The Competitive Advantage: Are Your Companies Stealing Your Expirations?

Three times in three months now, I have seen major carriers “provide” contracts that in some cases outright take ownership of agency expirations and in another case only take an “interest” in them. I’ve seen it with both P/C and benefits. These are alarming developments to say the least, from multiple perspectives.

Prior to getting into the details, I will eliminate some common agent responses.

First, I won’t disclose the names of such companies because that goes against confidentiality agreements I have signed.

Second, a key reason this happens is because agents don’t read contracts before signing them. Even if you really don’t think you can get a carrier to change a contract where they have inserted damaging language, much less stealing your expirations, at least protest. Get on record that you’re signing under duress.

Conflicting Messages

These developments are alarming for a number of reasons:

Some companies clearly are sending multiple and conflicting messages such as:

• They do not care about their agents’ property rights.
• They do not fear agents moving their books in response to inserting damaging language (or cutting commissions severely in some situations).
• They do not fear agents’ associations doing anything.

You can give carriers the benefit of the doubt that they did not mean to take the most valuable asset agencies own (and I have heard companies make this statement). They might say the only reason their contract was changed was because their in-house counsel was too aggressive (she didn’t understand she was being aggressive, and she did not really understand what the insertion of, “Carrier owns expirations” means, and therefore, they did not mean to take the book of business).

But even if we give them the benefit of the doubt, what does this say about the carrier? It says they have an ignorant in-house counsel. It also says that all the people that should be reviewing contracts before sending them out to agencies are lazy, incompetent, too scared to address nefarious language with their superiors or they are complicit. What other explanation exists?

Agents have a choice of doing business with a carrier that is some combination of unethical, incompetent, or lazy or proactively moving the book to a carrier that is ethical, competent and possesses a work ethic.

Don’t Just Give It Away

Agents have signed these contracts, and you have to wonder, “What are the agents thinking? Why in the world would an agent just give away ownership or even a security interest in their book of business? At least sell it, but do not just give it away!”

Even if an agent works another 20 years, not owning the book of business has serious implications on myriad levels.

The agency cannot get a legitimate loan without disclosure. An agency may not be able to obtain new carrier contracts if the carriers understand their competitor owns some portion of the agency’s book. Think about it from an insurance perspective. Is the company now an additional insured?

Lazy and Lazy

If an agency signs without reading, that is just pure lazy. Combine lazy and lazy and the outcome will not be pretty.

Furthermore, if an agency owner is not reading key contracts, this is indicative of other issues. If reading contracts is so painful, which is different than being lazy, hire someone to do it for you. Do not just sign the contracts. The price of outside help is likely 99 percent less than the value of losing ownership.

Agents Always Have a Choice

As I noted, some agency owners sign contracts because they do not feel they have a choice (kind of like software contracts that flash whenever you add software or an app to your phone). It is not the same thing. With carrier contracts, agents always have a choice. Some choices are not pretty, but choices always exist.

Do not ever sign contracts with egregious clauses without at least discussing and putting in writing to the company your concerns.

If you sign such a contract, discuss the tax issues with your CPA because you may have just lost hundreds of thousands, maybe millions of dollars. At least take a tax write-off.

Sometimes companies really do not have a clue the damage such clauses cause. The agencies that constructively address these situations sometimes gain improved contracts and even better subsequent relations. An agent that signs such a contract when the company knows what its doing might as well put a sign around its neck that states, “I can be kicked around as much as any company wants.”

It is not a size issue either. A tiny book does not count, but an agency does not have to have $50 million to make its case ($1 million is not even required). It is not a size issue. It is a spine issue.

Understand, when you do not own your expirations, you may also cease being an independent agent at times because you likely cannot move the book. Furthermore, be sure your procedures are modified because your agency errors and omissions (E&O) exposures may be different if you don’t own your expirations.

For those agency owners who did not or do not read their contracts but insist that:

• The company will not enforce the clause;
• The clause does not apply to them because they’re special;
• Let’s wait and see what happens when push comes to shove.

You might have a point with some carriers. Otherwise, the denial, ignorance, or cowboy approach probably just digs you a deeper grave.

Read Contracts

By no means am I suggesting the majority of carriers are taking these actions or that even dozens are taking these actions. Some key carriers are though. The place to begin putting a stop to it is to read your contracts and addendums thoroughly. At least don’t be a doorstop.

Then think seriously about what carriers you represent. As an independent agent, you do have a choice. Make your other carriers cognizant of these situations and learn if they’ll negotiate a rollover. Then, instead of losing your business, you are paid more and maintain ownership.

Note: None of the materials in this article should be construed as offering legal advice, and the specific advice of legal counsel is recommended before acting on any matter discussed in this article. Regulated individuals/entities should also ensure that they comply with all applicable laws, rules and regulations.