A SCHOOL FOR AGENTS

Rough Notes, Mar 2004 by Boone, Elisabeth

Classes, assignments, and grades help APPEX agents earn A's in performance

"No more pencils, no more books ..." That childhood refrain, gleefully recited on the last day of school before summer vacation, celebrated the annual escape from classroom confinement into the carefree world of swimming, baseball, and long lazy evenings. Years later, most of us felt that same delicious sense of freedom upon tossing our mortarboards into the air at college graduation, or completing a rigorous course of professional study like CPCU.

For most agency owners, however, that freedom is short-lived. The pressures of competition, combined with a drive to excel, mean returning to the pencils and books. For 85 agency owners, the letters on the blackboard spell APPEX: Agency Peak Performance EXchange. Established in 1997, APPEX is an organization of independent agencies formed by the insurance industry consulting firm MarshBerry & Co. all are top-performing agencies that come together to exchange operating strategies, share strengths and opportunities, and hold each other accountable for success. APPEX's vision and mission statements are presented in the box on page 151.

Unlike agent groups that focus on marketing, APPEX shows its members how to understand and improve on the internal operations of their agencies, using key indicators of performance in a variety of areas. To that end, "The APPEX Solution" is directed toward:

* A more profitable agency

* A better return to agency

* The generation of increased

* More productive and cost-effective employees

* An agency with more value and the realization of that value

Heading up APPEX is Albert Lloyd, executive director, who has been with MarshBerry for 10 years. Lloyd joined the firm as a financial analyst and is now a senior vice president and a mergers and acquisitions consultant. he also serves as executive vice president of MarshBerry's Bank-Agency NetworK (BANK), some of whose members belong to APPEX. "Overseeing APPEX entails working with our partners, bringing on new partners, and creating and implementing the future vision of APPEX," Lloyd says.

Among others, Lloyd is assisted by Toya Gorley, managing director, who joined MarshBerry in 2003. She has primary responsibility for the coordination and execution of the APPEX Executive Performance Symposium (ESP), at which members gather to exchange ideas and experiences. Gorley also is involved in recruiting agent partners and serves as a liaison between partners and MarshBerry consultants, called Agency Improvement Managers (AIMs). "I make sure APPEX partners receive all of the benefits that APPEX has to offer," Gorley explains.

Partnering with APPEX

APPEX has 85 members who are selected based on information provided in the membership application, including revenue size and equity. This allows APPEX to calculate what it calls the agency's PIN-Performance Indicator Number-which ranks the agency on a scale of zero to 10 based on

15 key ratios:

* Reward ratio (Executive and production payroll plus pre-tax profits divided by gross revenue)

* Non-compensation expenses (overhead) as a percentage of total commissions and fees

* Property/casualty servicing cost per dollar of property/casualty commission

* Total commissions and fees growth rate

* Contingent (income) consistency ratio

* Total commissions and fees per employee

* Total commissions and fees per production person

* Total commissions and fees per service person

* Employee marginal profitability (Revenue per employee minus total payroll per employee)

* Support staff as a percentage of total employees

* Average collection period

* Cash management ratio (Measures agency float)

* Trust ratio (Cash, investments and receivables divided by payables)

* Working capital defensive interval (Measures how many days of working capital an agency has)

* Tangible net worth ratio (Average tangible net worth divided by net revenues)

However, the numbers and ratios are only part of the criteria, Lloyd says. "We want creative thinkers, people who are using successful operating strategies and are willing to share them with others in the organization. Our partners also need to be committed to improving their agencies." The average API3EX agency has revenue of about $7.2 million. "In considering candidates for membership, we prefer agencies with revenue at or above $3 million, and we like their PIN to be at least a 5, on a scale of zero to 10," Lloyd says.

When APPEX opened its doors in 1997, the property/casualty industry was in the throes of the longest soft market of the 20th century. The terrorist attacks of September 11, 2001, the stock market decline, and the economic recession all have created a dramatically altered playing field for carriers, agents, and their clients as the market hardened dramatically.

"We're seeing softening of the hardness now," Lloyd says. "While the hard market aided agency growth, it also created many challenges for agencies. This is where APPEX really shines. APPEX can provide the resources, tools, and knowledge to help agencies navigate through changing markets."