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Category Archives: Insurance Article of the Week

You never know what you will find as our article of the week. It might be noteworthy, newsworthy or just plain ridiculous insurance remarks.

What do Encryption and E & O have in common?

They both start with “E” and Failure to Encrypt could mean E & O or WORSE!

Community Webinar Announcement: July 17th at 10am PST
The Five Key Issues You Must Understand about Encryption
CLICK HERE TO REGISTER FOR THIS EVENT – Complimentary
Conducted by: Seacoast Telecom/Link2Exchange/ ZixCorp

It is never ending–and darn right discouraging that there is something else we have to worry about transactionally in our insurance offices that could cause us serious problems. Failure to follow the protocols of encryption could not only lead us to being sued by our customers but can be a violation of privacy laws in effect. According to a Ponemon Institute study, insecure channels account for the majority of data leaks. These mistakes are not only unprofessional, they are often illegal. HIPAA, HITECH, GLBA, and SOX, state that data security laws and guidance from FFIEC agencies are no longer optional.

Some of the questions you must ask as you audit your own company’s encryption protocols are:
1. Does the agency management system you utilize have the required encryption?
2. Are your confidential emails truly protected by your Agency Management System?
3. Do any of your employees email outside of the Agency Management System?
4. Do any of your employees use their IPADS or phones to text information that could be considered confidential?

It is not only what you SEND—it could be what you RECEIVE.
Recipients receiving unencrypted emails, including your customers, patients, third-party organizations, business associates, strategic partners, and regulators may all be at risk.

Our presenters are leaders in the field of email services and encryption. Seacoast Telecom/Link2Exchange is a cloud service broker who has partnered with the leader in encryption technology, ZixCorp. To ensure privacy and compliancy, ZixCorp encrypted email solutions proactively scan for sensitive information based on defined corporate policies. If confidential material is found, it can either be blocked or sent encrypted. Each solution integrates with any corporate or Web based email system.

Don’t jeopardize your customer loyalty and company reputation and face the financial cost of defending yourself in a lawsuit or be found in violation of laws in effect. Attend this seminar so you can assess your operation and implement necessary changes right away.

Written by: 
Laurie Infantino AFIS, CISC, CIC, CRIS, ACSR, CISR
President, Insurance Community Center

 

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What do a drive in movie theater and Intellectual Property have in common?

 

Remember the days of drive in movies—those were some great memories! And so is the story of how the drive in movie idea began.

The first version of a drive in movie was started by Richard Hollingshead Jr. opened on a 10 acre backyard in Camden, New Jersey.  Richard was a sales manager in his father’s auto parts company and, as the story goes, had a mother that weighed 431 pounds and could not comfortably go to the movie theatres of the time.  Her son set up a make shift movie theatre by, using his car; a 1928 Kodak movie projector; and two sheets nailed between two trees for a screen

English: Carthage, MO Route 66 Drive-In Movie ...

. The idea caught on and became a popular way to enjoy a movie.

Eventually, he came up with a ramp in each parking space, so that patrons could elevate the front of their cars to see the screen without being blocked by other vehicles. Richard formed a company named Park It Theaters and charged 25 cents per person and 25 cents per automobile for a maximum of $1.00 per entry.

On August 6, 1932 the company applied for a patent on the idea and was granted a patent on May 16, 1933, patent #1,909,537. Hollingshead sold the theatre in 1935 and opened another one. Hollingshead licensed the “drive in movie” concept to Loews Drive-in Theatres, Inc. but from the beginning had trouble collecting the royalty payments from Lowes back in 1937.  Hollingshead sued Loews theatre for failure to pay royalties and patent infringement. After many years, actually in 1950, the patent was ruled invalid as it was alleged that Culver City, California theatre was really the first drive in theatre. (http://en.wikipedia.org/wiki/Richard_Hollingshead )

Putting this article into perspective, as relates to Intellectual Property, most people relate Intellectual Property to high-tech companies like Microsoft or drug companies like Johnson and Johnson.  We would not think that the “idea” of starting a drive in theater would be something that could be patented; or that liquid paper was patented; or the distinctive color of a Tiffany’s box is patented.  Intellectual Property goes further than just patents; it also covers copyrights; trademarks; trade dress; trade secrets and so much more. It is an exposure that many business customers have but is rarely identified and insured correctly.
In years gone by we looked to the CGL for some coverage on limited categories of IP but as the forms have changed the coverages have become more and more limited to the point that the coverage is close to non-existent.  As insurance professionals our job is to identify exposure and determine appropriate solutions.  There are a limited number of companies that have a real understanding of Intellectual Property and insurance policies with broad-based responses.  An important company to consider is IPISC who will be presenting the Insurance Community/University CE class this week.  For more information, the University will have an archived version of the class and a new checklist on IP will be loaded in the University this month.  You can also reach IPISC on their website at: www.patentinsurance.com.

 

Written By:
Laurie Infantino AFIS, CISC, CIC, CRIS, ACSR, CISR
President, Insurance Community Center, Insight Insurance Consulting

 

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Has the Insurance Industry Forgotten the Key Drivers of Success?

The sluggish organic growth the insurance brokerage industry is experiencing is certainly a consequence of the general economic downturn coupled with the continued soft insurance market.

However, for many firms this may be further exacerbated by a failure to understand the elements needed to achieve organic growth and a further failure to align their resources in support of progressively higher sales achievements by their production teams. This may have arisen from a lack of precision in measuring organic growth, the elements of which drive behavior and priority of resource allocation. Firms that do not correctly measure organic growth and distill from that definition pure organic growth and it’s implications to alignment of resources in support of producer sales achievement, will find it very challenging to solve the dilemma of sluggish sales.

This article will introduce the concept of ‘pure organic growth,’ and contrast it against traditional metrics and measurements of organic growth. We will demonstrate how measurements of organic growth can cause brokerages to stray from the focal point, or nucleus, of sales excellence, giving rise
to the adoption of ‘band‐aid’ approaches and short, quick fixes that do not generate sustainability in growth over time simply to maintain the perception of organic growth through what has now become a pervasive, and imprecise, definition within the industry. The effects of those short‐term approaches have, in my opinion, contributed significantly to the sluggish organic growth performance reported by the majority of firms in the industry.

Though contemporary measurements have provided value in evaluating and communicating overall growth results, by their very nature they can often mislead organizations into false conclusions about their ability to generate new clients, thereby drawing efforts and resources away from the vital areas of their operations responsible for new client generation. By examining the elements commonly used to track internal growth, it should be easier to create a better metric, which we will define as “pure” organic growth.

With a definition of pure organic growth in hand, we will then examine it’s foundations and implications which may suggest to some readers the need for refocusing efforts and resources within their organizations. Using pure organic growth as a premise, we will then suggest areas brokerages can examine within their sales infrastructure, and questions they can ask, that may help reveal the solution they are looking for in remedying sluggish sales.

The Traditional Way of Measuring Organic Growth

Let us first examine the industry’s commonly held definition of organic growth: “Net topline revenues year over year” as measured by the following components:

1. New/New business: measures converting non‐clients into clients
2. Net/New business: measures converting non‐clients into clients and deducts lost business for a producer’s book
3. New/Existing: from writing new business on existing clients, also referred to as account rounding
4. Cross Sell: writing new business between a firm’s practice groups, such as a new employee benefits client being generated from a firm’s existing property casualty client
5. Change of Book: measures the growth or decline in a client’s business, e.g., in employee benefits, the rise or fall of employee counts which impact the revenue generated from that client, as well as rise or fall of costs of insuring businesses given hard or soft market conditions or related factors.
6. Book Migrations: measuring the revenue gain newly hired producers bring with them, or departing producers take with them to their new organization as a positive or negative factor towards organic growth.
7. Book Purchases: measuring the revenue generated from a book that was purchased as organic growth.
8. Contingents: the measurement of rise or falls in contingent commissions as organic growth. And so the traditional components used to measure organic growth can be expressed by the following formula:

Organic growth = Net/New + New/Existing + Cross Sell + Change of Book + Book Migrations + Book Purchases + Contingents

Three Implied Components to Traditional Organic Growth

The contemporary formula used to calculate organic growth has three implied components:
1) outcomes generated that are directly attributable to producer achievements
2) outcomes generated that are an ancillary byproduct of producer achievements
3) outcomes that are not directly attributable to producer achievements.

Through these implied components we can begin to see problems and ‘traps’ that can draw resources and efforts away from new client generation.

New business, account rounding and cross selling are all direct outcomes from producer achievements. These actions lie at the nucleus of organic growth around which other components may be congregated on an additive basis. This measurement is the beginning of the pure organic growth theory. Focusing efforts and resources to support outcomes directly generated by producers will contribute to sustainability in organic growth.

Contingents are in ancillary outcome from producer achievements. As producers generate new business, a by-product can be an increase in contingent commissions, though other factors such as change of book can contribute equally, if not more in certain instances depending upon market conditions. However, it is a fallacy to consider a re‐negotiation of contingents as organic growth as it was not predicated on an increase in new/new, new on existing or cross sell activity. Focusing efforts and resources to support outcomes generated that are an ancillary by‐product of producer achievements will have no impact to sustainability in organic growth.

Book migrations and book purchases are non‐producer generated outcomes and have no correlation to individual production achievements – they are predicated on a firm’s ability to attract and retain producers either through direct hire or by the capital resources to purchase blocks of business. A
firm using this formula which actively hires or purchases books of business can post phenomenal organic growth results, yet have a lethargic non‐performing base of existing producers. For organizations that have focused their efforts and resources towards book migrations from recruiting efforts, and counting small book purchases as organic growth, what happens as capital dries up for book purchases and/or available talent pools of veteran producers who can migrate books continue to diminish?

Change in book is perhaps the most challenging to categorize, and, recently, it has had dramatic impact upon the industry’s organic growth experience. Does the producer have any direct control over hard or soft markets? Does the producer have any control over the rise and fall of businesses at the micro level or over economic conditions at the macro level? Can a producer, through due diligence in researching approachable prospects, attempt to pursue firms occupying sectors of industry that appear to show promise for growth? Can retail insurance brokerages with enough mass and infrastructure to support research departments and training facilities attempt to identify upcoming growth sectors and direct sales efforts towards those sectors? Can they re‐train segments
of their producer force to shift specialty away from declining sectors and toward high growth potential sectors?

So the issue of change of book is certainly a gray and murky area, and by definition, out of the direct control of producers, but also by definition, within the ability of producers and organizations to influence results or mitigate damages from these externally generated circumstances. Nevertheless, change of book has been the unpredictable but always significant ‘x’ factor within the retail insurance industry’s organic growth results – especially recently.

The Foundation of Pure Organic Growth Extracting a Definition That Will Provide Guidance to Resurrecting Industry Growth

The foundation of pure organic growth lies with the three types of business embedded in the traditional organic growth formula: New/new, new/existing and cross sell. However, the definition must add an important element in order to enable progression of achievement in those areas by producers and contribute to the sustainability of overall growth results achieved by an organization.

We define pure organic growth as:

“The ability of an individual producer within a brokerage to demonstrate progressively higher sales achievements year over year in new/new business, new/existing business and cross sell business.”

The definition is complete, and contributes to sustainability in organic growth results,
because it combines the following:
1) producer ability,
2) progressively higher sales achievements being generated, and
3) an organizational focus toward outcomes directly attributable to individual producer achievement.

Pure organic growth must use more precise measurements than the broad sweeping measurements used to determine overall organic growth, requiring that we focus on the sales pipeline (i.e., a list of prospects and revenues that might be expected from the closing of each transaction identified by each stage of the sales process) as the primary tool:

1) An organizational focus upon increasing the total volume of potential sales in each producer’s new business pipeline
2) An organizational focus upon increasing the average size commission/fees per client in each producer’s new business pipeline
3) An organizational focus upon shortening the amount of time taken to consummate transactions from the beginning of each producer’s sales pipeline to the end
4) An organizational focus upon measuring and openly communicating the commissions/fees derived from ‘won’ cases during the course of a 12‐month period for each producer

Measuring a Producer’s Sales Efforts As You Would Measure a Retail Store Located in a Mall – What to Look For So You Can Align Support Correctly.

To put the above four measurements into perspective, imagine that you just purchased a retail store in a shopping mall. How do you make progressively more money each year with that same store?
Perhaps you would:
1) increase the flow of foot traffic into the store
2) increase the average size sale per customer
3) increase the speed of inventory turnover
4) measure the total sales year over year as the final benchmark. The same principles apply at the micro level to managing pure organic growth.
Now what would happen to same store sales (organic growth) if you chose to spend all your time negotiating deals from your suppliers and forgot to manage the store (contingents)? How about spending too much time travelling and purchasing new stores in other markets at the expense of managing the store (book purchases)? So for organic growth to thrive, focusing on pure organic growth must be the primary driver.

Identifying and Supporting Progression in Producer Achievement

How can organizations align themselves to support progressively higher producer sales achievements? It’s all about producer development and the reallocation of resources to support progressively higher producer achievements in new client generation:

1) Assess your producer’s skill sets against those of the top 5% of performing producers nationwide. Essentially those generating in excess of $200,000 of new business per year. How do your producers match up? What skill sets do they have and what activities do they perform that match, and what’s missing? Determine ‘developmental areas’ that need remedy so that they are ‘mission ready’ for competing and achieving top sales results.

2) Assess your sales management processes and supporting sales infrastructure to determine if you can support top performers and help others achieve that status within your organization. Identify areas of producer activity that are heavily reliant upon your organization’s support mechanisms, and identify ‘choke points’ within your organization that may be hindering producer achievements.

3) Provide standing 12‐month sales training curriculums that support your producers’ desires to increase their knowledge, improve upon their skills, and develop new techniques and processes that will help them compete and win new business. A standing curriculum will benefit developmental hires by providing a training platform, existing producers by allowing them to improve upon skills and performance, and provide an ‘onboarding’ (new hire integration) platform for veteran producers brought into your organization in order to help them integrate into your culture successfully.

4) Perform sales planning and develop sales initiatives in accordance with the sales achievements your producers desire and reconcile them against your firm’s growth goals. This will ensure an alignment between efforts expended by producers with the desired results of your organization.

5) Re‐tool your supporting sales infrastructure constantly in order to accommodate upward shifts in desired achievements expressed by your producers each year. Structures designed for top producers not only tend to keep top producers, but also have a tendency to ‘pull up’ other producers towards that level of achievement.

A final note about pipelines…..I recognize that only a small percentage of producers update and manage their pipelines consistently! However the majority of the top 5% of the industry’s performers do! How can leadership drive the use of pipeline management into the lower ranks?

First, demonstrate that top performers swear by their pipelines. Second, bundle time management tools, research tools, Producer Sales Suites, Lead Relationship Management systems (LRM’s) and Client Relationship Management systems (CRM’s) to the pipeline making it more convenient and
useful to producers to research prospects and set up drip campaigns (or other forms of ongoing marketing or ‘client intimacy’ generating campaigns) and organize the tools they use when they transact their business. Third, tie the issue of leveraging organizational resources, human capital, training and development, etc., to the information the producer records in the pipeline. The pipeline must be established as the information ‘bridge’ between producers and their organizations. Such a bridge can identify and enable the procurement of additional resources to the producer. Once this is understood by producers, a pipeline will be used more frequently and pervasively throughout a production platform.

It’s About Enabling Progressively Higher Sales Achievements!

In summary, organizations that align themselves around increasing the individual producer’s ability to demonstrate progressively higher sales achievements year over year will win the organic growth game. Establishing producer training and development programs, combined with aligning organizational tools and resources to increase pipeline volume, transaction size and speed through the pipeline are the key elements to achieving pure organic growth.

Rainmaker Advisory LLC is a results oriented sales and operations consulting firm specializing in the retail insurance broking sector. Founded in 2008, Rainmaker has relationships with over 5,100 insurance agencies and brokerages nationwide in all practice specialties. Through offices in California, New York and Oregon, Rainmaker Advisory is a leading provider of the tools, resources and vendor partners necessary for successfully growing organizations on a sustainable basis.
For more information, visit www.rainmakeradvisory.com or info@rainmakeradvisory.com.

Written By:

David E. Estrada
Founder & Managing Director of Rainmaker Advisory LLC

 

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Intellectual Property is important to any effective Enterprise Risk Management Plan

It is crucial to any effective Enterprise Risk Management (ERM) plan that the right manager has a

Intellectual Property and YOU

comprehensive understanding of every significant exposure of the company, so these exposures are properly managed.

Insurance products covering companies’ obvious or perceived “popular risks” do not completely solve
companies’ potential risk issues. A proper ERM plan should ensure that a company is not taking on unnecessary, additional risk. Some companies choose to effectively manage risk; while others tend to expose themselves based upon a misconception of that risk, thus jeopardizing the company. One potentially costly exposure in particular is intellectual property (IP) infringement. If a company is sued for IP infringement, or is compelled to enforce their rights, such actions endanger its profitability and sustainability if it does not to have the funds to successfully litigate. As part of constructing an ERM plan, it is important to understand what the company’s IP portfolio looks like and address any concerns or potential exposures. IP is often a company’s most valuable asset, yet it is often seriously neglected during risk management reviews. Companies who knowingly or unknowingly self-insure their IP portfolios are potentially risking the future viability of the company. Patent lawsuits in particular average $2.8 million in litigation expenses alone, when the amount in controversy is $1 million – $25 million. Virtually every company has IP risk. Any company that is making, using, selling or offering for sale goods or services in commerce has IP risk. Likewise, many companies have established rights in patents, trademarks, copyrights or hold trade secrets, making IP risk management a critical part of constructing an effective ERM plan.
By following ERM’s five step process, IP risk can be identified, and a plan can be put into place that makes the most sense for the exposure. Identify the risk:

Companies must proactively identify any potential IP risk. It does no good to ignore or discount the costs and consequences surrounding IP litigation.

Determine the projected impact of the risk:
Bottom line – determine if the company can, in fact, afford to self-insure an IP lawsuit if it is sued for infringement or forced to pursue an infringer.

Proper risk evaluation:
Intellectual Property risk can be a significant threat to a company’s survival. The lack of properly evaluating and
mitigating IP risk through specific IP insurance products could lead to the company losing its IP rights, incurring
burdensome royalty payments under licensing agreements, being forced to settle or going out of business.

Steps to mitigating IP risk:
Get an IP plan together by determining which IP insurance policies are right for the company. If the company has patents, trademarks or copyrights, they should consider an IP Enforcement insurance policy. All companies have the potential to be sued for IP infringement. A company is vulnerable if it is simply making, using or selling a product and/or service, especially if it holds sought-after technology on products and/or processes. These risks can be managed through the IP Defense insurance policy. As part of IP risk mitigation, companies must plan for the unexpected event of the loss of an insured IP lawsuit. If that lawsuit is lost, companies must already know if there are additional funds available to make it whole again through a Multi-Peril Insurance policy.

Take the time to monitor the plan:
Take the time to ensure the plan is constantly meeting the needs of the company. Be cognizant of the fact that as the company evolves, so too will the plan potentially need to be altered to fit the company’s current situation.
It is crucial to any effective ERM plan to have a comprehensive understanding of every exposure to the company, as well as the certainty that these exposures are properly managed through appropriate risk management products. Properly evaluating risk by including IP in the company’s ERM plan ensures the resources will be available to fund the high cost and consequences of IP litigation.

~IPObserver

 

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Understanding Coverages and the Insurance Sales Process

I recently attended a seminar where the speaker before me was speaking on Sales and Increasing Your Bottom Line.

He went through several charts of what was important to the client and important for the selling broker/agent to understand to make the sale and create the long-term relationship. The presenter put up the chart that contained several “bubbles” of what might be important. When he pointed to the “bubble” with “knowledge of the insurance products” he asked the audience how important this was to their potential or current client. A boisterous “not important” rang out from the first two rows. The presenter then put an X through the bubble and moved on.

In all my years of sales, which dates back to the early 1970’s that bubble was the one that had a big red check mark on it . Back in the “olden” days when I started there were not nearly as many schools and methods to really learn insurance. I was blessed with a mentor that not only was a true student of insurance but also a CPA so he brought the technical and financial piece into a cohesive sale. This is not to discount the importance of all of the “sales” training that we all need to know how to get our foot in the door, close the door to the sale and maintain it year after year. But without knowledge of the product and the ability to communicate that to the customer we become just sales people and not business partners with our insureds.

We know that any sale begins with getting “your foot in the door” and that is difficult enough but only affords you the opportunity to present your qualifications and convince the prospect that you are the best person/firm to handle their account. This is a very difficult first step but each of you in the insurance industry want the opportunity of working with the more sophisticated and higher paying premium account.

Many of you in the community know Marjorie Segale. She is a partner (co-creator) of the Insurance Community Center/University LLC and the President of Segale Consulting. Part of her consulting practice is to work with larger insurance buyers in choosing the appropriate broker to handle their account. She may work with them directly or with their risk manager. She goes through an extensive vetting process in matching up the right agent/broker with the account. Marjorie has given the community permission to include her “Criterion for Selecting Your Insurance Agent/Broker.

P. S. from Marjorie
I built my agency on the basis of insurance technical skill. There will always be price shoppers. There is no law that says you have to be just a price seller. Those buyers will still line up to sue you if a loss is not covered because no one is ever grateful for that cheap policy that doesn’t cover their claim.

Click Here to View the Criterion Checklist
http://www.insurancecommunitycenter.com/samples-checklists/Hiring-an-Agent-Broker-Qualification-Form.docx

Written by:
Laurie Infantino AFIS, CISC, CIC, CRIS, ACSR, CISR
President, Insurance Community Center
With Checklist by:
Marjorie Segale AFIS, CISC, CIC, RPLU, CRIS, ACSR, CISR
Director of Education, Insurance Community Center & President, Segale Consulting Services, LLC

 

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Combating the GEICO Effect

The billions of dollars spent by GEICO, Progressive, Esurance, et. al., have solidified the perception of many (if not most) consumers that price is the major factor when purchasing auto insurance. Independent agencies, even with insurer support, are ill equipped to compete in a “price only” environment.

Even if the money were available to match the advertising budgets of the direct sellers, the complexities of Internet marketing (e.g., search engine optimization) demand much more knowledge and marketing ability than the vast majority of agencies are in a position to provide. This strategy has been highly effective as direct writers continue to control the majority of the personal lines market.

According to A.M. Best figures, in 2008, direct writers accounted for 69.6% of net personal lines premiums written. The reverse is true in commercial lines with agency writers accounting for 69.1% of commercial P-C net premiums written.

Probably the most dramatic effect of this expanding method (selling on price, use of the Internet, social media, etc.,) is the number of competitors that have emerged.

Googling “Auto Insurance Quotes” brings up literally millions of entries. In the first 10 pages alone there are more than 70 businesses offering auto insurance quotes.

Very few, if any, of those price sellers include independent insurance agents as the producing force. So how can the independent agency compete?

Before any specific action can be taken, independent agents must gain a better understanding of the rapidly emerging insurance buyer.

Gen Y
Gen Y or the Millennial Generation (those born around 1980 and thereafter) is having a profound influence on the way insurance is marketed. These Millennials see the insurance industry as “old.” They are looking for Web-based support (for sales and service), online chat, and automated phone response. In short, they want the insurance industry to interact with them the way they interact with their peers.

Very few (again, other than the GEICOs of the world) saw the tremendous growth coming in Internet sales and the ease with which consumers could “shop” multiple providers of insurance. The Internet now allows people to do what independent agencies have always done—go to multiple companies to look for the best match of price and coverage.

The good news is that the independent agent is armed with knowledge and understanding, whereas when consumers compare prices on different Internet sites, it often leads to confusion and difficulty in comparing apples to apples.

However, one fact of insurance marketing life has become evident in this decade: Every prospect, every customer of every agency regularly hears that he or she can buy insurance from someone else and pay less in the process.

If independent agents are going to stay competitive in the coming years (and once they gain a better understanding of the insurance buyer), they must develop a new awareness of the three keys to profitability: communications, marketing and technology—and then take appropriate action.

Communications
The first step in understanding communications is to see and accept how the media are changing the way people interact with each other. Text messages, e-mails, virtual meetings and social networks often are the preferred method of communication for many of your customers. If you are not using them, one of your competitors will.

Handheld communications tools have gone mainstream. Growing numbers of our colleagues are leveraging so-called smart devices such as the iPhone, Palm® or BlackBerry® (to name just a few) to conduct both personal and commercial business.

A dynamic Web presence is critical. Agencies that want to avert the GEICO effect understand that words alone on Web sites (often called “brochure sites”) aren’t going to attract the emerging insurance buyer.

In the years ahead, audio, video, chat, online quote capability, integration with management systems (and who knows what else?) will be available to bring another dimension to agency Web sites.

Pundits predict that video will account for 80% of Internet data traffic in the next four years. This is a bit easier to understand when we begin to realize that 20 hours of video are added to YouTube every single minute; that there are now 3,500 years of video playing time on YouTube alone.

Marketing
There are two “givens” when considering the facts of marketing life today:
1. Independent agents do not have the assets to compete with the direct writer advertising, whether on the Internet or elsewhere.
2. Because of the complexities of the new media, there is simply no way the average agency can stay abreast of changes in marketing methods or techniques.

On a national level, branding any product is a huge investment. On a local level, the investment is much less but the task is much more formidable now because of the national media advertising explosion.

Technology
Agency management system vendors (Vertafore and Applied Systems control over 90% of the market) suggest that only about 20% of their agency clientele use the full capabilities of their systems.

In working with both vendors, I see a concerted movement on their part to make marketing and communications more vital, with plans to expand that feature of their services in the very near future.

Some of those activities include understanding marketing tracking systems, eliminating the need for double entry, and improved capability to incorporate such features as virtual meeting conferencing, search engine optimization, instant messaging, “smart forms” for quoting, and the ability to use social networking.

Taking action
Simply understanding the changes in communications, marketing and technology is not enough. Rather than “preach to the choir,” let me list some revealing questions that agency principals might ask themselves, then suggest specific solutions:

Communications:
• Do we believe that online communications are the wave of the future?
• Are we happy with our Web site?
• Are we constantly communicating with our customers?

Specific solutions:
• Investigate and begin to utilize more forms of electronic communications.
• Bring agency Web sites alive with interaction, service functions, live chat, videos, and voice-overs.
Make the Web site fun, exciting, entertaining and worth a return visit, while constantly reiterating the theme that insurance is not a commodity purchase.
• Maximize the potential of e-mail, social media, electronic newsletters and other online tools.
Continue to emphasize the use of the Web site as the major agency communications medium to clients, to staff members, to prospects.

Marketing:
• Do we have an in-depth understanding of our client base?
• Does our current business plan incorporate a well-designed marketing system that will constantly let us reach our business revenue and retention goals for existing customers?
• Does our active marketing system allow us to do an analysis of an expanding prospect list—to utilize demographics, etc.?

Specific solutions:
• Attain an in-depth understanding of the agency client base, utilizing every tool available, particularly your agency management system.
• If you don’t have a well thought out, written marketing plan, it’s time.
• Set up systems for constant contact with present clients. There are a variety of ways to do this. The less expensive and most effective way is to build an e-mail address list of all clients, friends, even prospects, and get the agency name in front of them at least six times (more preferred) a year. Also, offering an annual review to every client is going to be vital in the future (if not now).

Technology:
• Do we know what our agency management system provider is creating to help us use their system for more communications and marketing activities?
• Do we have a robust, interactive Web site, that entertains, educates and serves as a functional sales and service tool?

Specific solutions:
• Determine how agency management system providers are creating applications to help agencies use their systems for more communications and marketing activities.
• Use that technology to create a new robust, interactive Web site that entertains, educates and serves as a functional sales and service tool. Use that technology to integrate all sales and services functions.

It’s all about the challenge

Every agency stakeholder needs to answer these vital questions:
• How can we compete in this new technology-driven multi-dimensional world?
• How can we bring together the best elements of marketing, communication and technology onto a single turnkey platform, making the Internet and other electronic marketing media the hub of our communications?
• How can we make it simple enough in application, essentially so self-contained that activities happen automatically without need for agency staff to have an extensive knowledge of technology?

Probably the best news of all is that the competitive tools available to independent agencies are more abundant than ever. Better yet, the major advantage of the independent agent still exists—the personal relationship.

Once agents face the need to understand and take action on the three essential activities (communications, marketing and technology), I believe the independent agency system will take back market share in personal lines and continue to dominate in the sale of commercial lines.

Conclusion
Trying to compete with the big spenders in driving prospects to the Internet is not going to work, for the reasons mentioned above.

Branding on a national basis is cost-prohibitive. Branding the agency in its local marketplace can work.

On a local level, the investment is much less but the task is much more formidable now because of the national media advertising explosion. Agents will be much more comfortable—and productive—because they understand their own local media as well as other public relations and advertising possibilities.

Trying to compete on price is a losing proposition in the long term.

Agencies spend an average of 1.5% to 1.8% of income on marketing. That money will be better spent on expanding local communications, marketing systems, and integrating technology than in any other way.

I see it as the only way to minimize The GEICO Effect.

The author
George Nordhaus has spent his entire career as an information provider to the insurance industry. He founded IMMS (Insurance Marketing and Management Services) in 1971, authored books on sales and marketing, and produced a weekly newsletter. In 2008 he left IMMS and became co-founder of AgenciesOnline, an all-inclusive marketing system for independent agencies.

This article appeared in RoughNotes magazine

 

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10 Ways to Attract and Retain Great Employees – Parts 1 & 2

The “human factor” has always been paramount for the insurance industry. In today’s business environment, clearly the long-term winners will be companies that provide a flexible and challenging work environment, along with employee recognition and rewards. Organizations have to be willing to share their successes. If employees are asked to share the risks, then they have to share the rewards.

Employment Exhibition

WHAT DO EMPLOYEES REALLY WANT?

In our work as consultants we often discuss what owners and employees think are the key motivating factors. Most business owners initially think money is the key issue. However, many employees state that they are looking for challenges, recognition, and empowerment.
Despite the current softness in the economy and the rise in the unemployment rate, the shortage of skilled insurance workers is still restraining growth for many agencies. Given this environment, what can a firm do to retain and attract the best and brightest employees, while challenging them to achieve the business’ goals?
First, recognize that money, by itself, will not do it. High performing employees are searching for something more than just a high salary. The typical employee compensation plan should include a total package of rewards, recognition and environment. Some of the elements are “satisfiers” that allow a firm to attract and retain employees such as benefits, flex-time and training. Other elements of compensation are “motivators” such as bonuses, incentives, challenge, and opportunity. A well designed plan will have long term and short term compensation components.
The key to attracting and retaining the best people to the firm is the use of a “total compensation” approach. It is also a critical component in improving employee performance. A firm that takes the time to carefully customize a “total compensation” package will transform individual employees into high performing, and committed employees.
There are three basic ingredients to the total compensation package that every agency must have:
1.         Challenging Work
The old system of directing and monitoring every task that an employee performs is out. Employees with multiple skills and authority are in. For example, a major retailer has a one-paragraph employee handbook that states: “Rule #1: Use your judgment in all situations. There will be no additional rules.” To truly perform at this level requires enormous trust in the employees. However, if a business is able to perform at this level it will reach incredible heights.
Provide additional opportunities for learning and skill development to spice work up. Encourage the staff to take classes to get licensed and for courses to earn the necessary CEUs. But, an expansion of training could provide more flexibility through a higher skilled workforce. Send the employees to Dale Carnegie, Microsoft software training, business skills seminars, team building sessions or a sales class (such as Dynamics of Sales sponsored by CIC).
2.         Work Environment
Today’s workforce is looking for flexibility on the job and balance in their life. Management needs to evaluate ways to realistically provide this sought after flexibility in work. For example, tradition has it that the employees work in an office with established work hours. Could the firm allow for variations, such as 4-day workweeks, working at home two days a week or job sharing? Flexible work hours are becoming a common tool to attract and retain good employees.
3.         Recognition and Rewards
Non-cash recognition awards are a very effective way to reinforce the agency’s values. They can be a low-cost, high-impact element of the total compensation package. For example, employees who provide outstanding or innovative customer service receive special awards. One way is for employees to be nominated by customers or their peers.
Management needs to think about the types of awards that make sense for employees. Here are some examples:
¯Provide a day off with pay
¯Provide tickets to sports, music or cultural events
¯Take out an advertisement in the local newspaper thanking your employees for their contributions
¯Provide a donation in an employee’s name to the charity of his or her choice
¯Pay for tutoring for the winner’s child
¯Have the winner’s car detailed during work
¯Pay for the winner’s house to be cleaned
¯Pay for an evening out for the winner and their spouse – dinner and babysitting
Once the basic ingredients are established, the firm can then look into advanced tools to attract and retain employees. The following are some of the approaches that owners should also consider:
4.         Profit Sharing
Although money is not always king, it still has a lot of clout. Firms that establish a bonus plan based on the business profitability will have employees that strive to increase sales and cut expenses. Profit sharing can be based on the profitability of the overall business or by profit centers such as commercial lines versus personal lines versus life and health. The pool of bonus money can then be distributed to the staff based on management’s discretion.
A variation of profit sharing is to reduce the employees’ base compensation while providing quarterly bonuses based on a department’s performance. A plan that tracks employee performance will then allow them to see a direct correlation between their effort and their compensation.
Even in this economy, great employees are hard to find. You need to work hard and smart in order to find those star performers. Below are six more ideas for your agency to find and keep those high performers.
One of the key steps to take is to do your homework before you even begin the process of hiring a new employee. First, you need to identify what you are looking for. This includes the responsibilities for the position, skills required and your basic expectations for the type of person you want to hire.
We are very excited to offer to you our new employee hiring service through our partner, Insurance Hiring Systems. This is a great resource to help you do your homework before you hire and then have access to many tools that make sure you hire the right person. WWW.OakHiringSystem.com
10 Ways to Attract and Retain
Great Employees – Part 2
5 and 6            Phantom Stock and Stock Appreciation Rights
Stock appreciation rights (SARs) and phantom stock are both specialized deferred compensation techniques designed to provide an employee with the economic benefits of stock ownership without the employee actually owning any company stock. When an owner cannot or will not change the existing ownership structure, SARs and phantom stock are often used, to provide an employee with some sort of incentive compensation based on the actual business performance.
A SAR is simply a grant to an employee which gives that person a right, at some specific time in the future, to receive a cash award equal to the appreciation in value of a certain number of shares of company stock. In concept, SARs are similar to stock options, but different in several points. Stock options require the employee to purchase the company’s stock at the grant price. However, SARs do not require a cash outlay from the employee. The employee only receives the appreciation in value of the stock.
Phantom stock on the other hand can be viewed as units of value, which directly correspond to an equivalent number of shares of company stock. These phantom stock units are then granted to an employee for a specific period of time. When the maturity period is reached, the employee is then compensated directly in cash, based on the value of the phantom stock. Unlike SARs, the amount of compensation with phantom stock usually includes the underlying value of the stock as well as any appreciation above the grant price. Another difference is that SARs are typically paid out when the employee chooses to exercise the SAR, while phantom stock typically has a fixed award date.
7.         Deferred Compensation
Deferred compensation is a method for producers to build long term value for their efforts directly related to their books of business. We recommend using deferred compensation instead of ownership in the producer’s book of business. The plan is often phased in over time until the producer is fully vested in the plan.
The agency benefits by having a system that encourages the producers to build their books as well as remain with the firm. It must be noted that a deferred compensation plan (as well as SARs and phantom stock) creates a contingent liability for the firm, which does negatively affect agency value. However, deferred comp is also “consideration,” which helps uphold the covenant not-to-compete in a producer contract. This is another good reason to include deferred compensation as part of a producer agreement.
8.         Split Dollar Life Policies
A split-dollar plan is a way to provide life insurance for an employee or their spouse at a reduced cost to that individual. The premium for the insurance is shared by the employee and his or her employer (thus the name “split dollar”).
It is an effective way to retain key employees while the business is reimbursed for every dollar it advances. From the employer’s perspective, split-dollar is an inexpensive method of buying life insurance for any personal or business needs of select employees. It enhances employee loyalty by providing substantial insurance benefits. Some split dollar policies can provide funds, which may be used for additional employee benefits in the future (deferred compensation, salary continuation, stock redemption, or retirement income).
From the employee’s perspective, split-dollar can help replace needed family income that would be lost at the employee’s death or help pay any estate taxes. If the employee owns the policy and collaterally assigns the policy to the employer, the employer can borrow against the cash value to the extent allowed by the collateral assignment form.
9.         ESOPs
Employee Stock Ownership Plans (ESOPs) are a way for business owners to sell shares in the company or to provide an additional benefit to all qualified company employees. These plans were initially created as a win-win for business owners and employees. ESOP contributions are tax deductible as are dividends if they are paid to employees directly, on their behalf to the ESOP or applied to the loan payments of a leveraged plan. Because the ESOP is funded with pretax dollars, the company’s tax savings may increase even further.
The selling shareholder can also defer the capital gains on stock sold to an ESOP as long as the ESOP owns 30% or more of the company’s stock and the seller rolls over the sale proceeds into qualified replacement property (stocks or bonds of domestic companies). Employees pay no tax on the contributions until they are entitled to receive the stock when they leave the company or retire. At this point, the company generally buys back the stock through a buyback provision in the ESOP.
ESOPs are expensive to set up and maintain. Businesses need to be a certain size before it makes financial sense. We recommend that agency owners do their homework before seriously considering this option.
10.       Stock Equity
Stock ownership usually conjures up visions of importance and respect. Producers and employees feel that having the word “Owner” on their business card will improve sales and stature. Often the employees only understand the benefits of stock ownership and the drawbacks are ignored or not understood.
Agency owners are often unclear themselves whether or not they should offer stock to an employee. They usually first think about it either when a current employee is about to walk out the door and may not come back. Owners might often feel that they are forced to offer stock in order to entice a new producer to join the firm or to retain the currently employee, such as a producer with a book of business.
We recommend that owners think long and hard before offering stock to an employee. The decision whether or not to make an employee an owner needs to be based on a review of many factors. The right decision can propel the agency forward for many years to come. The wrong decision can mire the firm in unimportant muck.
A Final Thought
A good principle to follow is that if you want outstanding results, you need to be prepared to pay outstanding rewards. Implementation of a “total compensation” plan will motivate employees to improve not only their own performance but the performance of the firm as well.
Written by: Bill Shoeffler, CIC

 

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