Agents in California's United Valley cluster
share markets, know-how, and profits
By Elisabeth Boone, CPCU
The United Valley Insurance Services management team, outside of their Fresno, California, offices. From left to right are: Jack Harbert, Vice President of Member Services; Mike McCreary, President; Ken Cooper, Treasurer; Neal Stanley, Vice President of Retail Operations; and Laura Dubois, AIM, Marketing Manager.
When it comes to independent agency clusters, the term "mixed bag" is eminently appropriate. A phenomenon that has gained steadily in popularity since the 1970s, clusters come in all colors, shapes, and sizes. Ownership structure, management style, standards, and goals are just a few of the ways agency clusters differ from one another.
Standing out as a "leader of the pack" in both longevity and growth is United Valley Insurance Services, Inc., which this year celebrates its 20th anniversary. Based in Fresno, California, United Valley began operations in 1983 with seven agencies and $13 million in premium volume and today has 41 members with premium volume exceeding $300 million. Each member continues to operate as an independent agency, but members' relationships with insurance companies are controlled by United Valley broker or agency agreements with insurers.
Since its start, United Valley has been a highly focused and disciplined organization whose members are carefully selected on the basis of agency profitability, ethical operations, and financial stability. By participating in the cluster, members enjoy broad access to markets, increased commissions and profit-sharing payments, and technology support that reduces member operating expenses and increases productivity. Thanks to United Valley's marketing clout, individual members need no longer meet insurer requirements for premium production, profit sharing, or growth bonuses; further, the perpetuation of their agencies is assured through an acquisition initiative.
Centralized control
Unlike other independent agency clusters, United Valley is centrally controlled. It is owned by 57 shareholders, most of whom are principals of member agencies; and no shareholder controls more than 15% of United Valley stock. As a company, United Valley maintains a fully staffed office that produces revenue from member fees, underwriting program fees, direct and excess retail and wholesale commissions, and profit-sharing programs. The company also earns income from investments and consulting activities. United Valley owns its headquarters building in Fresno and maintains two small branch offices. Its agency members are located throughout northern and central California, and expansion is occurring in southern California.
The agencies United Valley targets have annual premium volume of $5 million to $35 million and annual commissions of $500,000 to $3.5 million. Over 50% of agency members are in the targeted category, and well over 50% are located in medium-sized cities and the suburban areas of larger cities.
Each member agency pays United Valley an annual fee based on gross commission revenue produced in admitted property and casualty markets. United Valley also retains 25% of the profit-sharing commissions paid by insurers that have agency appointments with the organization. Members are paid full commissions on their accounts, and they share in 75% of the profit-sharing income paid by contracted carriers.
Strong leadership
Steering a steady course for United Valley are Mike McCreary, president; and Neal Stanley, vice president for retail operations, both of whom are experienced executives with solid backgrounds in property/casualty insurance. McCreary, who has been with United Valley for its entire 20-year existence, formerly was a commercial lines underwriting manager for Commercial Union and previously held positions with the Hartford and Aetna. Stanley was a defense attorney and later served as president of three insurance companies in California. He also has run a general agency and has been a consultant. Together with Jack Harbert, vice president of member services, and Ken Cooper, chief financial officer, McCreary and Stanley manage the operations of United Valley from its headquarters office in Fresno.
An experienced veteran of the P-C industry, Mike McCreary has been with United Valley for its entire 20-year existence.
United Valley's 20-year history makes it something of a pioneer in the independent agency cluster arena. Whose idea was it to form the cluster, and what factors motivated its founders? "In early 1982, a group of six independent agents got to know each other because they were all participants in a program for schools," McCreary explains. "In 1982 the market was soft, and these agents found that, as small operations, they couldn't accomplish much with carriers. The large agencies seemed to have what everyone referred to then as 'clout,' and these agents didn't have any. They believed that the only way they could develop the necessary influence with their companies was to aggregate their volumes and use that to achieve some of the objectives that the larger brokers seemed to be able to achieve. That was the primary driver in the early years for establishing the organization that ultimately became United Valley," he says.
"That group of six agencies hired Mike as the manager of United Valley," Stanley says, "so right from the beginning, the group recognized that it needed a separate, independent management entity. Unlike the case with many aggregators or clusters, there's no one large agency that dominates the overall organization. A separate and distinct unit controls and manages the operations of United Valley."
With a strong presence in California's Central Valley, a lush swath of land that produces most of the fresh fruits and vegetables enjoyed around the country, it's no surprise that many United Valley members are experts in writing coverages for growers. "Our origins were definitely in agriculture," McCreary comments. "The agencies who organized United Valley at that time wrote predominantly farm and farm-related business. But as we've grown over the years, we have diversified significantly, and I would characterize most of the member agencies as generalists. Some have specialties in certain niches, and we do underwrite farm programs for two carriers."
Well-defined structure
With 41 agencies as members, United Valley clearly requires a well-defined operating structure. United Valley is chartered and run as a C corporation, with McCreary, Stanley, Harbert, and Cooper reporting to a board of directors. "We are not answerable to any single agency member; we are answerable only to the board, which in turn is answerable to the shareholders," McCreary explains. "The board controls the majority of the shares, and the corporation is owned by 57 shareholders, most of whom are agency principals." A portion of stock is owned by California Insurance Group, with which United Valley established an underwriting and financial relationship in 2001.
A key distinction between United Valley and other agency clusters or aggregators, McCreary points out, is that "our entire management is separated from the production function and is not answerable to the producing agencies. Members cannot, as individual agencies, have undue influence over the placement of business or the way business is conducted for the corporation. In the early years that was a critical difference between us and similar organizations, and in fact it was necessary for us to get started," McCreary observes. "Insurance companies at that time weren't familiar with any kind of cluster concept, and we had to prove to them that we had a code of ethics that we would enforce and that we had an independent underwriting and placement staff that was free of undue influence. At that time, any clusters that existed generally were dominated by one large agency, and that agency could do just about anything it wanted. We believed that in order to survive and gain the confidence of carriers, we had to separate production and management," he says.
Applicants for membership in United Valley are subjected to a rigorous screening process. "That's extremely important to us, principally because the contingency or profit-sharing income we and our members receive from our insurance companies is very important to their bottom line as well as ours," Stanley explains. "If we admitted agencies that were not profitable or were not willing to follow our rules, that would jeopardize our company relationships and our profit sharing, which are critically important to us. When evaluating an applicant, we follow very strict financial guidelines," he continues. "We want to make sure each agency that is part of United Valley is a well-run business: that it adheres to sound financial practices, maintains itself in trust, and that its owners and employees are of professional caliber."
Once an agency has been accepted for membership, it must adhere to a strict code of ethics. (See below.)
CODE OF ETHICS
United Valley Insurance Services will deal with all agencies and companies, whether appointed or prospective, honestly, fairly, and with integrity.
* We will tell the truth.
* We will decide all issues upon merit.
* We will treat member agencies equally in the processing of business and in the administration of standards.
* We will not manipulate financial information, accounts, or commissions.
* We will completely and accurately portray the prospective insured in all of our submissions.
* We will maintain a high standard of technical ability in order to properly serve our customers.
* We will disclose all pertinent information where there is a duty to do so.
* We will treat all people equally, without regard to race, religion, gender, or national origin.
Marketing powerhouse
United Valley represents 37 national and regional insurers through agency appointments or on a brokerage basis. Member agencies have choices in the placement of their business, McCreary says. Unlike many clusters or aggregators, he notes, "We don't accumulate premium for our companies. We provide access to each of our members for the companies that have appointed United Valley. We add value to the process and work on behalf of our companies in placing business for our members." In many respects, McCreary notes, "we handle the marketing function for our carriers. A company representative can make one stop at our office, and we communicate to our members the kind of business that company wants to write, who the underwriters are, and all the other information needed to market business effectively through that carrier. That also helps our members significantly so they can concentrate on writing new business rather than having to meet with a lot of different marketing reps."
Adds Stanley, "Because of the breadth of our markets, we don't waste time trying to fit square pegs into round holes and vice versa. We try to find the best place for each piece of business, and as a consequence we reduce the friction that occurs when an agency tries to talk a carrier into writing a risk that doesn't fit its appetite. If it's a good piece of business, we'll place it, with some obvious exceptions here in California like housing contractors."
Especially in today's market, McCreary observes, "We really need to understand which companies are able to write what kinds of risks, because most companies are limiting the amount of business they will write to a much greater extent than they have in the past. We have to track our markets and also be able to present exactly the kind of application with the background information the company needs to quickly and easily underwrite the risk. That function is handled by our placement unit."
United Valley strives to help its member agencies keep pace with the expansion of their insureds' operations. "Many of our insureds and prospects have become quite large," McCreary says. "We need to help our members sell and place those larger accounts. This often means going into alternative risk programs. A small or medium-sized agency may not have the expertise to place a complicated or large account. They really rely on our expertise to help them in the placement of that business."
Similarly, McCreary adds, insurance companies look to United Valley for assistance in writing business submitted by member agencies. "Recently an insurer's marketing representative was here looking at some very large accounts, and he asked us, 'How can we work most effectively with your agent to make sure that agent gives us the kind of information we need so we can streamline the underwriting process?' That's what we do, so we believe we add value both ways, to our insurance companies and to our members," McCreary says.
Programs and signature products
For the last 10 years, United Valley has performed selected underwriting functions for certain insurance companies. These companies pay management commissions for United Valley's services. Over the last two years, United Valley has implemented a plan to expand these traditional underwriting relationships and create signature products and programs that are underwritten and managed by United Valley. These programs are exclusive to United Valley members.
United Valley partners with financially sound insurance and reinsurance companies to structure and underwrite its programs. The company also shares in the underwriting risk of its programs and thereby commits itself financially to profitable performance.
The first program, implemented in May 2001, is a commercial auto policy for businesses and farms. The program is underwritten and managed by United Valley and placed with Eagle West Insurance Company, a member of the California Insurance Group. United Valley receives a management commission to provide underwriting services and gains additional underwriting income through a profit-sharing arrangement with CIG.
In addition to the business auto product, United Valley began managing a personal lines program for CIG in 2001 and a farm package program in 2002. The company also continues to manage a farm program for One Beacon Insurance Company (formerly Commercial Union).
Total annual written premium for the programs exceeded $10 million in 2002, and the developed loss ratio for each program was under 50%. United Valley expects the existing programs to grow by 20% in 2003. The company will create new signature products and programs as opportunities are identified.
Retail agency operations
Another point of distinction between United Valley and other clusters is that it operates a retail agency division. The retail division functions like a fee-paying member agency and does not compete with United Valley agencies.
"We created the retail division because we wanted to provide a means of perpetuation for some of our members," Stanley explains. "We acquired books of business and employees from three member agencies where the principal wanted either to retire or to scale back his operation. We've made a couple of outside acquisitions as well, and we've added producers," he says. "In every case we've made sure we're not competing with existing member agencies. This mechanism allows our members to realize value from their business when they are ready to retire and to be assured of having a perpetuation plan in place. This approach also gives our companies the security of knowing that if an agency is sold, most likely it will be acquired by United Valley, and that allows the companies to retain their profitable books of business."
Acquisitions are managed and funded by United Valley. The acquisitions are made on a cash, stock, and/or note basis, with repayment of the note dependent on the retention of the business. Each acquisition is structured separately and approved by United Valley's board of directors.
Current annual premium volume for the retail agency division exceeds $15 million and is expected to exceed $18 million by the end of 2003. The division's volume is expected to double in size over the next three years.
Eye on technology
A linchpin of United Valley's strategic plan is to be a leader in adopting technology that enhances communication among agencies, carriers, and insureds. Over the past few years, United Valley has developed a long-range technology and management services plan to improve financial and operational management for its members and itself. United Valley and a majority of its members use the Applied WINTAM agency management system to coordinate and control their businesses. United Valley operates a dedicated unit that provides technical and operations support for its member agencies and for United Valley and its divisions. United Valley's interactive Web site provides members and United Valley staff online access to products and services managed by the company.
Venture partners
Another key element of United Valley's strategic plan is to establish venture partner relationships with insurance and reinsurance companies. As noted earlier, California Insurance Group holds an ownership stake in United Valley, and the two organizations also have an underwriting relationship. "Our relationship with CIG had its genesis in a special program, and CIG's participation in the ownership of the corporation sprang from that," McCreary says. "We weren't looking for capital infusion; we are financially sound and didn't really need the capital. We now underwrite three programs for CIG that are more or less exclusive to us and that we are able to manage within our operation. The benefits of this relationship to our members are significant," he continues. "They're able to place their business in those programs much more effectively and efficiently. The service is superior, and the products are competitive. This reduces market friction because we control the process."
Would United Valley consider forming such alliances with other insurers? "I wouldn't rule that out," McCreary responds, "but any such arrangement with another company would have to originate from a similar business relationship involving a program of some sort before we'd be willing to allow additional outside ownership. CIG has a very limited position with United Valley. We would never allow any company, or even a group of companies, to develop a percentage of ownership that would give them any kind of control over the company's operations. We don't want undue influence from any insurance company over how we place business or where we place it, except as it flows naturally from programs we might have with that company."
Targeted growth
As mentioned earlier, United Valley's 41 agency members are a strong force in both central and northern California, and expansion is under way in southern California. What are United Valley's plans for growth, and how will these be achieved?
"Originally we focused our expansion efforts on northern California," McCreary replies. "In the first several years of our operation, insurance companies drew a very definite line between northern and southern California, with northern California being regarded more positively. We will stay within the borders of California for the foreseeable future; we think there's plenty of room for growth within the state, and we'll selectively continue to expand--but we will not change any of our criteria in order to do it. We're large enough at this stage of the game that, while growth is preferable, there's certainly no urgency to grow. We'll continue to grow in the right way with the right agencies." *
For more information:
United Valley Insurance Services, Inc.
Phone: (559) 226-1205
Contact: Laura DuBois
Web site: www.unitedvalley.com
E-mail: laurad@unitedvalley.com