Captive SF Agent - Exit Strategy

[5150]

Greetings all.

I am a State Farm agent. My husband is fully licensed (P&C, L&H). He used to help me out in the agency, but these days is inactive. However, he still has access to SF systems. I have grown every line of business in the past year. My agency does $30-$40K per month of P&C premium. We are pretty good in life, not so bad in health either.

I feel I can do better by reducing expenses and going independent with higher contracts and choice of carriers. I learned a lot with SF, and now I think I can take it to the next level. There are several reasons that I am not ready to leave yet:

1. Too much time left on office lease - I cannot (nor would not) want to pay for this office when starting Indy. The closer I get to the end, the better. Less risk.
2. Getting a scorecard bonus on March 15 - which should eliminate all/most of my debt.
3. I've reduced marketing costs which will help me pay down debt and "get to a better state"
4. I want to keep my office phone number, office furniture, etc... I am sure SF would want the phone number and if I refuse to give it, nothing stops them from refusing to take over my lease while they search for a new agent. I would rather leave SF 4-6 months before my lease ends, then keep the office as Indy for 4-6 months, THEN relocate. There are obvious reasons for this.
5. Will reduce staff early next year to stash some additional cash for the new Indy biz.

One of the strategies that I was thinking of was for my husband to resign as a SF team member and start a new company that he would run. He would NOT be trying to bring my book of business over. I have no interest in hurting SF and I intend on preserving my SF business while I am still here. And when I leave, I intend on honoring my 1 year non-compete.

Using proceeds that I earn from my business, my husband will be able to hire a full time sales person to help build the book over the next 9-12 months. I then leave SF. (There are more details, but you get the idea).

I don't see any issues with this contractually.
SF's business will not be harmed.
I am open to your thoughts, advice, etc...

Thanks!

Jasmine

 

[AZDave]

Seems you are planning your exit strategy quite well. Cash is King. Brick and Mortar locations are in the past.

What you need are carrier appointments. Read the threads here and learn. Difficult to obtain without joining a group. Some groups may be reluctant due to that SF affiliation, even for your husband - they don't want to fight the non compete. Easy to pick up the Progressives, American Moderns, Foremost's.

SF contracts are strict. That phone number may well be theirs. Smart to bank on that first year on soliciting outside the agency, again that problem remains on placing the business.

I was 22 years captive. 6 now indy and loving every minute. In the long run, this is the best decision you could make.

Dave

 

[5150]

Thanks Dave.

The phone number is indeed mine, as they are for all SF agents. I got mine from the previous agent. That previous agent was not so lucky, as that person retained the phone number.

We would really like to get the new book started in advance, so that we have some renewal income by the time I leave.

We intend on having an office, but not in a high-cost retail type environment, rather much cheaper professional office space for less than half of what I am paying now. In fact, he would most likely use executive office space at $250 month for the first 6-12 months, just so his new employee has a place to work and meet clients. Leads that we cannot write I will send over to him.

We were thinking that he should start with a company like Smart Choice for the 1st year. Then when I start, I will get my own P&C appointments with another company under my corporation, and I will write all business under that contract. Whatever was written under Smart Choice will simply stay there and we will collect the renewals as long as they last. I know some of the caveats to Smart Choice, but I think it can work to our advantage for the interim. Only 9-12 months of biz would be written with them. (We have not even spoken with them yet, we just need binding authority with no fees for about 1 year).

There is a lot of thought and planning that has to go into something like this, with a lot to consider.

I do have to still consider whether it makes financial sense to leave right after the scorecard, give up the number and simply walk away and let SF take over the remainder of the lease. The question really is... "Is that phone number really worth it?" It will cost me at least $15K of rent as Indy which I could just simply use to rebuild from scratch.

Hmmm...

 

[biaomaha]

Seems you are planning your exit strategy quite well. Cash is King. Brick and Mortar locations are in the past. What you need are carrier appointments. Read the threads here and learn. Difficult to obtain without joining a group. Some groups may be reluctant due to that SF affiliation, even for your husband - they don't want to fight the non compete. Easy to pick up the Progressives, American Moderns, Foremost's. SF contracts are strict. That phone number may well be theirs. Smart to bank on that first year on soliciting outside the agency, again that problem remains on placing the business. I was 22 years captive. 6 now indy and loving every minute. In the long run, this is the best decision you could make. Dave

Agree I was 8 years captive and have not regretted the move, not easy but worth it

 

[5150]

What about getting direct appointments with carriers? I think I have the production and experience to warrant such an appointment, but not sure how it works. I don't need or want 25 companies to start. Maybe 3 or 4. Travelers, Progressive, Mercury and maybe one more. What carriers do I have a decent shot at getting a direct contract with? I did about $650K of annualized P&C in 2013. This year should exceed $750K. Is that enough to warrant a direct contract?

 

[nyc2phi]

What about getting direct appointments with carriers? I think I have the production and experience to warrant such an appointment, but not sure how it works. I don't need or want 25 companies to start. Maybe 3 or 4. Travelers, Progressive, Mercury and maybe one more. What carriers do I have a decent shot at getting a direct contract with? I did about $650K of annualized P&C in 2013. This year should exceed $750K. Is that enough to warrant a direct contract?

What state are you in?

You can get nonstandard appointments on your own like progressive and foremost off the bat.

The preferred carriers will be tougher even with your experience and captive book size. I would definitely give it great effort applying for travelers, Safeco, Harleysville, and other strong carriers in your area. If you have a strong regional carrier in your state I would also go after them, for example I have Erie in my state who was will to appoint my agency scratch.

Clusters are an option and there is plenty info on this site about them.

Partnering with a local broker also is an option till your large enough to get your own direct.

Where does most of your business come from? 750k in mostly personal lines per year is a strong number

 

[5150]

I was going internet leads for a while but have stopped. We mostly work on referrals, get some walk ins and cross sell our existing book. That number includes a little commercial, but I don't do much of that. Add to that about $50K of annualized life premium.

There are a lot of clusters to choose from I know. More than likely I will see what direct appointments that I can get first.

 

[insurance1822]

I would keep the SF operation as long as possible & run it slim to keep income/benefits as long as possible. It can (and will) funnel business to the Indy. Have your husband go first and after a year (when HIS non-compete is up) it's time to Luftwaffe style raid the book. That's not being "mean" to State Farm or trying to hurt them...it's smart business.

Like I said I'd keep the SF book and do nothing except service it when the phone rings & spend all your time working for the Indy in the meantime until SF pulls the cord...That can be a lot of padding for you.

Non standards will hand out appointments to anybody with a heart beat..just make sure the new corporation is only in your husband's name to start (if any member of the corp has a captive appt it will be a problem.)

Preferred carriers are more concerned with an agency hitting that $500,000 mark (which usually trigger's profit sharing) within the 3 year watermark. Many times people focus so much on the "monthly or yearly" commitment...but the fact is if you're QUOTING business each month w/ them & writing some they will be happy. Now some big names may not appoint you right away even though you have a proven track record, but they will after 1-2-3 years once you're successful. The big question is this...is it worth it to pursue contracts on your own (and you very well could & have a handful of great carriers after a few years) or start w/ a group (and I think SIAA is the best) and get contracts right away along w/ profit sharing right away? How much money will be left on the table in the beginning (by not getting bonus) compared to how much you *could* make once you do hit profit share? Once you're there...how many years does it take to break even from not getting profit share all those years. Then what does it look like moving forward as you will have losses that will mess w/ your loss ratios..

SIAA negotiates guaranteed profit sharing right away. In all those years trying to get appointments on your own & NOT getting profit sharing until each book gets up to that 500k mark IMO isn't worth it. Yes you give a cut to the group but the group negotiates bigger commissions anyway so it nets out. You'll also grow way faster with many appointments right away anyway.

I don't drink anybody's koolaid...but people & agents (especially coming from captives) instantly categorize groups into "companies" and "bad" and it's just not like that w/ SIAA. It's a partnership w/ them & so long as your MA is solid...you can't go wrong.

I'm certifiably obsessed with insurance agency ownership & I've ran calculations over & over again on joining SIAA vs having gone on my own and the numbers speak for themselves. With the immediate profit share, the locked in annual profit share to insulate you from losses that can throw a 500k book over 55% in an instant, the standard loss ratio driven profit sharing, new business quarterly overrides & everything else...SIAA is the way to go.

Many agents on here are great at selling...not many are great numbers people. I dual majored including accounting & I have the ability to dissect numbers better then most. I looked at how much I pay to SIAA at this point & I projected that number through my contract & ran every calculation to see if it made sense to buy out & go on my own. It does not. I can literally email you an extensive excel spreadsheets that proves this.

I can't say the commission % but I can tell you this...I'm getting paid more commission on new business & renewal then the guy down the street who's been Indy for 30 years on his own (even after paying the group.) Even in lieu of Travelers commission cut to 12/12...after the group's overrides I'm making way more then stand alone Travelers appointments. The only agency's who are prob making more commission then me are the $25,000,000 mega houses who've been in business since dinosaur times & kept acquiring everybody & stand on their own. They are the exception...not the norm.

Good Luck...milk state farm as long as you can & have at it!

 

[njf_networked]

Networked Insurance Agents is an aggregator for P/C independents similar to Superior Access, with membership to access over 50 markets. The commissions are split based on volume and direct access options can be added over time.