By Juan Hovey
If you want strong testimony that disaster does not lie in the future of the independent insurance agency system, spend some time talking to the people who run America's regional property/casualty insurers.
Where others see only doom and gloom in the challenges that face independent agencies--their dwindling numbers, their dwindling commissions, the competition from direct writers, the reluctance of the big national carriers to do business with anybody who can't generate ever bigger premium numbers--the nation's regional insurers see opportunity.
What's more, they show a genuine fondness for the agency system itself. They value the personal relations they build with agency owners and insurance professionals who do business with them, and they show a healthy appetite for the kind of business that comes from small to mid-sized agencies in countless towns and cities across the country.
Best of all, many regional insurers stake their own futures on the independent agent.
"I'm astounded at the things I'm hearing about regional insurers," says Carol Hammes, president of Middleton Group, a Chicago consulting firm with a long list of insurer and agency clients.
"Regional insurers are funding new producers, forgiving debt if a producer fails, giving substantial loans to younger agency managers and producers to help buy out principals, and even paying agencies to get x-dates and other marketing tools.
"There are deals to be cut with regional insurers that agents aren't even aware of."
It probably goes too far to say that regional insurers are enjoying a renaissance since, in their view, they merely do business as they always did--the old-fashioned way.
It pays off. A recent study by Conning & Co. of Hartford, Connecticut, shows that regional insurers have maintained market share against competition from both national agency writers and direct writers over the last 25 years. The study, based on A.M. Best Company data, shows that direct writers now control more than 65% of the personal lines marketplace, up from about 47% in 1972, and about 25% of the commercial lines marketplace, up from about 18%. But the increase came at the expense of national agency writers, not regional writers.
Regional writers controlled about 20% of the personal lines marketplace 25 years ago and a slightly lesser percentage of the commercial lines marketplace. Their personal lines share remains about the same now, but their share of the commercial lines marketplace has increased to nearly 30%.
Why?
"They have good relationships with their agents, they pay good commissions, and they get a good chunk of their agents' business," says Nancy Corini, the Conning assistant vice president who wrote the study. "As of now, the regional writers make a nice living."
Ben Salzmann, left, senior vice president for Heritage Mutual Insurance Company, a regional carrier based in Sheboygan, Wisconsin, doesn't dispute the fact that direct writers have gained market share in recent years, while national carriers chase after the premium dollars generated by big accounts.
What he does argue is that, to regional carriers and their agencies, none of that matters much.
"I'm on a lot of panel discussions where a senior vice president for some large national carrier comes to talk with agents," Salzmann says. "Their news is almost always negative. They're losing market share, and they make it seem it's the fault of the agents.
"I get up and say: 'Folks, in the last nine years the premium volume for your average agency grew by 67%, while the number of agency employees grew by only 11%. The independent agent is redefining efficiency in sales and growth.
"'And who's behind this? It's the regional carrier operating in six to ten states--the regional carrier whose president and CEO knows every owner of every agency that's important to the company.'
"For decades the numbers of independent agents have been shrinking," Salzmann adds. "But the independent agent still writes 76% of all commercial lines business in this country, and 33% of all personal lines business.
"The independent agent is not dead. The independent agent isn't even in the minority. I think the business that independent agents write with regional insurers like ours will once again make independent agents the force they were three decades ago."
In large part, Salzmann believes, regional insurers such as Heritage Mutual now prosper because they have harnessed the power of the electronic age--without forgetting the fact that in the relations between insurer and agent, as in those between agent and client, the personal touch counts.
Heritage Mutual operates in 11 Midwestern states plus Pennsylvania and Florida. It did $227 million in premium in 1996, 54% of it in commercial lines business and the balance in personal lines. The insurer counts 1,075 agencies and nearly 6,300 agents.
Like many other insurers, Heritage uses computers to upload and download client data and policy forms, cutting the time it takes to issue some policies to 24 hours. The company's underwriters never see a paper application; every file comes to them electronically, via computer. They don't see simple applications at all, since Heritage uses intelligent-underwriting programming to process such applications automatically. Next up: electronic claims adjusting.
"Agents get frustrated with companies that take 60 days to return an application," Salzmann says. "Our goal is to turn every policy back to the agent in less than one hour. Faster means better quality--and better customer service. And it's cheaper for the agent to operate because we don't play phone tag.
"But the same thing motivating us to seize new technology is what keeps us from going electronic 100%," Salzmann says. "It's the question: What does the agent want? If an agent wants us to, we can still do things the old way with a paper application--and upload the data once it arrives in our mailroom.
"We're oriented toward the agent."
To that end, the company flies home office experts out to its agencies to streamline work flows and get computer systems on an efficient footing. Throughout, Salzmann says, the object is to establish a close partnership to benefit both agency and insurer.
Another Midwestern insurer group, the Westfield Companies, with headquarters in Westfield Center, Ohio, just south of Cleveland, boasts of some agency relationships dating back more than a century.
The group did $780 million in premium last year in Ohio and 14 other states from North Dakota to Florida. Half its book is commercial lines business, half personal lines. The company counts 1,600 agencies, some of which get personal visits from home office contacts as often as once a week. Some 30 of these agencies have done business with Westfield for more than a century.
"We don't look at regional insurers as being in any kind of renaissance," says Dan Sondles, left, Westfield's senior vice president of human resources. "We think some national companies are trying to become like regional companies, not the other way around, and we think they're in pursuit of something our agents focus on as true of us--the fact that we build relationships for the long term.
"We have been growing and we don't bother to look much at what's happening to the national companies. But what we hear from our agents is that the national companies aren't serving the agent like the regionals have been able to do.
"We listen to them. We focus on our agents as our customers because we recognize that our agents make buying decisions on behalf of most of their customers.
"We also recognize that we have to serve our policyholders very well in order to hold onto their business--and to retain agent goodwill. But our efforts focus on getting our agents to understand what we do."
Westfield's computer system is sophisticated enough to permit agents to upload most personal lines and some commercial lines business, but Sondles doesn't expect to go paperless.
"We don't believe that's actually possible," he says. "We're trying to make the system as electronic as possible, but we don't expect ever to say to our agents that unless they send us their business electronically, we don't do business with them.
"The economies are certainly there, and they will drive many producers to make good use of them. But we're not in position to dictate how the independent agent does business--and we don't want to exclude ourselves from being involved in an agent's business if it means that we take it all on paper.
"We have long-standing relationships that have served us very well," he adds. "We aren't about to abandon an agency just because the electronic age may or may not look attractive.
"On the other hand, I don't want to suggest that our focus is to be all things to all people. We try to create a market for 75% to 85% of the business that the county-seat agent is likely to write."
That means personal lines business from ordinary people and local commercial lines accounts from small to mid-sized businesses, Sondles says.
"Most of the business available to our agents is not international stuff," he says, "and it doesn't involve difficult risks. Our appetite has grown as we have become a large organization, and we have watched as the national companies took less and less of an interest in this marketplace.
"That leaves it to the regional insurers like us to take good care of the agent."
J.F. Scherer, left, senior vice president for sales and marketing at Cincinnati Financial Group, also makes the argument that regional insurers prosper not by finding niches untouched or abandoned by the national carriers but simply by doing business the same way they always did.
Cincinnati operates in 27 states in the Midwest and Southeast, plus Arizona, Vermont and New Hampshire. The group's 960 agencies generated $1.4 billion in premium last year.
"The remarkable thing is that we're operating very much like we did in 1950, when this company started," Scherer says.
"'Renaissance' is too strong a word for what we're doing. Regional carriers have been consistently growing, and I attribute this not to any change on their part but to the many changes undergone by the big national carriers.
"When I started out in my father's agency in 1974, we represented Aetna Casualty and Surety; my father had been an Aetna agent for 50 years. Now Aetna doesn't have an appointment anywhere nearby.
"The big nationals have made strategic changes in their own best interests, and those changes have been positive for the regional carriers--those of us who haven't changed, I mean."
Cincinnati likes the efficiencies of the electronic age but, like many other regional carriers, it does not embrace them as a substitute for its long-standing agency relationships, Scherer says.
"Lots of carriers are using intelligent underwriting systems," he says. "But our track record and style and culture don't send us down that route.
"I think the issue of efficiency vs. effectiveness is worth considering. Where I need advice, I don't like being treated efficiently. I want effectiveness, not efficiency.
"If a client believes that an agent brings very little value to the insurance transaction--if the client thinks all carriers are pretty much alike and all adjusters handle claims alike--then there isn't much difference between one insurer and another.
"But we believe there is a huge number of people in the insurance marketplace who bring complex problems to us to solve because we are different.
"We haven't changed the strategies by which we approach such people in 50 years. We get credit for being innovative, but the important fact is how little we really have changed.
"We value the agent as our customer, and we intend to continue to work as hard as we can to maintain the personal relationships we have with our customers." *
The author
Juan Hovey is a Los Angeles area-based freelance writer. He has written about the insurance industry for more than eight years.