Agency Merger Counts On Strength In Numbers

Two Calif. firms wanted to maintain independence but become dominant in region

There comes a point in the history of every independent agency when the owners must make a momentous decision about the future of the business. There are optionslike passing the firm on to your childrenbut the decision often comes down to selling ones interest, either through an internal perpetuation plan or a sale to an outsider.

That moment was reached recently at two longtime Central California agencies seeking to not only remain independent but also grow their books of business, with the goal of becoming a major force in the region. After much talk, they decided to merge, and in the process bring the best of both operations into one united insurance sales force.

Beginning this year, TWIW Insurance Services officially comes into existence. With four agency locations, its senior principals said their ambition is to become the dominant regional broker of commercial property-casualty insurance services in Central California.

The two entitiesSanta Monica, Calif.-headquartered InWest Insurance Services and Tolman & Wiker Insurance, based in Ventura, Calif.announced last May their intention to merge as of Jan. 1. The new brokerage firm now boasts 17 principals plus 162 producers and staff. It is anticipated that TWIW will produce more than $250 million in gross premium. Both firms are licensed in most U.S. states and plan to be licensed in all 50 in the near future.

The two firms have a long history in California, noted the combined agencys three senior leadersTony Cossa, chief executive officer of InWest, now co-chairman of TWIW; Jim Pollard, formerly secretary treasurer of InWest, now marketing director for TWIW; and Randy Kinsling, managing partner of Tolman & Wiker, now TWIW co-chairman.

Tolman & Wiker was founded in 1923 by Cary E. Tolman as an accident, life and health insurance agency in Ventura, selling policies to oil field workers in the area, explained Mr. Kinsling. After World War II, Robert Wiker came on board, beginning a partnership that concentrated on internal growth and an occasional acquisition.

The agency would eventually open four operationsTolman-Wiker Insurance and TWD Insurance service (both dealing in p-c business; plans call for rolling TWD into Tolman-Wiker); Tolman & Wiker Inc. (selling employee benefits); and Tolman & Wiker Financial (dealing in pension plans). Overall, the business deals in design, sale and service of p-c insurance products, life insurance, group employee benefits, financial services as well as home and auto coverage.

InWestwhose roots can be traced back to 1932grew primarily through acquisition, concentrating on the agricultural industry, explained Mr. Pollard. Over the years it would open offices in Monterey and Bakersfield, Calif. Besides agriculture, the firm serves retail, wholesale, construction, manufacturing, processing, health care, employee benefits and recreational businesses.

The principals at the two firms have known each other for a long time and regard one another highly. Their meeting over the years eventually evolved into talk about merging. Unlike some deals, this was not a quick one, with merger discussions beginning in earnest in 1999.

By taking their time, Mr. Pollard said, both were thorough in performing their due diligence, ensuring it would be a good deal for both. When they announced the merger, they wanted to allow time to put the wheels in motion, announcing the deal eight months before it went into effect.

“We were not in a hurry because we knew if we wanted it to work, it had to work right,” said Mr. Pollard. “We were smart. We took our sweet time.”

Despite the length of time it took to decide on the merger, he said few outside of the immediate principals were aware of the planning, including their company partners, until it was announced.

“We felt by waiting it would all run smooth in the future, and by golly, it totally worked,” he declared. “We could not have planned it better. Everything was totally put together right.”

Both have a relatively like mix of commercial and personal lines p-c business (InWest is 85 percent commercial and 15 percent personal lines; Tolman & Wiker is 94 percent commercial and 6 percent financial services/personal lines). Tolman & Wiker is the larger of the two, bringing about 104 employees over in the deal.

As different as their business and growth strategies are, so are their management cultures. InWest's management style is top down, with Mr. Cossa and Mr. Pollard making the decisions. Tolman & Wiker was managed through a board making collective decisions.

However, all three confess that despite their differences, there was one desire they all shared that drove the mergerto remain independent.

“We are sort of cowboys on the middle coast of California,” observed Mr. Cossa. “We like to run things ourselves. I've seen too often, in the insurance business and otherwise, with outside purchasers, they end up telling you what to do and how to do it. We weren't up to that.”

“When you go to work for a big alphabet [brokerage] house, you pretty much become a number,” said Mr. Kinsling. “It's not that we are not getting big, but we are getting big in a fairly gradual way.”

To do this successfully, they realized they needed a perpetration plan or the firms would not survive. “We both had a sense of independence, if you go back to 1923 [on the Tolman & Wiker side],” noted Mr. Pollard. “We have had a sense of independence for many years.” But the two firms understood that “if we wanted perpetuation, we had to grow, because the small people, whether they like it or not, are going to be swallowed up in the future.”

“We like making our own decisions, and we like the opportunity where we can build for our whole stafffor the young producers and young people coming into the business,” Mr. Cossa said. “This gives them the opportunity to progress and to be one of the principals in the agency.”

“I feel pretty grateful to those who preceded me to allow me, and others, the opportunity to come into the business,” said Mr. Kinsling. “It has allowed me to be a reasonably successful business person and its a nice little thing to pass on.”

To get their perpetuation plan going, they realized one draw would be to guarantee younger producers a place at the table in the future. To secure that guarantee for the young producers, the principals agreed to sell off their ownership at the age of 65.

“It's a great plan to rotate young people into the agency and retire the old,” said Mr. Cossa. “A lot of times, a young person can come into an agency with a promise that he or she will take over one day, and it never happens.”

Selling his or her interest (there are two female principals at TWIW) does not necessarily mean leaving the firm, noted Mr. Cossa. He said the individual can remain in management or sales, but they have to make room for new ownership.

Dealing with the different management styles, TWIW developed a two-tier managerial system, Mr. Cossa explained. There is the executive committeeconsisting of Mr. Cossa, Mr. Pollard and Mr. Kinsling, along with Greg Andersen (sales manager for Tolman & Wiker) and Dennis Corte (chief financial officer for Tolman & Wiker)two people from the sales and marketing side of the business and three from operations, who implement the plans developed by the principals.

A board of managers, consisting of the members of the executive committee and three othersJohn Feliciano, sales manager for InWest in the Santa Maria office; Steve Carter, who heads up the Workers Compensation Claims unit at Tolman & Wiker and is their top producer; and John Nourse, co-director of marketing for TWIW, who has headed up marketing at Tolman & Wiker since the late 1960s. The executive committee reports to the board of managers.

The aim of this management system is to meld elements of the two management styles, said Mr. Cossa. “It's a little more involvement in getting everyone's ideas into the plan, but it will work more like a corporate structure in the way that we operate day by day,” he observed. “We're taking the best of both worlds.”

Mr. Cossa said among TWIWs aims is to expand its territory and find larger accounts (most of its business is middle market). The strategy does not call for expansion in the Los Angeles or San Francisco market but instead into the outlying counties of Central Californiasuch as Bakersfieldwhich he said has huge potential.

“Our presence is not as big as we like; we may expand in the Central Valley,” he said, “but, we have our hands full expanding in the areas we are in now.”

By merging (something that Mr. Kinsling insists is a merger of equalsnot an acquisition of InWest), the firm is able to offer more volume to carriers, which in turn provides more carrier opportunities to clients. Aside from this, Mr. Cossa said clients will not see much difference because each entity will operate under its current name and personnel.

There is another advantage for clients dealing with a regional brokerone that Mr. Kinsling believes contributes to the continued success of both firms. Customers are attracted to a firm where they can go in and talk to an owner.

“It's an owner talking to an owner,” he said. “Our owners are business people and they understand the problems and issues other business owners face. Their relationship is immediate, as opposed to an account manager reporting to someone else. There is not the same level of understanding there.”

Technology is not an obstacle for the firm to overcome. Both are on the same operating platform, adopting AMS management systems (where they coincidentally took up their acquaintance, noted Mr. Kinsling). There are no plans to integrate their systems at the moment. They plan to wait for the next system upgrade before integrating all the firms, according to Mr. Kinslinga process that, he added, “hopefully will go smoothly.”

He also noted that while both are aiming toward paperless systems, InWest is further ahead in this area. This benefits Tolman & Wiker, according to Mr. Kinsling, because they can learn from InWest's mistakes.

Learning from one another comes in other ways. Mr. Kinsling noted, for example, that Tolman & Wiker will need to learn how to manage multiple locations, while InWest will have to learn how to deal with a larger entity in Tolman & Wiker; but generally, Mr. Kinsling did not see too many troublesome issues ahead.

“We are both dominant factors in our respective communities,” he said. “Both firms are active in their local community. There are more things that are the same [about our firms] than are different.”

When it comes to merging, Mr. Cossa noted, one key decision was to work with an outside third party to help put the parts together, bringing in Don Weber as a consultant. “With 17 partners, there is a personality range that is all over the ballpark,” he noted. “You could not do [this acquisition] on your own.”

Realizing they needed additional help integrating all the various parts, the firm also hired Dick DeWeese as director of operations to coordinate day-to-day management.

For the future, the strategy calls for TWIW to grow in locations and in ownership. The hope is they will add one or two new producers each year, recruiting “A” class people, as Mr. Cossa put it.

“We are looking for someone with an entrepreneurial spiritthose are the people who will be attracted to this firm,” he said, noting they are open to taking people without insurance experience. Indeed, they just hired a 26-year-old produce seller who “has the spirit and go-get-em that we really like.”

Commenting on the road they have chosen, Mr. Kinsling said the owners at both agencies would have made a lot of money selling out to a national broker, but “this is a road that has worked very well for us financially, and once it is gone, it is gone forever. It's taken a long time to put this together and we want to continue for the long term.”

Reproduced from National Underwriter Edition, January 27, 2005. Copyright 2005 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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Agency Merger Counts On Strength In Numbers

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