What about ownership of the policies?

Last week I was talking to a producer from another agency who was thinking about opening an independent office.  He had been talking to his dad about the idea.  His dad’s advice was that he should start building something for himself, rather than someone else.

Many agents will have 60-80-hour work weeks at some point in their career.  Most of them are willing to do it because of the residual income, plus the potential payday of someday selling their agency to someone else.

Book ownership is an important factor in any partnership you consider. The bad news is that every model takes a different approach and it is generally pretty confusing. The good news is that you can figure it out, and we can help.

What is book ownership, really?

Before we explain how Firefly’s agreement and aggregator agreements generally differ, let’s clarify what book ownership is.

What a person actually owns can be hard to define.  For example, you can’t really own a client.  This is America, and the client can leave you (or an agency) anytime they want.

From my own perspective book ownership really means that you are entitled to receive commissions on new business and renewal premiums on a policy, for as long as it remains in force.  It also means that you can rewrite a client to another carrier if you so choose.  Or, you could choose to do an entire book roll to another carrier.

What you own is the right to place a client with a carrier and to get paid for that work. If we boil it down even further, you own the right to the revenue the client generates regardless of where it is written.

You get paid residuals, and when you reach the end of your career, you can sell these rights to another agent for as much or little money as you can get for it.

The advantages:

The reasons most agents want to own their book are peace of mind and additional financial security once their book is built. They want to be able to cash out when they’re ready to fish or travel full-time.

Or they want to work part-time in the twilight of their career and enjoy the relaxed lifestyle that their blood, sweat, and tears over the years has made possible. This ability to scale back your working hours and still receive ongoing income in semi-retirement is one of the biggest advantages of being an insurance agent.

The challenges:

Maintaining value in your book of business is like playing a real-life game of Jenga. Why?

via GIPHY

You only get paid by a carrier if you remain appointed with them. If you slow down a bit and your policy growth with a company stalls, you could be terminated by them. Sure, you could roll the book to another carrier. But in addition to being a lot of work (just to keep your income level), 20% of your customers will probably not make the jump to another carrier with you.

If you were to pass away without a formal perpetuation plan, your carrier contracts probably say that your policies will automatically be set-up to non-renew. Suddenly your loved ones have not only lost you. They’ve also lost your agency – which may have been your biggest financial asset.

If you get sick and cannot work. you may need to sell your agency at a big disadvantage.  It’s hard to get top dollar when you need a quick exit.

As long as life goes according to plan, these drawbacks may not become a problem. But, you are an insurance agent and make a living because life does not always go according to plan.

How does ownership work for Firefly agents?

As explained elsewhere, Firefly is an agency, not an aggregator. This is what makes it possible for you to get all of your carrier appointments without production requirements. It also means that all policies are in the name of the agency. In many cases, your own name and address can appear on declarations pages. Behind the scenes, Firefly is still the overall owner.

Agents often ask what ownership they have in their book of business.

As explained above, when people talk about insurance policy “ownership,” what they usually mean is that they have something that they can sell, transfer, or otherwise control. Our contract gives this to agents (with some conditions).

Your contract entitles you to be able to move policies around within our agency, so you can take care of your clients.  Of course, you are contractually entitled to your split of the commission for new business and renewals.

From day one as a Firefly agent, you can:

  1. Sell your book to a qualified agent. Firefly needs to approve your buyer, but you can sell it for as much or as little as you want.  The purchaser will then be entitled to the residual income as outlined in your contract.  They will need to abide by the terms of the contract. Because the book of business remains with Firefly, the sale can be almost instantaneous. You don’t have to wait for carriers to reassign your policies to someone else.
  2. Assign your contract to a family member. Usually it is a child, niece, or nephew.  You would work out the financials of the transition between the two of you and tell us where to send the commission payments.  This is our favorite perpetuation solution.  As multi-generational agents ourselves we know that this type of plan has the best customer retention rate and is personally the most satisfying.
  3. Retire in place. (We sometimes refer to this as a way to “sell your agency and keep it too.”) Why would you sell your agency if you could keep your residual income with minimal work? With Firefly, you can. Because you do not have production requirements with us, you can move your clients into carrier service centers. These are special call-centers that your customers use when they need to change something about their policy.  The retention rate for service center customers is about 90%. That means you can sit back and keep getting paid on your book for as long as the policies stay in-force. In the end you’ll usually get much more money from your book than if you had sold it for a lump sum. Also, you don’t have to pay a high tax rate as a result of a one-time sale.

After you’ve been with us for three years, you have “vested.” At this time, if you decide to leave Firefly, you have the additional option to sell your equity in your book of business to us when you’re ready to step away from your agency. We simply need 30 days written notice, and we will start payments as outlined in your contract. It’s convenient for you, and you always have a guaranteed buyer.

What you cannot do:

  1. Sell the book to another independent agent who wants to roll the book out of Firefly.
  2. Get your own appointments (with our carriers or carriers we don’t have) and move the policies out of Firefly.
  3. Orchestrate full-blown book rolls within our carriers. You can rewrite accounts as you like and as your clients need.  Although book rolls can strengthen some relationships, they can badly damage others.

It’s worth noting that our contract is not for a set period of time or number of years. There is no need to renew it every few years, which we’ve seen this with some other organizations out there. If you’d like to learn about exiting Firefly, read this blog entry about our “return policy.”

Remember that our whole model – including the contract – is set up to enable these two highest priorities:

  1. You immediately get direct appointments with all of your carriers  and with high commission payouts and
  2. You have no production requirements.

If that’s what you want most of all, and you want equity in the book you can build with that setup, we might be a good fit for you.

 

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