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15 Captives Independent Agency System Roundstone

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Roundstone Management, Ltd. (“Roundstone”) based in Westlake, Ohio is an insurance organization focused on the development, underwriting and servicing of alternative risk products, including captives, rent-a-captives and specialty insurance programs. Roundstone offers intermediaries and buyers an expertise in the captive marketplace with an unbundled services approach utilizing the facilities of Roundstone Insurance, Ltd., a class III Bermuda reinsurer registered as a segregated account company.

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15 Captives Independent Agency System Roundstone

  1. 1. WHAT LIES AHEAD A blue ribbon panel eyes the future of the independent agency system By Elisabeth Boone, CPCU A highlight of the event was a panel discussion moderated by In George Nordhaus, founder and the property/casualty chairman of IMMS/Group 500. The business, as in any panelists represented a broad cross industry, pundits and section of the property/casualty prognosticators are a business: Roger Looyenga, CEO, dime a dozen. A lot of self-styled Auto-Owners Insurance Group; experts toss opinions around like Robert Sargent, president, Tennant confetti, but a few wise heads possess Risk Services; Mark Manfre, the clarity of vision to see into the executive vice president, Insurance likely future. Office of America; Dan Carmichael, Nine such savants were on hand CEO, Ohio Casualty; Dan Epstein, to offer their views to attendees at president, ResourcePro; William the IMMS/Group 500 Annual Hold, cofounder and president, The Conference presented by Insurance National Alliance for Insurance Marketing & Management Services Education & Research; Frank Burke, (IMMS) in May. Held in Chicago, the president and CEO, First Insurance conference focused on helping agents, Funding; Mike Schroeder, president, brokers, and other insurance Roundstone Insurance; and Al professionals develop a network of Diamond, president, Agency valuable contacts in the business. Consulting Group.2 ROUGH NOTES
  2. 2. The independent route Offering his perspective on the state of the independent agency system was Roger Looyenga. In its 24-state territory, Auto-Owners is represented by some 5,500 independent agencies, which are its sole source of distribution. “We‟ve all Roger Looyenga heard about the demise of the independent agency system,” Nordhaus said. “Why do you go the independent agency route?” “We‟ve done business with independent agents for 90 years,” Looyenga responded, “and the reason we‟ve always done it that way is because it‟s a great way to market the product.” According to a recent survey, Looyenga said, respondents want five things when making a purchase: to buy from someone they know and trust; to pay a competitive price, although not necessarily the lowest price; to have a choice in what they buy; to have one-stop shopping; and to get service from the person they bought from. “Only the independent agent can provide all five of those needs,” Looyenga declared, pointing out that the officers of the company had signed a pledge that they would not go to a competing system. What’s up in wholesale? When retail independent agents and brokers have unusual or hard-to-George Nordhaus, Founder place risks, they turn to specialtyand Chairman of IMMS/Group wholesalers.500, served as moderator for One such firmthe panel discussion. is Tennant Risk Services Insurance Agency, LLC, a wholesale underwriting manager and broker based in Hartford, Robert Sargent Connecticut. Licensed in all 50 states, Tennant also is a Lloyd‟s correspondent broker. Asked by Nordhaus to assess the future of intermediaries in the market, Tennant‟s president, Robert Sargent, said, “I think general agents and wholesalers have a very bright future in the market. I tend to
  3. 3. Mark Manfre Dan Carmichael Dan Epsteinmeasure people‟s prospects based on „There‟s no way you can stay in is extremely labor intensive.the added value they provide their business for 18 years when you‟re Advances in technology, as Dancustomers. In the insurance business, paying 60%.‟ The fact is, if you reach Carmichael noted, have helped bothespecially in specialty lines, focusing certain premium thresholds, you can insurers and agents enhance theiron specialization provides an pay 60% with no trouble at all,” he efficiency and reduce expenses.important advantage to our declared. “Our model is working.” Even with sophisticatedcustomers. I think we‟ve been very automation systems, however, agencysuccessful in supporting retail support staffers continue to bear a Technology rulesindependent agents. heavy load in processing transactions. “We‟ve delivered online programs When Ohio Casualty tapped Dan Dan Epstein, vice president offor quite a while, but this is the first Carmichael to be its new president business development for ReSourcetime we‟ve really pushed the online and CEO, expenses were high, Pro, said his firm offers a solution forsystem,” Sargent said. A key concern efficiency was low, and the top bogged-down small to mid-sizedwith any such system, he noted, management of parent company Ohio agencies: remote staffing.especially in specialty lines, is Casualty Corporation realized it was Through remote staffing, Epsteinunderwriting accuracy. “That‟s a very time for a change. explained, ReSource Pro providesdifficult proposition. We‟ve developed “Technology was one of the experienced, college-educateda very thorough application and put it answers,” he recalled. “We believe insurance processing specialists inonline. Of course, if the retailer has today that all of the elements that are China, who connect remotely to thequestions, he can call and discuss necessary for single entry, multiple agency‟s system via the Internet. Thethem with an underwriter.” company interface (SEMCI) are service is available to retail brokers, available. We‟ve been saying for at MGAs, and program managers. least 30 years that we‟re a year or The agency is not required toPower of partnership two away from SEMCI. Now we are migrate its management system or A fast growing, privately held there,” he declared. data to an external provider.agency with premium of over “We want you to be able to stay in ReSource Pro receives daily task$550 million, Insurance Office of your agency management system. It updates via electronic fax, e-mail,America, Longwood, Florida, operates makes no sense for you to have to suspense codes in the agency‟s18 offices in eight states. Mark Manfre toggle out of that system, go into a management system, and accordingis one of IOA‟s original partners and its proprietary Web site—and there are to scheduled priority lists. The agencysecond largest producer, specializing in plenty of them out there—for you to can set access restrictions andthe real estate, construction, and be able to input that same data that‟s monitor performance of the remotemanufacturing industries. in your system, whether it‟s a quote processing specialists. Nordhaus asked Manfre how IOA or an endorsement or a bill for a Among the tasks those specialistsgrew to $550 million in premium in customer. Whatever the case, you can perform are policy checking,just 18 years. should not have to rekey any of that issuance, and endorsements; rating, He explained, “The typical agency information online.” quote preparation, and binding;has producers who build up a book of Rekeying data is inefficient and billing, reconciliation, and claimsbusiness but don‟t get to share in the costly not only for agents but also for reporting; and inspection reviews,profits or ownership of the agency. The carriers, Carmichael asserted. “You, MVRs, etc.vision of our founder, John Ritenour, as agents, have a lot more control His company‟s experience shows,was to bring in producers and give them over this situation than company Epstein said, that remote processingsomething they don‟t get elsewhere: the management or vendors do,” he said. has had a substantial impact on bothopportunity for ownership in the “I ask each of you to contact your the top line and the bottom line of theagency.” After two years of satisfactory carriers and find out why they aren‟t agencies that use ReSource Pro: “onproduction, producers are invited to buy using more applications. They need to the top line by increasing thestock in IOA. accurately and quickly build out as productivity of their people, and on All commissions, including many applications as possible in their the bottom line because it‟scontingencies, are assigned to IOA, systems so that you have basically significantly cheaper to have thewhich holds the contracts with the transparent access to their systems,” same people in China doing the workcarriers. All commissions for personal Carmichael said. quickly and accurately.”lines and small commercial accounts(under $10,000 premium) are Outsourcing is in The education pieceretained by the agency. “We pay our agents 60% for both With its huge volume of The National Alliance fornew and renewal business,” Manfre transactions—millions daily, at Insurance Education and Researchsaid. “A lot of people have said, least—the property/casualty business provides practical, hands-on4 ROUGH NOTES
  4. 4. Dr. William T. Hold Frank Burke Michael Schroeder Al Diamondeducation and training to producers, continued, “but to offer to everyone as see captive activity almost everyrisk managers, and service an additional service.” week,” he commented.representatives. Finally, “Your agencies are good In response to a question about underwriters, and you ought to givethe marketplace, Dr. William T. Hold Captive update some consideration to sharing in thereplied: “I see two things—excitement Michael Schroeder of Roundstone underwriting profit,” Schroederand fear. Those agencies that are Insurance, Westlake, Ohio, presented asserted. There are some classes ofsuccessful are doing pretty well” an update on developments in the business with sub 50% combinedbecause of stable markets and having captive insurance market. Schroeder, ratios, and you can make a fairlya strong sales organization. an attorney, is responsible for the handsome return on your “The fear part,” Dr. Hold noted, management and development of investment for retaining some of“especially in Florida, Louisiana, and Roundstone, a Class III segmented that risk,” he noted.Mississippi, is that agencies are worried account reinsurer based in Bermuda.about their customers not coming back. “One publication says that A consultant’s viewIt‟s very disturbing to reopen your captives are growing faster than theagency and have no customers. Where standard commercial market,” Offering his perspective on changesdid they all go? Many of them haven‟t Schroeder said. “That‟s catching a lot in the property/casualty business overreturned to the Gulf Coast; they haven‟t of people‟s attention. More and more the past 30-plus years was Alreturned to New Orleans. There are states are passing legislation to Diamond of Agency Consulting Group,tremendous implications when the support the captive idea.” Inc., Cherry Hill, New Jersey.infrastructure dies.” Asked what factors are spurring “The independent agency system is the growth of captives, Schroeder not on a downhill slope, although in said, “One thing that‟s happening is the last 20 or 25 years the number ofNew trends in premium finance that the service providers that run agencies has declined from about Frank Burke of FIRST Insurance captives and provide investment 70,000 or 72,000 to our estimate ofFunding, Inc., Northbrook, Illinois, management services are becoming about 40,000 or 42,000 now,” Diamondoffered a perspective on emerging more sophisticated and more effective said. “It‟s not the number of people intrends in the premium finance at delivering their services all over agencies that has declined, just thebusiness. He observed that what just 10 this country. In the old days you had number of agencies, and it‟s notor 15 years ago was a relatively simple to fly to the Cayman Islands or because of business failures. It‟sand straightforward business has Bermuda in order to sit down and because of lack of perpetuation, agentsbecome both complex and sophisticated. have a meeting to find a captive cashing out when they retire. These He pointed out, “Our biggest solution or an investment solution for are folks who run small, medium-sized,competitors are insurance your client. Today we have the and large agencies who would rathercompanies themselves. More than Internet and electronic delivery of get the cash than perpetuate theirhalf of the premiums written that documents. We manage our captive agencies. That‟s not our favorite thing,”are eligible for financing are facilities from Ohio,” Schroeder said. he continued. “We‟re in the business offinanced by carriers, either on a no- “Why should agents get involved agency perpetuation.”interest basis or on a very low-cost with captives?” Nordhaus asked. Today, he commented, “Agencies arebasis. We still don‟t understand why Schroeder said. “It‟s another growing larger, and they‟re becominga business that sells a product retention product that you can make more professional. But as others havedecides they have to offer the your clients aware of. For an account observed, there‟s still a niche for smallopportunity to pay for that product with loss participation of half a agencies to remain intact, to remain inon a monthly installment basis at no million dollars, we‟re going to suggest their local areas, and to do very wellcharge. Most industries don‟t do a captive alternative. We think it for themselves as part of a largerthat. We see it as our job to continue beats a high deductible or a high SIR. organization,” Diamond said.to educate insurance companies that “The other reason I think agents “My comment to insurers withwhen you sell a product that‟s should look at captives is that if you which I do business is: We should beeffective on January 1, you really have a particular class of business dedicated to growing and makingshould be paid for it on January 1. that you‟re having a hard time money. If the successful members ofPut that money into investments finding an insurer to deal with, you the independent agency system canand let us do the business of billing can put together a captive and have grow your business, use them. If theand collecting premiums. that group or your agency take some agencies can‟t grow your business, “We see agents and brokers of the risk,” Schroeder continued. grow it some other way. I happen tobeginning to view premium financing “The distressed lines tend to find think that independent agents cannot as something to offer their slower themselves a captive solution. very well grow the business,”paying clients for cash flow,” Burke Construction today is an area where I Diamond declared. ■