PIA West CE Course-Dennen.Newton
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Slides from PIA West CE Course facilitated by Rick Dennen & Carissa Newton
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PIA West CE Course-Dennen.Newton
- 1. Acquire | Grow | Succeed What you need to know for every phase of your agency’s evolution
- 2. Our time today… Agenda 1. Buying an agency What a prospective buyer needs to know 3. Building your agency How to stay competitive & profitable 5. Selling an insurance agency How to get the right price from the right buyer
- 3. Agency Efficiency Scorecard • Determine where you are at today • Set a benchmark for where you would like to be • Identify frustrations
- 6. Buying an Agency • Why acquire? • Searching for the RIGHT agency • Conducting due diligence • Negotiating a price • Obtaining financing
- 7. Why acquire? • Grows income quickly • Cost-effective • Promises benefits of scale • Sellers are motivated now more than ever Note: Buyers will need to contend with due diligence & financing
- 8. Timeline
- 9. Searching for agency • Determine criteria – Agency size/premium volume – Product mix – Location – Agency’s condition • Where to find agencies • Assemble your support team – Attorney | Tax Consultant | CPA | Valuation
- 10. Conducting due diligence • Learn how the agency operates • Identify reasons for the sale • Understand policyholder/carrier relationships • Review book of business/product mix • Explore relationships with carriers • Review all financials • Examine non-compete contracts • Assess compatibility
- 11. Negotiation • Buyers underestimate the cost to acquire or cost savings – Here are some areas to be sure you have a handle on when negotiating the price you will pay: • Technology • Producers/Staff • Office expenses • Future commission/Cash flows
- 12. Balanced Risk Buyer Seller Lender
- 13. Obtaining Funding • Funding options: – Commercial loan at a bank – Venture capital/Angel investment – Peer investment/Self-funded – Commission-based lender • Need a lender that understands the value of the future cash flows with commissions.
- 14. Action Planner
- 16. Stay competitive & profitable • Develop a growth strategy – Set realistic goals and determine a plan – Agency management systems – Producer development – Knowing your customer – Weaving in new marketing methods • Fund your strategy
- 17. 4 Stages of Agency Growth 1. Build your clientele 2. Create a team 3. Share the lead 4. Grow past the owner
- 18. Goals & planning • Determine where you are now/where you want to be • Identify areas for growth • Set realistic goals • Specific • Measurable • Accountable • Realistic • Time-Based
- 19. Planning Always have a plan, and believe in it. Nothing happens by accident. - Chuck Knox
- 20. Planning • Sales plans ≠ Marketing plans • Why a marketing plan? • Becomes a roadmap to achieving goals • Track success • Monitor/Adjust • Understand budget and timing to meet goals • Keeps everyone on the same page
- 21. Planning • Building a marketing plan without the resources: • Know your audience • Find ways to be found • Plan out tactics • Set goals/Monitor progress • Rinse and Repeat
- 22. Management systems • Must be able to manage interactions efficiently • A good system will… – Provide in-depth understanding of clients – Average income/client – Show you the best types of clients – Most profitable clients stand out
- 23. Producer development • Build a team culture • Be sure to include incentives & rewards • Develop a dashboard and monitor frequently • Pay producers what they are worth • Eliminate any not aligned with agency goals
- 24. Knowing your customer • Capture and maintain information on customers • Track history/communications • Create templates and checklists for staff to follow • Manage tasks • Track prospects through to conversion
- 25. Information • Maintain a database & maximize it – Make updates important – Ensure accuracy & completeness – Ask for permission (print/email) – Utilize information in interactions • Birthdays/Anniversaries/Life Events
- 26. Information • What can you do with all this information?
- 27. Personalization
- 28. Measurement • Results matter – Dashboards – Metrics – Goals • Holds agency accountable • Provides benchmarks • Cut what’s not working • Increase what is working
- 29. Measurement One important metric to monitor with marketing is ROI. Return on Investment (Return – Investment) Investment Profit – Marketing Investment – *Overhead Allocation – *Incremental Expenses Marketing Investment
- 30. Measurement For example… Email Campaign Direct Mail Campaign Great Marketing Resource- http://www.mplans.com/
- 31. New marketing methods • Build an interactive website • Utilize SEO • Build a presence • Utilize digital marketing – Communications – News – Prospecting
- 32. Innovation What’s not new: • Insurance is all about sales • Sales is all about two things – Lead generation – Closing
- 33. Innovation What IS new is HOW:
- 34. Innovation So HOW do you innovate?
- 35. Innovation So HOW do you innovate? • Build strong Calls to Action/Offer Value Sample Landing Page-Oak Street http://www.mantoothinsurance.com/
- 36. Innovation So HOW do you innovate? • Be a resource – Events/Education – Newsletters – Social Media/Blogging Facebook-Oak Street Twitter-Oak Street LinkedIn-Oak Street https://www.facebook.com/MantoothIns?v=app_198028816891495&app_data=wlbb%3D1
- 37. I have the steps, now what? Most important thing-start some where • Three ways to accomplish: – You create the plan/Engage staff to assist – Create a master plan/Engage temp help – Dedicated staff OR Outsource to an agency/consultant Just remember… It doesn’t all have to happen overnight. It’s a process and will take time
- 38. Funding your strategy • Initial acquisition funds/investment • Owner capital • Agency revenue • Line of credit • Working capital loan
- 39. Action Planner
- 41. The RIGHT Price & Buyer • Give yourself time – Assess your strengths & weaknesses – Develop a financial platform • Seeking a buyer • Negotiating a price • Conducting due diligence • Arranging financing
- 42. Give yourself time • Plan to prepare for at least 2-3 years prior to sale • During this time, be sure to: – Continue profit trends – Keep clean & accurate financials/files – Minimize major changes – Ensure agency and assets remain free of liens or other encumbrances
- 43. Timeline
- 44. Give yourself time • Secure your support team of professionals:
- 45. One year out… • Strategy 1: Assess strengths & weaknesses • Strategy 2: Develop a financial platform – Estimate FMV of business – Analyze profitability/performance – Determine the best sale structure
- 46. Seeking a buyer • Assess current staff for succession candidates • Utilize a business broker • Take advantage of listing sites: – Agency Exchange (Oak Street’s free service) – AgencyEquity.com
- 47. Negotiating a price • Consider several factors: – Multiples of revenue – EBITDA • Sale Structure – stock buy or asset buy • Set a preliminary price
- 48. Due diligence • Compare buyer/seller goals • Determine buyers financial stability • Request full disclosure of financials • Secure commitment letter • Clarify management structure
- 49. Arranging financing • Funding options: – Commercial loan at a bank – Venture capital/Angel investment – Peer investment/Self-funded – Commission-based lender • Need a lender that understands the value of the future cash flows with commissions.
- 50. Action Planner
- 51. Case Study Comparisons & Contrasts
- 52. Agency Structure Good Less Desirable • Agency owns the policy • Carrier retains ownership/control of policies expirations/commissions • Agency passes ownership of expirations/policies down to sub-producers • Producers are focused on sales and are • MGA retains ownership compensated on production • Producers have multiple responsibilities • Non-compete, Non-solicitation and including office operations/CSR • Producers are not compensated on Confidentiality Agreements are in place production – receive a flat salary with all employees • Producers have all of the relationships with • Owner/manager is aware of all day-to-day policy holders and there are no NCAs, NSAs or Confidentiality Agreements in place activities and has a presence in the agency • Owner/manager is absentee and removed • Relationships with local businesses (car from day-to-day processes dealerships, real estate agents, etc.) • Owner/manager is over-involved in day-to- day and does not empower or hold employees accountable • Involved in local dispute(s) (landlord, competing agency, locally insured company/ customer, etc.)
- 53. Carrier-Product Mix Good Less Desirable • AM Best rated carriers • Non-rated or Demotech rated carriers • Multiple carrier contracts with two to five • Few carrier contracts/relationships strong relationships • Sub/Non-Standard business • Standard/Preferred business • MGA/Carrier retains ownership of • Ownership of expirations customer • Renewal/trail commission streams/vesting • No renewal or trail commissions – 1 time • Various lines of business – Property & upfront payout Casualty, Life & Health, Financial Products, • One product type/niche Personal & Commercial
- 54. Credit Good Less Desirable • Low Credit Balance/Credit Limit Ratio • High Credit Balance/Credit Limit Ratio • Seasoned Accounts • Several Newly Opened Accounts • Average Number of Open Accounts • Too Few Accounts=No History • • Too Many Open Accounts Few Inquiries • Several Recent Inquiries • No RECENT Derogatory Activity • RECENT Derogatory Activity o No Delinquencies o Delinquent Accounts o No Collections o Collections o No Judgments o Judgment o No Liens o Liens o No Bankruptcy o Bankruptcy • FICO 720+ = Excellent • FICO 620-649 = Low Average • FICO 680-719 = Good • FICO 580-619 = Poor • FICO 650-679 = High Average • FICO <579 = Very Bad
- 55. Income Statement Good Less Desirable • Revenues exceed Expenses = PROFIT • Expenses exceed Revenues = LOSS • % New Business Less (of total commission • Larger Equipment Rental Expense revenue) – Purchase equipment? – Renegotiate contract? – Less NB needed to maintain revenue levels year over year • High Bank Fees – Higher retention – Too much debt – Switch banks • Larger Bonuses on Smaller Revenues – Negotiate fees – Better carrier programs/relationships • High Software Fees – Higher retention/lower loss ratios – Purchase software? • Lower Advertising Expense • High Interest Expense – – Too much debt Yielding higher revenues – Rates too high • Larger Producer Commission Expense • Employee Benefits Expense = Mgmt Only – Better incentives to produce – Offer benefits/pension plans to employees – incent for production/productivity/tenure • GOOD: Depreciation & Amortization Expense – Non-cash expense that decreases taxable revenues – add back for cash flow
- 57. Who we are Oak Street Funding is an innovator in niche funding providing commission-based commercial financing for insurance professionals nationwide. – Founded in 2003, we have worked with agents nationwide delivering the funding they need to buy, build, or sell their agencies.
- 58. What we do In an industry where traditional commercial financing won’t work, Oak Street Funding provides the solution to fit each insurance professional’s needs. Whether the agent needs $10,000 or $10,000,000, we’ll customize a loan to fit your needs.
- 59. Why it matters Now more than ever, agencies must find financing with a lender that understands their needs and market conditions. We provide the financing that many banks won’t, using an agent’s own commission stream and cash flows as collateral for the loan.
- 60. Take advantage of opportunities • You can borrow against the future commission stream from your in-force book of business. • Stay in control of your cash flow. And your customers. • Every Oak Street loan is custom designed based upon your book of business and cash flow.
- 61. Oak Street vs. Traditional Bank Oak Street Funding Traditional Bank Offers a variety of products including revolving lines and interest-only options Provides financing based upon intangible business assets only Has an in-house team of experts that understands the complexities of the insurance business Requires little cash out-of-pocket Centralized location provides quick turnaround times Services loans in-house Offers online account management tools
- 62. The Oak Street Process
- 63. How it works… Step 1 A high-level review of the policies and carriers to be used as collateral for the loan Step 2 Preliminary loan terms and options are presented for your approval. Step 3 Your Loan Coordinator will guide you in gathering documents and information needed Step 4 Your Underwriter works through the due diligence process and prepares loan documents. Step 5 Once the loan documents are signed and approved, we will fund the loan proceeds. Step 6
- 64. With a loan or line of credit from Oak Street Funding, it’s easy to: • Acquire an agency to increase market share and build your revenue stream • Consolidate business debt accumulated on high interest rate credit cards • Hire a producer to add top line revenue • Purchase leads to expand into other markets • Upgrade technology to increase efficiency
- 65. What agents are saying… “I can’t think of anybody else who would have loaned us $2 million. I would give a ringing endorsement of Oak Street funding to anyone.” -Ewald M., Florida “Oak Street funding blows my bankers away in terms of knowing the business.” -John K., Florida “I wish more agents knew about Oak Street Funding. Right now many are struggling to make it with their book of business. They need to pick up the phone and call.” -Chris B., Georgia
- 66. Interested? Contact us today… (1-866-625-3863) www.oakstreetfunding.com
Editor's Notes
- Talking Points Good: Agency owns the policy expirations/commissions – (versus the carrier or an upline MGA owning) – control over customer/policy placement, full commissions, market determines “value” of book Producers are focused on sales and are compensated on production – production-based compensation typically leads to better producers (motivator), if producers have to focus on other day-to-day activities or are relying solely on walk-in traffic they are not results-driven Non-compete, Non-solicitation and Confidentiality Agreements are in place with all employees – when all policies produced are the property of the agency, alleviates concern over employees leaving to work for another agency & soliciting clients (even if they have the relationships) Owner/manager is aware of all day-to-day activities and has a presence in the agency – customers see the face of the agency regardless of whom their specific producer is, monitor retention, employ best practices, ensure employees are high quality, ensure production standards are reasonable & attainable, no effect on agency in event of employee turnover, reduces employee turnover, ensure all guidelines (industry, carrier, government, financial) are being followed/met Relationships with local businesses (car dealerships, real estate agents, etc.) – community ties & involvement, creates partnerships, establishes good name = referrals Less Desirable: C arrier retains ownership/control of policies – typically “captive” agencies: no control over product placement, book “value” assigned by carrier and not determined by the market, lack of product offerings could result in loss of customer, more susceptible to & affected by premium increases/commission rate decreases-no other options Agency passes ownership of expirations/policies down to sub-producers – the agency itself doesn’t control where business is placed. If a sub-producer decides to get a direct contract with the carrier (which would typically be the goal) then all policies will go with the producer when he/she leaves, MGA retains ownership – If the agency is contracted through an MGA oftentimes the ownership of the policy stays with the MGA Producers have multiple responsibilities including office operations/CSR - less time to focus on sales, less incentive compensation received, lower motivation to sell Producers are not compensated on production – receive a flat salary – lower motivation to sell, less time & effort spent on sales, misalignment of agency & producer goals=unhappy employees/agency owner Producers have all of the relationships with policy holders and there are no NCAs, NSAs or Confidentiality Agreements in place – producer can obtain a direct contract and solicit customers, producer can go to work for another agency and solicit customers, producer can disclose confidential customer/agency information to competitors Owner/manager is absentee and removed from day-to-day processes – employees might not take to new ownership/management well, retention might be low, lack of focus/goals for employees & direction of agency, no employee/management relationships, agency/employees might be out of compliance (government, industry, carrier, etc), lack of carrier relationships Owner/manager is over-involved in day-to-day and does not empower or hold employees accountable – lack of accountability=lack of results, potential failure of agency in absence of owner, employees are not self-sufficient or well trained
- Talking points Good: AM Best Rated carriers – more financially stable, often more well-known, often better commission structures Multiple carrier contracts (if independent agent) – several options for customers – best pricing, variety of product offerings/specialties – more coverage for all of customers needs, spread out book to hedge against carrier rate increases/comp changes/loss of contract/carrier financial troubles Two to five strong relationships – bigger bonuses are typically given to larger books, multiple strong relationships avoids having “all eggs in one basket”, strong carrier relationships often lend to more freedom/special product offerings/great support & benefits for larger producers/lowers likelihood of termination Standard/Preferred business - more stable, high retention ratios (potential bonus), less claims (lower loss ratios – potential for bonus), higher premiums = bigger commissions, better carrier contracts (AM Best rated), good relationship/rapport/involvement with customers Ownership of expirations (if independent agent) – control placement of policies/customers, better offerings for customers, avoid premium increases/elimination of products, not controlled by an MGA (fees, commission cuts, restricted to carriers MGA works with) Renewal/trail commission streams/vesting - vs one-time payout (many annuities, bonds, etc.), payment after death to family/estate, payment after termination Various lines of business – P&C, L&H, Financial Products, Personal & Commercial – serve all of customers personal & business needs in one place, hedges losses from other product lines due to natural disaster/market trends/government restrictions/economic trends/etc, multi-line discounts for customers/multi-line commission incentives with carrier(s) Less Desirable: Non-rated/Demotech rated carriers – less financial stability, unattractive to customers, not as well known Few carrier contracts/relationships – less offering to customers, “handcuffed” by rate increases/product offering changes/etc., higher risk of customer loss if appointment(s) lost due to lack of other possibilities Sub/Non-Standard business – high customer turnover (retention ratios low), many cancellations (refund commissions), lower compensation rates, lack of relationship with customers , less desirable carriers MGA/Carrier retains ownership of customer - No renewal or trail commissions – 1 time upfront payout – nothing to purchase for these since all commissions have already been paid (be sure to factor this in when comparing active policies to financial statement revenues) One product type/niche – could be affected by specific commercial industry issues (no other products to fall back on), cancellation of product offerings by carrier **not always bad – could provide expertise in a specific area for customers in need (like OSF), could also provide products to customers that didn’t otherwise have this available (like OSF).