies and insurance companies are that DRP can effectively improve customer service while reducing channel costs associated with auto claims. Insurance companies derive savings from reductions in two interrelated areas: processing costs and settlement costs. The latter is the more important component. IMPACT OF DRP ON CARRIERS' CLAIM COSTS In insurance companies, average total premium and earned investment income is intended to cover policy-acquisition costs, premium taxes, general overhead, reinsurance costs, allocated and unallocated loss adjustment expenses, and claims settlement costs and profit. According to studies published by McKinsey and Co., the greatest potential for savings within this cost mix is in the reduction of claims leakage, which is caused in part by inadequate quantity and quality of staff, improper supervision, delays in handling claims, and improper investigations. Claims workload within insurance companies is comprised of 'arisings' (new claims) and 'pendings' (claims being processed). The unallocated loss adjustment expense just referred to is essentially staff cost, which is a function of pending claims. Adjusters 'hug' these pendings, since they know they'll lose their jobs when the pendings go away-which means that there's an inherent disincentive to resolving claims quickly. Thus the arising/pending ratio hovers at around 3:1 to 5:1 in most companies. This is perpetuated in large insurance organizations that still value staff size over real productivity, and continue to reward inefficiencies by default of outdated strategies and policies. Progressive, by comparison, uses a modified DRP model and maintains an arising-pending ratio of 1:1, the best in the industry. Progressive also betters its peers on loss adjustment expense by 1 or 2 points and loss ratio by 5 to 10 points. Using DRP, insurance agencies derive savings because the amount of time required to manage their auto claims-from first report through closing-is reduced. How much time you can save or put to other uses depends on your agency's auto-claim volume and how much of the claim is handled by your agency, as opposed to the insurance carrier. Most important, however, is the improvement in your customer service, derived by involving the services of experts in managed auto care. And your agency is not on the hook for making shop referrals to its clients. The clients still make the final choice of which shop to use. SOME CAVEATS Many agencies have a relationship with one or two shops and promote them heavily. Therefore, one of the caveats to using DRP is that your agency may have to give up the benefits it used to get when your clients were referred to these preferred body shops. In addition, some insurance carriers maintain informal, preferential relationships with certain body shops. Although these shops may indeed be better than others, as shown in Joe's story, it's not the same as using a shop within a managed care network. Regardless of these prior relationships, all concerned parties should consider the managed auto care model. After all, no agency would want their clients to suffer Joe's experience....

... Your Producers?: Part I 4/30/2013 10:36:58 PM by CompleteMarkets Editor , IIABA Virtual University Faculty IIABA Virtual University Faculty This content has not been rated yet. HOW MUCH SHOULD YOU PAY YOUR PRODUCERS?: PART I by the IIABA Virtual Faculty "What's the average renewal commission that an owner should give his producers? Is there a difference between Personal vs. Commercial Lines compensation?" These are among the most common agency management questions. Although there's no simple answer, this two-part article by the IIABA Virtual Faculty will try to give you a little more than "it depends." &# 160 Here's an "Ask an Expert" question we received: "Could you tell me what's currently being used as a split between an agency and producer in ... Personal Lines, the variance is even greater. The "right" answer depends on the support the producer receives, the kind of business being written, whether the agency or the producer pays expenses, what the producer writes, how much experience the producer has, and the size of their book. Anyone who uses "industry averages" is sure to get the answer wrong. It's difficult to appraise the value of the producer. The key is that the producer must usually produce at least $200,000 in annual commission for the agency to break even at any split (Commercial Lines) if the producer is paid more than 33% on renewals. FACULTY RESPONSE On average, most agencies pay between 25% and 30% renewal. This usually does not include Personal Lines commissions, ...