IA Talks Transition with Nationwide

Nationwide recently announced its intention to shift entirely to an independent agency distribution model by July 1, 2020.

Since late May, Nationwide has been holding small group meetings with the company’s exclusive agents around the country to explain the transition options. IA spoke with Amy Shore, president of P&C sales & distribution for Nationwide, about why the company felt the time was right to commit to the independent agency model and what the transition will look like at the agency and company level.

IA: Why did Nationwide decide to make this transition, and why now?

Shore: One thing I think is important to understand is that while we've made the decision and we’re communicating it now, the changes are really effective over the next two years. We wanted to make sure we gave agents plenty of notice because we recognize it is a big change in their operating model.

We've been on a journey as a company to come together under one brand. From a property & casualty perspective, we have our traditional exclusive agency channel and over the years we've added over 10,000 independent agency relationships through multiple acquisitions.

Rather than operate under three separate brands with three different operating platforms, we've started a journey to bring everything together—operating under one brand, on one set of policy administration systems. And in January 2017, we went to one structure for how we compensate agents. Now we think it’s time to go to a single relationship structure with agents— and that's the independent agency model.

We recognize the macro economic trends that are affecting personal lines. Significant market share has shifted out of captive agency companies into direct companies. It's becoming harder and harder for agents to major in personal lines— and particularly to major in personal lines as captive agencies. We've been providing our agents with opportunities for several years to diversify their revenue streams – writing more commercial and financial services. They have access to employee benefits products that we offer to really help them diversify. And to be able to attract the talent that they need to thrive in the future, we think the independent model is the best model for them.

Big “I” members feel good about the fact that a company of Nationwide’s stature is committing to the independent agency system. What do you think this move says about the strength of the independent agent distribution channel as a whole?

The two biggest challenges we hear from agents is how hard it is to grow organically and how hard it is to attract and retain talent. We really want to position agents to be able to attract and retain talent that will enable this organic growth.

We also know there is a significant amount of consolidation happening in the independent agency force through acquisitions. As an independent agent, it is easier to do an acquisition and we know that will be how some of our agents will choose to grow in the future.

Our independent agents have reacted favorably because they see it as an endorsement of the model. They are anxious to figure out how they can partner with our exclusive agents as they get through the transition.

Nationwide presented its exclusive agents with three transition options. Option one is to purchase your agency by July 1, 2019, with the least amount of restrictions. Option two is to purchase your agency by July 1, 2020, with restrictions and receive a 1099 for the fair market value. And option three is to purchase your agency by July 1, 2020, with the highest restrictions and receive a 1099 for the fair market value.

To clarify, with option one they aren’t buying the agency, they're buying the renewal rights to the books of business. They own their building, they own their equipment, and they own commercial business that they might have directly placed with other carriers approved by Nationwide. It's not really about the ownership of the agency, it's about the ownership of the renewal rights of the Nationwide policies.

Option one does involve a purchase. Options two and three don't actually involve a purchase. They involve a transfer of the ownership rights. If there's no payment to Nationwide, then an agent’s expense will be in the form of a tax bill. We're going to issue a 1099 in recognition of the fact that ownership rights have been transferred.

So one of the considerations for these agents as they move forward is the tax liability and figuring out how that plays into their decision.

Yes. I think we'll see people choose different options depending on their career stages. Am I a 30-year-old agent with a lot of debt already? Or am I 65-year-old agent that's flush in capital and doesn't have a lot of debt? What's the mix of business in my agency—what if I’m already 55% commercial versus mostly personal lines? Do I already have an agency management system, or am I going to have to install one? It’s going be a complex set of decisions.

If in fact they do transition to the independent agent distribution model, how will Nationwide assist them?

A great example is in the space of agency management systems. We've already got a relationship with the five most commonly used systems, and we've negotiated with them for the agents to have some reduced pricing options.

We are working with a national accounting firm to provide an agent tax letter that agents can give their CPAs so that their financial advisors can better understand this transaction. Sometimes people don't necessarily understand the transitions involved in the sale of an insurance agency.

We’re going to gather together some information after conversations with different lending institutions. We’re in preliminary conversations with InsurBanc. We’re really trying to line up resources that they can choose to take advantage of if they want to.

Once it’s July 2020 and this whole transition is complete, do you anticipate changes to either your products or the marketing around them? Or is it too soon to say?

We don't have all that figured out yet. And one of the reasons we haven't carved everything in stone is we want to work with agents to help answer some of those questions. But the journey we're already on is to make all our products branded Nationwide. We're in the process of migrating all our platforms so we'll have one set of products. Today you could have an Allied homeowner's contract, a Harleysville homeowner's contract and a Nationwide homeowner's contract. In the future, we'll have one best in class product offered through all agents.

We'll continue to also focus on being competitive, offering great products and being easy to do business with. It is our intention to appoint even more independent agents across the country.

Katie Butler is IA editor in chief.