Explosions…do explode

Congrats are in order to our longtime friend, Barry Goldstein, who sits comfortably on our cover. Barry is a serial entrepreneur who has picked a winning horse and seen it keep pace with agents and brokers’ needs….. … Insurance agency mergers and acquisitions “exploded” during the first quarter of the year, with 178 reported transactions in the first three months of 2017, according to OPTIS Partners’ M&A database. There were 115 deals reported in the first quarter of 2016, by contrast. The data covers U.S. and Canadian agencies selling primarily property-and-casualty insurance, agencies selling both P&C and employee benefits, and those selling only employee benefits. The OPTIS Partners report breaks down buyers into five groups: PE-backed (private-equity) brokers, privately-held brokers, publicly-held brokers, banks, and all others.

PE-backed buyers continued to lead the charge with 93 transactions compared to 56 in the same period last year. Top buyers were Acrisure (29 transactions) and Alera Group, a new entrant that closed 24 deals.

Privately-held brokers were the second largest group, completing 49 deals, up from 35 in Q1 2015.  Publicly-traded brokers completed 17 deals, up from 10. Bank acquisitions remained unchanged at seven. Insurance companies bought 11 agencies versus four a year ago. Sellers by type were P&C agencies (79 announced transactions) and P&C/benefits brokers (28 deals).  Sales of employee benefits agencies surged to 58 deals versus 13 a year earlier. “The actual number of sales was undoubtedly greater than the 178 reported during the quarter, since many buyers and sellers do not announce transactions,” said Daniel P. Menzer, CPA, partner with OPTIS Partners. “However, because our database tracks a consistent pool of the most active acquirers, it’s a fairly accurate barometer of activity.”

YourPeople Inc., doing business as Zenefits FTW Insurance Services, will pay a $1.2 million fine following an investigation by the Department of Financial Services (DFS) for repeated violations of Insurance Law, including allowing unlicensed employees to solicit, negotiate and sell insurance policies. As part of a consent order entered into with DFS, Zenefits will take all necessary actions to ensure that all of its employees and contractors acting as insurance producers in New York are properly licensed and have completed all required training and education. The DFS investigation found that in 2014 and 2015, Zenefits permitted employees to solicit, negotiate or sell insurance policies without required licenses, did not maintain records necessary to verify compliance with New York Insurance Law, and failed to implement adequate compliance controls and employee training programs. In addition, the company’s former CEO, Parker Conrad, wrote a software macro in 2013 that allowed employees to evade broker licensing education requirements. As part of its agreement with DFS, Zenefits will train all current and future employee brokers with a minimum of 52 hours of insurance broker education, and document the retraining to DFS. Zenefits, an online human resources tool that offers insurance brokerage services for the purchase of group property, casualty, health and life insurance policies for employees, self-reported the violations. After conducting an internal investigation, Zenefits reported to DFS in November 2015 that it learned its employees had engaged in insurance business in New York without licenses. Some employees were licensed to sell insurance in other states; others were not licensed at all, and some Zenefits supervisors were aware of the compliance failure. Further, Zenefits also failed in some cases to maintain complete records identifying which employee sold, negotiated or solicited a particular insurance policy. In November 2016, Zenefits reported to DFS that as of that time, all employees soliciting, negotiating or selling insurance in New York had valid insurance broker licenses and that the company had instituted controls that would prevent employees from selling insurance without a license in the future.

The remedies outlined in the consent order ensure the company’s compliance with New York Insurance Law. Zenefits has represented to DFS that it has taken several actions to remedy the violations, including replacing the company’s CEO and several other executives. Additionally, Zenefits has reported to DFS that it has appointed a chief compliance officer and built a compliance program and team; restructured its board from one controlled by its former CEO so that two-thirds of the seats are not held or controlled by management; developed licensing controls that have been provided industry-wide via a free open-source app; and used a national accounting firm to produce reports on past licensing compliance history and to evaluate the design and functioning of the company’s new licensing controls. Pretty unambiguous “heads up” for agents and brokers.