IIAG Annual Convention – What You Missed

The Independent Insurance Agents of Georgia held its 119th Annual Meeting a couple of weeks ago at the beautiful Amelia Island Resort.  I had the most fun at the annual corn hole tournament held by the Young Agents Committee on the beach, and I learned the most at the presentation by John Immordino on Cyber Liability.  His presentation focused on both the challenge to agents and agencies of protecting their customer and business information and the opportunity presented by the need of every other business, small and large, in the U.S. and the world to do the same.

With respect to the challenge, Mr. Immordino made the point that, contrary to common belief, hacking is not the greatest risk a business faces when trying to protect its confidential customer and business information.  More such information is taken or lost due to the negligent or intentional acts of employees and other insiders than from attacks by hackers on a business’ computer system.  Mr. Immordino said his personal information had been improperly used four times and in only one instance was it due to the actions of a hacker.  The other three times involved current and former employees of his business who had obtained his personal information, along with other confidential business information, from the business’ computer system.

While it is important to protect your agency’s computer system from outside attack, it is just as, if not more, important to train your employees on the proper procedures to follow when dealing with confidential customer or business information and to keep reminding them of those procedures at regular intervals.  It is also a good idea to encrypt the data on any smartphones, laptop computers, or tablets that are supplied to an agency’s employees for their business use and to include remote data wiping software on any such devices if they are lost or stolen.  It is possible to install such software on any such devices that belong to the agency’s employees and limit the data wiped by it to just business related information.

Employee training should include how to recognize phishing, spear phishing (bogus e-mail comes from what appears to be a familiar source), and social engineering (hacker has taken over a valid e-mail address of company employee or customer and uses it to request the transfer of money to bogus account) and what to do if they suspect an email or other communication they have received is not genuine.  It is especially important to be vigilant for social engineering attempts because the voluntary payment of money in response to such a scheme is not a covered event under standard crime or cyber liability policies.  A fact that an agent can use when discussing the need for the various types of insurance coverage required to protect a business from loss due to data breaches.

Another fact mentioned by Mr. Immordino that can be used to convince a reluctant business owner that cyber and other related insurance coverage is needed is that 60% of small businesses that have a data breach go out of business within six months.  This is mostly due to the costs of dealing with such a breach, which average $217 a record according to a recent study by the Ponemon Institute.  Over one-third of this amount, $74 a record, is for hard costs incurred in detecting the breach, determining the number of the records affected, complying with the applicable notification requirements (which vary by state), and dealing with any claims made by the persons affected.  Insurance policies are available that will cover all these hard costs and will provide the help needed to deal with the various aspects of a data breach.  In many instances, the existence of such coverage is the difference between life and death for the small business affected.

There was a lot of other valuable information in Mr. Immordino’s presentation.  If any of my readers would like a copy of it, please contact me at mburnette@decatur-law.com and I will send it to you.

The New Overtime Rule – What You Can Do to Comply

My last post was about the requirements of the new rule for the payment of exempt employees.  This post will focus on the options available to an employer to comply with those requirements and the information needed to decide which option works best for each affected employee.  Almost every payroll service company has materials on this topic.  One of the best I have seen can be found here and it includes an online calculator to aid the employer in determining the financial impact of the available options.  For those who want a more focused presentation on the effect of the new rule on insurance agencies, the IIABA will have a free webinar on that subject on June 22, 2016 beginning at 3 p.m. EDT.

The new overtime rule will affect only those employees who are being treated as exempt from the overtime pay requirements of the Fair Labor Standards Act (“FLSA”).  If an employee is being paid a salary and is not paid anything extra if they work more than 40 hours in any one week, including time spent responding to e-mails or telephone calls or meeting with customers outside of normal working hours, they are effectively being treated as exempt employees.  If you have any such employees, beginning December 1, 2016, they must be paid a minimum salary of $913 a week, or $47,476 a year, and meet the other requirements of a recognized exemption to the overtime pay rules. (Click here for a good explanation of those other requirements.)

If an employee does not meet the requirements for an exemption from the overtime pay rules, they can still be paid on a salary basis, but they must be paid one and a half times their salaried hourly rate for any hour worked in excess of 40 in any one work week.  For such employees, an adjustment in their salary may be necessary to avoid an unsustainable increase in their total compensation once overtime pay is included. Similarly, if an employee does meet the requirements for an exemption from the overtime pay rules, but the employer cannot afford to increase their salary to meet the new minimum required, that employee will have to be paid at the overtime rate for any hours worked in excess of 40 in any one work week.  For such employees, the employer will have to decide if it can afford the increase in total compensation that will result.  If not, the employer can either change the employee to an hourly rate of pay or adjust the amount of salary paid, so that in either instance the employee will end up being paid the same amount of compensation as before after taking into account their expected overtime pay.

In both situations described above, the employer also has the option of forbidding the employee from working more than 40 hours in any one week.  In addition to being difficult to enforce, given the current emphasis on value added customer service, which usually includes responding to e-mails and telephone calls or meeting with customers outside of normal working hours, this option may not be a practical one for many agency owners.  In any event, those owners and other employers will have to begin tracking the hours worked of both types of employees, if they have not already been doing so.  Without such tracking, an employer is at the mercy of any employee who claims they worked more than 40 hours in any one week and demands to be paid overtime pay for those hours.  The burden is on the employer to prove such a claim to be untrue and without a good system for tracking the hours worked by its employees, an employer will be unable to meet that burden.

The bad news is that employers who have employees they have treated as exempt and not paid a salary of at least $47,476 a year have a lot of work to do to decide how best to respond to the new overtime rule’s requirements with respect to those employees. The good news is they until December 1, 2016 to do so.

The New Overtime Rule – What You Need to Know

Last July, I wrote a post about a new rule for the payment of overtime that had recently been proposed by the U.S. Department of Labor (“USDOL”).  That proposed rule was made final by the USDOL on May 23, 2016, with its formal publication in the Federal Register.  The final rule differs in several ways from the proposed rule that was described in my earlier post.  Those differences concern the amount of the minimum salary that must be paid before an employee can be considered exempt from the overtime pay rules, how often that minimum salary amount will be changed, the standard for determining the new minimum salary amount, the use of non-discretionary bonuses to satisfy part of the minimum salary amount, and the effective date of the new minimum salary amount requirement. (Click here for an IIABA summary of the new rule and how it applies to insurance agencies.)

In order:

1.  To be considered exempt from the overtime pay rules, an employee must be paid a salary of at least $913 a week, or $47,476 a year.  Those numbers under the proposed rule were $921 a week and $47,892 a year.  Not much of a difference, but every dollar counts.  It is important to remember that paying the required minimum salary does not mean an employee is exempt from the overtime rules. To be exempt from those rules, an employee must be paid the required minimum salary and satisfy the other requirements of a recognized exemption from those rules.  The three exemptions that would most likely apply to employees of an insurance agency are the administrative, executive, and outside sale exemptions.  I discussed two of these exemptions as they might apply to insurance agency employees in a earlier post.  It turns out that my suggestion in that post that the retail sales exemption may be used for producers who are paid mostly on commission is not going to work, as the USDOL has stated in the regulations adopted for that exemption that insurance is not considered to be a retail business for purposes of that exemption.  I find that conclusion to be puzzling given the explanation for what is such a business in the regulations.

2.  The required minimum salary will be adjusted every three years, instead of every year, with the first such adjustment to occur on January 1, 2020 and then on January 1 every three years thereafter.

3.  The required minimum salary will be set using the 40th percentile of full-time salaried workers in the lowest wage Census region, which at this time is the South/Southeastern U.S.  The proposed standard was the 40th percentile of full-time salaried workers in the U.S.  Under the adopted standard, the required minimum salary is projected to rise to over $51,000 on January 1, 2020.  The USDOL will announce the new minimum salary amount 150 days before that date.

4.  The payment of non-discretionary bonuses, incentive payments, and commissions can be used to satisfy up to 10% of the required minimum salary amount, if those payments are made at least quarterly.  This is a totally new rule.  The USDOL considers individual or group production bonuses and bonuses for quality and accuracy of work to be non-discretionary.  The final rule also permits a catch up payment to be made in the pay period immediately following the end of a calendar quarter, if the salary paid to the employee during that quarter was less than 100%, but at least 90% of the required minimum amount. This will give some flexibility to employers who choose to use bonuses, incentive payments, or commissions to pay their exempt employees.

5.  The new rule takes effect on December 1, 2016, instead of 60 days after its publication, so employers have more time to decide how they will respond to the new requirements.

What options are available to employers to satisfy the new requirements will be the subject of my next post.




Summer Interns- What You Need to Know to Avoid Trouble

Memorial Day weekend is right around the corner.  Since it is traditionally considered the unofficial start of summer and most schools have begun their summer break, I thought it would be a good idea to remind my readers of the rules that apply to the hiring of interns. If those rules are not followed, a business can find itself in trouble with the U.S. Department of Labor (the “USDOL”) and potentially, the IRS.

My last post on this subject was two years ago and the rules governing the hiring and compensation of interns remain essentially the same.  The issue that poses the biggest risk of trouble for an employer is whether an intern will be compensated and if so, how much compensation they will be paid.

If the intern is not paid anything or less than the current minimum wage for the time they spend working for a business, the burden is on the business to prove that the intern was in fact a “trainee”, who does not have to be paid anything for their services, and not an “employee”, who must be paid at least the minimum wage for their services.  That burden is higher for a profit-making business because the USDOL, which is responsible for enforcing the minimum wage law, will presume that such an intern is an “employee”.   The USDOL has issued a Fact Sheet in which it establishes six criteria that must be met to prove an intern is a “trainee.” (Click here for an article I have written that discusses those criteria.)  The bottom line is that if the business owner derives any significant benefit from the services of an intern, that intern will most likely be considered an “employee” by the USDOL for purposes of the minimum wage law.

The fact that the intern willingly agreed to perform the services in question without being paid any compensation or in exchange for small stipend, the amount of which is not tied to how many hours they may work is irrelevant, as the United States Supreme Court has held that an individual can not waive their rights under the minimum wage law. Thus, an intern could decide, up to three years later, that maybe they should have been paid the full minimum wage for all the services they performed for a business, if for whatever reason they now need the money or have a grievance of any kind against the business.

For a business that is considering hiring someone who is under 18 years of age, both the federal and state governments impose restrictions on the types of activities in which such a person can engage and for how long each day, regardless of whether they are a “trainee” or an “employee.”  The main difference between the two sets of restrictions is that Georgia law requires a person under 18 to get an employment certificate, or work permit, from the school they last attended or the local county school superintendent.  (Click here for a fact sheet from the USDOL on this subject and here for a summary of the restrictions imposed by federal and state law from the Georgia Department of Labor.)  As noted at the bottom of the Georgia Department of Labor’s summary sheet, if the child is working in a business owned by his or her parent or guardian, only the restrictions on prohibited occupations will apply.

A summer internship can be beneficial for both the intern and the employer, but to avoid trouble, the employer needs to know and follow the above rules.

Avoid, Deny, Defend – What is it?

Avoid, Deny, Defend is a program developed by the ALERRT Center at Texas State University for training people about what to do if they are involved in an active shooter incident (an individual is actively engaged in trying to kill other people).  According to an FBI study of such incidents, there were 160 from 2000 through 2013 and the rate at which they occurred steadily increased during that time period.  Recent events indicate that rise in the rate is still occurring.  The fact that slightly less than half of all such incidents took place in a commercial setting should be of concern to all business owners, including agency owners.  The “it can’t happen here” belief is refuted by the fact that such incidents occurred in 40 states and the District of Columbia during the study period.

That belief leaves most people unprepared when an active shooting occurs and leads to an increase in the death toll.  The Avoid, Deny, Defend program seeks to inform people what they should do in such situations to protect themselves.  As with many such programs, it seems to be mostly common sense when you think about it.  First, you should AVOID the shooter by seeking to get away from his or her location.  This requires a person to be aware of their surroundings and in particular, where the exits are.  If you can’t get away from the shooter’s location, DENY him or her an opportunity to shoot you by putting as many barriers (e.g., closed and preferably locked and barricaded doors) between you and the shooter as possible, turning off the lights, hiding from sight behind whatever large object (e.g., desk) you can find, and turning off your smart phone.  Only if you can’t avoid the shooter or deny him or her an opportunity to shoot you should you DEFEND.  In doing so, be aggressive and don’t fight fair.  This is about survival, so there are no rules.

The ALERRT Center website has a video that demonstrates the principles of the Avoid, Deny, Defend program.  The FBI website also has a video on this subject that can be downloaded.  It’s title is more direct, “Run, Hide, Fight.”  The Department of Homeland Security has an extensive resource page on this subject, that includes links to an online course for managers and employees and a 90 minute webinar on how to prepare for and respond to an active shooter situation.

Like life insurance or in my profession, Wills, this is a subject most people don’t want to think about, much less discuss.  While those two things are important, the failure to take action with respect to them is not life threatening.  Not knowing what to do if confronted with an active shooter situation can be fatal.  Offering information on this subject to your commercial lines customers can be another way to distinguish yourself from other agents and agencies.  It can be part of your discussion with such customers about their business risks and how best to insure and otherwise protect against them.  If done in partnership with your local police department or even on your own, a presentation on this subject can put you in front of potential new customers, for both commercial and personal lines policies.

Stated Value Policy Changes & New Trap for the Unwary

Last week, Governor Nathan Deal signed into law an important change to Georgia’s Stated Value policy law.  A Stated Value, or Valued Policy, is one which provides coverage for buildings in a specified amount, which amount will be paid upon the complete destruction of the building without any proof by the insured that the building was actually worth the policy amount.  What is such a policy and when it will pay off are governed by statute.  In Georgia, that statute is O.C.G.A. Section 33-32-5.

In an earlier post, I explained the requirements that must be met for such a policy and pointed out a trap for the unwary insurance agent who advises the insured on what value to assign to the building covered by the policy.  One of the requirements for such a policy was that it must be “issued to a natural person or persons.”  This presented a problem for people who own residential rental property and follow their attorney’s advice to transfer ownership of such property to a limited liability company or other legal entity to protect their personal assets from any claims that may arise out of the rental of the property.  Since a policy covering a building can only be issued to its owner, residential rental property that was owned by a limited liability company or other legal entity could not be covered by a Stated Value policy.  

The bill recently signed into law by Governor Deal expanded the entities to which a Stated Value policy could be issued to include ” any legal entity wholly owned by a natural person or persons.”  Effective on July 1, 2016, one or two residential family buildings or other structures in Georgia that are owned by a legal entity that is in turn wholly owned by one or more individuals can be covered by a Stated Value policy.

I am sure most insurance agents realize that where residential real property is being rented, a commercial general liability policy must be obtained instead of a homeowner’s policy to provide liability protection for the property owner.  However, what many agents may not realize is that even a commercial general liability policy will not provide complete protection for the owner.  This point is illustrated by a decision the Georgia Supreme Court rendered in March of this year.  In that decision, the court held that the absolute pollution exclusion in the CGL policy in question in that case meant the policy did not cover a claim by the tenant that her child was injured due to exposure to paint chips containing lead.  In its opinion, the court cited an earlier decision that had applied such an exclusion to a claim of injury by a tenant due to carbon monoxide poisoning as the result of a faulty furnace.  

Lead paint chips and carbon monoxide exposure are two conditions that could easily occur in situations involving the rental of residential real property.  A recent webinar presented by the IIABA explores the scope of the absolute pollution exclusion in this context and points out that it covers much more than what would ordinarily be thought of as hazardous substances, fungus, mold, and bacteria being the most common.

As with any other policy, an agent should be aware of any gaps in coverage provided by a CGL policy in each context in which it will be used and decide how best to fill those gaps.  Otherwise, the agent runs a substantial risk of being the subject of an E&O claim.         

Georgia Does Well at IIABA Legislative Conference

The state of Georgia was well represented in the awards handed out at the recently completed Independent Insurance Agents and Brokers Association’s annual Legislative Conference.  The old reliable when it comes to awards, Georgia’s Young Agents Committee, walked away with the first ever InsurPac Catalyst Award.   This is a new award that recognizes a state Young Agents Committee that shows great progress in InsurPac innovation and participation.  

Georgia’s YAC won the award due to its efforts that resulted in increased contributions from prior donors, a significant increase in new donors, and most notably, its introduction of the concept of making a monthly recurring contribution to InsurPac, instead of a one time donation.  My local public radio station, which just completed its Spring fund drive, introduced this concept a few years ago and it has allowed the station to significantly shorten the length of its fund drives.  This approach allows for the splitting up of a contribution amount that may be too large to make at one time into smaller monthly increments, which will continue to be paid using the donor’s credit card until the donor takes action to stop them.  Thus, there is no need to expend time and resources on soliciting contributions from such a donor year after year.  That time and those resources can be devoted to finding new donors.  I don’t know who came up with the idea of applying this concept to donations to InsurPac, but the co-chairs of Georgia YAC’s InsurPac committee, Sean Stewart and Will Argo, are to be congratulated on a job well done.

A Georgia insurance agency walked off with the prestigious Dan Fulwider Award for Community Involvement.  This award is sponsored by Trusted Choice and annually recognizes an independent insurance agency for outstanding community involvement. This year’s award went to Snellings Walters Insurance Agency in Dunwoody, Georgia for its work with the Cystic Fibrosis Foundation’s Great Strides fundraiser event.  It is a 5K walk held each year in which teams raise money for their participants.  Snellings Walters has been the corporate sponsor for the Great Strides event in the Atlanta area for several years and through its efforts has made that event the largest such event in the nation, raising over $1.8 million last year.  This year’s goal is over $2 million.  The $2,500 that comes with the Dan Fulwider Award will go toward achieving that goal.  

Within the larger event, Snellings Walters has created an insurance industry focused group, known as Insure the Cure, which since 2011 has raised over $800,000 for the Cystic Fibrosis Foundation.  In accepting the award for Snellings Walters, Michael Iverson noted that all insurance agencies have people with passions who are looking for permission to release them.   In this case, it happened to be one of the agency’s owners whose daughter has cystic fibrosis.  He asked those in the audience to “Help your people release their passions. We have a great industry. We can make a big difference in so many ways, and I encourage you to do so.”        


Can An Agent Collect a Fee For Assisting With the Purchase of Health Insurance?

In the past couple of months, the above question has been asked by more than one caller to the Free Legal Service program that I run for the Independent Insurance Agents of Georgia.  Some insurance companies have stopped paying commissions on health insurance policies, while others have drastically reduced the amount of commissions paid. These changes have been made, at least in part, in response to the provision in the Affordable Care Act that requires an insurance company to spend at least 80% (for individual and small groups) or 85% (for large groups) of the premiums they collect on claims payments and “health care quality improvement.”  If they don’t meet those targets, the company has to issue rebates to its insureds.

The problem for insurance agents is that commissions have been deemed to be included in the 20% and 15% of premiums collected that can be spent on administrative expenses. This problem was the subject of a breakfast briefing at last week’s IIABA Legislative Conference given by South Carolina Senator Tim Scott.  Senator Scott urged those in attendance to speak to their elected representatives about two bipartisan bills currently pending in Congress that would specifically exempt commissions paid to agents from the above limitations on administrative expenses.  Unfortunately, those bills like many other bipartisan efforts have been caught up in the general gridlock that now exists.

In the meantime, Georgia agents have called me to find out if they can charge a fee to the insured for assisting them with obtaining a health insurance policy.  The short answer is Yes, if certain conditions are met, but there is a large exception to that answer.  With respect to personal lines health insurance, an agent must have a life, accident, and sickness counselor’s license and cannot also receive a commission from the insurance company.  Thus, the policy in question must be one that either can only be issued without the payment of a commission or the issuance of which without the payment of a commission has been approved by the Insurance Commissioner in a rate filing, rating plan, or rating system.  If certain disclosure and consent requirements are met, an agent can receive both a fee from the insured and a commission from the insurance company for the placement of a group health insurance policy. (Click here for an article I have written on this subject.)

The Georgia Insurance Commissioner’s Office is trying to make it easier for agents to get the necessary counselor’s license.  It has proposed a regulation that will create a new type of counselor’s license to be known as a Limited Health Counselor License, because it covers only accident and sickness insurance.  This license will take the place of the Limited Group Health Counselor license and will cover counseling services provided in connection with the purchase of both individual and group health insurance policies.  Any agent who has held an accident and sickness license for five or more years or who has any of the following designations will not have to take an examination to get this new counselor license: CIC, CLU, FLMI, REBC or RHU.

The large exception to my above Yes answer concerns individual health insurance policies obtained through the insurance marketplace exchanges created under the Affordable Care Act.  Although they are not crystal clear, the regulations that govern the operation of those exchanges prohibit charging the potential insured for assisting them in obtaining a policy on the exchange. Those regulations specifically prohibit Navigators from charging a fee to the potential insured for providing help with the marketplace exchange and state that any “non-navigators” who give such assistance are subject to the same prohibition.  The regulations contemplate that any compensation received by agents and brokers for such services will be paid in the form of a commission by the insurance company that issues the policy obtained through the marketplace exchange.

Apparently, the people who wrote the above regulations were not the same as those who decided that commissions paid to agents are administrative expenses.  Not the first time that one government hand did not know or consider what the other was doing.

Is Your Agency a Top Workplace?

Last week’s post asked if your agency met the benchmarks established by the Best Practices Study for financial well-being.  This week I will discuss what it takes to be a top workplace in the eyes of your employees, at least according to the Atlanta Journal Constitution.  It recently published its annual list of the best places to work in the metro Atlanta region.   Congratulations are again in order for J. Smith Lanier & Co.  They have continued their string of being in the top 50 mid-sized workplaces and this year moved up seven places to number 6.  Unfortunately, as has been the case since I began following this subject in my blog, no other insurance agencies or companies made the top 150 workplaces or this year, even the 15 workplaces that received honorable mention.

So what did the top workplaces as designated by the AJC have in common?  Two of the top three qualities from last year were again cited the most by employees in the top workplaces, only this year the most often cited quality was a belief that the company was going in the right direction followed closely by last year’s top quality of feeling genuinely appreciated by their employer.  The next two most cited qualities were confidence in the leader of their employer and a feeling that the employee is part of something meaningful.  The two lowest rated qualities were again the feeling that the employee’s pay was fair for the work they did (cited by only 46% down from 51% last year) and the feeling that their benefits package was good compared to similar companies (cited by only 34% down from 37% last year).

I thought it interesting that a week or so later, there was an article in the IA Newsletter titled. “How to Make Your Employees Love Where They Work.”  It discusses five things that the author’s clients have consistently mentioned to her as being important for creating a place that employees want to come to work.  The first one, supporting the good health and well-being of employees and their families, correlates well with the AJC quality of feeling genuinely appreciated by the employer.  Examples of this are flexible work schedules, complimentary healthy food in the break room, and company picnics, holiday parties, and other activities that involve the employee’s family members, as well as the employee.

Providing an employee a sense of commitment to a cause also correlates well with the AJC quality of being part of something that is meaningful.  This sense of meaning can be created by the work itself (e.g., insurance agencies help families and businesses protect against risks that could destroy them financially) or by having the employer sponsor or allow employees to engage in community involvement activities on and off company time, or preferably both.

The employer providing opportunities for learning job skills and advancing the employee’s career was also one of the qualities cited by over half of the employees in the AJC’s top workplaces.   Finally, the IA article author suggested something that was not in the AJC’s list of qualities.  Providing opportunities for employees to have fun while at work.  Some examples cited are posting a giant crossword puzzle on the wall or having a jigsaw puzzle on a table that can be worked on by employees during their break times.  The author suggests asking your employees for ideas, as allowing them a voice in what is done both here and in other areas will help create a sense that you genuinely care about them.

Does Your Agency Measure Up?

Last week, I listened to a very informative webinar on the “Best Practices” study done by Reagan Consulting.  It was the first in a series of five 15 minute webinars that will be put on by IIABA and Reagan Consulting throughout the rest of this year (click here to view a list of all the webinars).  Each webinar focuses on a topic that should be of interest to all agency owners.  The first webinar discussed the key metrics that Reagan Consulting has identified as being most important for an agency to measure, if it wants to be successful in the long-term (click here for a recording of the webinar and to download the presentation slides).  Later webinars will discuss mergers and acquisitions, perpetuation planning, and producer recruitment and development, among other topics.

Reagan Consulting’s research on successful agencies over the past 20 plus years has led it to conclude that the two most important drivers of an agency’s value are its organic growth rate and its profitability, as measured by its EBITDA margin.  Based on that research, it has created the Rule of 20 to determine if an agency is doing well.  If the sum of the organic growth rate and one-half the EBITDA margin for an agency is 20 or greater, the agency is in good shape from a growth and profitability perspective.

To determine the productivity of an agency, Reagan Consulting has found the best measure to be its revenue per employee.  For this and all the other metrics, the “Best Practices” study breaks down the results by agency size, as measured by annual net commission and related revenue.   There are six categories of agencies, ranging from those with less than $1.25 million to those with more than $25 million in net annual revenues.  The average revenue per employee for the agencies studied in 2015 ranges from $131,714 for the smallest category to $207,660 for the largest category of agency.

To determine how ready an agency is for perpetuation, Reagan Consulting looks at the Weighted Average Shareholder Age (“WASA”) and the Weighted Average Producer Age (“WAPA”).  An explanation of these concepts is beyond the scope of this post, but you can click here to see the 2015 study, which contains such an explanation.  The important points about these concepts are the higher the WASA, the greater the need for a perpetuation plan, and the closer the ages for WASA and WAPA, the more likely there will be problems in creating and implementing a successful perpetuation plan.

The key metric developed by Reagan Consulting for determining if an agency is making an effective investment in its new producers is Net Unvalidated Producer Payroll (“NUPP”).  This metric is a percentage of the annual revenues of an agency that are spent on payments to producers over and above what their books of business would entitle them to receive.  The average  agency’s NUPP is between 1% and 1.5% and the more successful agencies have a NUPP of greater than 1.5%.

Reviewing the 2015 Best Practices study for the category of agency that fits your agency is a good way to determine how it compares to the agencies that were studied, which on average have doubled their pro forma profitability and revenue per employee in the 20 plus years that the study has been conducted.