As the owner of an insurance agency, there is no legal requirement that you have a board of directors. However, in these challenging times, principals should consider forming a strategic advisory board.

Unlike a traditional board of directors, a strategic advisory board–or SAB–is comprised of members who have knowledge and expertise in specific areas of the insurance industry.

The goal is to reduce the amount of anxiety equated with confronting unexpected situations, and to provide solid, trustworthy business advice to ensure successful and profitable agency planning and execution.

Indeed, by adding substantial value, their cost should not become a burden for the agency owner.

Generally, an SAB meets on a quarterly basis, allowing for members to keep abreast of significant issues, opportunities and threats.

What exactly would an SAB do? Here are some examples of how your SAB might come into play in the real insurance world.

o Agency Growth:

Say your agency has been given an opportunity by a new “A”-rated carrier that wants to come into your state to write general liability on contractors. One of your SAB members can be assigned to help develop the rates, coverage and forms.

And if you are a managing general agency, the SAB can help build a retail broker distribution plan for the new program.

o Employment Agreements for Agency Producers:

In your agency, you have approached a competing producer trying to persuade her to leave her present position and join your firm. There is one big hurdle–she has a very strict “noncompete agreement” that has to be circumvented. How can you do this?

Turn to the expertise in your SAB, and work with them to come to a solution on hiring the producer, without the problems a noncompete agreement can give you.

o Forming An Agent-Owned Captive Insurance Company:

Your agency has been writing errors and omissions on real estate appraisers with a consistent 25 percent loss ratio, and you want to recapture some of the underwriting profit in your own captive insurer. You require a complete feasibility study and want to raise the capital for the captive through a private placement memorandum.

Should you use Arizona or Vermont, or even Hawaii as your domestic domicile? How about going offshore, to Bermuda or the Cayman Islands or Barbados? What are the advantages and disadvantages of each domicile, onshore versus offshore?

The technical task of structuring the feasibility study can be delegated to the SAB.

o Creating and Managing a Risk Retention Group:

You discover a need to provide general liability for roofing contractors, or medical malpractice for a group of doctors, and want to provide a unique insurance product for these exposures. A risk retention group could generate the additional capacity you need.

The RRG's product design, capital implementation and reinsurance structure can be assigned to the SAB.

o Carrier Relationships:

Your SAB could help in renegotiating existing insurance carrier agency agreements, especially in a pinch.

Say your Florida agency just received the bad news that your largest carrier is leaving because of reinsurance costs and inadequate pricing. You could turn to your SAB to come up with a solution to delay the carrier's withdrawal from the state.

Your SAB could also help in finding new insurance company markets.

o Mergers and Acquisitions:

An SAB could help you assess unsolicited offers to buy your agency. They could also help you access the capital required to grow the agency, and make sure the agency's financials are in order so you can acquire expansion capital at economical terms.

o Legal and Tax Advice:

With the number of lawsuits between agents and insurance companies dramatically increasing, agency owners can call on their SAB to assess law firms specializing in insurance litigation.

Similar help can be forthcoming from an SAB with an errors and omissions suit, or to discuss tax implications of various projects.

o Negotiating Reinsurance Structures to Increase Agency Commissions:

MGA owners need to understand how capacity is structured behind the insurance companies they represent. Various types of reinsurance agreements can be negotiated that ultimately increase the MGA's commission under their contract.

Understanding the various characteristics of treaty reinsurance agreements is required. The SAB should include someone with reinsurance expertise.

Summing up, your SAB will only be as good as you–the agency owner–wants it to be. It will still be your responsibility to keep your board informed of situations that affect your agency.

Special Reports /

Strategic Advisory Boards Help Agencies Thrive

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