I HAVE worked with many independent agencies in Southern Louisiana, and quite a few are located in New Orleans. I have visited New Orleans twice since Hurricane Katrina hit, and the devastation is worse than television could ever convey. I believe that well-managed agencies will survive this difficult time. Unfortunately, many that were unprepared will end up in bankruptcy. To avoid their fate, I highly recommend you take the following steps. All of them will increase your agency's value; so even if you think you never will suffer a catastrophe, there is no reason not to implement these steps immediately.

1) Get in trust! I doubt that many agencies that were not in trust will survive Katrina. (To be in trust, cash plus premiums receivable, divided by premiums payable, must be greater than 1.0–preferably 1.1). In a catastrophe, insurance companies rightly are going to want the money they are owed, but customers are going to quit paying. An agency that is out of trust essentially has already spent customer money and is relying on next month's customer payments to meet this month's company bills. This is an unethical (and stupid) practice.

To minimize taxes, owners of many agencies–especially ones organized as “S” corporations–take out all their profits at the end of the year, per their accountants' advice. And they often do so without regard to their trust ratio. If your accountant advises you to take out all your earnings, even if you're out of trust, you should point out the problem or even find a new accountant. Unfortunately, I have encountered accountants who know perfectly well the importance of having a trust ratio above 1.0 but still advise agents with a lesser ratio to take money out of their agencies. Again, this is an unethical practice–and in the event of a catastrophe, it will bankrupt an agency. Think about all those houses in New Orleans that will be declared total losses, resulting in cancelled policies. Companies will demand the unearned commissions on those cancelled accounts! So don't spend money that is not yours. You must keep your trust ratio at 1.0 or greater.