Keeping your finger in a lot of pies

Rough Notes, Dec 2000 by Pillsbury, Dennis

Multiple marketing ventures and acquisitions put Connecticut agent in control of his destiny

Dave Sinclair appears to enjoy challenges. He's built three different agencies from scratch and, each time, turned them into enormous successes. Dave started in the insurance business in 1971 as an agent with Nationwide Insurance. By 1987, he had premium volume that was double the next largest agent, making him the company's most successful agent. However, his business was 99% commercial and Nationwide decided in 1987 to get out of commercial. The insurer said goodbye to Dave and paid him the good sum required by his contract.

The lesson learned from this was-if you've got only one company, you may suddenly find yourself out of business if the company's marketing strategy changes. So Dave decided to become an independent agent. He was helped by the fact that he was able to contact all his old Nationwide policyholders because the company had canceled them, so he wasn't in violation of his non-compete.

"In February 1987, I basically started all over again. Since I had the commercial insurance background, I decided to focus on that area. By 1991, my agency's volume stood at $68 million with 27 clients. Our biggest was Ames Department Stores. We also handled coverages for the state of Virginia and Westinghouse. We specialized in very complicated risk management programs that included significant portions of self insurance. It was extremely service-- intensive. These were pressurized accounts that demanded the attention of our top people, but the rewards were there. In 1991, our revenue per employee stood at $500,000."

It was lucrative, Dave admits, but "it wasn't fun. We were always in crisis mode and didn't actually have time to go out and sell. And that's why I got into the business in the first place. I've always been very sales oriented."

Then in 1991, another problem became evident-the agency was highly leveraged. The loss of any one account would put a serious crimp in overall revenues and that was made clear when Ames Department Stores declared Chapter 11. The individual who took over had a broker he was close to. The account moved.

"It was kind of a wake-up call for me. I wasn't enjoying what I was doing. It was time to focus on regular agency business and build a wide base of smaller accounts." So Dave said goodbye to the large, pressurized accounts and closed the agency's offices in Pittsburgh, Pennsylvania, and Richmond, Virginia. "Basically, we just started over again. Our revenue was around $75,000."

Dave wanted to grow the business quickly and the best way to do that was to buy established agencies. "We acquired three agencies in 1991 and one in 1992. Our revenues rose to around $1 million."

Today, Sinclair Insurance Group boasts revenues anticipated to hit $10 million at the end of this year. They were $7.8 million in 1999. The agency operates solely in Connecticut, writing approximately equal amounts of personal and commercial lines, as well as group health and life insurance. It operates out of four hubs in Wallingford, Norwalk, Chester and Shelton. "We're planning to open a fifth hub north of Hartford," Dave adds. The loss ratio is under 40%. Sinclair Insurance represents 28 companies for property/casualty coverages and 35 for group health and life.

The hubs were established in areas that were of interest to Dave because of their demographics. Once he decides on an area, Dave then identifies the agency or agencies that have a significant presence and reputation to serve as the hub. Thanks to the financial success of his two previous ventures, Dave is in a position to pay cash for agencies. For some owners, "this is their dream," Dave says. "We pay the multiple-year price up front."

"We're able to purchase high quality agencies that we identify," Dave says. "This helps to insulate us from bad loss ratios." Once the hub agency is acquired, other agencies in the area are purchased and integrated with the hub. "The hub agency keeps its name and just becomes part of Sinclair Insurance Group. We're paying for the agency's quality and reputation in the area. It just makes sense to leverage that by keeping the agency name." Sinclair Insurance plans to continue its merger and acquisition activity, by acquiring agencies that have revenues of between $200,000 and $1 million.

Acquisitions add between $10 million and $20 million in volume a year and "we intend to continue that strategy, because we're good at it," Dave says. At the same time, the agency also is expanding through sales efforts that include niche marketing and affiliations with a number of other professional organizations.

Niche markets include school buses and refuse haulers, Internet companies, environmental, long term care insurance and, of course, M&A insurance. "We've learned a lot about mergers and acquisitions, including what can go wrong and where coverage is needed," Dave points out. The environmental unit came about because Dave's son-in-law studied environmental engineering at West Point. "Matt can talk to these people on their level. He truly understands their needs." The long term care expertise came about from one of their acquisitions and has grown to become an "extremely significant area." The agency now has four long term care insurance experts.