INDEPENDENT AGENTS…Be Forever Vigilant!

A recent article in the Insurance Journal, “Florida Agents Concerned About Homeowners Choice Contract”, touched so lightly on issues basic to the independent agent delivery system that many, obviously those at Homeowners Choice, may not fully recognize what’s at stake.

It reminded me of trying to explain to lawmakers that agents own their  book of business or why the policyholders’ information “belongs” to, or is owned by, the agent.   Reactions to my explanations ranged from incredulity to blank stares.

Perhaps more compelling, especially for agents who would sign a contract like the one Homeowners Choice offered, is…“why does ownership of information matter?”

Historical perspective is critical to elucidate the unique American system of dually-obligated independent agents and the modern factors necessary for its survival. Those interested can peruse white papers under my Library tab; the Miscellaneous section, “Marsh Kickback Scandal.”

The lawmakers I talked to, and others, would say that the customer owns his own information.  Only the customer controls who gets the business or how much is paid and how much is received. And, while that’s both legally and practically true, during the typical insurance transaction a commercial entity also acquires that information, which may include: family income, amounts and types of exposure, the potential for collateral business and, an important tidbit; policy expiration dates.

Because insurance solicitations are timed with expiration dates, protecting that information is necessary for business persistency and thus, long-term survival. When others have this information it is their license to solicit and grow from someone else’s work product.  When a wayward producer without a valid non-compete agreement leaves an agency, it’s a license to steal.

Think about it, an agent cannot send his/her hard earned work product to a carrier without the assurance it won’t be taken . Else, why did he/she work so hard? Certainly not to be circumvented by a carrier’s direct solicitation of his customers.

Like Lawyers and Realtors, independent agents typically have very little inventory or tangible assets. The value of their business is their customer lists.  If an agent doesn’t exclusively own and control that information, beyond present day cash flow, he has nothing to sell, nothing to leave to his children, no retirement–no different than a law firms closely guarded client list or a Realtors multiple listings (MLS).

Case law dates to 1903 in what became known as the Yonkers Case (Chapter 7, Cartels to Competition).  Here the national association of insurance agents (today IIABA) codified what some misguided carriers were challenging.  When agents won the case, it set off a chain of supporting decisions, including a recent one in Florida. Each affirming the same finding:

“…the policyholders information is the agents work product and is owned by the agent unless that ownership right is affirmatively and legally forfeited.”

This is why well written ownership clauses use the word “recognize”, as in; the company “recognizes” an agents full and complete ownership and control of the policyholder information.  Contracts, good ones, don’t say the company “grants” or “gives” ownership to the agent because it can’t “grant” or “give” that which it does not own.

Make no mistake; ownership is extremely valuable. Why else would some try to take it without letting you know that’s what they’re up to. In its contract, Homeowners Choice actually says it…

“…acknowledges that the Producer owns the Policyholder information, including the expirations, associated with the Policies…”

Good enough to make some stop reading!

Those who keep reading, however, stumble on language that not only takes it all back but, in doing so, may say a little about the carrier. Subsequent wording overrides the agents ownership giving it instead to Homeowners Choice after the second renewal. Worse,  and even further from where most would’ve stopped reading, it  reserves for the company the irrevocable option to purchase the agents entire Homeowners Choice book at a price established in the contract. Sound like agent “ownership” to you?

Other than misdirection, one wonders why text would even be arranged in such a fashion.

In all fairness, others have used similar tactics.  For example; always be wary of ownership language along these lines…

“…during the term of this contract the company acknowledges the agency’s full and complete ownership and control of the policyholders information…”  Emphasis added.

Again, sounds great.  Unfortunately, when the company terminates the contract, which it can do for any reason at most any time, the company, not the agent, will own the business. My advice…never sign such a contract!

One last, very important note to independent agents. While residual markets in other states, like Louisiana or Massachusetts, may recognize your ownership rights, Florida’s Citizens does not.   Therefore, to the extent you send business there you undercut your agency’s value; especially regrettable if you had another option.

The sales price of most agencies is based on a multiplier (1, 1.5, .90, etc) times the previous year’s commission income but, only FOR BUSINESS THAT YOU OWN! If Citizens owns the business then you do not own it and would, therefore, have less or little to sell.

Think about this as you send business to a residual market verging on unprecedented depopulation. Think about it each time you review a limited contract for takeout or to write new business. Ask yourself…”If ownership of expiration’s doesn’t have value, why do some carriers try to take it from me?”

Your agency’s future and ultimately the future of the agency system depend on a careful understanding of the ownership provisions in each and every appointment contract.

Be forever vigilant!

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