By Thomas A. McCoy tommccoy@in.net
For many major property/casualty companies the lengthy soft market in commercial lines has been a time to remake themselves, for better or for worse. Often this has meant changing their marketing strategies to focus on narrower niches of the P-C business, in both commercial lines and personal lines.
One insurer that has not changed its basic marketing formula during the soft market years is Cincinnati Insurance Company, a regional carrier founded by independent agents in 1950. It is doing pretty much what it has always done--listening to its independent agents and providing a broad market for traditional small to mid-sized commercial risks and personal lines.
"We have never tried to select only certain niches of an agent's business," says Robert B. Morgan, president and CEO of Cincinnati. "We try to write as broad a range of policies as possible."
How broad a market? "Our philosophy has been that we can go into a small town in one of our territories and write 75% to 80% of an agent's business, both commercial and personal, at a competitive rate," says Morgan.
Robert B. Morgan, President & CEO of The Cincinnati Insurance Companies.
Cincinnati wouldn't expect to write three quarters of every agency's book of business, but it does expect to be "uniquely important" to all of its 971 agencies, says J.F. Scherer, senior vice president of marketing. For most agencies that translates into being number 1 or number 2 in the agency, within five years of appointment.
"The way we define being number 1 or 2 isn't always the same in each agency," Scherer explains. "In some smaller agencies we'll write 60% to 70% of the agency's book. But we're also in many agencies of $15 million to $25 million where we're not the number 1 carrier in terms of premium, but where we often are number 1 in terms of the number of policies written."
Despite soft market pressures, Cincinnati has achieved its significant level of importance in its agencies while producing a combined ratio averaging 101 over the last five years. It also has earned the highest rating from A.M. Best Company, and over the past two years leading financial publications have ranked the company among the industry's leaders in a variety of financial performance categories.
All this has also earned them the attention of investment analysts who, Bob Morgan notes, sometimes need to be educated about the independent agency system.
"One message we've picked up from investment analysts in the last few years is, 'How can Cincinnati be so successful when you're tied to an antiquated distribution system?' We tell them that those who talk about the demise of the agency system have been wrong. Allstate has written $1 billion of business through independent agents. At Cincinnati, we work with the best and brightest independent agents, and our success speaks for itself."
With two years left in this century, Cincinnati's growth goal is to write $2 billion in direct written premium by the year 2000--which will require growth of just under 10% per year--as well as to achieve a combined ratio under 100 and maintain its top ratings.
Cincinnati believes it is positioned to reach those goals. "Our ability to grow is limited only by our ability to train people and to have the technology to handle the growth," says Morgan. "We have agents out there who would really like to do business with us."
The company operates in 67 territories within 27 states, mostly in the Midwest and South. Two-thirds of its business is commercial lines, as opposed to 30 years ago when it was 75% personal lines. Over those 30 years the company has grown from writing $12 million in total premiums to more than $1.5 billion.
Cincinnati chooses its territories of operation carefully and places a field rep, who is usually former Cincinnati underwriter, in each territory. These field reps are given wide-ranging authority to write and price business. Agents credit this strategy for much of Cincinnati's success in the cutthroat commercial lines market.
"Our field rep lives in our town, so he can take a look at all new business and get a feel for what they're writing," says Mike Doyle, president of Doyle & Ogden, in Grand Rapids, Michigan. "He'll give the appropriate generic credits and then visit the risk before it's written. After the inspection, the rep will see if he can provide any more credits by documenting the quality of the risk."
"They're competitive, but not as low as some companies," adds Tad Krug, chairman of Ramsey, Krug, Farrell & Lensing, a 65-employee agency in Little Rock, Arkansas. "They win business by being available."
George Wilson, vice president of The Heartman Agency in Rochester, Minnesota, agrees. "Since their field rep is in our office once a week building relationships with the CSRs and marketing people, and the field rep has complete authority, it's hard to avoid writing business with them."
Krug's and Wilson's agencies are new to Cincinnati. Neither firm was lacking in quality markets before taking on Cincinnati about two years ago. But when the company opened up a field territory in their areas, they signed on. Neither agency rolled over a book of business to Cincinnati, but each has produced impressive results with the company. The Heartman Agency now has $1 million in annual premium with Cincinnati; Ramsey-Krug, Farrell & Lensing has placed over half of its "standard" new business (excluding transportation, contractors and other special programs) with Cincinnati.
Both long-time Cincinnati agents and newer ones agree that there is little in the small commercial market that the company will not consider writing. "They'll take a look at 80% to 90% of our commercial accounts--everything from a contractor to a bird seed store," says Wilson.
"They'll quote just about everything," agrees Steve Stewart, of ISU/Stewart-Brimner in Fort Wayne, Indiana. "We use them for both large and small commercial risks. They're strong in retail, wholesale and manufacturing. They have a good bond department, and they do a good job in boiler and machinery."
Stewart's firm, which was voted Rough Notes Marketing Agency of the Year for 1991, writes almost $3 million in commercial lines with Cincinnati--both large and small risks--representing 20% of the agency's total volume.
One change in Cincinnati's marketing strategy during the soft market has been a slight acceleration in its growth of operating territories. "In the past we opened about three new territories a year," says Scherer. "Since 1992 we've averaged about four per year, going from 48 to 67."
"We're going to continue to aggressively expand into some other states and also to subdivide the states we're already in and grow that way," says Morgan. In 1997 the company opened territories in North Dakota; Tennessee; Chicago, Illinois; Springfield, Missouri; Milwaukee, Wisconsin; northern Michigan; and Louisville, Kentucky.
In addition, says Morgan, "We're looking at two territories in upstate New York and one in Montana. Down the line we're looking at Utah, Idaho, Washington and Oregon. We're not interested in some big population states like California, Texas, New Jersey and Massachusetts because of what we perceive to be a long-standing regulatory environment of rate suppression and/or too much residual market exposure."
"The biggest factor in our success has been our ability to identify quality agents."
J.F. Scherer, Senior Vice President of Sales & Marketing at Cincinnati Insurance
When Cincinnati considers appointing new agents, it seeks generalists--ones who can give them personal lines, commercial lines, life insurance and bond business. However, Scherer notes, "Some of the agents we appoint will be specialists in contractors, some of them personal lines and some complete generalists. Rather than identifying niches of business to write, the biggest factor in our success has been our ability to identify quality agents.
"There are several important criteria in determining whether an agency is a likely candidate for a successful long-term partnership," Scherer continues. "First, is the agency a sales organization, as opposed to one that used to be a sales organization? No matter what the size of the agency, if it is no longer a sales organization, we would have little interest in them.
"Another important criterion is the financial condition of the agency. In the past, we didn't ask for financial statements of prospective agencies. Now we ask for one in every single case. If an agency is having difficulty affording their next computer system or they can't afford to hire a new producer, then there's really no sense in trying to forge a relationship."
"Finally we try to look ahead 15 to 20 years. What is the agency's perpetuation plan? We're interested in long-term relationships."
Cincinnati's generalist marketing approach has been fine-tuned in the last several years with the introduction of commercial packages for defined businesses, including dentists, funeral directors, optometrists and metal workers. In 1996 it was one of the first insurers to offer an employment practices liability policy for small to medium-sized employers.
Morgan stresses that product introductions such as these are made at the suggestions of its agents, and that they broaden, rather than narrow the opportunities to write business with Cincinnati.
"When we developed our employment practices liability policy, we did it not because we want to be a specialist in it, but so our agent doesn't need to go to a specialty company," says Morgan.
Larry Sanders, whose agency, the Edward Sanders Agency of LaPlatta, Maryland, has represented Cincinnati for about three years, says, "Cincinnati operates under the traditional agency relationship where each party does what it is best qualified to do. We contact customers, explain coverages, do billings, deliver policies and request endorsement changes. The company can focus on claims and underwriting.
"Cincinnati has good coverage and pricing, but given today's commercial lines market, lots of companies have that. What distinguishes them is that they give us a chance to build a business relationship with our customer."
"They take the concept of the agency relationship more seriously than most companies," says Mike Doyle, whose 21-employee agency has represented Cincinnati for 25 years. "It's more of a partnership with Cincinnati."
"We consider our agents to be our customers," says Morgan. And that, more than anything else, seems to be what agents appreciate. *
©COPYRIGHT: The Rough Notes Magazine, 1998