MARKETING

SMALL COMMERCIAL IS BIG BUSINESS
AT ST. PAUL TRAVELERS

The “merger of titans” brings focus and flexibility to this hot market

By Elisabeth Boone, CPCU

St. Paul Travelers Select Accounts Division executives include (from left) Steve Ward, Chief Underwriting Officer, and Marc Schmittlein, President and CEO.

When we choose a life partner, we step into a new world that offers contentment, security, and the opportunity to share strengths and overcome weaknesses. As most of us know, however, combining possessions, ambitions, fears, and personal quirks requires strong commitment and a megadose of patience.

As in marriage, so in mergers. Perhaps no one understands this better than the leaders of the two industry giants that in April of this year teamed up to create the country’s second largest property/casualty insurer: St. Paul Travelers. With assets of $107 billion, P-C premium volume of more than $19 billion, and a nationwide agency force that is several thousand strong, this newly created giant is experiencing both the pain and the pleasure of joining forces to fashion an entity that is more than the sum of its parts.

How to begin such a daunting task? Like combining households, merging insurers is best accomplished with a plan that facilitates an orderly transition and draws on the strengths of each partner. Because both The St. Paul and Travelers historically have been successful players in the small commercial market, and because that market is one of the hottest growth areas in the property/casualty business, the new organization’s leaders decided to focus their efforts on establishing St. Paul Travelers as the go-to market for producers with small commercial accounts.

Chosen to direct this undertaking was Marc Schmittlein, who is president and chief executive officer of the St. Paul Travelers small commercial division, known as Select Accounts. In his position, Schmittlein is responsible for determining the division’s strategic direction, underwriting appetite, product development, and marketing strategies.

From 1996 to 2001, Schmittlein served as vice president of the mid-Atlantic region for Travelers Select Accounts, and before that he worked on the team that formed the small commercial division for Aetna before its merger with Travelers. Schmittlein joined The St. Paul as president of small commercial in December 2001, before it merged with Travelers.

At that time, The St. Paul had just announced its decision to exit the medical malpractice business, where it had been a leading writer for decades. The med mal market had been deteriorating for some time, but The St. Paul’s departure nonetheless sent shock waves through the industry. It also influenced the company’s decision to increase its penetration of the booming small commercial marketplace. (The St. Paul’s strategies to build small commercial market share are detailed in an article titled “St. Paul Offers ‘Something Else’ in the Small Commercial Market,” which appeared in the April 2003 issue of Rough Notes.)

Drawing on strengths

As two of the country’s top property/casualty insurers, The St. Paul and Travelers were strong competitors in the small commercial market before they merged, albeit with markedly different approaches. How did each company seek to penetrate the small commercial segment?

“There was no better carrier” than Travelers in the under $15,000 premium BOP market for two reasons, Schmittlein says, local presence and the use of service centers. (St. Paul Travelers has continued the local presence by maintaining Travelers’ 35 field offices, 160 account executives and 490 field underwriters. It also is continuing to rely on the service center concept with centers in Elmira, New York, and Spokane, Washington, and is in the process of opening a third center in Colorado Springs.)The St. Paul was noted in the industry for doing a lot of business in the $15,000 to $75,000 range and taking on some of the more difficult classes of business than Travelers traditionally entertained.

Combining competitors

How did the executives of The St. Paul and Travelers accomplish the blending of their respective small commercial operations to create a unified approach to this dynamic market?

“Early in the integration process, people from both companies sat down, with middle markets also at the table, and discussed what was the right way to define the business units,” Schmittlein says. “We have a tremendous amount of commercial volume that ranges from the smallest accounts up to those worth over $1 million in the national small commercial programs unit.”

These discussions, Schmittlein explains, led to the decision to “align our expertise based on risk complexity, not size of account. Traditionally, everyone in this market segment has tried to define it with premium. For example, a barbershop in New York City will have a much larger premium than the same kind of risk exposure in Des Moines, Iowa. We thought that was a poor way to define the marketplace, and we also thought it was very unfair to our agents and brokers as they submitted business across the country,” Schmittlein says. “Executives of the small commercial and middle markets units concurred that using risk exposure instead of premium size would be a great way to separate the two segments and eliminate the gap between them that traditionally has existed for national carriers. So we’ve moved to an exposure-based definition, and it’s been in place since right after the merger. It’s fairly easy now to go from New York City to Des Moines and ask an underwriter or a marketing rep—or, more important, an agent or broker—what is small commercial, what is Select Accounts for the St. Paul Travelers organization, and quickly get an answer.”

Shaping a vision

No two organizations have identical missions or operating philosophies, and a key concern in effecting a merger is to establish a shared vision for the combined organization. Size alone, Schmittlein observes, isn’t of great significance in the small commercial market. “Market position with a lot of volume really doesn’t mean anything,” he says. “What we wanted to do was define the platform for our agents and brokers and their customers. We decided to define ourselves as having a combined appetite and a very large product breadth across the spectrum of small commercial risks.

“We’ll go across the entire market, and I think it’s important for agents and brokers in an organization this big that we continue to say ‘yes’ more and ‘no’ less,” Schmittlein asserts. “We aren’t in the business to take bad risks, but with this kind of premium breadth and expertise, we should find ways to write business for the small commercial customers of our agents and brokers. We can be a regional player with our structure in the field, and we can certainly compete with any national carrier based on the platform we’ve developed.”

Menu of products

Between them, The St. Paul and Travelers boast an array of products designed to meet the needs of small commercial exposures. Familiar brands include The St. Paul’s MainStreet and Advantage products and the MasterPac and PacPlus products offered by Travelers. What does the product portfolio look like today for the combined organization?

“MasterPac has really been the workhorse product in the Travelers portfolio,” says Steve Ward, chief underwriting officer for Select Accounts. “It is a businessowners policy with very broad property and general liability coverage, built to meet the needs of a wide spectrum of small commercial customers,” he explains. “There’s a lot of industry-specific focus and available coverage options and extensions, so the product can be tailored for selected segments of the small commercial marketplace. The MainStreet and Advantage product family (from The St. Paul) is similar in many ways,” Ward continues. “It’s a very well crafted businessowners property and GL contract that also was built to cover a wide spectrum of small commercial exposures.”

Post merger, the organization has decided to focus primarily on the Travelers products, Ward says. “The product we’ll go forward with is a combination of MasterPac and PacPlus. In part that’s because this is a well-identified brand in the marketplace; it’s been out there a long time, and it has a very favorable reputation.” However, he adds, “The product people at St. Paul have created very efficient and effective products. We’ve tried to take the best of both product families. Because of the flexibility we’re building into it, our product can cover the spectrum of small commercial customers within our exposure-based definition.”

Citing the energy created by the merger, Ward says, “It’s an exciting time here, because the merger has brought together some very strong expertise on the product side, and the combination of St. Paul and Travelers has really opened our eyes to some different ways of working together to approach the marketplace in the future. The combined product, Pac and PacPlus, will have a great new feel to it but will retain all the features that made it successful. Within those products,” he continues, “we plan to continue and even accelerate our ability to expand the eligibility of different market segments and classes of business. We’re expanding our underwriting appetite with respect to both class and size.”

What about comp?

By both statute and necessity, workers compensation coverage is essential for small businessowners. Can St. Paul Travelers meet the need? “We are absolutely in the market for workers compensation,” Ward responds. “We strive to bring precision to our workers compensation underwriting, because there are jurisdictions that are better, and worse, than others. To some degree, we will write workers compensation in every jurisdiction, drawing on the market knowledge of our regional vice presidents. We want to meet the majority of needs for our agents and brokers,” he says. “In some cases that will mean writing workers compensation in a more difficult environment, and we are willing to do that.

“St. Paul and Travelers have a similar approach to workers compensation,” Ward says. “Wherever possible, we want to write comp—as well as auto—with our packages, because our goal is to write the whole account. Also, by including workers compensation, we’re able to place the whole account in our service center, which is a terrific competitive advantage for our agents and brokers and their customers.”

Adds Schmittlein, “We all know that comp is a troubled line. I’m actually a big believer that comp, underwritten properly in the right states for the right business segments, can be a profitable performer. We have volume in every state, and we write enough classes in our combined organization that we can take a unique look at the comp marketplace and see big variations in our performance by state and by market segment. I think our strategy should be both offensive and defensive,” Schmittlein says. “Where we’re looking at segments we think are performing well based on the critical mass we have, we’ll play much more offensively. In other cases we’ll look at our state-specific and class-specific strategies and play a little more defensively. We think that’s a good place for us to be relative to how poorly the market has performed,” he says.

What do agents think?

When insurers merge, especially giants like The St. Paul and Travelers, their agents may experience a sense of dislocation and confusion as their markets combine operations. What have agents been saying about The St. Paul-Travelers merger?

Schmittlein cites a survey of 100 independent agents conducted by Banc of America Securities after the merger. “The results were terrific,” he says. “In essence, agents said the company has not missed a beat in terms of execution. In Select Accounts there was very positive feedback that was bolstered when we met in June with independent agents at our Leadership Forum, which was a combined effort of the two companies bringing together their biggest and best partners. We asked the agents for feedback when they returned home, and it was very positive,” Schmittlein says. “I was very pleased with the feedback on Select Accounts, and overall our agents had very little difficulty with the execution of the merger.”

Technology rules

In today’s small commercial marketplace, the role of technology is expanding exponentially. Not surprisingly, St. Paul Travelers is front and center with a sophisticated technology platform that expedites transaction processing.

“Ultimately we decided to go with the Travelers IENet platform,” Schmittlein says. IENet has been a tremendous workhorse for Travelers for years. Obviously, with two-thirds of the small commercial premium being on the Travelers side in this transaction, IENet was the way to go. Once we’d made that decision, we faced the more difficult challenge of how to get all of the capability of The St. Paul platform embedded into the IENet technology,” Schmittlein says.

Charlie Coon, vice president of information systems, says, “We’re taking the best of both platforms and creating a system that’s focused on our end users, who are our agents.”

Having both companies “creates a huge amount of information,” Coon points out. “Data mining that information is going to help us determine what we’re good at and what our target markets are. We’re taking the opportunity to mine all this data and do some predictive modeling, and we’re building this capability into the application so it can sweep third-party information and bring new value to our agents.”

Getting to yes

A broad underwriting appetite, a strong product portfolio, a high-end technology platform, and a solid service center structure—looking at these key ingredients of success, St. Paul Travelers’ Select Accounts unit appears to have the right stuff. While by no means sanguine about the challenges they face in the small commercial market, the Select Accounts executives are confident they have what it takes to be a go-to market.

“As an independent agent or broker, you want to be able to say ‘yes’ to your client,” Schmittlein says. “You want to be able to tell him or her, ‘I can find coverage for you at a competitive rate.’ Everything we’ve done, and everything we want to do, is geared toward helping the agent say ‘yes.’” *