Local agency credit and collections

Rough Notes, Sep 2000 by Mason, James Woolverton

With the omission of a paragraph or two, this is the text from one of the educational booklets on local agency practice published by the London Assurance Corporation and the Manhattan Fire and Marine Insurance Company for their field forces. These booklets are copyrighted by the London Assurance Corporation and this text is used with their permission. As it is most timely and of practical value in these days of frozen credits, the permission to present it to our readers is appreciated.

CONVINCE yourself, first, on this point: You're no banker. No reason is good enough to excuse you for paying your clients@_ debts. The objection to the practice is more than merely the credit hazard. The commissions you earn are not large enough to compensate for the additional overhead item of interest on the premiums that you pay your companies before your client has paid you. Nor will your commission stand the additional expense involved in the collection of four, five and six month old accounts.

Suggest the Bank

Occasionally certain very select accounts fall behind-and you know positively that they're good. Before the premium is due your company, have serious talk with the client. Suggest that he borrow from a bank, whose business that is, rather than from you. If he won't, and you value him, you're sure he's good for many times the amount, tell him you must have a well-endorsed note on which the interest dates back to the issuance of the policy. And even then it's safest to discount such notes.

Let's compare an insurance agency with a retail store, for a moment. Your commissions, you probably know, are generally less than half the "mark-up" (differential between wholesale and retail price) on the average merchandise. The reason for this, and a good one it is, is that you have no investment in stock, you don't have to pay for a large selection of what you sell long before you get paid for it. But if you pay your clients' premiums you're doing just that: buying insurance yourself and then reselling it on credit. This practice has probably put as many insurance agencies into bankruptcy as all other reasons put together. No business at all, remember, is better than unpaid-for business.

Because your "mark-up" is, comparatively, so low, you have every right to expect and plan to do business on a prompt-payment basis. It's part of the agency business to make an Additional few dollars a month in interest on premiums paid to you but not yet paid to your companies. Organize, or reorgan ize your agency to work along these lines.

Regard Renewals as Resales

The fundamental reason, in our business, for a premium which is not promptly paid is that the insurance was not properly sold. Don't mail renewal policies unless there has been a definite and recent understanding that you would do so. Mail new policies even less frequently. The time when you have the document in your hand and are giving it to your client is the time to put the final touch on the sale or resale. Regard renewals as resales, not merely as further payments on last year's sales. No man's sales talk lasts that long. Do these and your collection problems will be halved.

But inevitably there will be overdue accounts. When this does happen, don't annoy the client by writing fresh, threatening, demanding letters or by telephoning every day. It will get you nowhere. In the final analysis, whether or not you collect depends entirely upon holding the good will of the debtor.

Statement with Policy

Always fold a statement with a policy you send or deliver. Then, of course, send a bill on the first of the following month. The proper form for billheads deserves a little study. Obviously people hesitate to pay bills which are not clear to them-which don't describe, exactly, what the stated amount is for. Your bill should tell the date of the policy, the date of expiration, what the policy covers, the hazard insured against, the Kilkenny had the opportunity to essentially buy the organization. "The only things I owned at that point in my life were my golf clubs and my television," Kilkenny says. Today Arrowhead is poised to write a projected $400 million in premium ir multiple lines by year-end and works closely with 12 paper-providing carriers as well as 27 reinsurance business partners.

In the beginning, Arrowhead was focused strictly on nonstandard personal automobile coverage. In 1986 the company formally put roots down in San Diego's Sorrento-Mesa business community. It had 30 employees and was writing about $5 million in single-state premium. Kilkenny continued to surround himself with friends and business confidants who became minority investors in Arrowhead's financial stability. As the company evolved through the 1980s, Kilkenny noted that what they teach you in Economics in college is true: "If you constrict capitalism, prices go up and availability slips."

By 1994, the California nonstandard auto market was becoming more competitive. Arrowhead designed what Kilkenny calls a 360 point-of-attack was designed. The company put together a plan to purchase and organize body shops and, with the thought of the most efficient use of product, designed Insurance Express, a revolutionary method that established point-of-sale nonstandard auto sales through Mail Boxes Etc. retail outlets in California.