By Thomas A. McCoy tommccoy@in.net
Selective Insurance Group executives include (left to right) Jamie Ochiltree, III, executive vice president; Gregory E. Murphy, president; and James W. Coleman, Jr., senior vice president, Strategic Business Units.
"Go West, young man. Go West."
Selective Insurance of Branchville, New Jersey, has taken Horace Greeley's adventurous advice to heart. Last year the company, which had operated for 70 years only in mid-Atlantic states that are contiguous to its home state, embarked on a Western expansion. It started writing business in Indiana, Illinois, Wisconsin, Ohio, and Iowa. It soon will be writing in Michigan also.
By the end of next year Selective's goal is to have approximately 200 agencies in the six Midwestern states. It has approximately 800 agents currently in all its 15 states of operation. Commercial lines business is the first to be written in the Midwest, with personal lines to follow.
It is too soon to tell how Selective will fare in the Midwest, but the carrier's expansion strategy merits an early examination, if only because it appears to defy the stereotype that a regional company succeeds because it knows its local marketplace. Or that, if a regional does expand geographically, the logical way might be to purchase an existing carrier in another market.
Gregory E. Murphy was recently named president and chief operating officer of Selective Insurance.
Selective's expansion into the Midwest is only one piece of what distinguishes the company. It is a top-ranked carrier which writes personal lines and middle market commercial business. Its core business is in nine mid-Atlantic states, with its home state of New Jersey accounting for almost 60% of its premium volume.
In 1992, shortly after Bill Entringer came to Selective as chairman and CEO, the company underwent a marketing reorganization, creating seven Strategic Business Units (SBUs)--one for each of the customer segments of business it serves. The idea was to make the writing of business start with the customer's needs, rather than with the company's product offerings. For example, a workers comp exposure of a contractor gets handled by one SBU; a worker comp exposure of a hotel gets handled by another.
Although the process may sound like a lot of companies' niche marketing strategies, Selective's approach differs in two important respects. First, its "niches" are actually extremely broad (contractors, bonds, habitational, manufacturing, mercantile, public entities and personal lines).
Second, after the company established the SBUs, it moved the underwriting process away from the home office and branch offices, and into the field, creating the position of Agency Management Specialist (AMS). The AMS has wide-ranging authority to underwrite, rate, and grant exceptions for agents, serving as a virtual home office. The objective is to make it easier for agents to do business with Selective.
"We believe the thing that makes business flow from an agent to a company is the confidence the agent has in the company," says Jamie Ochiltree, III, executive vice president of Selective. "Today any company can hit the number on price, and a lot of companies have good products and can give agents materials that will help them make a good presentation. What we want to do is make it easy for agents to put good business with us."
One of the new Midwestern agencies is the Howard A. Esser Agency, a $13-million premium firm writing 80% commercial lines business in Naperville, Illinois. Jack Harmon, a partner in the agency, reports that Selective's AMS is in his office once a week and is reachable quickly at other times by an 800 phone number--for quotes, eligibility information and access to engineering expertise.
As a result, Harmon says, "We can get commercial quotes from Selective within 24 hours."
Harmon's agency represents a mix of regional and national companies, with 95% of its business going to six of them. "We decided since the tight market of the early '80s that rather than represent too many companies, we would rather be important to a few," Harmon says.
The agency decided to add Selective upon the recommendation of a South Carolina agent who, like Harmon, represented Cincinnati Insurance Company. So far, says Harmon, "We've used Selective for $200,000 and under local accounts. They write a variety of business, their pricing is aggressive and their coverage enhancements superb."
The real test of Selective in the Esser Agency came recently when Harmon submitted a mid-sized metal manufacturing risk to the company. "Selective's program had a lot of enhancements for this type of risk, but I had reservations about doing it with them, instead of through a traditional manufacturers output policy (MOP)."
What ultimately convinced the agency to place the business with Selective was responsiveness of the company. "The prospect had some concerns about water damage," Harmon explains, "so we had a conference call in my office which included the prospect, the AMS and me. Selective was able to address those concerns, and then they followed up with a letter from the home office to reassure the prospect."
In addition to the support from its AMS, Selective's Midwest agencies will also soon be assigned a Claims Management Specialist (CMS). These field claims adjusters, already in use in the company's eastern states, will have claims authority comparable to what the AMS representatives have on the underwriting side.
Twenty years ago Selective's field underwriting and claims systems might have been overly expensive, acknowledges Jim Coleman, Selective's senior vice president of the Strategic Business Units. Today, he points out, these specialists can work out of their homes.
Besides, Coleman says, "Lots of companies have found out that it can be expensive to adjust claims and underwrite business from inside their offices too. A 10% to 15% hit ratio on business is expensive. If you're in the field and in agents' offices, you raise the hit ratio."
Jim Ochiltree, who is overseeing Selective's foray into the Midwest, is familiar with business conditions in the Midwest states, having come to Selective three and a half years ago from Cincinnati Insurance Company. Before that he worked in an independent agency in Ohio.
He admits that the Midwest market is competitive but says, "Some agents are looking to diversify their book of business and they need another carrier. We didn't go in with minimum volume requirements. We just ask for the chance earn their business.
"Our strategy is not to appoint too many agents in any particular area," he continues, adding that Selective wants to keep its ratio of AMSs to agents at the target level. "Right now we have five AMSs in Illinois, for example, each of whom calls on 10 to 12 agencies."
Bob Butzke, president of Northbrook Insurance Associates, a $6-million agency in Menominee Falls, Wisconsin, took on Selective six months ago. His agency already represented both regional and national carriers, and he sits on the board of one mutual regional carrier.
"Some regional companies are too narrowly focused or they haven't been competitive enough in this tough market," says Butzke. "Selective writes a broader spectrum of risks than some regionals. If it's a good risk with good potential, they'll consider it."
Butzke's agency receives visits from Selective's AMS about twice a month. So far, Butzke says, "Selective has been agreeable and flexible. But we won't run up the victory flag until the renewals come through."
Calendar & Co. of Peoria, Illinois, is a seven-employee agency which characterizes itself as a generalist. It took on Selective nine months ago. "We were looking for a company with a good Best's rating because we were realigning our book of business with a national carrier," says Rob Bielenberg, agency president. "We've used Selective for a variety of small to mid-sized commercial risks.
Bielenberg makes use of rating and quoting software which Selective provides for its agents. "We use the software to play with the numbers to see if we can get them where we want to before we make a full blown submission."
Selective's move into the Midwest and its restructured marketing approach of recent times are not the only ways for agents to judge the company. Former agent Jim Ochiltree, who heads branch and field operations and became executive vice president two months ago, emphasizes that the company's support for agents starts at the AMS level but continues all the way to the top.
"Every year our top executive team hosts a meeting in each of our operating territories," says Ochiltree. "All the agents in the territory are invited to meet with Bill Entringer, Greg Murphy, Jim Coleman and me. The meetings include presentations by our executives, but they also allow time for us to listen to agents' concerns, have lunch with them and get to know them better."
Selective is a publicly owned corporation, listed on the NASDAQ; and it includes both a current agent, William Rue of Trenton, New Jersey, and a retired agent, C. Edward Herder, on its board of directors.
The company's stock price has outperformed the S&P Small Cap 600 every year over the past 10, and "we have a large percentage of agents who are shareholders," notes Jim Coleman. "It's also interesting that when we look at the percentage of participation in the stock purchase program by agents in our nine regions, the agents in the Midwest, who have only been with us a short time, rank fourth out of the nine regions."
Whether Selective is operating in the Midwest or the mid-Atlantic states, Ochiltree says the company's marketing goals and the goals of its agents are the same. "The independent agent controls the market for most small to mid-sized commercial risks and upper end personal lines business. That's the market we want to serve." *
©COPYRIGHT: The Rough Notes Magazine, 1997