A strategic move: advisory boards can assist agents in running their businesses.

Experiences during the past two years have convinced me that retail agents, wholesalers and managing general agents need help and advice in running their businesses, and the solution is to form strategic advisory boards for their privately held corporations.

The members of these boards should include veteran insurance executives with legal, financial and accounting expertise. The boards must meet regularly with the goal of eliminating any surprises down the road for the agent/owner.

Many of these businesses are not structured to take advantage of a unique opportunity and need guidance in the selling process. Case in point: A retail agent receives an unsolicited letter from a regional bank stating that the bank wants to purchase the business. Not only is the agent unprepared for a purchase, but the owner needs help in putting together a current valuation. One of the objectives of a strategic advisory board is to have current valuations on its quarterly agenda.

Here are some other examples that illustrate why agents need to implement strategic advisory boards:

* A wholesale agency is approached by its largest retail agent producer to start a risk retention group for the retail agent's insureds. Since the wholesaler has no experience in structuring and capitalizing a risk retention group, it calls upon its strategic advisory board, which is able to provide the necessary consulting services to implement the plan.

* The largest workers' compensation client of a retail agency tells the agency owner that it wants to form a corporate owned captive. By contacting the strategic advisory board, the agency owner gains access to the necessary insurance talent to put together a sophisticated feasibility study for a workers' comp captive.

* Its biggest insurance company market sends a notice of termination to a managing general agent. This comes as a complete surprise to the MGA owner since no one in the agency is responsible for insurance carrier relationships. One of the many strengths of a strategic advisory board is to focus on these relationships, review terms and conditions of MGA agreements, and stay current on the financial condition of insurance companies. In this instance, a new insurance company market search has to be started immediately by the advisory board to find a replacement market for the MGA.

* Owners of an East Coast managing general agent want to expand into the West and purchase an MGA of comparable size, and with Western insurance experience. The advisory board has already identified four targets that could be approached, thus helping the owner plan the expansion.

* A retail agent who has built insurance carrier relationships only upon doing business with wholesalers and managing general agents wants to structure and capitalize his own MGA. He presents his plan to his strategic advisory board and its members perform the insurance company market search for this new MGA.

* A managing general agent wants to organize an agent-owned offshore captive insurance company. To do so, the owner needs a feasibility study which can be performed by the agent's advisory board. In addition, structuring and capitalizing such a company may require a private placement memorandum, reinsurance negotiations and access to fronting carriers.

* The owner of a large wholesaler wants to look into new technology for policy issuing, billings and collections. The strategic advisory board has been discussing that issue at its quarterly, meetings and members already have done their homework, providing the names of three firms that can do the job. Thus, an orderly approach to securing new technology can be implemented.

* The owner of a managing general agent wants to start a domestic insurance company and needs a business plan to raise capital, as well as access to sources of capital. Who puts capital into a start-up insurance company? The strategic advisory board has some answers. Its members have been planning all along for just such an opportunity, and are ready to provide the necessary input. Seems the cost and time frame of starting a domestic carrier have been discussed during their quarterly board meetings.

These examples show that strategic advisory boards, whose directors have the necessary experience, can play important roles in the future of privately owned companies, whether they are retail agents looking to sell or expand, wholesale agents looking to buy, or managing general agents looking to sell, find a new insurance company market or start their own insurance company.

Andrew, Barile is president (of Andrew Barile Consulting Corp., Rancho Santa Fe, Calif. He can be reached at [e-mail].