September 2010
Volume 15, Number 5

The Academy Publishes Fourth Edition of
Producer Profile: Compensation, Production, and Responsibilities

AUSTIN, TX, September 13, 2010 -- The National Alliance Research Academy has published its newly revised 4th edition of Producer Profile: Compensation, Production, and Responsibilities. The 2010-2011 edition is written specifically for those who want to compare their agency producer compensation plans to others annual compensation, commission rates, benefits, and covered expenses. Owners can learn about the study's average account size, new business production, growth rates, and hit ratios. Through the use of the companion CD, sample producer contracts and job descriptions can be used for constructing new agreements or fine tuning existing ones.

The study is an impressive book at 274 pages, and just a few of the findings indicate the breadth and depth of the inquiry:

• 46% of producers gained sales experience in other industries before working as producers
• The most difficult part of being a new producer was cold calling prospects
• Average commission rates are 36% for new business and 30% for renewals
• The average annual sales production is $322,000 in total commission
• On average, 36% of a producer's annual production is new business
• The average producer spends 41% of their time on sales

The Producer Profile is also an important tool for producers to compare themselves to their peer group. Producers can see how much others are compensated, what commission rates are paid, the amount of sales achieved, the time actually spent on sales, difficulties experienced, and opportunities for professional development.

The commentary from the expert panel is full of helpful tips and suggestions for hiring, training, and managing producers. Producer Profile: Compensation, Production, and Responsibilities combines 274 pages of precise current data with practical tools for its use. Price: $75.

The Academy is a non-profit organization funded entirely through publication sales and affiliation dues, and serves as the research and development arm of The National Alliance for Insurance Education & Research. Research grants are made possible through the annual dues of National Alliance members and The Academy's Research Associates. For further information, contact The National Alliance, P.O. Box 27027, Austin, Texas 78755-2027; 800-633-2165; website: www.TheNationalAlliance.com

Rebellion with a Cause?

In the almost twenty years I've been consulting, writing, and speaking to insurance agency owners and managers, the only topic that has consistently caused ire is when I discuss holding producers accountable and/or creating a set of standards by which all producers will abide. This topic has resulted in hate letters, angry emails, and an earful of yelling. I have been told I have caused irreparable harm for suggesting producers be held accountable. I have been told my articles and comments have caused rebellions, though not armed rebellions, by CSRs. I never dreamed of having such powers of persuasion.

But let's imagine for a comical moment that I have such power to cause an agencies' staff to openly rebel just because they read an article I wrote. It is safe to say they would not rebel unless they were already unhappy. Why would they be unhappy? I can think of several reasons:

1. They do the work and the producer gets the credit and the pay.

2. The producers have no standards so the CSRs have to fill the gaps to get the job done.

3. Some producers meet the standards but others don't, without repercussion. (Perhaps this sounds better because at least some producers are following rules, but it's not. It causes undue confusion and stress over who's responsible for what. The CSRs are under constant stress because they never know whether they'll be held responsible for someone else's mistakes simply because they do not know when it is and when it isn't their responsibility to take care of an issue.)

How does an agency stop a rebellion? A good place to start is with fair compensation. I am often asked about how much an agency should pay its staff. How much is far less important than how fair. And fair is not always paying people the same if the job is not the same.

If a CSR does all the work on a renewal but the producer gets paid for it, where is the fairness? Moreover, where is the common sense? Why pay someone for doing nothing? The issue is not who does more. The issue is who gets paid for doing the work. It does not matter how much of the renewal the producer does versus the CSR. Whatever mix works best for a particular agency is the right answer for that agency. Good management though dictates that the pay follow the workload.

From a production perspective, how does paying a producer full price for less work motivate them to produce more business? How does allowing producers to ignore procedures help the agency? Certainly they have far more time, but is it resulting in more growth? Most of the time it doesn't.

How beneficial is it to create an environment in which highly paid people are allowed to be slackers? How motivating is it to work in that environment? How does it generate growth? How does it utilize scarce resources wisely? Of course, by not addressing the issue, peace with those producers is maintained, but peace has a price. I've been in lots of peaceful agencies that are going nowhere fast, incurring significant E&O exposures, and seeing staff churn.

When CSRs get upset about producers not being held accountable, it pays to listen. They almost always have a point. However, they are often not articulating the issue correctly. The problem is the producers are not being managed effectively and that is damaging the agency's profit, growth, and value. Sure, the producers are peaceful. But is it worth the price at the expense of more profits, more growth, and higher agency values?

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Should Agents Send Certificates to Insurers?
By Bill Wilson

An insurer recently sent its agency force a "Good News!" bulletin advising that it was no longer necessary to send it copies of most certificates of insurance. The bulletin also pointed out that it was the responsibility of the agent to notify the certificate holder of cancellation. What should agencies do when told by a carrier not to send copies of certificates? This question was recently raised (for the nth time) by one of our member agencies:

Question:
"One of our companies doesn't want us to send them copies of the certificate of liability insurance. My question is two part:

"1) The certificate of liability form states the 'issuing INSURER will endeavor' to notify the certificate holder of cancellation...how can the agency be held responsible for notification for what is stated clearly the carrier's responsibility?

"2) If the company doesn't want a copy of the certificate, why should the agency start notifying certificate holders?

"Should agencies assume the responsibility of what is the carrier's duty? Does the agency have a legal exposure? If yes, then how do you suggest agencies respond?"

Answer:
I taught my first E&O class close to 20 years ago. The issue of cancellation notice was addressed then and probably had been for years. In general, E&O carriers recommend that agents not provide notice of cancellation to insureds, mortgagees, loss payees, certificate holders, or anyone else. Cancellation is the dissolution of a contract. The parties to the contract are the insured and insurer, not the agent. Ancillary parties either have a contractual right of notice under the policy (e.g., mortgagees and some loss payees) or they don't (most certificate holders, even if additional insureds). Only a party to a contract can cancel it and that party is the one charged with the responsibility of notice.

I recently participated in a teleconference on this and related issues. An E&O carrier representative and attorney participating in the call advised, regardless of the carrier's directive, that certificates should be copied to the insurer. You're right...the certificate says that the insurer, not the agent, will endeavor to provide notice of cancellation. Without a copy of the certificate, that would be impossible and issuance of the certificate would appear to be a sham. In a court hearing, how would it look if the plaintiff's attorney accuses the carrier and agency of fraud or misrepresentation for making a claim they clearly had no intention of complying with? (Note: For the ethics of this practice, check out "Certificates of Insurance: Will You 'Endeavor To' Be Ethical.")

In general, since the parties to the contract are insurer and insured, agencies should NOT be sending out cancellations to anyone. If it's absolutely necessary, then EVERYONE should be getting such notices. Agencies should insist on hold harmless agreements with carriers who do not intend to comply with certificate provisions that they will endeavor to provide notice of cancellation.

We have an article called "Certificates and Court Cases" that outlines a number of situations where agents have been found liable for activities involving certificates of insurance. One such case was brought to my attention recently. In Marlin v. Wetzel County Board of Education, 569 S.E.2d 462 (West Virginia Ct. App., 2002), "[t]he insurance company asserted that it never received the certificate of insurance or any other document suggesting the insurance policies needed to be amended" to make the Board an additional insured. According to the court, "[The insurer] does not dispute that its agent issued a certificate of insurance listing the Board as an additional insured. Instead, [the insurer] argues that it had no knowledge of the certificate's existence, and therefore could not modify the actual policy to include coverage for the Board."

In addition, most recently (June 2009) in Erie Insurance Group v. National Grange Mutual Ins. Co., the New York Supreme Court found the insurer not responsible in part because it never received a certificate of insurance:

A portion of the insurance policy issued by NGM to McClary stated, "Each of the following is added as an Additional Insured . . . [a]ny general contractor, subcontractor or owner for whom you are required to add as an additional insured on this policy under a written construction contract or agreement where a certificate of insurance showing that person or organization as an additional insured has been issued and received by [NGM] prior to the time of loss." [emphasis added]

One possible reading of the provision is that the construction contract or agreement to list someone as an additional insured must be in writing, and a certificate of insurance listing that person or organization must be issued and received by NGM prior to the loss-inducing incident. The provision could also be read as containing two alternate ways of including a person or organization as an additional insured: if a written construction contract so requires, regardless of whether NGM is ever notified; or if any agreement -- oral or written -- so requires and a certificate of insurance listing that person or organization is received by NGM prior to the loss-inducing incident.

Regardless of which interpretation is used, the policy's contractual requirements have not been satisfied so as to include Pine Ridge as an additional insured. The record does not contain a written contract or agreement between McClary and Pine Ridge. Nor did anyone introduce a certificate of insurance listing Pine Ridge as an additional insured, let alone proof that such a certificate was sent to or received by NGM. In fact, NGM's employee affirmed that no such certificate was ever received. [emphasis added]

Under the first reading of the policy provision above, plaintiffs cannot prevail because the agreement between Pine Ridge and McClary was not in writing and no pertinent certificate of insurance was issued or received by NGM. Under the second reading, the first alternative is not met due to the lack of a written contract or agreement and the second alternative is not met due to the lack of the required certificate of insurance. [emphasis added]

Ideally, agents should continue to provide copies of certificates to insurers and insurers should "endeavor to" provide notice of cancellation to certificate holders. The alternative is for insurers to provide agents with an ironclad hold harmless agreement that will defend and indemnify agents for claims or suits involving certificates issued on behalf of parties insured by such carriers.

For additional questions and answers about certificates, check out the articles, "Following Up on Certificates of Insurance" and "Certificates of Insurance Q&A."

"Thank you" to Bill Wilson for this great article. Bill is the Associate VP of Education & Research for the Independent Insurance Agent & Broker of America and Director if the Big "I" Virtual University.

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Agency Security Plans: Look before you Leap

Recently, many agencies have received or have been shown free Agency Security Plans from a variety of sources. Some of these plans are better than others, but NONE ARE SUFFICIENT! In fact, all the plans I have reviewed create as many problems as they solve. As is usually the case, free plans are worth what you pay. These plans may offer a place to start, but they should not be adopted without serious thought and consideration.

If you decide to use these as a place to start, make sure of the following:

1. Make certain the plan does not override other contracts. One particular free plan states that all information on an agency's system is owned by the agency. This is an excessively broad statement that is categorically wrong in almost all cases. Do not implement a plan (which is basically a contract in this case) that tries to override many of your agency's key producer, carrier, and broker contracts. You can't claim ownership to data, which in this case often also constitutes valuable assets, just so you have a security policy.

2. These plans usually require agencies to have many other processes and procedures in place such a human resources manual and written procedures. If you have a security policy stating you have these other process and procedures, you better have those other processes and procedures.

3. These plans usually require agencies to adopt some strict security procedures that few agencies follow. Don't adopt a security plan, especially one that everyone signs, that you don't intend to follow. And remember, many of these plans will require most agencies to expend extra for software, hardware, and probably even new office furniture/filing cabinets. This is not to say that agencies should not purchase these items, they probably should. But don't adopt the security plan if you're not going to follow through. You'll just make the situation worse.

4. Many of these plans ignore record retention which is a particularly thorny problem, but important. Do not ignore this facet and do not forget that "records" mean electronic and paper records. The law generally does not distinguish between paper and electronic records relative to record retention rules.

5. Last, these laws have teeth and the reasons for the laws make sense. Compliance can be onerous, without a doubt. I strongly recommend creating and then completely adopting a security plan, but your best option is to hire a true security expert to help you create a plan and the systems simultaneously and don't simply adopt free, boilerplated plans regardless of the source.

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The new ACORD certificates of insurance forms require significant new knowledge. I urge everyone to take this class:

From the Big "I" Virtual University:
New Certificates of Insurance Webinar Coming October 27

The New ACORD Certificates of Insurance and Marketplace Pushback WEBINAR

Wednesday, October 27, 2010
1:30 - 3:30 p.m. Eastern Time

It's now been almost a full year since the September 2009 ACORD 24 and 25 certificate of insurance forms were revised to, among many other changes, remove cancellation notice language from the forms. In December 2009, this language was removed from all other ACORD certificate evidence forms, including the ACORD 20, 21, 22, 23, 27, and 28. These forms continue to evolve...for example, you may not be aware that there is a NEW May 2010 edition of the ACORD 25 with further revisions in the works.

ACORD's forms licensing agreement stipulates that once a new form has been published for one year, the prior edition can no longer be used. In addition, in an increasing number of states where ACORD forms are filed with insurance regulators, this requirement goes beyond a contractual agreement to become law. We are now at this one-year threshold and agents are reporting increasing pushback in the marketplace.

The purpose of this webinar is to address this pushback, providing practical information and tools that agents can use to respond to pressure from certificate requestors to issue inaccurate or illegal certificates, and to address a number of related issues that continue to plague agents and that can (and do) result in SIGNIFICANT E&O exposures.

This program differs from others on the same general subject in that, while there is a structured content outline, we will be using a Q&A panel format that addresses YOUR specific questions. Questions may be submitted before or during the webinar. We are assembling a panel of some of the top experts in the country on the issues we plan to cover. Q&A includes:

• Are any certificate requestors accepting the newest versions of the ACORD forms?
• If our agency management system lets us issue prior editions of certificates, can we do that if a certificate requestor insists?
• What should we do if a certificate requestor wants us to manually add the old cancellation wording in the Description of Operations field?
• Will third parties start using their own proprietary certificate forms and, if so, should be issue them?
• Are insurers providing cancellation notice in additional insured or separate endorsements?
• How should we respond to demands to put contract language like "primary and noncontributory" on a certificate?
• How should we respond to demands to complete "compliance checklists" or "agent affidavits" regarding coverage?
• Can copies of policies and endorsements be given to certificate holders?
• How do state laws and regulations govern what we can and can't do with regard to certificates and related documents?
• Now that there is no cancellation notice on ACORD forms, do we still need to copy insurers?
• Are there any caveats to consider about online certificate issuance systems?
• What are the E&O and legal/regulatory/contractual implications of all of these issues?
• The December 2010 ACORD 27 and 28 Evidences of Insurance forms must be used by the end of the year...do you expect lender pushback?

If you would like to submit your own question(s) for the webinar, send an email with your question(s) to bill.wilson@iiaba.net with the subject line "Certificate Webinar Questions." Following the webinar, we will issue a comprehensive document to participants with over 100 certificate Q&As.

For additional information and to register for the webinar:

http://tinyurl.com/23fa55e

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NOTE:  The information provided in this newsletter is intended for educational and informational purposes only and it represents only the views of the authors.  It is not a recommendation that a particular course of action be followed.  Burand & Associates, LLC and Chris Burand assume, and will have, no responsibility for liability or damage which may result from the use of any of this information.

Burand & Associates, LLC is an advocate of agencies which constructively manage and improve their contingency contracts by learning how to negotiate and use their contingency contracts more effectively.  We maintain that agents can achieve considerably better results without ever taking actions that are detrimental or disadvantageous to the insureds.  We have never and would not ever recommend an agent or agency implement a policy or otherwise advocate increasing its contingency income ahead of the insureds' interests.

A complete understanding of the subjects covered in this newsletter may require broader and additional knowledge beyond the information presented.  None of the materials in this newsletter should be construed as offering legal advice, and the specific advice of legal counsel is recommended before acting on any matter discussed in this newsletter.  Regulated individuals/entities should also ensure that they comply with all applicable laws, rules, and regulations. 

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Copyright 1995 - 2010, Chris Burand