Agency Management Institute

The Society of Certified Insurance Counselors a proud member of The National Alliance for Insurance Education & Research presents Agency Management Institute Agency Organizations Understanding and Managing Financial Strength Agency Planning Human Resources Agency Productivity and Effectiveness Legal and Ethical Responsibilities 1 2 3 4 5 6 Kingston Plantation Embassy Suites Myrtle Beach, SC September 23-25, 2015 www.thenationalalliance.com 15-AM

&&&fne$notebooks$20150925scam$20150925scam_section1fn&&& **StartTab+1** **CardStock** 1 The Society of Certified Insurance Counselors a proud member of The National Alliance for Insurance Education & Research SECTION 1 Agency Organizations Gerald T. Hargrove, J.D., CIC, CPIA, FCLA, SCLA, PICS, LICS, CBIA Euharlee, GA www.thenationalalliance.com 2015. The National Alliance for Insurance Education & Research. All Rights Reserved. This outline or any part thereof may not be reproduced in any form or by any means or stored in any information retrieval system without the express written consent of the author. This publication includes copyrighted material of Insurance Services Office, Inc., with its permission.

1 AGENCY ORGANIZATIONS DISCLAIMER This outline is intended as a general guideline and may not apply in each situation. For any matters of legal and/or tax issues one should consult with competent counsel or advisor for the matter in question and in the jurisdiction in question. The Society of CIC and any organization for which this seminar is conducted shall have neither liability nor responsibility to any person or entity with respect to any loss or damage alleged to be caused directly or indirectly as a result of the information contained in this outline. Insurance policy forms, clauses, rules, court decisions, and laws change constantly. Policy forms and underwriting rules vary from company to company. The use of this outline, or its contents, is prohibited without the express permission of The National Alliance or the Society of Certified Insurance Counselors. 2015 The Society of CIC 1 Agency Organizations (Rev: 09/2015)

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AGENCY ORGANIZATIONS 1 LEARNING OBJECTIVES After this session, participants will be able to: 1. Explain the organizational structures available to insurance agencies. 2. Explain the impact of Federal and State regulations on agencies. 3. Identify the characteristics of the five stages of agency growth and describe how, when and why agencies move from one stage to the next. 4. Compare the various types of company markets available to agencies. 5. Identify the important elements of a company agency agreement and the considerations when selecting an insurance company to represent. 6. Describe the company expectations of an agency. 2015 The Society of CIC 3 Agency Organizations (Rev: 09/2015)

I. INTRODUCTION PRIMARY AREAS OF CIC AGENCY MANAGEMENT INSTITUTE STUDY A. Understanding and Managing Financial Strength 1. Importance of Financial Management and Agency Value 2. Income and Expense Statement and Balance Sheet 3. Productivity and Cash Flow Management 4. Financial Goals B. Agency Planning 1. Planning Fundamentals and Components 2. Steps in the Planning Process 3. Agency Succession Planning C. Human Resources 1. Personnel Planning 2. Employee Manual / Position Description 3. The Selection Process / Training / Evaluation / Compensation 4. Termination 5. Employment Practices Liability Issues 2015 The Society of CIC 4 Agency Organizations (Rev: 09/2015)

D. Agency Productivity and Effectiveness 1 1. Standards, Procedures and Workflows 2. Phases and Characteristics of Agency Technology Utilization 3. Database Management 4. Agency / Company Technology Relationship 5. Compliance and Cyber Exposures E. Legal and Ethical Responsibilities 1. Professional Responsibility / Concept of Agency 2. Common Causes of Losses 3. Agent s Liability Factors 4. Agency Risk Management and Methods to Control Risk 5. Agency Defense Activities 2015 The Society of CIC 5 Agency Organizations (Rev: 09/2015)

II. AGENCY CULTURE AND ORGANIZATIONAL STRUCTURES A. Agency Culture is the system of beliefs, assumptions and practices that drives and influences what is done and how it is done within an agency. 1. Agency owners/managers/leaders establish and reinforce the agency culture. 2. Agency owners/managers/leaders teach the staff the business practices they believe are best and correct. B. Type of Entity 1. Sole Proprietor 2. General Partnership 3. Limited Liability Company 4. Subchapter S Corporation 5. C Corporation 2015 The Society of CIC 6 Agency Organizations (Rev: 09/2015)

C. How Legal and Tax Liabilities change based on the Entity Type. 1 Business Entity Comparison Chart Sole Proprietor General Partnership Limited Liability Company Subchapter S Corporation C Corporation Owners liability for business obligations Business duration can be forever Maximum number of owners Unlimited Unlimited Limited Limited Limited NO NO Yes Yes Yes One Unlimited Unlimited 100 Unlimited Owned by One Individual Two or more individuals Another business or individuals Individuals Another business or individuals Required to hold annual meetings NO NO NO Yes Yes Tax Implications Individual Form 1040 Schedule C Partnership doesn t pay tax, partners do Company doesn t pay, members do Corporation doesn t pay tax (in most states), shareholders do Corporation pays tax Asset sale of Agency Capital gain Capital gain Capital gain Can be capital gain Double taxation 2015 The Society of CIC 7 Agency Organizations (Rev: 09/2015)

Learning Objective 1: Explain the organizational structures available to insurance agencies. D. Organizational Structures 1. Sales Oriented vs. Service Oriented a. Sales oriented agencies have a greater emphasis on sales and competition between employees. b. Service oriented agencies place greater emphasis on satisfying the customer and may have a tendency to over service them. c. Bucket shops focus on as many sales as possible and as little service as possible. 2. Large Agencies vs. Small Agencies a. The more employees you have the less crucial each employee becomes when it comes to satisfying client needs. b. The more employees you have the more flexibility you have when it comes to vacation, holidays, etc. c. The more employees you have the greater the chance you are required to follow certain Federal / State / Local non discrimination laws (See HR Section.) 2015 The Society of CIC 8 Agency Organizations (Rev: 09/2015)

3. Publicly Traded vs. Privately Held 1 a. What role does Wall Street play in the agency culture? Is the focus on long term or next quarter s results? What role does stock price play? b. Publicly traded agencies are more focused on near term objectives. c. Publicly traded agencies are more focused on achieving a higher rate of return (20 25%) than on employee satisfaction. 2015 The Society of CIC 9 Agency Organizations (Rev: 09/2015)

4. Purpose and Philosophy Determines Structure a. What is your vision for the agency? b. What do you want the agency to do? 1) Standard lines P&C 2) Personal Lines only 3) Commercial Lines only 4) Non Standard Auto 5) Life & Health Agency 6) Combination of the above c. What experience does the owner have and how does that give the agency an advantage? d. Geographically Where are you doing business and how do you interact with your clients? 1) Face to face in office 2) Face to face at client s location 3) Telephone 4) Internet e. What type of clients do you want to deal with? This will impact the type of agency you are. 2015 The Society of CIC 10 Agency Organizations (Rev: 09/2015)

Learning Objective 2: Explain the impact of Federal and State regulations on agencies. 1 III. FEDERAL AND STATE REGULATION A. Licensing 1. Single state 2. Multi state 3. Resident 4. Non Resident 5. Awareness of licensing regulations with multi state licensing B. Role of Federal and State Regulators 1. Reasons for regulation 2. Inter state commerce 3. Consumer protection 4. Maintenance of a viable insurance marketplace 2015 The Society of CIC 11 Agency Organizations (Rev: 09/2015)

Learning Objective 3: Identify the characteristics of the five stages of agency growth and describe how, when and why agencies move from one stage to the next. IV. STAGES OF ORGANIZATIONAL GROWTH A. As an Agency Grows It Goes Through the Various Stages of Growth Which Have Their Own Unique Challenges and Affect the Way the Agency Functions as an Organization. 1. Existence a. The owner is the agency and the agency is struggling to remain alive. b. To grow, the agency must be creative. c. Basic staffing needs and requirements. d. Management/Owner does everything. 2. Survival a. The agency is an on going concern attempting to balance revenues and expenses. b. In order to grow, the agency must have specific direction. c. Management/Owner may delegate some sales and service activities, but is often still heavily involved in all aspects of the agency. 2015 The Society of CIC 12 Agency Organizations (Rev: 09/2015)

3. Success 1 a. The agency is profitable, but can go in one of two directions: 1) Stable the agency is in a comfortable position, and remains predominantly service oriented. 2) Growth the agency can expand if it becomes sales oriented. b. The agency must learn to delegate in order to grow. c. Stable agency management/owner may delegate much of the day to day sales and service activities may become absentee. d. Growth agency management/owner may delegate some sales service activities; may increase planning and strategy focus; acquisition and merger issue may become more significant; may create an ownership team. 4. Take off a. The agency is expanding rapidly and targeting new marketing territories. b. Careful coordination is required to continue the growth. c. Increasing agency staffing needs and requirements. d. Money and people. e. Management/Owners delegation is no longer an option; success during this stage may most depend on ability to delegate; development of an effective ownership team with one voice. 2015 The Society of CIC 13 Agency Organizations (Rev: 09/2015)

5. Maturity a. The agency is developed, decentralized and creative using sophisticated systems. b. The emphasis is on collaboration and building professional integrity. c. Tend to be large, national brokerages. d. Management/CEO focus on financials, strategic goals, planning, human resource development, and support systems. B. The Owner s/manager s Role 1. Impact on the agency components 2. May want to change stages 3. May be in more than one stage at once C. Stages Vary by Department within the Organization. 2015 The Society of CIC 14 Agency Organizations (Rev: 09/2015)

D. Growing from One Stage to the Next 1 1. The agency owner must make all the pieces of the agency puzzle fit together. a. Agency Organization b. Financial Analysis c. Human Resources d. Productivity & Effectiveness e. Sales & Retention f. E&O 2. When doing this, the owner must focus on reaching its maximum potential. 2015 The Society of CIC 15 Agency Organizations (Rev: 09/2015)

Learning Objective 4: Compare the various types of company markets available to agencies. V. UNDERSTANDING THE INSURANCE MARKETPLACE A. Standard Markets 1. Stock Companies a. Carrier issues stock and the shareholders expect dividends, growth, and /or increasing stock price. b. Shareholders may or may not be policy holders. 2. Mutual Companies a. No stockholders. The policyholders own the company. b. Policyholders desire dividends based on profitability or a refund of premium. 3. Direct Writers Exclusive agent companies work with agents that represent them exclusively or who must give first right of refusal on any business written. 2015 The Society of CIC 16 Agency Organizations (Rev: 09/2015)

B. Alternative Markets 1 1. Types of markets a. Excess and surplus lines markets Not part of any state guarantee fund in the event of insolvency. Make sure your clients understand this or it could be an E&O exposure in the event of insolvency. b. Managing General Agents (MGA s) Intermediary between a carrier and other retail agents. c. Brokerage agreements d. Self Insurance Funds (SIF s) Every member of the selfinsured fund is a partial owner of the fund. In exchange for potentially lower premiums than are available in the marketplace, each member can be held assessable if there are insufficient funds for claims. e. Captive arrangements With a captive or risk retention group, you stabilize coverage for your specific exposures while participating in the underwriting profit and investment income. f. Professional Employer Organizations (PEO s) Employee leasing. You no longer have employees, you lease them from the PEO. AS a result, the PEO is responsible for the health insurance, workers comp, etc. Due to the number of employees the PEO has, it may be able to acquire insurance at a lower price than the typical employer. 2015 The Society of CIC 17 Agency Organizations (Rev: 09/2015)

2. Characteristics and issues of alternative markets a. Non standard forms Coverage can vary significantly from market to market. Carefully compare the policies to make sure the client is getting the coverage that he needs. b. Binding authority What s the process? c. Minimum premium May be as much as the annual premium. There are many reasons minimum earned premium are used but one reason is to discourage the insured from replacing the product with a less expensive product near term and not allowing the carrier to recoup their expenses/loss costs. d. Errors and omissions concerns Make sure the client understands the reason they are being placed in an alternative market and what the risks are. Without their written approval, you could end up with an E&O claim. e. Non contracted vs. contracted market 2015 The Society of CIC 18 Agency Organizations (Rev: 09/2015)

Learning Objective 5: Identify the important elements of a company agency agreement and the considerations when selecting an insurance company to represent. 1 VI. INSURANCE COMPANY/CARRIER MARKETS A. Agency Contracts 1. Commission schedule Some carriers offer higher levels of commission for higher performing agencies. 2. Ownership of business Business is typically owned by the agency. An exception is exclusive agencies (i.e. Allstate, State Farm, etc.) where the carrier owns the business. 3. Contingency/Profit sharing Compare contracts between companies. 4. Agency authority 5. Contract termination terms The carrier usually has to provide a rehabilitation period but won t mention it to the agency unless the agency knows the contract and raises the issue. 6. Agency and direct bill responsibility 7. Notice of contract changes Contracts are non assignable. If the agency is sold, the new owner needs to request a new contract. 2015 The Society of CIC 19 Agency Organizations (Rev: 09/2015)

B. How Many Companies / Not a Question of Numbers 1. Fewer vs. many There is a cost involved in maintaining carrier relationships. How many can you afford to maintain? Can you be knowledgeable about all the markets you are doing business with? 2. Maintaining relationship with companies. 3. Agency volume How much premium can you promise a carrier? When you add up all your promises, make sure it doesn t exceed 100%. 4. Mix of business 5. Utilization of existing company markets If you don t actively utilize a carrier you should consider giving up the contract and placing the business with one of your other carriers. 6. Company volume requirements the cost and ease of doing business with multiple carriers. 2015 The Society of CIC 20 Agency Organizations (Rev: 09/2015)

C. Factors to Consider When Selecting a Company 1 FACTORS 1. Financial Stability 2. Personnel 3. Products 4. Company Support 5. Staff/Field Representative Competency 1. FINANCIAL STABILITY of the Company a. Rating Services 1) A. M. Best www.ambest.com 2) Standard and Poor s www.standardandpoors.com 3) Dun and Bradstreet www.dnb.com b. National Association of Insurance Commissioners (NAIC) www.naic.org c. Reinsurance d. Investments e. Claims paying ability If the carrier cannot or will not pay a claim, it may result in a lawsuit against the agency. f. E&O coverage If a carrier is below a certain rating level, its financial insolvency may not be covered by your E&O policy. 2015 The Society of CIC 21 Agency Organizations (Rev: 09/2015)

2. PERSONNEL a. Competence Does the carrier hire quality, knowledgeable and efficient staff? If not, this can cost the agency in terms of time and client retention. b. Location Being near the carrier and having the ability to visit face to face allows for better interaction and quicker resolution of issues. 3. PRODUCTS a. Excellent product value Is the product priced properly? b. Stability and market tenure Having to roll a book of business is inefficient and expensive. c. In and out of the market Consistent market participation results in greater agency confidence. d. Commission and compensation 1) History of change. 2) Multi level incentive agreements available. e. Profit sharing/contingency agreement f. Policy forms 1) ISO filings 2) Independent filings 2015 The Society of CIC 22 Agency Organizations (Rev: 09/2015)

4. COMPANY SUPPORT 1 a. Marketing and advertising Participation in co op advertising will allow the agency to reach more customers than its marketing budget might otherwise allow. b. Lead generation Does the carrier provide you with leads and / or target marketing lists? c. Advisory councils Is the carrier responsive to its agent s needs? d. Specialty programs If the agency can attract a niche market, is the carrier willing to design a policy with all the necessary bells and whistles? e. Safety groups. 5. STAFF/FIELD REPRESENTATIVE COMPETENCY a. Rate of senior executive turnover b. Timely and accurate How long does it take to have a decision made? c. Promises are kept. d. Partner with agency to provide solutions to client s problems. e. Professional communication. f. Automation Carriers with upload/download capability are more efficient to work with and more profitable for the agency. 2015 The Society of CIC 23 Agency Organizations (Rev: 09/2015)

Learning Objective 6: Describe the company expectations of an agency. D. Company Expectations of an Agency 1. Track record of business success Is the agency achieving the premium level needed and desired by the carrier? 2. Track record of sales success Quote, Win, and Declination ratios. 3. Competent management Does management run an effective and efficient operation? 4. Plan for growth The carrier won t grow its premium if the agency doesn t grow. 5. Identifiable sales culture Focus needs to be on making producers successful. 6. Assertive, successful producers Results in more premium for the carriers. 7. Agency marketing focus and plan Agency marketing plan should dovetail in with the marketing plan of the carrier. 2015 The Society of CIC 24 Agency Organizations (Rev: 09/2015)

8. Successful prospecting and contact management programs Needed for new business. 1 9. Professional service staff Retention of accounts is critical. 10. Complete, honest submissions. 11. Good accounting practices The carriers want to be paid on a timely basis. 12. Automation The more automated the agency the more profitable the agency will be for the carrier. 13. Low loss ratios 14. High closing ratios Don t send in submissions to carriers you know won t quote the business. E. Evaluating Performance 2015 The Society of CIC 25 Agency Organizations (Rev: 09/2015)

REVIEW OF LEARNING OBJECTIVES Participants should be able to: 1. Explain the organizational structures available to insurance agencies. 2. Explain the impact of Federal and State regulations on agencies. 3. Identify the characteristics of the five stages of agency growth and describe how, when and why agencies move from one stage to the next. 4. Compare the various types of company markets available to agencies. 5. Identify the important elements of a company agency agreement and the considerations when selecting an insurance company to represent. 6. Describe the company expectations of an agency. 2015 The Society of CIC 26 Agency Organizations (Rev: 09/2015)

Reference Material 1 Publications by The National Alliance Research Academy Managing Human Resources in an Insurance Agency Growth & Performance Standards (GPS) Starting, Buying, Selling, and Perpetuation Insurance Agencies Agency Disaster Planning The CSR Profile The Producer Profile Career Paths Brochure: http://www.scic.com/careers/index.htm My Career Advancement website: www.mycareeradvancement.com Programs by The National Alliance for Insurance Education & Research James K. Ruble Agency Management Practices Seminar Managing People II Seminar 2015 The Society of CIC 27 Agency Organizations (Rev: 09/2015)

Agency Components Exhibit MARKETS/ PRODUCTS Access to Markets/Products Retention Average Commission SALES Product Development Telemarketing Producer Sales Direct Sales Placing Advertising and Public Relations CUSTOMERS Demographics Public Image Average Account Size PLANNING Mission Statement Long/Short Term Goal/Objectives External Factors Internal Factors Organizational Growth AGENCY OPERATIONS Processing Automation Efficiency Work Distribution E&O Prevention FINANCIAL MANAGEMENT Profitability Liquidity Collection Budgeting HUMAN RESOURCES Quality of Personnel Compensation E&O Experience Productivity 2015 The Society of CIC 28 Agency Organizations (Rev: 09/2015)

&&&fne$notebooks$20150925scam$20150925scam_section2fn&&& **StartTab+1** **CardStock** 2 The Society of Certified Insurance Counselors a proud member of The National Alliance for Insurance Education & Research SECTION 2 Understanding and Managing Financial Strength Gerald T. Hargrove, J.D., CIC, CPIA, FCLA, SCLA, PICS, LICS, CBIA Euharlee, GA www.thenationalalliance.com 2015. The National Alliance for Insurance Education & Research. All Rights Reserved. This outline or any part thereof may not be reproduced in any form or by any means or stored in any information retrieval system without the express written consent of the author. This publication includes copyrighted material of Insurance Services Office, Inc., with its permission.

UNDERSTANDING AND MANAGING FINANCIAL STRENGTH 2 DISCLAIMER This outline is intended as a general guideline and may not apply in each situation. For any matters of legal and/or tax issues one should consult with competent counsel or advisor for the matter in question and in the jurisdiction in question. The Society of CIC and any organization for which this seminar is conducted shall have neither liability nor responsibility to any person or entity with respect to any loss or damage alleged to be caused directly or indirectly as a result of the information contained in this outline. Insurance policy forms, clauses, rules, court decisions, and laws change constantly. Policy forms and underwriting rules vary from company to company. The use of this outline, or its contents, is prohibited without the express permission of The National Alliance or the Society of Certified Insurance Counselors. 2015 The Society of CIC 1 Understanding and Managing Financial Strength (Rev: 09/2015)

UNDERSTANDING AND MANAGING FINANCIAL STRENGTH LEARNING OBJECTIVES After this session, participants will be able to: 1. Describe the factors that positively or negatively impact agency value. 2. Explain the purpose, components and use of the Income Statement. 3. Define the concept and purpose of Spread and demonstrate how it is calculated. 4. Describe the purpose, components and use of the Balance Sheet. 5. Explain the concept and purpose of liquidity ratios and demonstrate how they are calculated. 6. Summarize the basics of cash flow within the Agency. 7. Describe the factors involved in establishing goals for revenue growth and internal account development. 2015 The Society of CIC 2 Understanding and Managing Financial Strength (Rev: 09/2015)

I. IMPORTANCE OF FINANCIAL MANAGEMENT A. To Agency Owners 2 The agency is probably the largest asset on an owner s personal financial statement. A profitable agency benefits the owner. When the owner eventually perpetuates the agency he will want to maximize agency value. B. To Producers Non owner producers probably have a desire to obtain agency ownership in the future. Do they know what it takes to make an agency profitable? C. To Staff A profitably run agency allows for higher salaries, bigger salary increases and greater job security. D. To Carriers A strong agency provides a stronger marketing base for carriers. 2015 The Society of CIC 3 Understanding and Managing Financial Strength (Rev: 09/2015)

Learning Objective 1: Describe the factors that positively or negatively impact agency value. II. AGENCY VALUE Agency Value is based on a number of factors A. Profitability How much money has the agency historically been able to generate after all expenses are paid? Is the historical profit an accurate predictor of the future? B. Accounts Receivable Is the agency able to collect payments in a timely manner to protect cash flow? C. Retention Ratio Can be defined in terms of: 1. Commission 2. Premium 3. Policy 4. Client D. Average Commissions In general, the bigger the accounts the more profitable the accounts. 2015 The Society of CIC 4 Understanding and Managing Financial Strength (Rev: 09/2015)

E. Producer Compensation Structure Who owns the book of business: 1. The agency? 2 2. The producer? 3. Both? F. Quality of Personnel Are they knowledgeable? G. Productivity of Employees The more productive the employees, the more profitable the agency. H. Company Markets 1. Do the markets you have give you a competitive advantage? 2. Do they write the type of business your agency is trying to write? I. Public Image Does the agency have a positive or negative image in the community? Has a TV news crew made a surprise visit to your office? J. Errors and Omissions Experience 2015 The Society of CIC 5 Understanding and Managing Financial Strength (Rev: 09/2015)

Learning Objective 2: Explain the purpose, components and use of the Income Statement. III. INCOME STATEMENT Shows the revenues and expenses of the agency over a period of time A. Sources of Agency Income 1. Commissions CL & PL commissions are usually the largest part of an agency s income, with L&H lagging behind. a. Commercial vs. Personal vs. Life & Health b. Direct Bill vs. Agency Bill c. New Business vs. Renewal Business 2. Fee Income 3. Interest/Investment Income a. Interest on agency investments b. Interest on your premium trust account 4. Contingency Income a. Tracking profit sharing b. Tracking premium requirements c. Monitoring losses and loss reserves 2015 The Society of CIC 6 Understanding and Managing Financial Strength (Rev: 09/2015)

B. Expense Categories 1. Compensation Expenses single largest area of expense 2 a. Executive (Owner) Compensation should be paid for the commissions they handle, management responsibilities, and profitability b. Sales salaries and commissions Should producers receive: 1) Salaries? 2) Draws against commission? 3) Straight commission? 4) A combination of the above? c. Staff salaries as a percent of revenue, can be directly compared between agencies to determine productivity d. Employee benefits can range between 7% and 15% of compensation e. Payroll taxes f. Pension & Profit Sharing 2. Selling Expenses: a. Travel & Entertainment An area of abuse; deduction is limited for tax purposes b. Advertising & Promotion How can its effectiveness be measured? c. Automobile 2015 The Society of CIC 7 Understanding and Managing Financial Strength (Rev: 09/2015)

3. Administrative Expenses Common to any business; are an indication of agency management cost control and effectiveness a. Accounting, Legal & Professional b. Amortization of intangibles Normally only used by agencies when an agency purchase, merger or acquisition has taken place c. Automation and data processing This is difficult to measure because it may be spread between office supplies, equipment, depreciation and maintenance; rarely recorded as a separate expense item d. Bad debts Level depends on collection practices e. Contributions Normally vary with the overall profitability of the agency f. Dues and subscriptions Deductibility will vary g. Education Important to staff development and retention. h. Equipment leases Varies depending on whether assets are leased or owned i. Insurance Key Person insurance related to perpetuation plans (not deductible) 2015 The Society of CIC 8 Understanding and Managing Financial Strength (Rev: 09/2015)

j. Insurance Impacted directly by errors and omissions premiums 2 k. Interest Result of a decision to finance the purchase of assets l. Licenses, Permit & Taxes m. Office Supplies & Printing High expense here can be the result of poor control systems and/or incorrect purchasing systems n. Postage Varies with revenue, an important area of planning for a direct mail campaign o. Rent Agency owners often own the building that houses the agency; owners may set lease payments too high to cover mortgage costs p. Repair and maintenance Includes service contracts, janitorial and landscape fees q. Telephone Varies directly with revenue, an important area of planning for a sales center or direct solicitation program r. Miscellaneous other non recurring expenses 2015 The Society of CIC 9 Understanding and Managing Financial Strength (Rev: 09/2015)

C. Managing Expenses 1. Situational Analysis a. Review historical financial statements b. Analyze trends in expense growth c. Classify expenses 1) Fixed unlikely to change with increased revenue 2) Variable will go up as revenues increase d. Identify areas to reduce costs 2015 The Society of CIC 10 Understanding and Managing Financial Strength (Rev: 09/2015)

2. Set Targets for Future Expenses short and long term a. Overall expense growth should be less than revenue growth 2 b. Try to keep expenses low without interfering with growth 3. Establish a Budget a. Set reasonable limits based on the agency s history and current needs b. Should reflect the agency s cash flow and immediate needs for profit c. The budget must be communicated to all divisions and consistently monitored 2015 The Society of CIC 11 Understanding and Managing Financial Strength (Rev: 09/2015)

IV. INCOME STATEMENT COMPARISON Automation systems allow you to compare your actual results against the same period in the prior year (Actual to Previous) and against your budget (Actual to Budget) if you have developed a budget A. Actual To Previous 1. Monthly 2. Year to date (evens out expenses paid in a month different than last year) a. As a percentage of net revenues b. Variance from previous year column c. When reviewing this comparison, you must remember: 1) Unusual events that impacted last year's income statement 2) When the unusual events occurred 3) When you increased/decreased the number of producers (should impact revenues and expenses) 4) To investigate any variances above or below a certain dollar amount or percentage 2015 The Society of CIC 12 Understanding and Managing Financial Strength (Rev: 09/2015)

B. Actual To Budget 1. A budget is a projection (best guess) of the income and expenses the agency will have over the next 12 months 2 2. Development of a budget will eliminate unusual events from the past and should take into consideration changes that have occurred in the agency, such as: a. Getting / losing a large account during the year b. Salary increases for support staff c. Increased projected revenues and expenses for additional producers d. Increases due to contracts, leases, inflation 2015 The Society of CIC 13 Understanding and Managing Financial Strength (Rev: 09/2015)

C. Comparison to Industry Standards Many sources of industry standards are available. All appear to have similar figures. One of the best sources is the Growth and Performance Standards (GPS) from The National Alliance Research Academy (800 633 2165). 2015 The Society of CIC 14 Understanding and Managing Financial Strength (Rev: 09/2015)

ELLIOTT INSURANCE AGENCY INCOME STATEMENT AND INDUSTRY COMPARISON For the Year Ending 12/31/2014 2 Inc/Dec Inc/Dec GPS* FYE % of FYE % of Prior FYE % of Prior National Revenues: 2012 Rev 2013 Rev Period 2014 Rev Period Report CL Commission $439,188 50.00% $453,626 50.00% 3.29% $436,188 49.50% 3.84% 45.38% PL Commission $272,297 31.00% $290,321 32.00% 6.62% $277,574 31.50% 4.39% 41.62% Life / Benefits Income $70,270 7.99% $72,127 7.95% 2.66% $82,215 9.33% 13.98% 6.30% Contingent Income $67,052 7.64% $63,508 7.00% 5.28% $58,599 6.65% 7.87% 5.37% Other Income (e.g. Fee, Investment, Misc.) $29,570 3.37% $27,670 3.05% 6.43% $26,612 3.02% 3.82% 1.33% Net Revenues $878,377 100% $907,252 100.00% 3.29% $881,188 100.00% 2.87% 100.00% Compensation Expenses: Exec / Owner Comp. $181,000 20.60% $184,450 20.33% 1.91% $188,350 21.37% 2.11% 25.09% Sales Salaries/Comm. $95,000 10.82% $105,000 11.57% 10.53% $115,500 13.10% 10.00% 9.93% Office/Staff Salaries $92,500 10.53% $157,150 17.32% 58.86% $185,000 20.10% 17.72% 22.71% Ins. Employee Ben $26,527 3.02% $32,389 3.57% 22.09% $29,255 3.32% 9.67% 3.36% Payroll Taxes $30,041 3.42% $32,298 3.56% 7.51% $32,427 3.68%.39% 4.57% Pension/Profit Share. $44,973 5.12% $52,076 5.74% 15.79% $43,354 4.92% 16.74% 1.25% Total Comp. Expenses $470,041 53.51% $563,363 62.09% 19.85% $593,886 66.49% 5.42% 66.91% Other Expenses (e.g. Admin, Operating, etc.) $243,741 27.75% $294,235 32.43% 20.72% $251,944 28.59% 14.37% 25.77% Total Expense $713,782 81.26% $857,598 94.52% 20.14% $845,830 95.99% 1.37% 92.68% Pre Tax Oper. Profit/Loss $164,595 18.74% $49,654 5.47% 69.83% $35,358 4.01% 28.79% 7.32% *GPS 2014 results for this size agency 2015 The Society of CIC 15 Understanding and Managing Financial Strength (Rev: 09/2015)

Learning Objective 3: Define the concept and purpose of Spread and demonstrate how it is calculated. V. SPREAD Spread is the difference between revenues per employee and compensation per employee. A larger spread is an indication of higher productivity from the agency s employees and will allow for increased overall profitability. The agency should strive to make staffing and investment decisions that will allow it over time to increase the revenue per employee at a higher rate than the compensation per employee. (Revenues per employee) (Compensation per employee) = Spread A. Revenues Per Employee Take all the revenues of the agency and divide it by the number of employees. A person working only 20 hours per week would be considered half of an employee. B. Compensation Per Employee Take all the compensation expenses in the agency, including the owner s, and divide it by the number of employees. C. Spread What is left over to pay non compensation expenses and for profit. D. Goal An agency should have the rate of growth in revenues per employee exceed the rate of growth in compensation per employee. 2015 The Society of CIC 16 Understanding and Managing Financial Strength (Rev: 09/2015)

2 SPREAD CALCULATION EXAMPLE Using the income statement shown earlier: Assuming that the Elliott agency has 9 Full time employees (including the owner) and 2 Part time employees (each working 20 hours per week). 1. 9 FT Employees + 2 PT Employees = 10 FTE 2. Total Revenue of $881,188 divided by 10 FTE = $881,188/10 = $88,119 Revenue per employee 3. Total Compensation Expenses of $593,886 divided by 10 FTE = $593,886/10 = $59,389 Compensation per employee 4. $88,119 $59,389 = $28,730 Spread per employee 2015 The Society of CIC 17 Understanding and Managing Financial Strength (Rev: 09/2015)

Learning Objective 4: Describe the purpose, components and use of the Balance Sheet. VI. THE BALANCE SHEET Shows what the agency owns and owes at a specific point in time It must balance: Assets = Liabilities + Owners Equity A. Assets What the agency owns and what is owed to the agency by others B. Current Assets Cash, accounts receivables, marketable securities, prepaid expenses, and any other assets that will be converted to cash within the next 12 months C. Long Term/Fixed Assets Tangible items (cars, desks, office equipment) D. Other Assets Notes receivable, cash value of life insurance, goodwill E. Liabilities What the agency owes to others F. Current liabilities Accounts Payable, accounts current, payroll taxes, notes payable due within the next 12 months G. Long Term Liabilities Payment is due more than 12 months into the future H. Shareholders' (Owners') Equity Includes original startup capital and earnings that have been retained in the business 2015 The Society of CIC 18 Understanding and Managing Financial Strength (Rev: 09/2015)

ELLIOTT INSURANCE AGENCY BALANCE SHEET AS OF 12/31/2014 at 12:01pm 2 FYE % FYE % FYE % Current Assets: 2012 2013 2014 Cash and Equivalents $161,111 27.06% $198,121 28.78% $224,728 30.99% Premiums Receivable $197,909 33.24% $257,442 37.39% $269,438 37.16% Other Current Assets $39,891 6.70% $41,902 6.09% $45,221 6.24% Total Current Assets $398,911 67.01% $497,465 72.26% $539,387 74.39% Long Term Assets: Property/Plant/Equip. $196,421 32.99% $190,987 27.74% $185,679 25.61% Other Long Term Assets $0 0.00% $0 0.00% $0 0.00% Total Long Term Assets $196,421 32.99% $190,987 27.74% $185,679 25.61% Total Assets $595,332 100.00% $688,452 100.00% $725,066 100.00% Current Liabilities: Premium Payables $272,294 58.03% $387,110 67.43% $431,982 69.62% Other Current Liab. $77,475 16.51% $81,618 14.21% $85,316 13.75% Total Current Liabilities $349,769 74.54% $468,728 81.65% $517,298 83.38% Long Term Liabilities: Long Term Debt $119,419 25.45% $105,369 18.35% $103,114 16.62% Other Long Term Liab. $0 0.00% $0 0.00% $0 0.00% Total Long Term Liab. $119,419 25.45% $105,369 18.35% $103,114 16.62% Total Liabilities $469,188 100.00% $574,097 100.00% $620,412 100.00% Owners Equity/ Net Worth $126,144 $114,355 $104,654 2015 The Society of CIC 19 Understanding and Managing Financial Strength (Rev: 09/2015)

Learning Objective 5: Explain the concept and purpose of liquidity ratios and demonstrate how they are calculated. VII. LIQUIDITY RATIOS Liquidity ratios help you measure the agency s ability to pay its obligations A. Trust Ratio = (Cash + Premiums Receivable) Company Payables (Premium Payable + Pre billed Payable) Measures the ability of the agency to pay its carriers. A ratio of less than one (1.00) means an out of trust situation 1.08 = $224,728 + $269,438 $431,982 + $27,082 3.43* = Industry average (for this size agency) B. Current Ratio = Current Assets / Current Liabilities Measures the ability of the agency to pay its current liabilities. A ratio of close to or less than 1.0 could indicate the potential for serious cash flow problems. 1.04 = $539,387 / $517,298 2.95* = Industry average *GPS 2014 results 2015 The Society of CIC 20 Understanding and Managing Financial Strength (Rev: 09/2015)

C. Strengthening Ratios 1. Closely track receivables 2 2. Manage debt obligations carefully 3. Keep investments as liquid as possible 4. Don t take more profit out in dividends than the agency can handle 2015 The Society of CIC 21 Understanding and Managing Financial Strength (Rev: 09/2015)

Learning Objective 6: Summarize the basics of cash flow within the Agency. VIII. CASH FLOW MANAGEMENT A. Operating Account Day to day operations 1. Cash comes in from commissions earned from the Trust Account. 2. Cash goes out to pay daily expenses. OPERATING ACCOUNT DEPOSITS Commission Checks from Trust Account Direct Bill Commission Miscellaneous Income CHECKS Compensation Expenses Business Development Expenses Operating Expenses 2015 The Society of CIC 22 Understanding and Managing Financial Strength (Rev: 09/2015)

B. Premium Trust Account Is it required by the state or your carriers? 2 1. Cash comes in from Accounts Receivable. 2. Cash goes out to pay Carrier Account Current balances & to pay operating account for commissions. PREMIUM TRUST ACCOUNT Premiums DEPOSITS CHECKS CompanyPremiums Payable Commissions 2015 The Society of CIC 23 Understanding and Managing Financial Strength (Rev: 09/2015)

C. Accounts Receivable 1. Paychecks Pay producers (and Owners) on commissions collected, not commissions earned or written 2. One Person Put one person in charge of collection decisions, such as canceling or non renewing a poor paying client 3. Review Weekly Distribute an Aged Accounts Receivable listing weekly. Don't wait for the end of the month 4. Don t be a Bank Any receivable that is older than 45 days has probably been paid to the carrier. You are now a bank making interest free loans without establishing credit or getting collateral 2015 The Society of CIC 24 Understanding and Managing Financial Strength (Rev: 09/2015)

Learning Objective 7: Describe the factors involved in establishing goals for revenue growth and internal account development. 2 IX. ESTABLISHING FINANCIAL GOALS A. Profit Growth 1. In order to maximize agency value, focus must be consistently given to increasing profit 2. Profitability will depend both on maximizing revenue and controlling expenses, and attention must be paid to both B. Revenue Growth 1. Factors In Establishing New Business Revenue Goals a. Situational Analysis 1) Current production for each line of business 2) Resources available to support new production 3) Strengths and experience of personnel 2015 The Society of CIC 25 Understanding and Managing Financial Strength (Rev: 09/2015)

b. Plan for New Revenue Growth 1) Revenue goals a) New accounts What is a realistic number of new accounts given time constraints? The number of new accounts generated will be based on the number of existing accounts and the number of employees. b) Other revenue sources Premium financing. Fees for services. 2) Agency sales culture a) Rainmakers or maintainers? Some producers are great at generating new clients but need a strong technical person to back them up. Other producers are technically proficient but can t open doors. b) Sales and service responsibilities Determine who in the agency should be selling and who should be servicing. 2015 The Society of CIC 26 Understanding and Managing Financial Strength (Rev: 09/2015)

c. Analyzing Income Streams 1) Analyze commission revenues 2 a) Personal Lines b) Commercial Lines c) Financial services 2) Analyze fee based services a) Risk management b) Insurance negotiation c) Consulting 3) Other programs a) MGA s b) Residual income c) Non insurance products 4) Growth by acquisition Can you acquire a book of business at a price that will be profitable for you? Will you enjoy economies of scale? 2015 The Society of CIC 27 Understanding and Managing Financial Strength (Rev: 09/2015)

Impact of Retention on Revenue and Profit Average Length of Time to Retain Client Average years to retain a client Client Retention Rate 95.0% 90.0% 85.0% 80.0% 75.0% 70.0% 65.0% 60.0% 13.5 6.6 4.3 3.1 2.4 2.0 1.7 1.4 Profitability of Individual Accounts Client Retention Rate 95.0% 90.0% 85.0% 80.0% 75.0% 70.0% 65.0% 60.0% Average Commission $ 1,000 $ 1,000 $ 1,000 $ 1,000 $ 1,000 $ 1,000 $ 1,000 $ 1,000 Lifetime Commission $ 13,500 $ 6,600 $ 4,300 $ 3,100 $ 2,400 $ 2,000 $ 1,700 $ 1,400 Lifetime profit (@ 20%) $ 2,700 $ 1,320 $ 860 $ 620 $ 480 $ 400 $ 340 $ 280 Impact of Attrition on $1,000,000 Book of Business Client Retention Rate 95.0% 90.0% 85.0% 80.0% 75.0% 70.0% 65.0% 60.0% Now $ 1,000,000 $ 1,000,000 $ 1,000,000 $ 1,000,000 $ 1,000,000 $ 1,000,000 $ 1,000,000 $ 1,000,000 End of Year 1 $ 950,000 $ 900,000 $ 850,000 $ 800,000 $ 750,000 $ 700,000 $ 650,000 $ 600,000 End of Year 2 $ 902,500 $ 810,000 $ 722,500 $ 640,000 $ 562,500 $ 490,000 $ 422,500 $ 360,000 End of Year 3 $ 857,375 $ 729,000 $ 614,125 $ 512,000 $ 421,875 $ 343,000 $ 274,625 $ 216,000 End of Year 4 $ 814,506 $ 656,100 $ 522,006 $ 409,600 $ 316,406 $ 240,100 $ 178,506 $ 129,600 End of Year 5 $ 773,781 $ 590,490 $ 443,705 $ 327,680 $ 237,305 $ 168,070 $ 116,029 $ 77,760 End of Year 6 $ 735,092 $ 531,441 $ 377,150 $ 262,144 $ 177,979 $ 117,649 $ 75,419 $ 46,656 End of Year 7 $ 698,337 $ 478,297 $ 320,577 $ 209,715 $ 133,484 $ 82,354 $ 49,022 $ 27,994 End of Year 8 $ 663,420 $ 430,467 $ 272,491 $ 167,772 $ 100,113 $ 57,648 $ 31,864 $ 16,796 End of Year 9 $ 630,249 $ 387,420 $ 231,617 $ 134,218 $ 75,085 $ 40,354 $ 20,712 $ 10,078 End of Year 10 $ 598,737 $ 348,678 $ 196,874 $ 107,374 $ 56,314 $ 28,248 $ 13,463 $ 6,047 2015 The Society of CIC 28 Understanding and Managing Financial Strength (Rev: 09/2015)

2. Factors in Establishing Revenue Retention Goals a. Situational Analysis 2 1) Analyze current retention figures by line of business 2) Review reasons for losing past accounts 3) Evaluate personnel in service roles b. Plan for Increased Retention 1) Evaluate potential for increased profit through higher retention 2) Identify opportunities to increase retention through improved service and processes, cross selling opportunities, etc. 3) Set reasonable retention goals in light of historical performance and current resources 2015 The Society of CIC 29 Understanding and Managing Financial Strength (Rev: 09/2015)

3. Factors in Internal Account Development a. Importance of Internal Account Development 1) Revenue Increases amount of commission generated from each account 2) Client protection Covering all of the client s exposures (personal, commercial, life & health) gives less opportunity for a competitor to attack your accounts 3) Errors and Omissions prevention Helps to reduce the likelihood of gaps in coverage 2015 The Society of CIC 30 Understanding and Managing Financial Strength (Rev: 09/2015)

b. Steps in Account Development Do the following for each type of business (Personal, Commercial, and Life & Health) 1) Situation analysis 2 a) Average account size b) Average number of accounts per CSR c) Analyze key accounts 2) Identify opportunities a) Endorsements b) Increasing limits c) New lines of business d) Other services, i.e. risk management, loss control 3) Set measurable objective(s) for internal account development 4) Establish responsibility Get commitments from all team members 5) Establish procedures 6) Monitor results 2015 The Society of CIC 31 Understanding and Managing Financial Strength (Rev: 09/2015)

c. Responsibilities 1) Agency owner a) Set measurable cross selling goals b) Provide cross selling sales training Train servicing CSRs to overcome their reluctance to sell c) Create plan of action to reach goals d) Measure and manage results 2) Agency producer a) Identify cross selling opportunities by account Agencies frequently run home no auto lists, but why not run a personal no commercial list to personal lines clients who list self employed or business owner as their occupation? b) Identify cross selling opportunities by product line c) Be willing to let CSR, Account Manager, or Account Rep. cross sell 2015 The Society of CIC 32 Understanding and Managing Financial Strength (Rev: 09/2015)

3) CSR, Account Manager, or Account Rep a) Prepare to prove value of cross sold products Why does the client need it? 2 b) Have the courage to recommend products or increased limits of protection c) Don t be afraid of the client saying No 4) Company personnel a) Show cost effectiveness of cross selling b) Assist management with implementation of cross selling plan marketing support 2015 The Society of CIC 33 Understanding and Managing Financial Strength (Rev: 09/2015)

d. Procedures 1) Identify cross selling opportunities a) Use automation b) Offer after successful service contact 2) Know your products thoroughly a) Insurance company products b) Risk management support 3) Help your buyer buy a) Convey the benefits of a total client relationship b) Ask, I don t suppose? questions, openended questions, etc. 4) Measure cross selling results 2015 The Society of CIC 34 Understanding and Managing Financial Strength (Rev: 09/2015)

5) Follow up unsuccessful cross selling efforts Why was it unsuccessful? Is the lack of success due to a specific Product or Staff person? 2 6) Document for: a) Future sales opportunities b) Errors and Omission purposes e. Obtaining Referrals 1) Non optional behavior agency staff must ask for referrals from clients 2) Set specific goals for referrals 3) Monitor the results determine if goals are being met 4) Send thank you notes/letters for referrals 2015 The Society of CIC 35 Understanding and Managing Financial Strength (Rev: 09/2015)

REVIEW LEARNING OBJECTIVES Participants should be able to: 1. Describe the factors that positively or negatively impact agency value. 2. Explain the purpose, components and use of the Income Statement. 3. Define the concept and purpose of Spread and demonstrate how it is calculated. 4. Describe the purpose, components and use of the Balance Sheet. 5. Explain the concept and purpose of liquidity ratios and demonstrate how they are calculated. 6. Summarize the basics of cash flow within the Agency. 7. Describe the factors involved in establishing goals for revenue growth and internal account development. 2015 The Society of CIC 36 Understanding and Managing Financial Strength (Rev: 09/2015)

Reference Material 2 Publications by The National Alliance Research Academy Growth & Performance Standards (GPS) Critical Factors Affecting Agency Value Starting, Buying, Selling and Perpetuating Insurance Agencies Agency Fee Based Services The CSR Profile Producer Profile Street Smart Selling Programs by The National Alliance for Insurance Education & Research James K. Ruble Agency Management Practices Seminar Managing People II Seminar Dynamics of Selling Dynamics of Sales Management 2015 The Society of CIC 37 Understanding and Managing Financial Strength (Rev: 09/2015)

&&&fne$notebooks$20150925scam$20150925scam_section3fn&&& **StartTab+1** **CardStock** The Society of Certified Insurance Counselors 3 a proud member of The National Alliance for Insurance Education & Research SECTION 3 Agency Planning Gerald T. Hargrove, J.D., CIC, CPIA, FCLA, SCLA, PICS, LICS, CBIA Euharlee, GA www.thenationalalliance.com 2015. The National Alliance for Insurance Education & Research. All Rights Reserved. This outline or any part thereof may not be reproduced in any form or by any means or stored in any information retrieval system without the express written consent of the author. This publication includes copyrighted material of Insurance Services Office, Inc., with its permission.

3 AGENCY PLANNING DISCLAIMER This outline is intended as a general guideline and may not apply in each situation. For any matters of legal and/or tax issues one should consult with competent counsel or advisor for the matter in question and in the jurisdiction in question. The Society of CIC and any organization for which this seminar is conducted shall have neither liability nor responsibility to any person or entity with respect to any loss or damage alleged to be caused directly or indirectly as a result of the information contained in this outline. Insurance policy forms, clauses, rules, court decisions, and laws change constantly. Policy forms and underwriting rules vary from company to company. The use of this outline, or its contents, is prohibited without the express permission of The National Alliance or the Society of Certified Insurance Counselors. 2015 The Society of CIC 1 Agency Planning (Rev: 04/2015)

AGENCY PLANNING LEARNING OBJECTIVES After this session, the participant will be able to: 1 Identify the benefits of an agency plan and why plans fail. 2. Explain the purpose and characteristics of an agency s Value Statement(s), Vision Statement and Mission Statement. 3. Differentiate between Long Range and Short Range Agency Planning. 4. Explain the key questions that should be addressed in the Agency Planning process. 5. Identify and apply the steps of a SWOT Analysis. 6. Describe the areas that should be analyzed as part of the Agency Plan. 7. Explain the process of Developing Objectives, writing and implementing Action Plans, monitoring progress and evaluating results. 8. Explain why an agency needs a Succession Plan and identify potential issues that could arise. 2015 The Society of CIC 2 Agency Planning (Rev: 04/2015)

Learning Objective 1: Identify the benefits of an agency plan and why plans fail. I. PLANNING FUNDAMENTALS 3 A. What is Agency Planning? 1. Defined A formal process of determining and communicating the direction and actions that the agency will undertake in the future 2. The planning process can vary in format, length, and details depending on the specific needs of the agency, but should include certain core components a. Description of what the agency is hoping to accomplish b. Analysis of where the agency currently is in relation to goals c. Steps the agency is planning to take to achieve goals 2015 The Society of CIC 3 Agency Planning (Rev: 04/2015)

B. Benefits of Agency Planning OPERATING EFFICIENCIES > AGENCY VALUE > COMMUNICATION > ROAD MAP > FOCUS ON GOALS 1. Operating Efficiencies Business planning helps to select and prioritize agency tasks and ensure that there is clear understanding of everyone s roles and responsibilities 2. Agency Value Planning can increase the value of an agency by effective utilization of agency resources 3. Communication Agency planning helps to create a synergistic environment among all members of the team for the accomplishment of agency goals 4. Road Map To provide a track record to run on 5. Focus on Goals To establish goals and methods on how to reach them Agencies using business plans by revenue range Agency Revenue Size % of Agencies using business plans $250,000 and less 44% $250,001 to 500,000 42% $500,001 to 750,000 44% $750,001 to 1,000,000 47% $1,000,001 to 1,750,000 48% $1,750,001 and over 65% 2015 The Society of CIC 4 Agency Planning (Rev: 04/2015)

C. Reasons That Agencies Fail to Plan 1. Belief there is not enough time 3 2. Other priorities 3. Fear of failure 4. Lack of knowledge D. Reasons That Agency Planning Fails 1. Lack of commitment by the agency principal and management 2. Failure to engage all of the necessary stakeholders 3. Failure to communicate the plan to the entire agency 4. Failure to ensure that the planning process includes clear action items 5. Lack of sufficient information and resources to utilize in process 6. Lack of review of results and revision of plan as needed 2015 The Society of CIC 5 Agency Planning (Rev: 04/2015)

Learning Objective 2: Explain the purpose and characteristics of an agency s Value Statement(s), Vision Statement and Mission Statement. II. ESTABLISH AND COMMUNICATE VALUES, VISION, AND MISSION A. Value Statements 1. Purpose Communicate core principles of the agency that will shape its direction and organizational goals 2. Characteristics a. Focuses on behavioral issues that matter most to the leadership of the agency b. Reflects the standards of conduct and expectations for all agency members 3. Samples a. The Smith Agency believes in building a positive team with family spirit b. The Smith Agency values helping local businesses succeed c. The Smith Agency values providing financial security to its employees d. The Smith Agency believes in supporting local charitable organizations 2015 The Society of CIC 6 Agency Planning (Rev: 04/2015)

AGENCY PLANNING EXERCISE If someone were to ask you what your agency/company/department Core Values are, what would you tell them? 3 2015 The Society of CIC 7 Agency Planning (Rev: 04/2015)

B. Vision Statement 1. Purpose communicate to all members of the team a clear picture and what the agency is trying to achieve 2. Characteristics a. Should reflect the long range goals of the members of the agency b. Determines how you see your agency in the future 3. Sample The vision of the Smith Agency is to be a fully employee owned agency that is recognized as the premier commercial lines agency in the region 2015 The Society of CIC 8 Agency Planning (Rev: 04/2015)

AGENCY PLANNING EXERCISE Write a Vision Statement for your agency/company/department. 3 2015 The Society of CIC 9 Agency Planning (Rev: 04/2015)

C. Mission Statement 1. Purpose provides a clear statement of purpose and focus for the agency 2. Characteristics a. Written with the needs and perspective of the agency s clients in mind b. States what is unique about the agency and what sets it apart from competitors c. Defines the actual business of the agency and its marketing territory d. Provides the general strategy that will be used to accomplish the Mission Statement 3. Sample The Smith Agency will provide quality personal, commercial, and life/health insurance products to the clients located within our trade area to help them achieve their financial security goals. Our staff dedicated itself to pursuing insurance knowledge and skills that will benefit our clients by providing them current, accurate information about insurance products and outstanding response to their needs and requests. 2015 The Society of CIC 10 Agency Planning (Rev: 04/2015)

AGENCY PLANNING EXERCISE Write a Mission Statement for your agency/company/department. 3 2015 The Society of CIC 11 Agency Planning (Rev: 04/2015)

Learning Objective 3: Differentiate between Long Range and Short Range Agency Planning. III. AGENCY PLANNING A. Long Range Planning 1. Timeline 3 to 5 Years 2. Establishes Purpose, Continuity and Direction 3. Will focus on broad objectives that will still be relevant several years later 4. Provides a broad picture of where the agency is headed 2015 The Society of CIC 12 Agency Planning (Rev: 04/2015)

B. Short Range Planning 1. Timeline Rarely extends longer than 12 months 3 2. More specific than the Long Range Plan and provides detail that fits within the framework of the Long Range Plan 3. Should involve detailed action plans a. Organizes and prioritizes action steps b. Communicates roles, responsibilities, and guidelines c. Provides a daily/weekly/monthly action agenda for the agency 2015 The Society of CIC 13 Agency Planning (Rev: 04/2015)

Learning Objective 4: Explain the key questions that should be addressed in the Agency Planning process. C. Initial Questions to consider in the Agency Planning Process 1. What does the agency want to accomplish? a. Financial needs and expectations of owners 1) Short term cash flow needs 2) Future value of agency 3) High income opportunity vs. stability b. Desired non financial results 1) Level of respect and influence in the community 2) Professional accomplishment 3) Personal enjoyment and preferences 2015 The Society of CIC 14 Agency Planning (Rev: 04/2015)

c. Impact on employees 1) Level of job satisfaction and enjoyment 3 2) Overall health of employees 3) Providing for financial security 4) Safety of employees d. Impact on community 1) Promoting values that are important to the agency 2) Support to charitable organizations and causes 2015 The Society of CIC 15 Agency Planning (Rev: 04/2015)

2. What is the long term potential of the agency? a. Type of employees that the agency can attract b. Current and future access to capital 1) Investments 2) Loans c. Carriers that the agency can add now or expects to be able to add in the future d. Resources and technology that are available and the agency hopes to add 3. What services and products will have sufficient demand within the agency s market? a. New and expanding industries in the agency s region b. Needs that are not currently be adequately met by other agencies c. Agencies that are exiting the market and creating opportunity d. Projected changes in demographics in the region 2015 The Society of CIC 16 Agency Planning (Rev: 04/2015)

4. How do potential services and products fit the agency? a. Are they aligned with what the agency wants to accomplish? 3 b. Does the agency have the potential to be competitive and successful with those services and products? c. Is there sufficient demand and opportunity for them in the agency s market? 5. Issues to consider a. Agencies must establish consistent direction that will allow the agency to adapt to changing circumstances while staying focused on long term objectives b. Asking appropriate questions at the beginning of the planning process helps to ensure common understanding of where the agency is trying to go c. These questions should be brought to the key personnel in the agency who are most likely to be responsible for its long term success d. Questions should have a long term focus, typically looking forward to the next three to five years 2015 The Society of CIC 17 Agency Planning (Rev: 04/2015)

Learning Objective 5: Identify and apply the steps of a SWOT Analysis. D. Conducting an Agency Analysis 1. Continually evaluating each area of the agency to ensure the adequacy of the information needed for the planning process 2. Goals for Agency Analysis a. Gather information that the agency can utilize in the planning process b. Gain an understanding of which areas have the greatest opportunity for improvement c. Determine which areas are most crucial to the agency s overall success d. Identify areas that may no longer be pertinent and therefore eliminated 2015 The Society of CIC 18 Agency Planning (Rev: 04/2015)

SWOT ANALYSIS OVERVIEW SWOT is a method of analysis used to understand the organization s strengths, weaknesses, opportunities, and threats in both external and internal factors. 3 Strengths How well is the agency performing? Weaknesses How poorly is the agency performing? SWOT Opportunities A weakness that can be corrected? Threats Weaknesses that threaten the existence of the agency? An organization conducts a SWOT Analysis for the various areas of business it is analyzing. The goal is to identify Strengths, Weaknesses, Opportunities and Threats. Then each opportunity can be turned into an objective/goal for the business. 2015 The Society of CIC 19 Agency Planning (Rev: 04/2015)

3. Conduct a SWOT Analysis a. Strengths 1) Goal identify what the agency can use to facilitate improvement 2) Questions to ask a) What unique resources and assets does the agency currently have? b) In what areas does the agency outperform its competitors? c) What resources is the agency failing to fully utilize? 2015 The Society of CIC 20 Agency Planning (Rev: 04/2015)

b. Weaknesses 1) Goal identify areas that need to be improved and resources that need to be added 3 2) Questions to ask a) In what areas does the agency lag behind competitors? b) What opportunities has the agency missed because it didn t have the right resources? c) What has caused the agency to lose business in the past? d) What has caused the agency to fail to meet goals in the past? 2015 The Society of CIC 21 Agency Planning (Rev: 04/2015)

c. Opportunities 1) Goal identify what resources that agency could add and what new products and services it could offer 2) Questions to ask a) What new technology/software could the agency utilize in its business? b) What areas in the agency s market are experiencing growth? c) What knowledge and abilities could new employees add that the agency doesn t currently have? d) What products/services are in demand which the agency could begin to offer? 2015 The Society of CIC 22 Agency Planning (Rev: 04/2015)

d. Threats 1) Goal identify potential negative impacts for which the agency needs to prepare 3 2) Question to ask a) What potential regulation could affect the agency s business? b) What competition could potentially take clients or employees from the agency? c) Could a change in a specific carrier s appetite significantly impact the agency? 2015 The Society of CIC 23 Agency Planning (Rev: 04/2015)

4. Apply the SWOT to the areas of agency analysis a. What areas of the agency are the most crucial to the overall objectives? b. What areas most need to be improved? c. What resources and assets can be better utilized to make improvements? d. What does the agency need to do to protect against future threats and risk? 2015 The Society of CIC 24 Agency Planning (Rev: 04/2015)

Learning Objective 6: Describe the areas that should be analyzed as part of the Agency Plan. IV. STEPS IN THE PLANNING PROCESS 3 Note: The word Objective is synonymous with Goal and they are often used interchangeably. A. Conduct an Agency Situational Analysis 1. Will identify and communicate how the agency is doing relative to its objectives 2. To learn how well the organization compares to their peer group 3. Bring out the areas needing improvement that will have the strongest impact on the objectives in addition to identifying areas they excel in as an organization 2015 The Society of CIC 25 Agency Planning (Rev: 04/2015)

4. Areas of External Analysis a. Competition b. Regulatory environment c. Economic trends d. Market conditions e. Consumer Purchasing trends f. Target market analysis 5. Areas of Internal Analysis a. Productivity analysis 1) Employee productivity 2) Account development 3) Account size 4) Accounts per Customer Service Representative 2015 The Society of CIC 26 Agency Planning (Rev: 04/2015)

b. Financial analysis 1) Profit margin 2) Commission rates 3 3) Financial liquidity 4) Collection system 5) Contingent and investment income 6) Owner compensation c. Accounts/clients 1) Account retention 2) Account size 3) Accounts per Customer Service Representative 4) Quality customer service 2015 The Society of CIC 27 Agency Planning (Rev: 04/2015)

d. Sales and support 1) Producer compensation 2) Support staff compensation 3) Sales system e. Company analysis 1) Agency/company agreements (contracts) 2) Specialization 3) Company mix f. Agency personnel 1) Quality of personnel 2) Employee productivity 3) Product expertise 4) Support staff compensation 5) Staff education 2015 The Society of CIC 28 Agency Planning (Rev: 04/2015)

6) Cross training program g. Management / Organization 3 1) Comprehensive business plan 2) Agency/company agreements h. Systems / workflow 1) Quality customer service 2) Automation system(s) 3) E&O experience 4) Documentation of procedures 2015 The Society of CIC 29 Agency Planning (Rev: 04/2015)

i. Marketing 1) Growth in new business 2) Company markets 3) Commission rates 4) Agency size 5) Market concentration 6) Agency/company agreements 7) Business mix 8) Specialization 9) Public image 10) Sales system 2015 The Society of CIC 30 Agency Planning (Rev: 04/2015)

Agency Components Exhibit 3 SALES Product Development Telemarketing Producer Sales Direct Sales Placing Advertising and Public Relations MARKETS/ PRODUCTS Access to Markets/Products Retention Average Commission CUSTOMERS Demographics Public Image Average Account Size PLANNING Mission Statement Long/Short Term Goal/Objectives External Factors Internal Factors Organizational Growth AGENCY OPERATIONS Processing Automation Efficiency Work Distribution E&O Prevention FINANCIAL MANAGEMENT Profitability Liquidity Collection Budgeting HUMAN RESOURCES Quality of Personnel Compensation E&O Experience Productivity 2015 The Society of CIC 31 Agency Planning (Rev: 04/2015)

Learning Objective 7: Explain the process of Developing Objectives, writing and implementing Action Plans, monitoring progress and evaluating results. B. Develop the long range objectives for the organization 1. The objectives will serve as points of orientation for the rest of the planning process 2. The objectives should reflect the questions asked at the beginning of the planning process 3. Areas to consider for objectives a. Markets/Companies b. Target Market Niches c. Staffing/Human Resources d. Market Territory e. Automation/Technology f. Multiple locations 2015 The Society of CIC 32 Agency Planning (Rev: 04/2015)

AGENCY PLANNING EXERCISE Write a broad statement on Staffing/Human Resources telling what you want the agency/company/department to look like in the next 3 5 years. 3 2015 The Society of CIC 33 Agency Planning (Rev: 04/2015)

C. Develop short range objectives for each area of the agency 1. Defined Objectives are the result or achievement toward which effort is directed. As such they are the concrete aim of the organization. Developed correctly they represent the desired outcome of the organizations activities resulting from the internal and external situational analysis. 2. Characteristics a. Specific b. Measurable c. Attainable d. Realistic e. Timely 2015 The Society of CIC 34 Agency Planning (Rev: 04/2015)

AGENCY PLANNING EXERCISE Write a short range objective that is in alignment with your long range statement. 3 2015 The Society of CIC 35 Agency Planning (Rev: 04/2015)

D. Develop and implement an agency plan 1. Select specific actions to take a. Look for best practices to implement based upon the situational analysis findings b. Brainstorm potential solutions c. Evaluate solutions 1) Are they relevant to the agency? 2) Do they fit the agency s resources? 2. Write an Action Plan a. Determine who will be responsible for each action b. Evaluate how resources need to be allocated to specific actions c. Establish clear timeframes and guidelines for each action 3. Implement the Action Plan a. Communicate the plan to the entire agency b. Set an agenda for reviewing progress 2015 The Society of CIC 36 Agency Planning (Rev: 04/2015)

AGENCY PLANNING EXERCISE Write at least four (4) action steps that would need to be completed for you to reach your short range objective successfully. 3 ACTION STEPS RESPONSIBILITY COMPLETION DATE A. B. C. D. 2015 The Society of CIC 37 Agency Planning (Rev: 04/2015)

4. Monitor and Evaluate a. A crucial but often overlooked part of the planning process b. Review results and progress toward goals on a regular basis weekly, monthly, or quarterly depending on the agency s needs c. Make adjustments to the plan as needed if circumstances have changed or if the original goals are no longer most relevant d. The review process, as with all aspects of the agency plan, should be communicated regularly to the entire agency 2015 The Society of CIC 38 Agency Planning (Rev: 04/2015)

AGENCY PLANNING EXERCISE How often would you monitor this objective and what would you monitor? 3 2015 The Society of CIC 39 Agency Planning (Rev: 04/2015)

Learning Objective 8: Explain why an agency needs a Succession Plan and identify potential issues that could arise. V. AGENCY SUCCESSION PLANNING/PERPETUATION A. Need for a Succession Plan 1. No one knows when he or she is going to die. Could impact value of agency. 2. Failure to plan could result in the spouse receiving less (or no) money for the agency if it needs to be sold. 3. Carrier(s) may require it. 4. Smooth transition to the next generation of owners. 5. A known, workable succession plan provides valuable employees with a high level of job security. 2015 The Society of CIC 40 Agency Planning (Rev: 04/2015)

B. Methods of Succession Planning 1. Internal Sale Child, producer, partner. 3 2. External Sale Sell to another agency, bank, or other third party. 3. Merge Two or more agencies combine into one agency to enjoy economies of scale and a higher profit. 4. Cluster/Agency Network Agencies share carriers and other resources but maintain their individual identity. 5. Run into the ground C. Identification of a Successor. 1. Family member 2. Current employee 3. Someone outside the agency 2015 The Society of CIC 41 Agency Planning (Rev: 04/2015)

D. Issues to Address 1. Financing: Can the successor afford to purchase the agency? a. Most acquisitions are leveraged buy outs where the cash flow of the agency is used to pay for the agency over some period of time b. Life insurance only good if the owner dies c. Seller holds note 2. Ownership transfer issues a. Stock vs. Asset sale. What are the tax implications? b. Price c. Terms d. Allocation of purchase price 2015 The Society of CIC 42 Agency Planning (Rev: 04/2015)

3. Carrier Issues: Will the carrier give a contract to the successor? a. Carrier contracts are not assignable 3 b. Material change in agency ownership requires a new contract c. Will the carrier give a contract to the successor? 4. Operational Issues a. Product Knowledge: Does the successor have a good understanding of the products the agency sells? b. Accounting: Does the successor understand the agency s finances, including budget, financial statements, payroll, and cash flow? c. Human Resources: Knowledge of applicable antidiscrimination laws d. Marketing and Client Retention: Knowledge of current geographic area as well as marketing opportunities; transfer of key client relationships of departing owner 2015 The Society of CIC 43 Agency Planning (Rev: 04/2015)

REVIEW OF LEARNING OBJECTIVES After this session, the participant will be able to: 1 Identify the benefits of an agency plan and why plans fail. 2. Explain the purpose and characteristics of an agency s Value Statement(s), Vision Statement and Mission Statement. 3. Differentiate between Long Range and Short Range Agency Planning. 4. Explain the key questions that should be addressed in the Agency Planning process. 5. Identify and apply the steps of a SWOT Analysis. 6. Describe the areas that should be analyzed as part of the Agency Plan. 7. Explain the process of Developing Objectives, writing and implementing Action Plans, monitoring progress and evaluating results. 8. Explain why an agency needs a Succession Plan and identify potential issues that could arise. 2015 The Society of CIC 44 Agency Planning (Rev: 04/2015)

Reference Material Publications by The National Alliance Research Academy 3 Managing Human Resources in an Insurance Agency Growth & Performance Standards (GPS) The CSR Profile The Producer Profile Starting, Buying, Selling, and Perpetuating Insurance Agencies Agency Disaster Planning Career Paths Brochure: http://www.scic.com/careers/index.htm Programs by The National Alliance for Insurance Education & Research James K. Ruble Agency Management Practices Seminar Managing People II Seminar 2015 The Society of CIC 45 Agency Planning (Rev: 04/2015)

AGENCY PLANNING EXERCISE 1. If someone were to ask you what your agency/company/department Core Values are, what would you tell them? 2. Write a Vision Statement for your agency/company/department. 3. Write a Mission Statement for your agency/company/department. 4. Write a broad statement on Staffing/Human Resources telling what you want the agency/company/department to look like in the next 3 5 years. 2015 The Society of CIC 46 Agency Planning (Rev: 04/2015)

5. Write a short range objective that is in alignment with your long range statement. 3 6. Write at least four (4) action steps that would need to be completed for you to reach your short range objective successfully. ACTION STEPS RESPONSIBILITY COMPLETION DATE A. B. C. D. 7. How often would you monitor this objective and what would you monitor? 2015 The Society of CIC 47 Agency Planning (Rev: 04/2015)

Action Plan Example Area: Financial Objectives: 1. Decrease premium/accounts receivable over 60 days old to 7 percent. 2. Decrease premium/accounts receivable over 90 days old to 10 percent. Person Responsible: T. Jones Action Steps Person Date 1. Establish an agency wide collection policy for both personal and commercial lines accounts which minimizes both the amount and age of receivables. T. Jones 01/2016 2. Notify agency bill clients of the change in policy, producers contact late paying accounts to collect or terminate. T. Jones 01/2016 3. Implement the policy. J. Smith & D. Wright 02/2016 4. Monitor effectiveness and reduction in 60 and 90 day levels. T. Jones Monthly Monitoring Tools/Frequency: Signoff: 2015 The Society of CIC 48 Agency Planning (Rev: 04/2015)

&&&fne$notebooks$20150925scam$20150925scam_section4fn&&& **StartTab+1** **CardStock** The Society of Certified Insurance Counselors 4 a proud member of The National Alliance for Insurance Education & Research SECTION 4 Human Resources Stephen C. Anderson, CIC Anderson Network Franklin, TN www.thenationalalliance.com 2015. The National Alliance for Insurance Education & Research. All Rights Reserved. This outline or any part thereof may not be reproduced in any form or by any means or stored in any information retrieval system without the express written consent of the author. This publication includes copyrighted material of Insurance Services Office, Inc., with its permission.

HUMAN RESOURCES 4 DISCLAIMER This outline is intended as a general guideline and may not apply in each situation. For any matters of legal and/or tax issues one should consult with competent counsel or advisor for the matter in question and in the jurisdiction in question. The Society of CIC and any organization for which this seminar is conducted shall have neither liability nor responsibility to any person or entity with respect to any loss or damage alleged to be caused directly or indirectly as a result of the information contained in this outline. Insurance policy forms, clauses, rules, court decisions, and laws change constantly. Policy forms and underwriting rules vary from company to company. The use of this outline, or its contents, is prohibited without the express permission of The National Alliance or the Society of Certified Insurance Counselors. 2015 The Society of CIC 1 Human Resources (Rev: 09/2015)

HUMAN RESOURCES LEARNING OBJECTIVES After this session, participants will be able to: 1. Identify the purpose and contents of an Employee Manual. 2. State the purpose and describe the components of a Job Description. 3. Describe several of the legal employment guidelines required of Agencies and Companies. 4. Describe how to properly conduct an interview. 5. Explain why training of employees is important to the success of the agency. 6. State the components of and approaches to a performance evaluation. 7. Identify factors that impact compensation. 8. Express the purpose of employment agreements including the difference between a non piracy and non compete agreement. 9. Explain the preparation and process required when terminating an employee. 10. Summarize the impact of mergers and acquisitions on the agency. 2015 The Society of CIC 2 Human Resources (Rev: 09/2015)

I. PERSONNEL PLANNING Personnel Planning deals with the management of human resources, thereby enabling the agency to implement the business strategies necessary to achieve the strategic plan. Agency's Business Plan and Objectives 4 A. Personnel Planning is Critical because it is the Single Largest area of Expense in Most Agencies. 2014 Growth and Performance Standards Agency Size in Revenues Compensation Expense $500,000 and Less 62.96% $500,001 to $1,000,000 66.92% $1,000,001 to $2,000,000 67.00% $2,000,001 to $3,000,000 66.57% $3,000,001 and Over 68.74% B. The Stage of an Agency's Growth will Greatly Influence: 1. The number of people to be hired 2. The utilization of personnel 3. Compensation and benefits 4. Staff development C. Personnel Planning must be tied into the overall Business Plan of the Agency. 2015 The Society of CIC 3 Human Resources (Rev: 09/2015)

II. EMPLOYEE MANUAL Learning Objective 1: Identify the purpose and contents of an Employee Manual. A. Introduction: 1. Employee Manual should be reviewed on an annual basis by an attorney to stay current with employment law. 2. A manual that is too long will not be read. If it is too short, you could be leaving out key compliance items and areas of employment liability. 3. Keep the Employee Manual fresh and a reflection of agency culture and standards. 4. If possible, review the Employee Manual of similar businesses in your community or industry. B. Purpose of the Employee Manual: 1. A way to make sure that all employees "know" the policies and procedures. 2. Identify the agency values, vision and mission. 3. A way for the agency to set ethical and performance related standards. 2015 The Society of CIC 4 Human Resources (Rev: 09/2015)

4. Assists with new employee orientation. 5. Assists with compliance with numerous legal mandates. 6. Provides consistent policy administration and enforcement. 4 7. Warning Having no manual is better than having a "bad" manual. a. Have a disclaimer that it can be unilaterally changed and is not an employment contract. b. Have employees sign for their copy of the manual. C. Manual Should Include: 1. Employment Classifications 2. Compensation (pay schedule, review policy, confidentiality policy, etc.) 3. Performance evaluations 4. Office hours 5. Holiday schedule 2015 The Society of CIC 5 Human Resources (Rev: 09/2015)

6. Vacation policy 7. Sick leave policy 8. Overall Benefits Policy (eligibility) 9. Discrimination/sexual harassment policy 10. Employee assistance programs 11. Dress code and grooming 12. Jury duty or reserve duty 13. Voice mail guidelines 14. E mail guidelines 15. Internet access guidelines 16. Computer security 17. Social Media Policy 2015 The Society of CIC 6 Human Resources (Rev: 09/2015)

Learning Objective 2: State the purpose and describe the components of a Job Description. III. JOB DESCRIPTIONS Once the agency has determined how many and what type of employees it needs, the agency must determine what functions make up each job. 4 A. Primary Purpose of the Job Description: 1. Establishes the basic performance requirements of the position and should set the needed qualifications for individuals seeking the position. 2. Clarifies acceptable performance. 3. Describes in detail the position's activities. 4. Provides a base measure for employee evaluation. 5. Helps in setting levels of compensation. 6. Used as a hiring tool. 7. A basis for corrective action/termination. 8. A basis for interviewing. 2015 The Society of CIC 7 Human Resources (Rev: 09/2015)

B. Components of the Job Description 1. Position Title and Objective of the Position a. Identifies why the employer has hired the person. b. Outlines what the position accomplishes in the overall performance of the agency. 2. Position Authority Outlines the areas and limits of authority. 3. Position Responsibilities Specific nature of the job is outlined. It should describe the duties and essential functions of the position as well as the knowledge, skills and abilities required. 4. Performance Evaluation Standards Identifies the areas of performance to be measured as well as the level of performance. 2015 The Society of CIC 8 Human Resources (Rev: 09/2015)

2015 The Society of CIC 9 Human Resources (Rev: 09/2015) 4

2015 The Society of CIC 10 Human Resources (Rev: 09/2015)

Learning Objective 3: Describe several of the legal employment guidelines required of Agencies and Companies. IV. EMPLOYMENT GUIDELINES A. Regulatory Considerations Be aware of local, state and federal laws 4 1. Age Discrimination in Employment Act. a. Enforced by: Equal Employment Opportunity Commission (EEOC) b. Protects employees over age 40 against age discrimination (no ceiling) c. Applies to employers with 20 or more employees. 2. Fair Credit Reporting Act a. Enforced by: Federal Trade Commission (FTC) b. Bans use of credit information against an employee or applicant without having a legitimate business need. c. Must notify applicants before requesting their credit reports and obtain a written acknowledgement of the notification. d. Must give applicants the phone number of the reporting agency and a statement of rights under the law to dispute the accuracy of the report. e. If employment is denied because of a bad credit check you must notify the applicant and allow them the opportunity to correct errors in the report. f. Applies to anyone engaging in interstate commerce. 2015 The Society of CIC 11 Human Resources (Rev: 09/2015)

3. Equal Pay Act Applies if you have 2 or more employees. a. Enforced by: Equal Employment Opportunity Commission (EEOC) b. Can t pay employees of one gender less than the rate received by employees of the opposite gender for jobs substantially similar or identical in skill, effort and responsibility and performed under similar working conditions. 1) Equal skill: includes experience training, ability, and education measured by the performance requirements of the job. 2) Equal effort: measurement of physical or mental exertion required to perform the job. 3) Equal responsibility: degree of accountability required in performance of the job. c. Different wages can paid for comparable work if based on: 1) A seniority system. 2) A merit system. 3) Quantity/quality of production. 4) Any factor other than gender. 2015 The Society of CIC 12 Human Resources (Rev: 09/2015)

4. Title VII of the Civil Rights Acts a. Enforced by: Equal Employment Opportunity Commission (EEOC) b. Prohibits discrimination based upon: 1) Race 4 2) Ethnicity (Color) 3) Religion (Creed) 4) Gender (Sex) 5) National Origin c. Bans discrimination in: compensation, job opportunities or training d. Applies to all employers with 15 or more employees who are employed for 20 or more weeks per year. e. Civil Rights Act of 1991 Amendment allowed for: 1) Compensatory and punitive damages. 2) Right to trial by jury. 3) Expanded definition of discrimination to include sexual harassment. 2015 The Society of CIC 13 Human Resources (Rev: 09/2015)

5. 1990 Americans with Disabilities Act (ADA). Applies if you have 15 or more employees. Guarantees equal opportunities in employment to individuals with disabilities. Requires employers to base hiring decisions solely on the ability of the individual to perform the essential functions of the job. Agencies should take the following steps: a. Develop job descriptions that document the essential functions of each position. b. Define any job related test that must be passed by applicants after a conditional offer of employment has been made. c. Make reasonable accommodations for disability. d. Follow federal and state laws regarding accommodating qualified disabilities. e. Medical Screenings Agencies may not conduct a medical exam on an applicant before making a conditional offer of employment. Medical tests DO NOT have to be jobrelated, but results from the medical screening can t be used in the hiring decision unless job related. f. Medical tests must be required of every employee entering into the same job category regardless of the disability. g. Post accident drug testing may be advisable if consistent. 2015 The Society of CIC 14 Human Resources (Rev: 09/2015)

6. Immigration Reform & Control Act (IRCA) a. Enforced by: Department of Justice, Immigration and Naturalization Service b. Requires employers to verify eligibility of employees to work in the U.S. 4 c. Must complete and retain Form I 9 for 3 years from date of hire or one year from date of termination, whichever is longer. d. Applies to all employers. 7. Sexual Harassment The term "sexual harassment" for purposes of this policy shall mean "unwelcome sexual advances, requests for sexual favors, and other verbal and physical conduct of a sexual nature or harassing conduct of any nature undertaken because of the target employee's sex." a. Two types of sexual harassment 1) Quid Pro Quo this for that 2) Hostile work environment b. What to do 1) Take immediate action once you have been notified of the situation. 2) Investigate all allegations promptly and equally 3) Know the law and company policy. 2015 The Society of CIC 15 Human Resources (Rev: 09/2015)

4) Correct the conditions in the workplace and discipline or dismiss the offender. 5) Ensure discipline is uniform 6) Be sure to maintain confidentiality. 7) Include a Sexual Harassment statement in the agency handbook. Sample sexual harassment statement: It is Company policy to prohibit any kind of harassment in any form based on race, sex, religion, national origin, age, disability or other protected class. It is Company policy to require employees to report incidents in accordance with the procedure set forth below...... Any employee who violates this policy is subject to disciplinary action up to and including immediate discharge even for a first time offense. The degree of discipline will depend upon the circumstances presented in the investigation. B. Other Things to Stay Away From: 1. Political Beliefs 2. Physical Appearance Don't ask for height or weight. 3. Marital Status 4. Pregnancy 5. Arrest Record 6. Children Time off for more children or childcare? 2015 The Society of CIC 16 Human Resources (Rev: 09/2015)

Learning Objective 4: Describe how to properly conduct an interview. V. THE SELECTION PROCESS Does the candidate have the necessary work related skills, qualities, behaviors and values that you have identified for the position? A. The Legal Interview 4 Selection procedures must provide equal opportunity for all qualified candidates and must not unfairly discriminate. The agency must: 1. Prove the interview is job related. 2. Demonstrate that the results of the interview accurately predict job performance. 3. Demonstrate that the interview is consistent among all candidates. 4. Demonstrate that the results do not adversely affect protected groups. Do Ask questions that assess the candidate s skills and past performance in tasks or duties that are related to the position. Monitor interview scores to insure that they only relate to job performance. Ask only job related questions. Ask the same questions to all candidates. Don't Ask questions to women or minorities that wouldn't be asked of men or a majority group. Ask questions which solicit information about religion/national origin. Ask broad based questions not related to the job. Set unnecessary conditions of employment. IF IN DOUBT, DON'T ASK 2015 The Society of CIC 17 Human Resources (Rev: 09/2015)

B. Resume and Application 1. Should only be used as a pre screening tool. 2. Review resume/application before interviewing the candidate. 3. Negatives in a resume: a. Lengthy description of education b. Frequent job changes c. Gaps in employment 4. Review the application for: a. Educational background b. Indicators of achievement c. Stability and career direction d. Time in each position e. Experience relevant to the agency position f. Specific duties of the present job 2015 The Society of CIC 18 Human Resources (Rev: 09/2015)

C. The Interview 1. Use the resume/application as the "First Cut." Look for "Must" skills. Let others review the resumes to find something that you missed. 2. Interview in a quiet location with no disturbances. 4 3. Determine the length of time the interview will last. 4. Be consistent in all interviews. 5. Follow your plan, listen and be objective. Don't get caught up and participate in the interview. 6. Use questions that generate information about the past. 7. Observe body language. 8. Avoid the common mistakes of interviewing: a. Expectation gap Is the difference between the reality of the position and what the candidate is told by the interviewer. b. Halo effect Tendency to attribute positive characteristics to people we feel present a positive or professional image. c. Interviewer does too much talking. d. Rating candidates against each other rather than the job description. 9. STAR Interview Questioning Technique Situation Task Activity Result 2015 The Society of CIC 19 Human Resources (Rev: 09/2015)

D. Reference Checking 1. The agency is responsible for using reasonable care in determining that a candidate is qualified for the position. a. MVRs Negligent hiring b. Credit Checks c. Criminal background check 2. Verification of references for those who have worked with the candidate. 3. Ask about past behaviors a. From a former supervisor b. From a former co worker The way you ask the question will determine the results. E. Testing the Candidate 1. Skills tests a. Automation skills b. Insurance knowledge 2. Personality profiles F. Selecting the Right Applicant 1. Which candidate best meets the job requirements? 2. Which of the candidates is the best agency fit? 2015 The Society of CIC 20 Human Resources (Rev: 09/2015)

Learning Objective 5: Explain why training of employees is important to the success of the agency. VI. TRAINING/PROFESSIONAL DEVELOPMENT A. Develop Employee Talent 4 1. Increases the productivity level of staff 2. Provides a better product to your client 3. Improves retention 4. Reduces Errors & Omission claims 5. Increases profitability B. Costs of Losing Trained Employees 1. Reduces productivity and profitability 2. Loss of trained employees will result in lost opportunity cost 3. Must train replacement employee 2015 The Society of CIC 21 Human Resources (Rev: 09/2015)

C. Training Emanates from two areas 1. Internal a. Advantages 1) No expense connected to travel 2) Individual can be trained your way 3) Wide array of training possibilities on the internet b. Disadvantages 1) Can be more expensive with two agency employees unable to perform productive work 2) No interaction with peers in a classroom setting 3) Work stacks up 4) Bad habits or work a rounds are perpetuated 2. External a. Advantages 1) Agency productivity is not impacted since a productive employee is not training 2) Classroom setting allows interaction with those in the class 3) Instructor may be better trainer than an employee in the office b. Disadvantages 1) There are additional costs associated with having to travel to a training site 2) Not everything taught in the class may be relevant to your training needs 2015 The Society of CIC 22 Human Resources (Rev: 09/2015)

D. Internet Courses (webinars) 1. Advantages a. Cost effective usually less expensive 4 b. No travel required c. Wide selection of topics d. Can be taken from any location with an internet connection 2. Disadvantages a. Less interaction with instructor b. No networking opportunities c. More distractions (second screen, telephone, etc.) 2015 The Society of CIC 23 Human Resources (Rev: 09/2015)

Learning Objective 6: State the components of and approaches to a performance evaluation. The Performance Evaluation Process REACH AGREEMENT ON PERFORMANCE EXPECTATIONS COMMUNICATE EVALUATION MEASURE PERFORMANCE EVALUATE PERFORMANCE 2015 The Society of CIC 24 Human Resources (Rev: 09/2015)

VII. PERFORMANCE EVALUATIONS A. The Process (a cycle) 1. Reach agreement on performance expectations 4 2. Measure performance 3. Evaluate performance 4. Communicate evaluation B. Components of the Evaluation 1. Communicates standards expected of any employee in the position 2. Outlines performance achievements completed during the review period 3. Identifies strengths and accomplishments 4. Identifies areas for development and training 2015 The Society of CIC 25 Human Resources (Rev: 09/2015)

5. Solicits Employee comments 6. Signature line for both the employee and supervisor Evaluations can and should be tailored to the job description. Try not to use "off the shelf" evaluation forms. C. Process of the Evaluation 1. Reviews should be looked upon as sharing information and perceptions as well as developing action plans for the future. 2. Consider having the employee review himself or herself using a self appraisal form prior to the performance evaluation meeting. 3. Involve employees in the development of a new performance evaluation system and forms to create buy in. 4. The evaluation should not be a surprise. It should conform to ongoing regular feedback provided by the manager / supervisor 2015 The Society of CIC 26 Human Resources (Rev: 09/2015)

PERFORMANCE EVALUATION AND DEVELOPMENT Person Reviewed: Dept.: Period Covered: Date: Reviewer: 4 Key Qualities: (5 = Exceeds Expectations, 4 = Above Expectations, 3 = Meets Expectations, 2 = Below Expectations, 1 = Fails to Meet Expectations) KNOWLEDGE 1 2 3 4 5 QUALITY 1 2 3 4 5 QUANTITY 1 2 3 4 5 INITIATIVE 1 2 3 4 5 COOPERATION 1 2 3 4 5 ATTITUDE 1 2 3 4 5 ATTENDANCE 1 2 3 4 5 LEADERSHIP 1 2 3 4 5 KEY ACCOMPLISHMENTS AND OBJECTIVES RESULTS RATING #1 1 2 3 4 5 #2 #3 #4 #5 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5 2015 The Society of CIC 27 Human Resources (Rev: 09/2015)

D. Approaches to the Evaluation 1. Be prepared 2. Know the result you want 3. Know the employee s current performance. Does he / she know what is expected? 4. What additional training, if any, does the employee need? 5. What strengths can be built upon? 6. Make sure your comments focus on the work and not the person. 7. Review performance in relation to the job description. 8. Avoid threatening language and stick to the facts. 9. Always listen and maintain privacy. 2015 The Society of CIC 28 Human Resources (Rev: 09/2015)

E. Utilization of Performance Standards National Average All Agencies (2014 Growth and Performance Standards) Commissions per person $ 113,201 Revenues per person $ 123,143 Average compensation per person $ 83,514 Spread $ 39,629 Commissions per CL CSR $ 264,533 Accounts per CL CSR 197 Average Commission per CL Account $ 1,340 Commissions per PL CSR $ 170,200 Accounts per PL CSR 734 Average Commission per PL Account $ 232 4 F. Performance Standards Resource Growth and Performance Standards (GPS) The National Alliance Research Academy (800) 633 2165 2015 The Society of CIC 29 Human Resources (Rev: 09/2015)

Learning Objective 7: Identify factors that impact compensation. VIII. COMPENSATION AND BENEFITS The primary purpose of compensation is to provide a link between attracting, retaining, and paying good agency employees and meeting the business needs of the agency. A. Salary Administration 1. Local Conditions If you are too far below local competitors in compensation, you won't be able to retain good employees. Too far above, you will needlessly reduce agency profit. Try to create or obtain an annual survey of compensation within the operating area of the agency. a. Availability of Workers b. Employee Benefits c. Working Conditions d. Job Security 2. Salary Ranges a. An important decision in developing compensation programs is where to target pay levels in relation to competing agencies. b. Sources of national averages include The Producer Profile and The CSR Profile. 2015 The Society of CIC 30 Human Resources (Rev: 09/2015)

c. Entry Level Salary at which employees start in a position. This may vary based upon an employee s previous experience. d. Mid Level The mid point for compensation of employees in that position. 4 e. Maximum Level The maximum salary an agency will pay to an employee in that position. f. Without a maximum salary you could end up paying much more for a position than it would cost you to replace the individual. 3. Individual Productivity and Compensation. a. Merit Increase based on performance during a period of time. b. Bonus received for achieving certain levels of performance. Can be: 1) Employee based 2) Department based 3) Agency based c. Incentive pay contingent upon reaching particular goals. Relationship to performance Make sure that the pay increase or bonus relates to performance. 2015 The Society of CIC 31 Human Resources (Rev: 09/2015)

B. Benefits Employees frequently forget or do not understand the value of the benefits the employer is providing. An annual benefits review that includes the dollar value of each item helps employees understand what their employer is really providing for them. 1. Medical 2. Dental 3. Life Insurance 4. Disability Short Term and Long Term 5. Pension Plan 401(k) 6. Vacation/PTO 7. FICA (Social Security & Medicare) 8. FUTA (Federal Unemployment) 9. SUTA (State Unemployment) 10. Stock options or ESOP An example of "The Hidden Paycheck" Not State Specific Annual Salary $40,000.00 FICA (.0765) 3,060.00 FUTA (.006 of first $7000) 42.00 SUTA (.054 of first $7000) 378.00 Medical (individual) 2,800.00 Dental 300.00 Life Insurance 100.00 401(k) 1,200.00 Total Cost $47,880.00 2015 The Society of CIC 32 Human Resources (Rev: 09/2015)

Learning Objective 8: Express the purpose of employment agreements including the difference between a non piracy and noncompete agreement. C. Employment Agreements (Contracts) 1. The agency should have an employment contract with every employee. 4 2. It should address what is expected of the employee and what happens if he/she leaves the agency. 3. Contracts should be discussed with legal counsel and balanced with working to maintain at will employments. This means both the employer and the employee can terminate the relationship at any time, for any reason, with or without cause. 4. Producer Employment Agreements must address: a. What is expected of the producer? b. How the producer will be compensated? c. Who owns the book of business? d. How for cause termination will be addressed? 5. Producer Non Compete Agreement Does not allow producer to sell insurance within a specific geographic territory for a specific length of time. May be difficult to enforce in many states. 6. Producer Non Piracy Agreement Prevents the producer from soliciting or writing the existing clients of the agency for a specific length of time after he/she leaves the agency. More enforceable than a non compete. You usually cannot force new employment agreements on existing employees without providing them adequate consideration. 2015 The Society of CIC 33 Human Resources (Rev: 09/2015)

Learning Objective 9: Explain the preparation and process required when terminating an employee. IX. TERMINATION The termination process should start well before the discharge takes place. A. Common Reasons for Termination 1. Unmet performance expectations 2. Inability to perform essential job functions even with reasonable accommodation 3. Personal Problems / Behavioral Problems 4. Reduction in force (RIF) or elimination of the position B. Preparation 1. Determine if termination is due to the employee, the system or both 2. Have appropriate documentation as to why the termination is taking place and what you have done to prevent it (personnel file supports the decision, including investigations, warnings, and witness statements). 3. Did discipline follow company policy? Were other employees treated similarly? Was progressive discipline followed? 4. Ensure employee complaints were fully investigated and termination was not in any way retaliatory. 5. Terminate when it is in the best interest of the organization. 2015 The Society of CIC 34 Human Resources (Rev: 09/2015)

6. Ensure there are no implied, written or oral contracts in place with the employee. 7. Have specific procedures for return of property, final pay and benefit continuation. 8. Be consistent. 4 C. The Process: How to Terminate an Employee 1. Review the situation with other owners, Human Resources, legal counsel, and/ or managers. 2. Make sure documentation clearly outlines the unacceptable performance or conduct and that fair warnings and a chance for improvement have been given. 3. Make sure you are not violating any laws. 4. Write a termination letter that states the specific reasons for termination. 5. Have a termination meeting. Choose the right time and place. Should be in private, towards the end of the day, and with Human Resources present or someone in a supervisory capacity. a. Get to the point. This is not a discussion. b. Be specific as to why the termination is taking place. c. Human Resources should discuss benefits (don t forget about COBRA) and how to handle reference calls. 2015 The Society of CIC 35 Human Resources (Rev: 09/2015)

d. Have someone stay with the person to clean out their desk and escort them off the property. e. Use a termination checklist to ensure final paycheck and expenses are taken care of, keys returned, all company property checked in, company documents and files inventoried. f. Immediately terminate passwords, all system and website access, including carrier websites. 6. Inform other staff members about the decision. D. Exit Interview 1. Have a form that can address resignation as well as termination. 2. Ask the following questions: a. Their reason for leaving. b. Their likes and dislikes about the agency. c. Their recommendations on how to improve or enhance the agency. d. Would they recommend the agency as a place to work to others? 3. Document the exit interview. 2015 The Society of CIC 36 Human Resources (Rev: 09/2015)

Learning Objective 10: Summarize the impact of mergers and acquisitions on the agency. X. ORGANIZATIONAL IMPACT FROM MERGERS AND ACQUISITIONS A. Impact on Client Service 4 B. Impact on Organizational Cultures C. Effect on Employment Contracts D. Impact on Staff Morale E. Need to Revisit Planning Process 2015 The Society of CIC 37 Human Resources (Rev: 09/2015)

Participants should be able to: REVIEW OF LEARNING OBJECTIVES 1. Identify the purpose and contents of an Employee Manual. 2. State the purpose and describe the components of a Job Description. 3. Describe several of the legal employment guidelines required of Agencies and Companies. 4. Describe how to properly conduct an interview. 5. Explain why training of employees is important to the success of the agency. 6. State the components of and approaches to a performance evaluation. 7. Identify factors that impact compensation. 8. Express the purpose of employment agreements including the difference between a non piracy and non compete agreement. 9. Explain the preparation and process required when terminating an employee. 10. Summarize the impact of mergers and acquisitions on the agency. 2015 The Society of CIC 38 Human Resources (Rev: 09/2015)

Reference Material Publications by The National Alliance Research Academy Managing Human Resources in an Insurance Agency 4 Growth & Performance Standards (Productivity Measures) The CSR Profile (Compensation) The Producer Profile (Compensation) Starting, Buying, Selling, and Perpetuating Insurance Agencies Career Paths Brochure: http://www.scic.com/careers/index.htm HR That Works SM www.hrthatworks.com Programs by The National Alliance for Insurance Education & Research James K. Ruble Agency Management Practices Seminar (HR Laws, Agency Compensation) Managing People II Seminar 2015 The Society of CIC 39 Human Resources (Rev: 09/2015)

EXHIBITS 1. Employment Application 2. New Employee Checklist 3. Corrective Action Form 4. Termination Checklist 5. Customer Service Representative Job Description 2015 The Society of CIC 40 Human Resources (Rev: 09/2015)

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&&&fne$notebooks$20150925scam$20150925scam_section5fn&&& **StartTab+1** **CardStock** The Society of Certified Insurance Counselors a proud member of The National Alliance for Insurance Education & Research 5 SECTION 5 Agency Productivity and Effectiveness Stephen C. Anderson, CIC Anderson Network Franklin, TN www.thenationalalliance.com 2015. The National Alliance for Insurance Education & Research. All Rights Reserved. This outline or any part thereof may not be reproduced in any form or by any means or stored in any information retrieval system without the express written consent of the author. This publication includes copyrighted material of Insurance Services Office, Inc., with its permission.

AGENCY PRODUCTIVITY AND EFFECTIVENESS 5 DISCLAIMER This outline is intended as a general guideline and may not apply in each situation. For any matters of legal and/or tax issues one should consult with competent counsel or advisor for the matter in question and in the jurisdiction in question. The Society of CIC and any organization for which this seminar is conducted shall have neither liability nor responsibility to any person or entity with respect to any loss or damage alleged to be caused directly or indirectly as a result of the information contained in this outline. Insurance policy forms, clauses, rules, court decisions, and laws change constantly. Policy forms and underwriting rules vary from company to company. The use of this outline, or its contents, is prohibited without the express permission of The National Alliance or the Society of Certified Insurance Counselors. 2015 The Society of CIC 1 Agency Productivity and Effectiveness (Rev: 09/2015)

AGENCY PRODUCTIVITY AND EFFECTIVENESS LEARNING OBJECTIVES After this session, participants will be able to: 1. Identify the five benefits of an effective and productive agency. 2. Demonstrate a thorough understanding of staff stratification by explaining the definition, thought process and resulting benefits. 3. Describe Standards, Procedures and Workflows and the benefits when they are effectively implemented within the organization. 4. Identify and describe the four phases of agency technology utilization including characteristics of each phase and how to move from one phase to the next. 5. Describe the importance of protecting electronic information within the agency database and state how this is achieved. 6. Identify and describe key company/agency technological workflows and their benefits and challenges. 7. Explain how technology creates new business opportunity and supports customer service and retention. 2015 The Society of CIC 2 Agency Productivity and Effectiveness (Rev: 09/2015)

I. INTRODUCTION THINK OUTSIDE THE BOX WHAT S OUT THERE NOW AND HOW DOES IT INCREASE YOUR AGENCY S PRODUCTIVITY AND EFFECTIVENESS? A. Technology Increases Productivity 5 Technology allows the same number of people to process more transactions, which enables the revenue per person to increase at a greater pace than the compensation per person. B. Improves Response to Customer Needs Real time processing, 24/7 access, and standardized agency procedures enable staff to handle customer requests and transactions just once, and to provide immediate solutions to customer needs. Result: more time for consultative customer service C. Increases Employee Satisfaction Staff stress is reduced thereby making the work environment more pleasant and productive. It s also been shown that turnover and sick days are reduced when employees enjoy their work environment. 2015 The Society of CIC 3 Agency Productivity and Effectiveness (Rev: 09/2015)

Learning Objective 1: Identify the five benefits of an effective and productive agency. D. Benefits of an Effective and Productive Agency 1. Increased revenue as a result of improved retention 2. Reduction in redundancies as a result of consistent procedures, thereby saving time, money and increasing effectiveness and productivity 3. Reduced expenses as a result of maximizing utilization of resources technology and human 4. Refocused energy by agency staff on client needs, rather than process or transactional needs 5. Positioned for the future by addressing the scalability in purchasing, hiring, standards, procedural and workflow decisions 2015 The Society of CIC 4 Agency Productivity and Effectiveness (Rev: 09/2015)

II. STAFF STRATIFICATION Learning Objective 2: Demonstrate a thorough understanding of staff stratification by explaining the definition, thought process and resulting benefits. A. Definition 5 Whenever possible, transfer work to the lowest cost level (lowest paid employee or service) capable of handling the work in a satisfactory manner B. Thought Process 1. Routine tasks (auto ID cards, certificates, etc.) should be delegated to those with the least experience 2. The most complex tasks and critical accounts should be handled by those with the most experience C. Resulting Benefits As your employees gain experience at more routine tasks, challenge them by increasing the complexity of the task. Promote from within, otherwise you may be helping to train your competitors. 2015 The Society of CIC 5 Agency Productivity and Effectiveness (Rev: 09/2015)

D. How it supports Productivity and Effectiveness Position yourself to take advantage of technology 1. Situational Analysis a. SWOT b. Know where you are now c. Know where you want to go d. Understand your customers wants and desires 2. Review your Mission Statement 3. Develop your strategic and tactical plan and goals for operations a. Balance technological resources with human resources to capitalize of the strengths of each b. Prepare and do your homework! Network, build teams within your organization, and bring in talents of other professionals as needed c. Beware of long term commitments. The cutting edge technology of today will be different tomorrow. That s a fact! d. Strategically, make sure most all your purchase, hiring and procedural changes are easily scalable 2015 The Society of CIC 6 Agency Productivity and Effectiveness (Rev: 09/2015)

4. Implement your plan a. Change should be the norm, not the exception b. Don t delay moving with the technology wave when appropriate; it s easier to change in increments than it is to jump into the deep end all at once 5 c. Communicate plans clearly to all members of the organization d. Pick a start date and stick with it! 5. Monitor and adjust your plan as needed a. Assess! Assess! Assess! b. Measure! Measure! Measure! c. Train! Train! Train! d. Adjust as needed and communicate to staff 2015 The Society of CIC 7 Agency Productivity and Effectiveness (Rev: 09/2015)

III. CREATING STANDARDS, PROCEDURES AND WORKFLOWS Learning Objective 3: Describe Standards, Procedures and Workflows and the benefits when they are effectively implemented within the organization. It s all in the touches (the number of key strokes) A. What is the difference between Standards, Procedures and Workflows? 1. A Standard is the stated, acceptable level of performance in each aspect of an agency s operations. Examples: a. Commercial Renewal Standard All Commercial Lines accounts will be submitted to the appropriate markets 120 days in advance of their renewal date. b. Personal Lines Endorsement Standard All requests for personal lines policy changes will be processed the same day received. c. Commercial Lines Certificate of Insurance Standard All requests for a certificate of insurance will be processed and sent within 8 hours of receiving request. 2015 The Society of CIC 8 Agency Productivity and Effectiveness (Rev: 09/2015)

2. A Procedure clearly defines the items the agency needs to accomplish to achieve the stated standard. Each item in the procedure identifies who is responsible, specifically what needs to be done and a timeframe for when it should be completed. 5 Commercial Renewal Procedure Examples (how the standards will be achieved) Description When Who 1) Monthly Renewal Meeting 2) Spreadsheets updated with instructions 3) Renewal packet sent out 4) Loss runs and experience modifier requested on marketed accounts 5) Applications updated for marketing department 120 days in advance During above meeting Producers, marketing and service staff Team member 120 days in advance Commercial associate 120 days in advance 90 days in advance Marketing associate when loss runs are received, send a copy to the claims department so that they can update the database Account managers email to marketing manager when apps are done 2015 The Society of CIC 9 Agency Productivity and Effectiveness (Rev: 09/2015)

3. A Workflow details the specific keystrokes and the steps staff needs to perform to complete the items identified in the procedure. Examples: Commercial Renewal Workflows (what the specific steps are to achieve the standard) 1) When RENA, RENB or RENN activity appears or if renewal packet is returned by the client: a) If RENA activity appears as a follow up and the client has not returned their renewal packet, close the activity as unsuccessful no response and renew per expiring. Create future applications, then go to #10. b) If RENB activity appears as a follow up and the client has not returned their renewal packet close the activity as unsuccessful no response. Call the insured and request that they returned the renewal packet. c) If RENN activity appears as a follow up and the client has not returned their renewal packet, close the activity as unsuccessful no response. Propose per expiring audit information. d) If the renewal packet is returned by the client, then close the RENA, RENB or RENN activity as successful and go to #2. If this is a non babysat direct Bill policies then go to #22. 2015 The Society of CIC 10 Agency Productivity and Effectiveness (Rev: 09/2015)

B. Benefits of developing and implementing effective Standards, Procedures and Workflows 1. Optimizes staff s use of time. Remember, key strokes equate to money! 5 2. Provides a benchmark for measuring compliance, productivity and effectiveness 3. Promotes consistency thereby reducing mistakes and E & O exposures 4. Identifies need for change, training and opportunities in both the technological resource and human resource areas 2015 The Society of CIC 11 Agency Productivity and Effectiveness (Rev: 09/2015)

C. Insuring Standards, Procedures and Workflows are Effectively Implemented 1. Key areas that should be evaluated for Effectiveness are: a. Carrier/Agency Workflows Accuracy and effectiveness of downloads, rating systems, proprietary carrier systems Example: Monitor and observe the download procedure and the rating procedure as it is actually in use by staff members. Review error reports received from carriers. b. Standards, Procedures, and Workflows Verify staff compliance Examples: 10% of customer files should be audited in one way or another each year. Pull files and check each data field against the actual policy, endorsements, etc. 1) Does data entered as part of the client detail meet the minimal level of detail required by the agency? Scanning policies and other documents do not take the place of entering data into client detail fields. 2) Review the classification and quality of documentation/activity logs. Beware of the overuse of the Miscellaneous code, and consider that all narrative documentation is legally discoverable. 2015 The Society of CIC 12 Agency Productivity and Effectiveness (Rev: 09/2015)

c. Effectiveness and compatibility of technology and procedures Examples: Identify the effective and productive usage of support tools and technology for each employee through an assessment of critical agency functions, such as: 1) Expiration lists and documented status/activity 2) Current status of suspense/follow up systems 3) Current status of voice mail responses 4) Current status of e mail/fax responses 5) Status of electronic document attachments/storage (watch out for folders on desktop (paper and/or electronic desktop ) which can, if not addressed, turn into a box for filing) 6) Internet/e mail use in compliance with agency procedures that have been communicated in writing to the employee 7) Proper labeling of suspense/activities 8) Proper labeling of documents 5 d. Reports that show your numbers Examples: Reports can be generated by department, person, or agency showing actual numbers that tell a story, such as: 1) Policy status report Renewals/non renewals/rewrites 2) Outstanding renewals/cancellation reports 3) Policies without Transactions report Identifies active policies for which the agency did not collect premium and/or commission 4) Transaction log To measure the number and quality of transactions per employee (don t be fooled by the numbers alone) 5) Outstanding pending/follow up reports Failure to remain current causes activities to fall through the cracks 2015 The Society of CIC 13 Agency Productivity and Effectiveness (Rev: 09/2015)

e. Intermittent Fire Drill Example: In a positive way, randomly meet with employees individually and ask them to pull up various tools to review (content and number of folders on desktop, outstanding e mails, faxes, voice mails, paper on desk, etc.). Check for back log and circumvention of Standards, Procedures and Workflows. f. Legal & Ethical Compliance Example: Follow the paper trail and make sure that binders, certificates and other documents match the coverages provided by the policy and request any necessary policy changes. g. Effectiveness of Workflows and the opportunity to initiate Automated Workflows and defaults Example: Observe several employees work through various workflows to identify the number of key strokes (touches) per procedure. Look for redundancies, need for templates, or defaulted client detail fields. Then meet with staff to discuss solutions. It is also beneficial for the person doing the assessment to work through each workflow personally to get a better understanding of the flow of the work and time it takes to complete. 2015 The Society of CIC 14 Agency Productivity and Effectiveness (Rev: 09/2015)

2. Benefits and Goals of conducting Operational Assessments a. To ensure consistency and adherence to agency Standards, Procedures, and Workflows Results used as a basis for performance reviews of staff b. To assess usage of agency technology to make sure staff is performing well and is using tools to their full capabilities 5 Results used to identify glitches or inconsistencies to enable the agency to take corrective action immediately c. To identify opportunities to enhance the usage of existing systems or to expand functionalities Results provide a basis for adding functions, increasing capacity, identifying when to move to the next phase, or replace/update current hardware/software d. To measure productivity levels of staff/technology functions Results identify training needs, redundant procedures and opportunities to set defaults in the system to reduce key strokes e. To compare agency productivity levels to peer agency groups Results indicate whether your agency maintains a competitive edge as it is compared to standards reported by peer group agency studies (GPS Growth & Performance Standards) 2015 The Society of CIC 15 Agency Productivity and Effectiveness (Rev: 09/2015)

3. Assessments generally uncover training opportunities. Some examples of training solutions are: a. Automation vendor provided training b. Agency cross training with a designated trainer c. User group training/meetings d. Outside training consultant e. Software training (online, outside classes school/ college, training software, software store resources) f. Carrier/Industry related technology training to increase productivity levels 1) Carrier training staff and carrier sponsored programs 2) Industry tools how to use training a) Reference Connect (Old Silver Plume Program) b) IRMI (Insurance Risk Management Institute) c) National and state insurance associations d) Agency management system User Groups 3) Industry Publications 2015 The Society of CIC 16 Agency Productivity and Effectiveness (Rev: 09/2015)

4. Other Assessment Considerations a. Written assessment policy and procedures Assessment procedures should be specifically described in the Employee Manual and signed off by each employee. Assessment must be performed in accordance with fair employment acts 5 b. Timing c. Consistent application of assessment procedures among all employees Consistent audits must be performed among entire staff based on performance requirements of the given job description d. Identification of reliable and effective people to perform the assessments e. Assessments should be seen as a way to improve the agency not a way to uncover incompetent personnel f. Assessment results should be communicated to the staff using general terms; include solutions, or request staff recommendations 2015 The Society of CIC 17 Agency Productivity and Effectiveness (Rev: 09/2015)

g. Specific problems with individuals should be confidentially discussed with the individual do not lump everyone together in an effort to resolve an individual s need for training or performance improvement h. Carefully document findings i. Assessments precede changes make sure to follow through with solutions j. Most importantly, don t hesitate to reward and praise when an audit identifies the fine work the staff is doing! 2015 The Society of CIC 18 Agency Productivity and Effectiveness (Rev: 09/2015)

IV. PHASES OF AGENCY TECHNOLOGY UTILIZATION Learning Objective 4: Identify and describe the four phases of agency technology utilization including characteristics of each phase and how to move from one phase to the next. A. The Four Phases of Technology are: 5 1. Beginning Technology Phase 2. Process Focused Phase 3. Service Focused Phase 4. Client Focused Phase 2015 The Society of CIC 19 Agency Productivity and Effectiveness (Rev: 09/2015)

B. Beginning Technology Phase In this Beginning Technology phase, the agency has minimal, if any, reliance on technology. Often they rely on the automation provided by their carriers. In this phase, the agency uses basic automation capability to replace some of the manually transacted activities in the agency. Some characteristics: 1. Computers are used but not a traditional agency management system 2. Some type of accounting software program is used 3. Basic Database Program replaces manual expiration tracking (Excel, ACT) 4. Electronic Files are an afterthought; agency continues reliance on a paper filing system 5. Any additional automated functions simply replicate existing manual procedures, but may not enhance or replace 2015 The Society of CIC 20 Agency Productivity and Effectiveness (Rev: 09/2015)

C. Process Focused Phase At this phase, agencies start to position themselves to allow technology to enhance agency operations which allows staff to multitask more efficiently. Some characteristics: 1. Purchase an agency management system and begin commitment to entering accurate client information into that system 5 2. The agency starts to use automated procedures and workflows Examples: a. Suspense Systems b. Binder Procedures and Submission Tracking c. Certificate Issuance and Renewals 3. Begin to eliminate duplicate documentation. Electronic files start to become the primary source of information. 4. E filing is introduced, replacing paper filing. Translating paper filing techniques into an electronic equivalent. 5. Comparative rating programs are used when available and/or company proprietary web sites are in use 6. E mail functionality is in full use at this phase 2015 The Society of CIC 21 Agency Productivity and Effectiveness (Rev: 09/2015)

D. Service Focused Phase At this phase, immediate electronic access to information is essential. The agency begins to rely more heavily on automated functions thereby freeing up the staff to more effectively service the customers. Some characteristics: 1. The management system becomes the primary source for all data and documentation. Reliance on paper is substantially reduced. 2. Agency standards, procedures and workflows are programmed into agency systems and implemented automatically. Examples: a. Pre fills (limits, endorsements, questionnaire yes/no answers, etc.) b. Templates for e mail, letter and proposal language c. Automatic/automated responses are sent to customers after a reported claim or endorsement request 3. Sales, service and processing roles become more defined. Each role is recognized for its contribution to the overall agency s ability to obtain and maintain customers. As a result, Quality Control Divisions may emerge, staffed with licensed processors responsible for accurate input and to double check sales/service activities (missing coverages, signed documents, etc.). 4. Document management procedures are firmly in place to capture paper and electronic documents that are then stored as part of the client record. 2015 The Society of CIC 22 Agency Productivity and Effectiveness (Rev: 09/2015)

5. Cloud based tools are commonplace a. Proprietary carrier rating/underwriting programs through on line Agent Portals b. On line third party resources and reference material routinely accessed 5 c. Outlook or other program utilized for more than just e mail d. Company/Agency Interface implemented. Note: effective Company/Agency Interface increases processing productivity by more than 30% 1) Upload/download 2) Real time functions 6. Non accounting and accounting reports are integrated to provide management with a tool that more clearly identifies the agency big picture. 7. Fax to E mail and desktop faxing is firmly utilized. 8. The agency has a functioning website that is updated regularly. 2015 The Society of CIC 23 Agency Productivity and Effectiveness (Rev: 09/2015)

E. Client Focused Phase This phase can only truly be achieved after the effective implementation of the first three phases. Appropriate new technology is embraced as a means to getting back to the business of being an insurance consultant. The streamlining of each process is much like managing a financial budget. Every saved processing minute is a minute that can be spent on customer focused needs. Some characteristics: 1. Databases contain much more usable information on each client than is required for normal processing functions 2. Full document management system is in place with proper back up, scalability, ease of access and ease of use 3. Electronic filing, data, procedures and documentation become the only acceptable practice in the agency 4. Agency has fully functional website Examples: a. Online Client Access allowing clients to access their own policy information online; issue Auto ID Cards and Certificates of Insurance and make electronic payments. b. Clients can view their documents contained in the agency system. c. Website is optimized for search engines (SEO) so prospects can find the agency using online search. 2015 The Society of CIC 24 Agency Productivity and Effectiveness (Rev: 09/2015)

5. Virtual Offices, telecommuting and various off site opportunities are integrated with agency operations thereby opening up a host of staffing & contract employment opportunities This may be a permanent solution to a staffing issue, a temporary solution for an existing employee who would have otherwise been out due to a disability or a perk for existing employees who would prefer working from home. 5 6. Agency 24/7 Service is available using call centers and internet access 7. Service Automation Capabilities Exist Automatically trigger system actions to the client (or others) based on changes in policy information For example, the renewal process is automatically triggered by the agency management system 90 days prior to the expiration date on the policy. Agency staff is able to spend their time providing proactive service and relationship building activities with individual clients. 8. Producers and staff become pro active insurance consultants, rather than reactive service representatives 9. Communication systems replace traditional telephone systems. Voice over Internet Protocol (VoIP) allows increased flexibility for staff and clients. Additional communication options include instant messaging and text messaging. 10. Mobile access to information is available to agency staff as well as clients 2015 The Society of CIC 25 Agency Productivity and Effectiveness (Rev: 09/2015)

11. Unified Messaging enables the user to view all messages, e mail, voice mail, text and faxes from one location (generally the Outlook inbox). This also makes it simpler to transfer messages to someone else in the event of an absence or a termination and/or appropriately document the conversation. It is easy for managers to monitor communication activity. 12. Security codes and login codes can be simplified by using single sign on functionality and/or biometric logins keyboards and programming all the various login codes for each individual (examples: company login codes) 13. Intranet A website designed for employees that organizes and allows sharing of information Examples: a. Procedure and personnel manuals b. Vacation schedules c. Company underwriting guidelines d. Classification tables and territory protection class pages e. Replaces most everything that presently is a sticky note or a piece of paper found on the employee s computer or desk 2015 The Society of CIC 26 Agency Productivity and Effectiveness (Rev: 09/2015)

F. How To Move Effectively To The Next Phase 1. Identify the phase in which you are currently operating 2. Using the characteristics as a checklist, identify those areas that require updating or completing 3. Recognize that moving from one phase to another in increments is a better solution than to try to move directly to the Client Focused Phase (the last phase). Remember to balance change with human and financial resources. 5 4. Set realistic time frames, knowing that change is difficult for most people and if anything can go wrong, it will 5. Make a list of all the functions and system features you are presently using, enjoying and implementing productively 6. Make a list of the functions and features you do not use and should be using, and identify the reason why (lack of training, time constraints, equipment, people, etc.). Then take action to correct the situation. 7. Make a list of the functions and features that are being used improperly, and again identify the reasons why and create an action plan to correct the situation 8. Make a list of functionalities and system features that you choose not to use at this time and why. Communicate this analysis to the staff. 2015 The Society of CIC 27 Agency Productivity and Effectiveness (Rev: 09/2015)

Learning Objective 5: Describe the importance of protecting electronic information within the agency database and state how this is achieved. V. DEVELOPING AND PRESERVING AN AGENCY S INFORMATION {Complete Database} + {Document Management} = {Information Management} A. Database Development Tips FYI Goal: To rely entirely on the electronic file for all information and transaction processing Reality check: The G I G O theory Garbage In/Garbage Out 1. Track why & how many times hard copy documents are needed 2. Scanning does not take the place of populating database fields 3. Refrain from jury rigging fields to use for other purposes. This is a big problem when you convert to another system, when you update a system or pull reports. 4. The development of Full Client Detail is the one area that must be given the time, training and other resources to be completed properly. Without data integrity, other functions are unreliable. 5. Dropping essential e mails into an Outlook folder is the equivalent of having backlogged paper filing to process. Proper procedures and consistent naming conventions are vital. 6. As time goes on, our business partners (companies and clients) will have access to parts of our database. Therefore the database must be up to date and accurate. 2015 The Society of CIC 28 Agency Productivity and Effectiveness (Rev: 09/2015)

B. The Five Layers of Client Detail 1. Client Information Names, addresses, contacts, phone, e mail, producer, CSR, etc. 2. Basic Policy Information Policy type, number, status (new, renewal, cancelled, not renewed, etc.), company, effective dates, premiums 5 3. Coverage Information Type of coverage, limits, deductibles, co insurance, level of coverage (examples: basic, broad, special), endorsements, risk specific exclusions, etc. 4. Full Policy Schedules Statement of Values, Contractor s Equipment Schedules, Vehicle Schedules, Jewelry Schedules and the like 5. Complete Policy Underwriting Information Coverages/limit recommendations, reductions & rejections, drivers and their driving records, construction, appraisals, evaluation worksheets, business income worksheets, property update information, association requirements (condos, etc.), flood elevation information, claims information, submission information, NAICS and SIC codes, classification codes, employee lists, ISO specific rate worksheet and engineering reports, etc. 2015 The Society of CIC 29 Agency Productivity and Effectiveness (Rev: 09/2015)

C. Electronic Document Management Term used for the management of documents in online, electronic formats. These systems often include an optical scanner that converts paper documents into electronic form, a database system to organize documents, and a search tool to locate documents. 1. Questions you should ask yourself: a. Legally, what needs to be kept, in what format and for how long? b. Where and how do documents and information reach or leave your office? c. How are documents and information labeled? d. How are documents and information stored and for how long? e. How are documents and information accessed? f. How are documents and information backed up? 2015 The Society of CIC 30 Agency Productivity and Effectiveness (Rev: 09/2015)

2. Types of documents and other information that may require capturing, attaching and storing electronically: a. E mails Client s plus others 1) Which emails do you store? 2) Where do you store them? 5 b. Carrier generated documents, such as: policies and endorsements may reach the agency in PDF form via e mail or on a CD or DVD or by going to the carrier website or policy portal to capture the document 1) E mails with attachments (important distinction) 2) E mail with multiple attachments for multiple clients 3) E mail and link somewhere (must link, open, then bring over) c. Faxes Electronic or paper d. Regular paper mail Scanned paper documents e. Photos f. Other (voicemail audio file, instant messaging transcript, text messages) g. Reports 2015 The Society of CIC 31 Agency Productivity and Effectiveness (Rev: 09/2015)

3. Electronic Document Management Workflow Methods: Early Capture Desktop Capture Late Capture Agencies often use a combination of the following three methods a. Early Capture 1) A procedure that ensures that all incoming documents get captured at the point it reaches the agency 2) Documents then get transferred electronically to storage, attachment to a client file, and/or communicated electronically to a staff member to handle Example: Incoming Mail and paper faxes are scanned by the person receiving them. This procedure allows for electronic distribution of work. Paper does not get passed on to CSR, Producer or Processor s desk. 2015 The Society of CIC 32 Agency Productivity and Effectiveness (Rev: 09/2015)

b. Desktop Capture 1) A procedure whereby the person processing the documentation also captures the documentation at the time the work is actually processed 2) Most electronic documents are captured at this point 5 Example: CSR receives documentation from any number of sources, handles what needs to be done, then either scans, attaches and/or stores the electronic documentation as it is handled. c. Late Capture 1) A procedure whereby the electronic attachment or storage of documents is delegated to an individual(s) or vendor at a point after processing is complete and all that is needed is to file the document or store electronically and shred 2) Requires a cover page, which may include a bar code 3) Scanned after processing work is completed Example: Paper documents can be stored electronically at the end of each day by an individual who simply scans and attaches/stores via high speed scanners is just one example of how this workflow is implemented. 2015 The Society of CIC 33 Agency Productivity and Effectiveness (Rev: 09/2015)

4. Miscellaneous Database Management Considerations a. Accessibility of data b. Legal compliance c. Decision to maintain all documents on a separate server why and how d. Number of touches to either attach, store, retrieve or access e. Differences between attaching and storing f. Back up g. Guidelines regarding file structure and naming conventions, procedures, auditing h. Catastrophe planning 2015 The Society of CIC 34 Agency Productivity and Effectiveness (Rev: 09/2015)

5. Multiple Monitors at one Desk a. Essential for effective document management b. Productivity improvement of between 20% and 50% 5 c. Orientation of monitors (portrait or landscape) Example: Ability to review a downloaded policy and application at the same time (or other similar checking procedure) without printing out paper. Also, the ability to be in a customer database and to pull up a company proprietary system at the same time and discuss ALL information at once. 2015 The Society of CIC 35 Agency Productivity and Effectiveness (Rev: 09/2015)

D. Compliance and Cyber Liability Exposures 1. Why be concerned about client information security? a. Insurance requires private information b. Agency reputation c. Legal problems d. Regulatory problems 2. Types of data breaches: a. Employee malpractices b. Employee negligence c. Theft of equipment d. External attacks 2015 The Society of CIC 36 Agency Productivity and Effectiveness (Rev: 09/2015)

3. What is personally identifiable information? Every state defines Personally Identifiable Information (PII) in a slightly different way. You should take the time to make sure you understand the requirements in your state. The following is a brief list of what might constitute private information. a. First name and last name 5 b. First name initial and last name c. Social security number d. Birth date e. Credit card information f. Home address g. Health records h. Passwords i. Veteran and disability status j. Student information 2015 The Society of CIC 37 Agency Productivity and Effectiveness (Rev: 09/2015)

4. Steps to protect client data a. Take Stock what personal information does your agency maintain? 1) Personal information 2) Financial information 3) Asset information 4) Health information b. Scale down keep only what you actually need 1) Don t acquire unless needed 2) Minimize instances 3) Purge as soon as possible 2015 The Society of CIC 38 Agency Productivity and Effectiveness (Rev: 09/2015)

c. Lock it Protect the information 1) Physical 2) Internal access 3) External access 5 4) Password management User passwords should remain confidential and not shared, posted or otherwise divulged in any manner. However, the system administrators may share power on passwords of the PCs, as same PCs are shared among them in different shifts. Create a password policy effective for all systems within the organization. A best practice password criteria includes a minimum number of 8 characters, a combination of alphanumeric characters along with special symbols and different from the user s name or user ID. The system administrators should provide users with an initial password and configure the system to force the users to change the passwords immediately after the first logon. Passwords should expire after a maximum period of specified calendar days (e.g. 30 days). The same password should not be repeated within a cycle of password changes (e.g. every 5 changes). Users should be provided with the capability to change their password anytime within their maximum period of specified calendar days. User password resets should be performed by the System Administrator when requested by the user, after verification of identity. Appropriate procedures should be put in place for storing and management of administrative passwords for critical information systems. Passwords should be kept in a sealed envelope and must be stored and managed securely. 2015 The Society of CIC 39 Agency Productivity and Effectiveness (Rev: 09/2015)

d. Encryption 1) Information during transmission 2) Emails 3) Stored information 4) Mobile devices e. Pitch Properly dispose 2015 The Society of CIC 40 Agency Productivity and Effectiveness (Rev: 09/2015)

5. Next Steps a. Conduct Information Security Assessment b. Education and Training of Staff 5 2015 The Society of CIC 41 Agency Productivity and Effectiveness (Rev: 09/2015)

VI. AGENCY/COMPANY TECHNOLOGY RELATIONSHIP Learning Objective 6: Identify and describe key company/agency technological workflows and their benefits and challenges. A. Company Interface 1. Uploading information directly from the agency to the company system via internet (IVANS or Direct Carrier Connection) or dedicated line Agency staff inputs current data or request for changes, etc. into their agency management system and then sends that information (uploads) electronically to the company system. Benefits: a. Expedites processing time and the turn around time on routine requests b. Improves data quality and minimizes human entry error at the company level c. Saves keystrokes by allowing information to be entered once d. Reduces E&O exposure by reducing the possibility of data entry errors Challenges: a. A relatively few number of insurance carriers support this process b. Different workflows needed by the agency to work with carriers that do not support upload 2015 The Society of CIC 42 Agency Productivity and Effectiveness (Rev: 09/2015)

2. Downloading is the process of transferring information electronically from an insurance company database to an agency management system. An initial load is the one time loading of a new or existing agency management system with data from a specific company. Up to date billing information, policy detail and claims information are entered into the agency database when the agency processes the company download each day. 5 Benefits: a. Can reduce agency processing work by over 30% b. Workflow starts in the agency management or comparative rating system c. Reduces E&O exposure by reducing the possibility of data entry errors d. A larger number of carriers provide support for personal lines download Challenges: a. Getting the download to work correctly with each carrier; failure to do so can result in overwritten data, etc. b. Failure to audit downloads each day may result in undiscovered errors or glitches, thus compromising the integrity of the agency s database c. Different workflows needed by the agency to work with carriers that do not support upload d. Not as much support for commercial lines download 2015 The Society of CIC 43 Agency Productivity and Effectiveness (Rev: 09/2015)

B. Rating Systems 1. Comparative Rating Systems A third party (vendor) rating program that enables the agency to obtain an accurate quote for a risk with several carriers. To work properly, it must be supported by the carrier and updates must be initiated, implemented and checked by the carrier and the vendor (and spot checked by the agency). Benefits: a. Allows the agency to efficiently obtain multiple company quotes for a prospect with one application b. Reduces the amount of keystrokes needed to obtain a premium quote Challenges: a. Depending on the vendor, may not provide underwriting review or necessary reports b. Primarily available for personal lines policies c. A more limited number of carriers participate with these vendors to provide access to their rating engines d. Additional cost to the agency e. Additional training needed for staff to become comfortable with a new system 2015 The Society of CIC 44 Agency Productivity and Effectiveness (Rev: 09/2015)

2. Company Proprietary Rating Systems Proprietary rating systems that are part of the carrier agency portal through use of a login and password. Benefits: a. Often includes underwriting approval/declination capabilities 5 b. Rating should be up to date and accurate c. In event of a technological glitch, the company will generally stand by their quote Challenges: a. Agency staff must manually enter risk data into the carrier system to obtain a quote (and still it may not be an acceptable risk after entering all the data) b. If the agency wants quotes from several carriers, each carrier s proprietary system must be accessed and the data re entered c. Producers and CSR s alike sometimes circumvent the agency s management system and go straight to the carrier s site. This compromises the integrity of the agency s documentation, and it prohibits agencies from obtaining true sales pipeline results. 2015 The Society of CIC 45 Agency Productivity and Effectiveness (Rev: 09/2015)

C. Real Time Transactions Bridging the gap sometimes we just need an interpreter! In simple terms, each carrier system and each agency system speaks its own language. Several agency management systems allow for the use of products which interpret and transfer data from the agency management system to the carrier system, thus allowing the agency to enter client detail on their own system and then upload to the carrier s proprietary system with just a couple of keystrokes. 1. Transactions currently available a. Billing Inquiry b. Policy Inquiry c. Claim Inquiry d. Endorsement processing e. Rating f. Activity Notifications 2015 The Society of CIC 46 Agency Productivity and Effectiveness (Rev: 09/2015)

2. Here is a partial list of some of the products currently available a. Transformation Station (Applied Systems/IVANS) b. Transact NOW (Vertafore) 5 c. Web Link (SIS) d. Nexsure eservices 2015 The Society of CIC 47 Agency Productivity and Effectiveness (Rev: 09/2015)

VII. MARKETING AND CUSTOMER SERVICE THROUGH THE USE OF TECHNOLOGY Learning Objective 7: Explain how technology creates new business opportunity and supports customer service and retention. A. Creating a Selling System with Online Strategies 1. Consumer Online Behavior a. Consumers increasingly go online to search out options b. Use agency websites for communication and information source 2. Different Faces of Internet Marketing a. Social Platforms 1) Facebook 2) LinkedIn 3) Google+ 4) YouTube 5) Twitter 2015 The Society of CIC 48 Agency Productivity and Effectiveness (Rev: 09/2015)

6) Social Platform Tools a) HootSuite, Buffer, and others b) Can go to one place to make posts to multiple places instead of having to go to each site to make the post 5 b. Website 1) Site should be responsive to all types of devices 2) Ability to complete contact information for quotes or service 3) Informative article and other information to keep website fresh 4) Search Engine Optimization key words within the website that drives search engines like Google, Yahoo and Bing c. Other 2015 The Society of CIC 49 Agency Productivity and Effectiveness (Rev: 09/2015)

B. Using Your Insurance Agency Website 1. Self Service a. What can be made available to clients? 1) Claim reporting 2) Make Payments 3) Certificates of Insurance 4) Quote Requests 5) View policy documents b. Link to company for client contact 2. Communication 3. Mobile App Mobile Friendly 4. Marketing Websites (Landing Pages) Specific niche focus websites that provide information for a particular type of business 2015 The Society of CIC 50 Agency Productivity and Effectiveness (Rev: 09/2015)

C. How to Find and Use Good Qualified Prospects 1. It takes a balanced approach 2. Traditional Networking and Marketing vs. Social Media Marketing 5 3. A combination works best 2015 The Society of CIC 51 Agency Productivity and Effectiveness (Rev: 09/2015)

VIII. DISCUSSION The purpose of this discussion time is to allow you to apply the information that has been presented. The discussion will give you an opportunity to hear how other organizations are using various technology tools to become more productive and effective. It will also allow you to ask questions to more fully understand how your organization can gain the same effectiveness. You will not be tested on this discussion portion of the presentation. All exam questions related to this institute subject will come from the outline portion of the material covered in the prior three hours. Notes 2015 The Society of CIC 52 Agency Productivity and Effectiveness (Rev: 09/2015)

Notes 5 2015 The Society of CIC 53 Agency Productivity and Effectiveness (Rev: 09/2015)

Notes 2015 The Society of CIC 54 Agency Productivity and Effectiveness (Rev: 09/2015)

REVIEW OF LEARNING OBJECTIVES After this session, participants will be able to: 1. Identify the five benefits of an effective and productive agency. 5 2. Demonstrate a thorough understanding of staff stratification by explaining the definition, thought process and resulting benefits. 3. Describe Standards, Procedures and Workflows and the benefits when they are effectively implemented within the organization. 4. Identify and describe the four phases of agency technology utilization including characteristics of each phase and how to move from one phase to the next. 5. Describe the importance of protecting electronic information within the agency database and state how this is achieved. 6. Identify and describe key company/agency technological workflows and their benefits and challenges. 7. Explain how technology creates new business opportunity and supports customer service and retention. 2015 The Society of CIC 55 Agency Productivity and Effectiveness (Rev: 09/2015)

&&&fne$notebooks$20150925scam$20150925scam_section6fn&&& **StartTab+1** **CardStock** The Society of Certified Insurance Counselors a proud member of The National Alliance for Insurance Education & Research SECTION 6 6 Legal and Ethical Responsibilities Jerry E. Rhinehart, CIC, CLU, ChFC, RHU Rhinehart & Associates Lynn Haven, FL www.thenationalalliance.com 2015. The National Alliance for Insurance Education & Research. All Rights Reserved. This outline or any part thereof may not be reproduced in any form or by any means or stored in any information retrieval system without the express written consent of the author. This publication includes copyrighted material of Insurance Services Office, Inc., with its permission.

LEGAL AND ETHICAL RESPONSIBILITIES 6 DISCLAIMER This outline is intended as a general guideline and may not apply in each situation. For any matters of legal and/or tax issues one should consult with competent counsel or advisor for the matter in question and in the jurisdiction in question. The Society of CIC and any organization for which this seminar is conducted shall have neither liability nor responsibility to any person or entity with respect to any loss or damage alleged to be caused directly or indirectly as a result of the information contained in this outline. Insurance policy forms, clauses, rules, court decisions, and laws change constantly. Policy forms and underwriting rules vary from company to company. The use of this outline, or its contents, is prohibited without the express permission of The National Alliance or the Society of Certified Insurance Counselors. 2015 The Society of CIC 1 Legal and Ethical Responsibilities (Rev: 09/2015)

LEGAL AND ETHICAL RESPONSIBILITIES LEARNING OBJECTIVES After this session, participants will be able to: 1. Differentiate between an ethical responsibility and a legal responsibility. 2. Identify the developing and existing legal duties of insurance agents. 3. Describe the types of agency authority and determine which type of authority applies. 4. Explain the common causes of loss that can create agent liability. 5. Identify when an Errors and Omissions claim is likely to occur. 6. Describe the five steps of the Risk Management Process as it relates to Agency Management. 7. Describe how to apply Risk Management techniques within an insurance agency. 8. Explain the steps an agency should take to properly provide a defense to an Errors and Omissions claim. 2015 The Society of CIC 2 Legal and Ethical Responsibilities (Rev: 09/2015)

I. INTRODUCTION A. Agent's Liability Is Constantly Changing By Society's Perspective of Responsibility, Court Interpretations and Complexity of Policy Terms B. Extent of Liability Usually Depends on Facts of Specific Cases Two Cases with Similar Facts May Result in Different Decisions Due to even Slight Differences in Facts or Laws of Jurisdictions 6 C. Legal Relationship with Clients Changes Depending on the Service Performed D. Agent's Liability and Responsibility Varies With Authority Liability Increases with Increased Authority E. Social, Ethical, and Legal Responsibilities of Agents are Closely Linked Because Legal Responsibilities Are Based on Social and Ethical Standards 2015 The Society of CIC 3 Legal and Ethical Responsibilities (Rev: 09/2015)

II. PROFESSIONAL RESPONSIBILITY Learning Objective 1: Differentiate between an ethical responsibility and a legal responsibility. A. Ethical Responsibility 1. What is Ethics? 2. Examples 3. Why be ethical? a. Social responsibility b. Avoidance of public criticism c. Avoidance of government regulation d. You can enhance your credibility with clients and companies 4. How do you know what is ethical? a. The Golden Rule b. The TV Test "Don't do anything which you would feel uncomfortable explaining on television." Arjay Miller, Dean of Graduate School of Business, Stanford University c. Professional Codes 2015 The Society of CIC 4 Legal and Ethical Responsibilities (Rev: 09/2015)

B. Legal Responsibility 1. Ethical and professional responsibilities are the basis for laws creating legal responsibility 2. Legal duties are based on: 6 a. Peer standards Writings and expert testimony b. Oral or written agreements c. Case law and statutes 2015 The Society of CIC 5 Legal and Ethical Responsibilities (Rev: 09/2015)

3. Increasing recognition of agents as professionals and broader duties under certain circumstances a. Agent licensing assumption that agent has required knowledge to perform the activities to provide the complex product of insurance to the public b. The beginning of expanded duty: Hardt v. Brink, 192 Fed Sup. 879, (W.D. Wash. 1961) and 16A Appelman, Insurance Law & Practice, Sec. 8836, at 64 67 (1981) Generally, an insurance agent assumes only those duties normally found in an agency relationship. The duty to act in good faith and to use reasonable care, diligence, and judgment in procuring the insurance requested by the insured. An agent may assume and be liable for additional duties created by an express agreement or a "holding out." Hardt, 192 F.Supp. at 881. Yet the normal agency relationship imposes no affirmative duty on the part of the agent to advise the insured on specific matters. An expanded duty to advise the insured exists when the agent/ broker and insured establish a special relationship. (Hardt) Many courts around the country have since adopted the special relationship test. This test requires a case by case, fact specific inquiry into the particular relationship between the parties. c. McAlvain v. General Insurance Company, 554 P.2d 955 (Idaho 1976) "A person in the business of selling insurance holds himself out to the public as being experienced and knowledgeable in this complicated and specialized field. In the interest of the state, the competent persons who become insurance agents are demonstrated by the requirement that they be licensed by the state, pass an examination and meet certain qualifications. When an insurance agent performs his services negligently to the insured's injury, the agent should be held liable for the negligence just as an attorney, architect, physician or any other professional who negligently performs personal services." 2015 The Society of CIC 6 Legal and Ethical Responsibilities (Rev: 09/2015)

4. Creating a Special Relationship a. Long term relationship of confidence or reliance on agent to make coverage recommendations and/or decisions b. Asked by the insured or agrees to provide advice c. Compensation based on a Fee 6 It is the nature of the relationship, and not merely the number of years Associated therewith, that triggers the duty to advise. Some of the factors relevant to developing entrustment between the insured and the insurer include: exercising broad discretion to service the insured s needs; counseling the insured concerning specialized insurance coverage; holding oneself out as a highlyskilled insurance expert, coupled with the insured s reliance upon the expertise; and receiving compensation, above the customary premium paid, for expert advice provided. Sadler v. The Loomis Company, 776 A.2d. 25 (2001) Maryland Court of Special Appeals. d. Special Relationship to Fiduciary Duty Fitzpatrick v. Hayes (1997) 57 Cal.App.4th 916, 927 Affirmative Duty to Advise Benchmark 1) Agent misrepresents nature, extent or scope of coverage offered or provided 2) Specific request or inquiry by the insured for a particular type/extent of coverage 3) Agent assumes duty by express agreement 4) Agent acting (holding self out) as an expert in a given field of insurance sought by the insured 2015 The Society of CIC 7 Legal and Ethical Responsibilities (Rev: 09/2015)

e. McLammy v. Cole 243 P.3d 932 (Wash. Ct. App. 2010) 1) Agent holds self out as an insurance specialist and receives additional compensation for consulting and advice, or 2) There is a long standing relationship, some type of interaction on the question of coverage, and the insured relied on the agent's expertise to the insured's detriment." Agent Duty Is A Moving Target Jurisdiction to Jurisdiction Many jurisdictions require that the insured allege facts in the complaint to satisfy the imposition of a special relationship. Parker v. State Farm Mutual Auto Ins. Co. 630 N.E.2d 567, 569 70 (Ind. Ct. App. 1994) and Evelyn E. Sadler v. The Loomis Company, Court of Special Appeals of Maryland, No. 1356, Sept. Term, 2000 (July 5, 2001) However, New Jersey, Idaho, and Illinois are jurisdictions holding an insurance broker to be a professional that is held to the same standard of care as attorneys and physicians. These jurisdictions find that the insurance broker acts as a fiduciary of his or her client and owes the client a heightened duty of care. See Rider v. Lynch 42 N.J. 465 (1964); McAlvain v. General Insurance Company 97 Idaho 777 (1976); Kanter v. Deitelbaum 271 Ill. App. 3d 750 (Ill. Ct. App. 1995). 2015 The Society of CIC 8 Legal and Ethical Responsibilities (Rev: 09/2015)

5. Why the increase in E & O claims? a. Availability of legal services b. The "Deep Pocket" concept c. The "Spread the Risk" consideration E & O insurance 6 d. Attorney s use of insurance consultants and expert witnesses e. Changing legal standards f. Media impact g. Increased specialization of services and markets h. Growing complexity and diversity in policies and forms 2015 The Society of CIC 9 Legal and Ethical Responsibilities (Rev: 09/2015)

Learning Objective 2: Identify the developing and existing legal duties of insurance agents. C. Developing and Existing Legal Duties of an Insurance Agent by Jurisdiction 1. The duty to procure insurance using reasonable diligence in attempting to place those coverages asked for by the client and to inform the client if not able to do so. 2. The duty to notify the client of policy expiration when the agent receives information pertaining to the expiration date that is intended for the client 3. The duty to renew a policy or notify the client of non renewal a. Direct Bill vs. Agency Bill b. Reason other than non payment of premium 4. The duty to investigate the solvency of an insurance company a. Initial placement b. Ongoing duty 2015 The Society of CIC 10 Legal and Ethical Responsibilities (Rev: 09/2015)

III. AGENCY A. Definition of a Legal Agent A Party Authorized to Act on Behalf of Another (can be a person or entity) B. Parties Involved 1. Principal 2. Agent 3. Third party 6 C. Types of Agents 1. Insurance Agent any person appointed by an insurer to solicit applications, to collect premiums and to bind or effectuate policies so authorized 2. Broker any individual who acts or aids in negotiating insurance contracts, in placing risks or in soliciting or effecting contracts as an agent of an insured and not as an agent of an insurance company 3. Solicitor an individual appointed by an agent or broker to assist him in soliciting applications and collecting premiums 4. Insurance Counselor or Insurance Consultant any person who for a fee engages in the business of offering advice, counsel, opinions or service on insurable risk or concerning benefits, coverages or provisions under any insurance policy or involving advantages of any insurance policy or formal plan of managing pure risk. 5. Managing General Agent 6. Surplus Lines 2015 The Society of CIC 11 Legal and Ethical Responsibilities (Rev: 09/2015)

Learning Objective 3: Describe the types of agency authority and determine which type of authority applies. D. The Authority of Agencies (Agent) 1. Actual or express authority Authority plainly granted, either orally or in writing, to an agent by an insurance company (the principal). Written authority is granted in an agency agreement that usually allows the agent to countersign, issue and deliver policies and binders, cancel policies, collect policy premiums, and provide all customary services of an insurance agent regarding all policies accepted by the insurer from the agent. 1 2. Implied authority Authority given by an insurance company to an agent that is not actually expressed or otherwise communicated. This allows the agent to perform all the usual and necessary tasks to sell and service an insurance policy and to exercise the agent's expressed authority. 1 For example, if an agent s contract does not give the express authority of collecting and submitting premiums, but the agent does so regularly and the company accepts the premiums, then the agent is said to have implied authority. That is, it is a general business practice to collect premiums, and by accepting the premium from the agent, the company has implied that the agent has the authority to conduct this practice. 3. Apparent authority the authority that a person dealing with the agent reasonably supposes the agent to have. 1 For example, an agent s contract usually does not grant the authority to reinstate a lapsed policy by accepting past due premiums. If, in the past, the company has allowed the agent to accept late premiums for that purpose, a court would probably hold that the policyholder had the right to assume that the agent s acceptance of premium was within the scope of his authority. 4. Non existent authority there is no authority 1 Rupp's Insurance & Risk Management Glossary. 2002, NILS Publishing. 2015 The Society of CIC 12 Legal and Ethical Responsibilities (Rev: 09/2015)

E. Liability Under Each Type of Authority 1. Actual or expressed the principal is liable 2. Implied the principal is liable 3. Apparent the principal is liable and will subrogate against the agent 6 4. Non existent the agent is liable 2015 The Society of CIC 13 Legal and Ethical Responsibilities (Rev: 09/2015)

Learning Objective 4: Explain the common causes of loss that can create agent liability. IV. COMMON CAUSES OF LOSS A. Claims Against the Agency (Agent) by Insureds 1. Failure to procure coverage 2. Failure to maintain or renew coverage 3. Failure to advise of cancellation or non renewal of coverage 4. Lack of coverage or modified coverage 5. Failure to place on best terms available 6. Misleading client misrepresentations 7. Placing with an insolvent insurer or unauthorized insurer 8. Failure to service policy 9. Modifications of established service to clients 2015 The Society of CIC 14 Legal and Ethical Responsibilities (Rev: 09/2015)

B. Claims Against the Agent by Insurer (Insurance Company) 1. Failure to follow legal and appropriate instructions 2. Failure to supply information failure to disclose material underwriting information 3. Misrepresenting the risk to the carrier 6 4. Failure to properly process a claim or providing unauthorized instructions to the insured about a claim C. Liability of Agent to the State 1. Licensing requirements 2. Rebating 3. Use of trust account 4. Unfair claims practices 5. Prohibition against "twisting" and replacement codes 6. Satisfy federal laws relating to employment 7. Deceptive trade practices 2015 The Society of CIC 15 Legal and Ethical Responsibilities (Rev: 09/2015)

V. FACTORS AFFECTING THE AGENT S LIABILITY A. Agent s Knowledge of the Insured B. Insured s Requests and Price Considerations C. Agent s Advertisements, Specialization, and Expertise D. Market Conditions E. Sophistication or Lack Thereof of the Insured F. Complexity of the Insurance Sold G. Insured s Coverage and Purchasing History H. Agent s Handling of Similar or Prior Accounts 2015 The Society of CIC 16 Legal and Ethical Responsibilities (Rev: 09/2015)

Learning Objective 5: Identify when an Errors and Omissions claim is likely to occur. VI. WHEN CLAIMS ARE LIKELY TO OCCUR A. When Companies and Agencies are Being Bought and Sold B. After Loss of Key Employee Anything New= Greater Exposure 6 C. Brokering through Unknown MGA s and Use of Other Forms of Risk Transfer D. Serving New Clients E. Selling New Products, Policies, or Forms F. Following Changes in the Business Methods and Technologies G. Post Disaster 2015 The Society of CIC 17 Legal and Ethical Responsibilities (Rev: 09/2015)

Learning Objective 6: Describe the five steps of the Risk Management Process as it relates to Agency Management. VII. AGENCY RISK MANAGEMENT OVERVIEW A. Step 1 Risk Identification B. Step 2 Risk Analysis 1. Qualitative What? 2. Quantitative How much? C. Step 3 Risk Control 1. Avoidance 2. Prevention 3. Reduction 4. Segregation/Separation/Duplication 2015 The Society of CIC 18 Legal and Ethical Responsibilities (Rev: 09/2015)

D. Step 4 Risk Finance 1. Risk Retention a. Establishment of specific fund b. Deductible Errors and Omissions insurance 2. Risk Transfer (Contractual) 6 a. Company/agency agreements b. Buy, sell, or merger contracts c. Franchise or brokerage agreements 3. Insurance E. Step 5 Risk Administration 1. Implementation of techniques 2. Monitor Results 2015 The Society of CIC 19 Legal and Ethical Responsibilities (Rev: 09/2015)

Learning Objective 7: Describe how to apply Risk Management techniques within an insurance agency. VIII. RISK MANAGEMENT WITHIN AN INSURANCE AGENCY A. Clients 1. Select client to represent 2. Agree on services to provide 3. Document services and coverages not desired 4. Keep promises of services within agency capabilities 5. Notify regularly of important changes B. Product Knowledge 1. Know your products 2. Stay within your insurance expertise or enlist help 3. Try to eliminate coverage decisions 2015 The Society of CIC 20 Legal and Ethical Responsibilities (Rev: 09/2015)

C. Documentation 1. Document all telephone conversations Identify party by name (Was it an authorized party?) 2. Keep notes on conversations including coverage questions and options 3. Confirm instructions in writing 6 4. Maintain and keep current all client records 5. Keep agency records for at least the statutory requirements and/or carrier contractual requirements consider using 7 to 10 years for E&O defense D. Agency Management 1. Issue binders promptly and correctly 2. Process orders and all claims promptly and correctly 3. Examine policies to be sure they conform to the terms requested and premium quoted insurance 4. Use cover letters confirming what policies have been provided and advising the insured to review for correct information and to contact the agency with any changes necessary or about any questions regarding the policies. 5. Follow all legal company instructions 2015 The Society of CIC 21 Legal and Ethical Responsibilities (Rev: 09/2015)

E. Standardize Office Procedures 1. Automation 2. Other a. Develop policy and procedures manual TRAIN and AUDIT b. Use standardized or pre printed forms when possible c. Use checklists F. Equipment 1. Facsimile devices a. After hours b. Linked directly to computers 2. Voice mail/answering machines a. Include a statement that it cannot be used to bind coverage b. Check messages frequently 2015 The Society of CIC 22 Legal and Ethical Responsibilities (Rev: 09/2015)

G. Claims Handling 1. Report on line or direct call when possible 2. Use ACORD forms when possible 3. Notify company at once No option! 6 4. Don't offer an opinion on coverage 5. Follow up until the claim is settled H. Personnel 1. Hire qualified individuals 2. Educate agency personnel 3. Provide specific E & O education 4. Utilize advanced education professional designations 2015 The Society of CIC 23 Legal and Ethical Responsibilities (Rev: 09/2015)

Learning Objective 8: Explain the steps an agency should take to properly provide a defense to an Errors and Omissions claim. IX. AGENCY DEFENSE ACTIVITIES A. Assign One Person to Act as Claims Coordinator B. Hold Staff Meetings Including All Involved Agency Personnel 1. Discuss situation in general 2. Have each person briefly describe their involvement C. Coordinator Gathers All Pertinent Information into a Master File and Secure File D. Prepare to be a Good Witness 2015 The Society of CIC 24 Legal and Ethical Responsibilities (Rev: 09/2015)

X. ERRORS AND OMISSIONS CLAIM EXAMPLES Current trends in errors and omission claims Too Many Claims An agent received two small homeowners claims over the policy period, and reported both to the insurance company. The insurance company did not renew the policy because of excessive claims. As a result, the insured had to pay much higher premiums and deductibles to obtain insurance. The agent was sued by the insured for failure to advise the insured that reporting several small claims could cause an insurance company to cancel or non renew the policy. The problem: The contract with the insurance company requires the agent to report claims to the company. If the agent did not report the claims, he would be in violation of the contract. What should the agent have done in this situation? 6 Not Authorized To Give a Conditional Receipt An agent sold a life insurance policy to a high profile individual, and after completing the application form, tore the conditional receipt from the end of the application and gave it to the individual. The individual was involved in a fatal accident within a few days. The beneficiary of the individual asked for payment under the life insurance policy. The insurance company refused payment claiming the agent was not authorized to give the conditional receipt. The family of the individual sues the agent for three times the original policy limits. The problem: the agent at the time of sale believed he was authorized to give the conditional receipt. What should the agent have done in this situation? 2015 The Society of CIC 25 Legal and Ethical Responsibilities (Rev: 09/2015)

Marital Problems and Insurance Cancellation A married couple had automobiles insured under a policy where both were named insured s. The couple began to have marital difficulties and separated, and did not notify the agent. The husband obtained a girl friend and a new Corvette. The husband notifies the agency of the Corvette, and the agency changes the policy to reflect coverage on the Corvette. Several days later, the wife calls the agency and cancels the policy. The husband has an accident badly damaging the Corvette and the girl friend. He sues the agency for canceling coverage without notifying him. The problem: The agency responded to a request for cancellation given by a named insured. What should the agent have done in this situation? Businesspeople Do Not Need To Read Their Policies An agent insured the owner of a business who had quit school at an early age because he had reading difficulties. The agent had the insured for several years during which the insured was very successful and grew his business. The insured acquired a new building, and the insured met with the agent to discuss insurance arrangements including but not limited to mortgage arrangements, parts inventory and value of inventory. The agent arranged and delivered a policy that clearly stated in the declarations that it provided specific amounts of insurance on the building and on personal property of others. The insured later testified that he put the policy in a desk drawer without having looked at it. The building and its contents were destroyed in a fire about one year later, the building was substantially underinsured and most of the contents were not covered by the policy. The insured sued the agent for failure to provide adequate insurance coverage. The problem: Should the agency always expect the insured to read the policy, and bring deficiencies to the agent s attention? What should the agent have done in this situation? 2015 The Society of CIC 26 Legal and Ethical Responsibilities (Rev: 09/2015)

REVIEW OF LEARNING OBJECTIVES Participants should be able to: 1. Differentiate between an ethical responsibility and a legal responsibility. 2. Identify the developing and existing legal duties of insurance agents. 6 3. Describe the types of agency authority and determine which type of authority applies. 4. Explain the common causes of loss that can create agent liability. 5. Identify when an Errors and Omissions claim is likely to occur. 6. Describe five steps of the Risk Management Process as it relates to Agency Management. 7. Describe how to apply Risk Management techniques within an insurance agency. 8. Explain the steps an agency should take to properly provide a defense to an Errors and Omissions claim. 2015 The Society of CIC 27 Legal and Ethical Responsibilities (Rev: 09/2015)

Thank You For Attending Our Program! For more information and assistance, contact us at: The National Alliance for Insurance Education & Research P.O. Box 27027 Austin, Texas 78755-2027 800-633-2165 www.thenationalalliance.com Alliance@scic.com www.thenationalalliance.com 2015. The National Alliance for Insurance Education & Research 2572-1214 xxiii