2004 Best Practices Study

2004 BEST PRACTICES STUDY - APPENDIX

F INANCIAL S TABILITY 1. Current Assets - Assets that can be converted to cash or a cash equivalent within twelve months. Includes cash, marketable securities, accounts receivable, notes receivable maturing within twelve months, and prepaid expenses. 2. Current Liabilities - Liabilities that require a cash outlay during the next twelve months. Includes accounts payable, the current portion of long-term debt (the portion due during the next twelve months), payroll and income taxes payable, and payroll that has been earned but not paid. 3. Current Ratio - Current assets divided by current liabilities. 4. Intangible Assets - Includes expirations (purchased customer lists), restrictive covenants, and goodwill. 5. Tangible Net Worth - Total assets minus intangible assets equals total tangible assets. Total tangible assets minus total liabilities equals tangible net worth. 6. Accounts Receivable - Amounts due from insureds. 7. Accounts Payable - Amounts due to insurance companies. 8. Receivables/Payables Ratio - Accounts receivable divided by accounts payable. 9. Aged Receivables - Measures the length of time that receibvables are past due (over 60 days, over 90 days). E MPLOYEE O VERVIEW 1. Revenue per Employee - Net revenues divided by the total number of full-time equivalent employees. 2. Compensation per Employee - Total compensation divided by total number of full-time equivalent employees. 3. Spread per Employee - Total revenue per emloyee minus compensation per employee. While revenue per empoloyee is a standard for measuring productivity, the “spread” measures the dollars per employee available to pay all other agency expenses adn generate a profit for the agency. P RODUCER I NFORMATION 1. Validated Producer - Producers whose book fo business is sufficient to cover his/her wages under agency’s commission formula. 2. Annual Pay per Producer - Includes compensation that shows up on the producer’s W-2 and resulted from the producer’s production responsibilities. 3. Minimum Threshold - The amount below which no renewal commissions are paid. 4. Producer’s Ownership in Book of Business - a contractual obligation which allows a producer to receive some benefit based on the business he/she handles and/or produceres. The benefit is often realized when the producer terminates employment with payment frequently made in the form of deferred compensation and paid as a percentage of retained commissios. 5. Restrictive Covenants - A contractual agreement between an agency and an employee or shareholder that limits their ability to compete with the agency for a specific period, usually between one and three years. May be either a non-piracy agreement, which prohibits solicitation of an agency’s accounts or active prospects, or a non-compete agreement which prohibits employment and/or competition within a specific geographic area. S ERVICE S TAFF I NFORMATION 1. Service-Related Personnel - Non-commissioned personnel who have responsibility, either directly or indirectly, to provide or support service delivery to the agency’s clients. 2. CSR - Customer Service Representative - Positions with the main responsibility of client service or to provide support in providing client services. Includes Account Executives, Senior CSRs, CSRs, Account Managers, Assistant CSRs.

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