State Auto's president and chief operating officer, Robert H. Moone, left, with chairman and CEO Robert L. Bailey.
By Thomas A. McCoy
State Auto's president and chief operating officer, Robert H. Moone, left, with chairman and CEO Robert L. Bailey.
"Our strategy is sort of boring," says Robert L. Bailey, chairman and CEO of State Auto Insurance Companies--by which he means that dramatic changes in direction are not State Auto's style. Compared to many carriers, that seems like an apt description.
Employee turnover at State Auto is less than 4% countrywide, including retirements. Its agents describe the company's rate adjustments as gradual, rather than sudden. And having started out as an auto carrier 76 years ago, State Auto's book is still heavily personal lines, with the remainder of its business concentrated in small to medium-sized commercial accounts.
Yet over the last 10 years State Auto has grown from $402 million in annual sales to $700 million, expanded from 16 to 24 states of operation, bought two small companies--Milbank and Midwest Security--and strengthened the products and services it provides for its agents. It is rated A+ by A.M. Best Company.
State Auto also has steadfastly adhered to its dependence on the independent agency system. "We have no plans to market our products beyond the independent agency system," stresses Bailey. "Most people still want to buy products and services from other people."
It's not that Bailey can't see ways the independent agency system can be improved. In automation, especially, he is passionate about the need for a greater commitment by both companies and agencies to reaching Single-Entry-Multi-Company Interface (SEMCI). But he remains confident that both old and new challenges to the agency system will be overcome.
Among the older challenges are direct marketing via the telephone or direct mail. Among the newer ones--the Internet. Bailey and Robert H. Moone, president and COO of State Auto, are both candid and confident about how they will deal with these challenges.
"Direct response marketing has been around for a long time, Bailey points out. "Yet it still has captured only about 10% of the market. Will the Internet be a factor in the market? It probably will. But we don't see the 10% that has gone to direct response growing significantly. We think some of that telephone direct response business will go to Internet marketing."
Internet marketing reduces the transaction to the lowest common denominator, states COO Robert Moone.
Moone who, himself, is comfortable ordering and paying for certain products over the Internet, says insurance isn't the kind of product to benefit from Internet marketing. "It reduces the transaction to the lowest common denominator. There's no one to give you advice about coverage or the competencies of the insurance companies involved. It comes down to 'what's the lowest price?'" Moone says.
Low price is one thing. The need for advice is another. Bailey is fond of telling the following story to illustrate the point.
"My former next-door neighbor bought his insurance from a direct response company. Yet, he would always come over to my house with his insurance questions. He'd say things like, 'I'm going to help my son-in-law move and I'm renting a truck. Is there any special coverage I need for that?' Or, 'what should I do about covering my wife's jewelry?'
"One day I said to him, 'I'm getting farther and farther away from the day-to-day insurance business and spending more of my time on management and reinsurance. I'm probably not the person you need for coverage advice. Why don't you call your company with your questions?'
"He thought about it for a second, and then he said, 'I'd rather do business with someone I can trust.'"
State Auto is represented by about 2,000 independent agencies mostly in Midwestern and Southern states. State Auto agents whom we spoke with characterize the company as conservative but innovative--not always having the lowest price, but being responsive to the needs of both the buyer and the agent. "They understand the changing dynamics of the consumer's service expectations," says John Schnebly of the Keller-Stonebraker Insurance Group in Hagerstown, Maryland.
"Our cost per transaction with them is good, adds Schnebly, but the hidden component with State Auto is stability. They're still run by insurance people, rather than financial people. They don't jump in and out of lines of business every few months."
State Auto is the lead personal lines carrier for Keller-Stonebraker, a $10.5 million agency with four branches. "We also do business in West Virginia and Pennsylvania," Schnebly, adds, "and they've helped handle the multijurisdictional problems for us."
Tom Wiseman, president of The Wiseman Agency of Gallipolis, Ohio, last May's Rough Notes Marketing Agency of the Month, describes State Auto as being "on the cutting edge in automation." The agency uploads and downloads business with the company, and has represented State Auto for about 60 years, writing both commercial lines and personal lines.
"In commercial, they're very good on main street business, and they have some appetite for larger accounts too," says Wiseman.
In the personal lines market State Auto has long encouraged electronic interface with its agencies. It owns an agency automation vendor, Strategic Insurance Software (S.I.S.), profiled in the September 1997 issue of Rough Notes. As early as 1979 State Auto had some 300 agencies interfaced using a proprietary system. Today the company has moved almost entirely away from proprietary interface in favor of APT-enabled interface through which it is currently downloading with more than 800 agencies and uploading with nearly 500.
"We download more than half of our personal lines transactions now, and if we stay on track, we'll be uploading 40% of our personal lines business by the end of 1998," Bailey predicts. "We believe within five years virtually every transaction will be uploaded, both personal lines and commercial lines."
"If the agency system is to be efficient, we must have uniformity, Bailey stresses. "And that means having vendors, agencies and companies using SEMCI. The industry has made progress in that direction, but I'm fearful that the move toward SEMCI is losing momentum because of confusion about the Internet. The Internet does not eliminate the need for SEMCI. You still need the software to create the uniformity. We think we'll be using the Internet to bring our communications costs down, but the industry still needs to have the uniformity of SEMCI."
--Robert Bailey
Currently about 63% of State Auto's business is personal lines. Recent acquisitions of two personal lines companies, Milbank of South Dakota in 1993 and Midwest Security of Wisconsin in 1997, swelled its book of personal lines business initially. Over a longer time frame these acquisitions also enable State Auto to market their commercial products in new states through new agencies.
"Our overall goal is to be about 50% personal lines and 50% commercial," says Moone. "For the past two and half years, even with the difficult soft market, our growth in commercial lines has been in the low double digits."
"It became clear to us that when new producers come into an agency, they need guidance in learning how to sell, to build the right habits."
--CEO Robert Bailey
This growth, Moone explains, "isn't the result of some exotic new lines of business or compromising on underwriting or pricing. It's the result of giving our underwriters the field authority to quote risks on the spot. They can do inspections and give credits and debits with no one in the home office second guessing them. They communicate with us via a laptop."
Both in personal lines and commercial lines, claims service standards at State Auto are clearly defined. The company uses staff adjusters and has a policy of providing a "meaningful claim contact" (not just a clerical call acknowledging the claim) within two hours of receiving the claim notice. "We're able to do that about 90% of the time," says Bailey.
In 1996 State Auto added a 24-hour, seven-day-a-week claims service hotline. The hotline is not designed to replace claims calls to the agency, but to assure policyholders of uninterrupted access to claims service if the agency is not reachable.
The net result of State Auto's approach to claims service, Bailey says, is a complaint ratio of only two per 1,000 claims.
Last year State Auto kicked off a program, called PaceSetter Sales, designed to improve what it sees as a potential weakness in the agency system: the difficulty agencies have in training new producers. Rather than simply granting no-interest loans to finance producer development, as it had been doing for several years, State Auto decided to take a more active role.
"It became clear to us," said Bailey, "that when new producers come into an agency, they need guidance in learning how to sell, to build the right habits."
Under the Pacesetter program twice a year State Auto agencies send a producer into the company's home office for two weeks of sales training, including general selling techniques, personal lines and commercial lines sales. About 25 producers were trained in the first session, last spring, and about 40 more last fall. The cost to the agency is under $1,000--which can be earned back through production.
The process doesn't end when the participating producers return to their agencies. A "coach" from State Auto, whom the producers worked with at the home office, monitors the new producers' sales activities for a period of six months, working in conjunction with someone at the agency who serves as the new producer's mentor. Participating PaceSetters are required to turn in production reports, logging their sales and prospecting activity.
Based on these reports, Moone explains, "The State Auto people are on the phone with the new producers on a weekly basis--encouraging them, congratulating them or, if necessary, cajoling them to pick up the pace. If you just tell producers what they need to do to be successful, monitor what they're doing, and give them feedback, amazing things can happen."
In fact, Moone says, "Among the agencies participating in the PaceSetters program, the average growth rate before the program was under 4%. Following the program, those agencies were growing in the 20% range."
"The program really helps," says Norm Schmid, whose agency, The Huseman-Schmid Insurance Agency of Cincinnati, Ohio, was a participant in the first PaceSetters program. "Our problem with sales training was that we would never have enough time to follow up. We would start to provide the training, but it would get dropped after a month or two."
Even after the formal six month training with PaceSetter ended, Schmid says, the agency's new producer, Amy Roberts, has continued to receive monitoring from her State Auto coach, John Petrucci. Roberts, one of four producers in the 12-person agency, had been with the firm for seven years, but had only been a producer for a few months when she went through the PaceSetters program.
"My coach gets me charged up and keeps my production up," Roberts says. "It helps to know they've been in my shoes before." Among the changes she made in her sales approach after the home office training was to rely less on the phone and do more presentations in person.
State Auto recently introduced a personal lines program called Prime of Life, featuring auto and homeowners discounts and special coverages for people age 50 and over. State Auto backs the program with a wide array of marketing support including direct mail cards, trade show promotion kits, and help with radio and print advertising.
Building on its traditional strengths, including its support for the agency system, State Auto is confident about the future. "We're doing some new things, but strategically we haven't changed," says Bailey. "The way we treat people hasn't changed. The way we treat our agents hasn't changed. Our direction is pretty consistent."
And, he adds, "We are extremely optimistic about this business." *
©COPYRIGHT: The Rough Notes Magazine, 1998