Insurance Agent Forum

[livebetter]

I would be interested in the opinions of independent agents that have been in the business for awhile.

Assume you were bringing in a new agent that was truly new to the industry - clever, educated, well-connected, and experienced in sales - but still completely new to the insurance agency.

This new agent passed her exam, and got her license for P&C, and you agreed to a 50/50 split.

What the agent is bringing to your agency...
New business
Half of her part of E&O insurance

What you are offering
Training regarding your P&C products and probably regular assistance for awhile as the new agent is learning
The other half of the additional E&O insurance

At this point, the agent has paid all the costs for getting her license, but you are considering partial reimbursement. You've also agreed to pay part (possibly all) of her continued education. Your office is small, and while there's a space for her, she has a professional home office, as well.

You will likely retire in 10-15 years.

What is a reasonable expectation for the agent for her book of business when you retire/sell your agency?

From the agency owner standpoint, you will want all her business to belong to you to make the agency more valuable at the time of sale.

From the agent standpoint, you don't want to build a book of business for 10-15 years only to have to lose all of it (with a possible buy-out, of course) when the agency owner retires... and have to either start over or retire from insurance yourself.

I realize the agent could possibly continue with the same terms under the new owner. Of course, that would have to be in the future contract between the owner and the buyer and seems like a difficult term to agree on at this point.

The agent feels like this is her own business that she is building for future residuals - paying many of her own expenses, etc. The agent owner feels that he is offering training and connections to insurers as well partial reimbursement on some expenses and should retain the book of business when he sells the agency.

Incidentally, it is assumed that if the agent leaves the agency before the owner retires, the agency will retain all of the agent's business. This issue is just related to the agent's book of business when the owner retires and sells the business.

Thoughts? What is a reasonable expectation for the agent?

[djs]

I would expect:

- The agent to fully cover the E&O at a 50/50 split.
- For the agent to be more generous than to cover your continuing ed (which isn't a lot of money).

That said, what I would expect if the agent retires is first right of refusal to buy my choice of the agency or at least buy my policies. This should be at a set rate for your own policies, anything from they are yours to half the normal purchase rate (guessing around 2x annual commission).

There is always a lot of moving parts to these agency producer agreements. A 50/50 split can be a great deal, it can be a terrible deal, mostly depending on the agent and how much help he really gives you.

Dan

[livebetter]

Thanks for the reply, Dan. I realize that I'm new and that I'll require some training to learn about the various insurers. I know that will take some time from their operations, but after the first 6-12 months, it seems to me that I'll be earning them 50% and costing them very little.

It doesn't seem fair to me that I lose the residuals from 10-15 years of my work when they decide to retire. At this point, I don't anticipate having the desire to purchase the agency, although that could change. I just want to keep my book.

Granted, I'm new to the industry and I don't know the common practices. It feels like I'm going to be making them money over the next 10-15 years and then have nothing to show for it (except maybe a little cash for a buy-out) when they are ready to retire... then, I either have to start over or retire myself.

Am I missing something obvious? It feels very lopsided.

[Winter]

Originally Posted by livebetter

Thanks for the reply, Dan. I realize that I'm new and that I'll require some training to learn about the various insurers. I know that will take some time from their operations, but after the first 6-12 months, it seems to me that I'll be earning them 50% and costing them very little.

It doesn't seem fair to me that I lose the residuals from 10-15 years of my work when they decide to retire. At this point, I don't anticipate having the desire to purchase the agency, although that could change. I just want to keep my book.

Granted, I'm new to the industry and I don't know the common practices. It feels like I'm going to be making them money over the next 10-15 years and then have nothing to show for it (except maybe a little cash for a buy-out) when they are ready to retire... then, I either have to start over or retire myself.

Am I missing something obvious? It feels very lopsided.

You are focused on their retirement which is only one scenario. Another is that you build a big book of business and then they give you the boot for any or no reason. And another scenario would be that you voluntarily decide to leave and go on your own after a few years. In any case you want to know where you would stand in any of those scenarios if you are thinking long term. The owners could semi-retire and bring in their retarded nephew to run the place who coincidently hates you but loves your book of business and would love to have you quit and make your book his.

Could happen.

Winter

[livebetter]

Exactly!

I'm not too concerned about them booting me out for no reason. They are family friends for the last fourty years. I know it's still possible that they kick me out, but not likely considering the relationship between our families.

But I did want to get the opinion of an independent agent that would be knowledgable on common practices in this situation.

When I asked about keeping my book when they retire, the response led me to believe that it was a crazy request, and that the best I could hope for was some kind of guaranteed buy-out.

The agency is run by a husband/wife team. I will be the only additional agent selling at this time, and possibly the only other one they will have before they retire.

Before I hammer out the details with the agency and agree on terms, I want to know what would be a reasonable request regarding my book. of business.

Any other thoughts from experienced independent agents?

[OHInsAGNT]

Originally Posted by livebetter

I would be interested in the opinions of independent agents that have been in the business for awhile.

Assume you were bringing in a new agent that was truly new to the industry - clever, educated, well-connected, and experienced in sales - but still completely new to the insurance agency.

This new agent passed her exam, and got her license for P&C, and you agreed to a 50/50 split.

What the agent is bringing to your agency...
New business
Half of her part of E&O insurance

What you are offering
Training regarding your P&C products and probably regular assistance for awhile as the new agent is learning
The other half of the additional E&O insurance

At this point, the agent has paid all the costs for getting her license, but you are considering partial reimbursement. You've also agreed to pay part (possibly all) of her continued education. Your office is small, and while there's a space for her, she has a professional home office, as well.

You will likely retire in 10-15 years.

What is a reasonable expectation for the agent for her book of business when you retire/sell your agency?

From the agency owner standpoint, you will want all her business to belong to you to make the agency more valuable at the time of sale.

From the agent standpoint, you don't want to build a book of business for 10-15 years only to have to lose all of it (with a possible buy-out, of course) when the agency owner retires... and have to either start over or retire from insurance yourself.

I realize the agent could possibly continue with the same terms under the new owner. Of course, that would have to be in the future contract between the owner and the buyer and seems like a difficult term to agree on at this point.

The agent feels like this is her own business that she is building for future residuals - paying many of her own expenses, etc. The agent owner feels that he is offering training and connections to insurers as well partial reimbursement on some expenses and should retain the book of business when he sells the agency.

Incidentally, it is assumed that if the agent leaves the agency before the owner retires, the agency will retain all of the agent's business. This issue is just related to the agent's book of business when the owner retires and sells the business.

Thoughts? What is a reasonable expectation for the agent?

Building a book of P&C is a tough and time consuming venture. Don't do it unless you own at least 50% of your business. There needs to be a predetermined buy out in the contract for you whether you leave or they put you out. Without it, don't even consider working with the agency. No contingencies are acceptable (except perhaps a vesting schedule).

[warnerins]

I can understand the frustration that you are feeling and how things can really be perceived as lopsided in the agencies favor. Here is another angle.

Let us say that you decide to go alone, start your own agency and start from scratch (this is the path that I chose).

First you cannot run a P&C agency out of your home. It just won't work. You would have clients coming to your house at all hours of the day and night making payments on their monthly policies. There would never be a separation of your business and personal life. No matter how nice of a home you have, the client perception would be that you are not truly in business and a professional agent. This is completely different for a life or health agent and is common practice.

So, you will have to lease an office and all that comes with the office. Furniture will need to be bought, lights on, internet running, equipment, computers, supplies, heat, business cards, stationary, marketing supplies, etc......

Do you want a nice office or are you going to settle for a place that will get you by until future growth warrants the move? If you are saving money on a smaller space, are you going to be perceived as a non-standard or higher risk agency?

Lets say that the office space is not a problem. You have a friend that will rent you top notch office space for next to nothing (marble floors, gold leaf lettering on the door). You also have a connection at Staples and will not be bothered with having to pay retail on paper and toner. You will get it at 80% off. Great

Next comes your E&O coverage that you mentioned before. I have been an agent for 18 years and recently sold three agencies to start a scratch agency right next to my house. Because this agency had no prior track record, it was as if I was starting all over (not quite but almost) My first year for L&H, P&C E&O was just over $3,000.00 I got a break because I paid it in full.

So, you will need to factor that in to the budget (can't have an agency without it).

Next you will have to have some kind of agency management system in place. You probably want to start off paperless so that you don't have to convert the whole thing in a couple of years. You are going to need a website and signage also.

Lets just factor in another $7,000 or so, unless you have connections in these areas as well.

OK, you have your office and systems in place. You have your license and E&O, you have three lines on the phone and a dedicated fax and there you sit (ready for business)....

Oh shoot. Now we need to get the carriers. You will probably be able to get two or three non-standard auto companies. But, will you be able to compete with the agency down the street? No.

Maybe you can get Progressive after 6 months or so and maybe Travelers, Hartford or Safeco after another couple of years. Will you still be in business after two years of no carriers? Maybe.

Lets say that you are a marketing genius and have figured out how to survive the first two years with no carrier representation. I personally spent 3 years working 9am to 9pm 7 days a week and hit every car dealership in town guaranteeing that I would be at my office when they called and would write their customer a policy when they needed it most (after hours). Did I have a Life? No.

Now, if you are a marketing genius, how are you going to get out of the office with no one running the place while your gone?

See the agency that you are complaining about, having such a lopsided deal, has lived through this whole scenario 20 years ago. They have paid there dues and have put in the sweat equity to build what they have.

If you were coming to me and asking these same questions, after I've already missed years of kids birthdays and chorus shows, volley ball games, Etc.... My response would'nt be a 50/50 split.

This is all just my opinion. But, I would take this generous offer, work like an agent on a mission for two or three years, get your experience in, get to know the carrier reps very well, bank as much money as you possibly can and then leave to start your own agency and thank the agency for the opportunity.
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Sorry I got carried away. My response would be probably a 70/30 split on new business, 50/50 on renewals and after 5 years you can buy your book for 2 times the book value. Before 5 years if you left there would be a 3 year non-compete clause and 3 year non-compete if you did not buy (but left) after 5 years.

[livebetter]

Originally Posted by warnerins

Sorry I got carried away. My response would be probably a 70/30 split on new business, 50/50 on renewals and after 5 years you can buy your book for 2 times the book value. Before 5 years if you left there would be a 3 year non-compete clause and 3 year non-compete if you did not buy (but left) after 5 years.

You answered my primary question (about the book of business and what is fair) in your last comments. Thank you!!

Paired with the post from Dan, I understand that a book of business is typically worth about 2x annual commissions. Is that correct? Are there any agents that disagree with that value?

(In case it's relevant, I'm referring to P&C policies only.)

[djs]

The value of the book of business is hard to put a value to, without more info. In general, 2-3x is the going rate. The longer the policies have been on the books, the more cross-sold, higher household density, etc, all make policies more valuable. On the other side, policies from car dealerships, towns with high foreclosure rates, very recent business, all makes policies less valuable.

2x the renewal commissions is a good general number to use. You also should factor in the retention ratio on a book, so if retention is 90% on 100,000 commission, the value would be more like $180K (for finance wizards, yes, arguably you should compound the retention ratio).

Dan

[saieddie]

I would ask for a contract that allowed me to buy my book of business when I left or they sold the agency. Whatever they're paying you on the split (ie 60/40) is what I would ask for on the percentage on the sale price. (ie if they're selling for 2 times renewals of $100,000, the purchase price would be 40% of $200,000 or $80,000)

I'm thinking of doing the same thing w/my agency. Theres no other sales people now, but I want to hire a sales person. I think to keep a producer happy and profitable, you have to give them a way to keep ownership of their book.

The overhead in a scratch agency is too low to take a crappy contract working for someone else.

[arcains]

I have a sample contract I could provide you to look over. My attorney and I wrote it together. It was made to protect both the owner and the agent. What state are you in again?

[Rhinoguy]

I agree with the post a few above. I own an agency and it is very tough. The fact that you are thinking that far ahead is great however 50/50 is more than fair. This person isn't really making any money on you immediately and it may take several years before he does. It is his comany and reputation you could screw up, a possible e&o claim, his time to train. If you went to work in a different career would you expect to have a paycheck (renewals) coming in for no work.
The truth is if you get a 50/50 split you are doing good. The odds of you making it without an experienced agent to help s very low. You will now get to know the reps and your future appt. process will be easier.

[warnerins]

Originally Posted by arcains

I have a sample contract I could provide you to look over. My attorney and I wrote it together. It was made to protect both the owner and the agent. What state are you in again?

I would love to see this. If you get time can you send me a copy.

tim@warnerins.com

Thanks

[MedMalAgent]

I just hired a producer and in his contract was a clear path to ownership of his book of business. Not an easy path but a clear path.

[GetInsurance]

I would love to see that contract too, cause i'm in the middle of the same type of problem. please forward a copy to me getinsurance@att.net

[Matrix]

Arcains, if you don't mind, I would also love to see the contract you mentioned. My email is lonestarprime_ins@yahoo.com. Many thanks!

[livebetter]

Originally Posted by arcains

I have a sample contract I could provide you to look over. My attorney and I wrote it together. It was made to protect both the owner and the agent. What state are you in again?

Thanks so much. I'm in Kansas. I'm licensed in both Missouri and Kansas and will be writing in both, but the agency and my state of residence is Kansas.

Email: sparkle2@hotmail.com
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Originally Posted by Rhinoguy

I agree with the post a few above. I own an agency and it is very tough. The fact that you are thinking that far ahead is great however 50/50 is more than fair. This person isn't really making any money on you immediately and it may take several years before he does. It is his comany and reputation you could screw up, a possible e&o claim, his time to train. If you went to work in a different career would you expect to have a paycheck (renewals) coming in for no work.
The truth is if you get a 50/50 split you are doing good. The odds of you making it without an experienced agent to help s very low. You will now get to know the reps and your future appt. process will be easier.

While I understand that it would be extremely difficult to start out as an independent agent, to answer your question about a different career: Yes, I would absolutely expect a paycheck coming in, probably within the first few weeks.
And if the question was referring only to future referrals, that's the reason I am choosing insurance - for the potential residuals. Obviously, I'm not making much on the initial sale. I could make far more selling something with a higher commission. I would think many agents would agree that they sell auto insurance for the long term, not for the $50 they make on the initial sale.

I also disagree that it will take a few years before the agency makes any money on me. I've paid for all costs except half my E&O and have already written a handful of policies. MY costs (on me) will easily be more than the agency's cost to have me, and yet we are making the same split. If they don't make money on me for even the first year, that means I would actually be losing money and should find another occupation. Maybe I'm missing something, but there should be NO way that they aren't making money from my efforts within the first year.

Yes, I could screw up and put a claim on their E&O. They have a number of checks in place to help prevent that, but I realize it could still happen... as it could happen or could have happened to any of you. I've run businesses before, and I'm not new to business, just to this industry. As a former business owner, I'm probably a much better bet to NOT screw up.

For clarification, my intention is not to build up a book of business and then take it away to start my own agency in four or five years. My intention is to work with this agency until they retire (probably 12-15 years). My original question related to the book of business after retirement, as I didn't want my future to be reliant on whoever takes over their agency at that time.

[domonique]

Hi my name is Domonique ,I am a new insurance agent.I am looking for ideas on health insurance scripts.I don't want to come across as a salesperson when calling prospects on the phone.Any ideas on how to start a health insurance call off the right way?wHAT'S THE BEST WAY TO SOUND LIKE A FRIEND INSTEAD OF A SALESPERSON.I am a health insurance agent.Any ideas would definately help.