Policies - Inspire a Nation Business Mentoring

How to buy & sell a P and C Insurance Agency Questions most buyers and sellers don’t ask! Copyright 2011, Inspire a Nation Business Mentoring, Do not distribute in any manner. Violators agree to pay Inspire a Nation Business Mentoring $50,000.00

Agency Success Mentoring www.inspireanation.org

Today’s Mentor

Billy R. Williams, Ph.D. President of Inspire a Nation Business Mentoring (100’s of member agents) President of Williams Family Agency Investment Group LLC (Currently 26 business partner agencies with approx. $400 Million in earned premium annually) Proud military veteran – 1982 -2003 – Retired as Station Commander of US Army College Recruiting Former Allstate Market Business Consultant and Exclusive Agent Mentor to many of the top producing agents and agencies in the country

Copyright 2011 Inspire a Nation Business Mentoring

2

Agency Success Mentoring www.inspireanation.org

Today’s Training Outline 1.

Legal disclaimer

2.

Poll Question

3.

Factors that help determine the sales multiple

4.

Training – The major book of business report types you should acquire before agreeing to the purchase

5.

Technology, labor and training points

6.

Tax Implications

7.

After the sale – Retention tips

8. 9.

Locating funding for your purchase Q and A

Copyright 2010 Inspire a Nation Business Mentoring

3

Inspire a Nation Business Mentoring www.inspireanation.org

Legal Disclaimer The information presented in this training is based on the research of Inspire a Nation Business Mentoring as well as the opinions, and personal experiences of Billy R. Williams, Ph.D. – President of Inspire a Nation Business Mentoring. The information presented is in no way intended as legal or tax advice! Before purchasing an agency you should always seek the advice of an accountant, a tax attorney, and an attorney that specializes in contract negotiations Copyright 2011 Inspire a Nation Business Mentoring Svc. Do not copy, reprint, or distribute in any manner

Inspire a Nation Business Mentoring www.inspireanation.org Factors that help determine the sales multiples 1.

Customer reports

2.

Carrier reports

3.

Commission reports

4.

Line of Business reports –

5.

Technology integration and cost

6.

Additional Labor cost - labor, benefits, training

7.

Tax Implications

8.

Sales and Retention Variables – x-dates, prospect List, expected rate increases/decreases, etc.

The better the reports – The higher the multiple (3X commission for a great book of business is the current high end of the market) Copyright 2011 Inspire a Nation Business Mentoring Svc. Do not copy, reprint, or distribute in any manner

Inspire a Nation Business Mentoring www.inspireanation.org AGENCY CUSTOMER REPORT Spreadsheet with the following column headings: First Name, Last Name, D.O.B. Age, Policy Type, Line Number, Carrier, Annual Premium, Commission, Initial Start Date, Renewal Date, City, State, Zip Code

This spreadsheet allows you to sort information into multiple reports which you will use to determine the overall value, stability, growth, and retention potential of the agency. Copyright 2011 Inspire a Nation Business Mentoring Svc. Do not copy, reprint, or distribute in any manner

Inspire a Nation Business Mentoring www.inspireanation.org AGENCY CUSTOMER REPORT Examples of how you would look at the information:

Age – How many total customers are above age 50? Knowing this helps you determine if this is a growth agency or a retention agency, and if this book is better suited for life and health insurance sales or senior product sales City - Are the majority of the policies centrally located? Initial Start Date – Has the agency been consistently writing new business, or mainly servicing existing clients? Policies – How many policies does the average customer have on their profile?

Copyright 2011 Inspire a Nation Business Mentoring Svc. Do not copy, reprint, or distribute in any manner

Inspire a Nation Business Mentoring www.inspireanation.org CARRIER REPORT Carrier reports give you a clear snapshot of the overall agency – carrier relationship Important information : 

Total policies per carrier



Total Premium by carrier



Total commissions by Carrier



Loss Ratio by Carrier



Underwriters by Carrier and by line – Talk to the underwriters of the main carriers about underwriting guidelines, trailing documents, compliance history, and business projections



Admitted and non-admitted carriers



Carrier production requirements



Retention report by carrier


Inspire a Nation Business Mentoring www.inspireanation.org CARRIER REPORT Important points to think about: 1.

Who are the major carriers in the agency

2.

Will the new agent be assigned an appointment because of purchase, or will they have

to be appointed? 3.

If already appointed with the carrier, can the purchased book of business be rolled into the existing book

4.

Are there any pricing or underwriting guideline changes coming down the pipe?

5.

Can the current customers and policies be easily re-marketed into another carrier if needed?


Inspire a Nation Business Mentoring www.inspireanation.org COMMISSION REPORT A Commission report allows the potential purchasing agent to: 

Determine the agency’s total commissions



See commissions by carrier - Will the agency maintain enhanced commissions once sold?



See commissions by Line – Is your most profitable line in danger?



See commissions by customer – Who are the agency’s biggest customers commission wise?



Look at 12 months of commission statements for the major carriers – This will help you understand the

agency’s cash f low month by month (high commission months vs. low commission months) 

What are the agency’s most profitable product lines?



This report can be difficult for captive agents to acquire – At a minimum look at 12 months of commission statements from the selling agent.



Allstate Specific Information – All policies with an effective date prior to 1999 are not eligible for TPP – Look at the selling agent’s TPP report! This will impact your ability to use TPP as collateral


Inspire a Nation Business Mentoring Svc.

WWW.INSPIREANATION.ORG

13

Inspire a Nation Business Mentoring www.inspireanation.org LINE OF BUSINESS REPORT

A Line of Business report allows the potential purchasing agent to: 

Determine the agency’s total policy count by line



See the exact number of accounts by carrier – example: 600 total auto policies (150 substandard with Universal Insurance)



Determine the agency’s most profitable product lines



Quickly identify lines of business and customers that have those lines.



Quickly determine opportunity areas and problem areas by line before purchasing the book



Determine current books penetration and x-sell opportunities. (example: 2.0 policies per household does not leave many x-sell opportunities in a captive book of business, but it is great for retention and cash flow)



TECHNOLOGY INTEGRATION, LABOR AND TRAINING COST

 Will I need to hire more staff ? More specialized staff ?  How much will the agency’s payroll and benefits increase or

 

 

decrease after the purchase Will the current agency and customer management systems be adequate after the purchase Will there be more users on the new or existing technology? Will the cost per user fee of existing technology increase? What are the agency’s existing vender contracts?



TAX IMPLICATIONS  Capital Gains Tax

 New agency equipment and software purchase –

(Section 179 of the tax code)  New (Up to 36 months) Equipment or Software that the

selling agent has purchased – Get receipts, warranties, and contracts for tax purposes



RETENTION TIPS – AFTER THE PURCHASE  Expect to lose 5% of the first year customers  Expect to lose 10% of the book of business over a 36 month

period if the selling agent stays in insurance within 5 miles of your office

 Minimum of a 2 year non-compete  Retention - selling agent should be part of the agency’s

transition team for the first 90 days after purchase – Selling agent helps make calls to the book of business explaining the transition Copyright 2011 Inspire a Nation Business Mentoring Svc. Do not copy, reprint, or distribute in any manner

Inspire a Nation Business Mentoring www.inspireanation.org FUNDING YOUR PURCHASE  Local Banks  Premium Finance Associates  Capital Resources  Spring Tree Group  Williams Family Agency Investment Group - Partnerships Only  PPC Loan – Allstate Agents  Allstate Corp. may finance growth agencies (Check with Allstate for exact

details) Copyright 2011 Inspire a Nation Business Mentoring Svc. Do not copy, reprint, or distribute in any manner