--Bruce Norman, Mercury Insurance Company
In ancient days, Mercury was the messenger of the gods. This winged god delivered important missives to Jupiter and his cronies. Today's Mercury Insurance Group also has a message to deliver to a select group--the independent agents--and that message is that Mercury is an independent agency insurer. That's what it states on the cover of its annual report and that's what its history has shown.
Since its formation in 1961, Mercury General Corp., Los Angeles, parent of the Mercury Insurance Group, has shown an unwavering commitment to the independent agency system and has offered a consistent private passenger auto insurance market through that system. While other companies experimented with alternative distribution systems, claiming that you just can't make money in auto insurance using independent agents, Mercury just kept doing the impossible--making money in private passenger auto and paying full commissions to its agents. In fact, Mercury hasn't simply made money, it has been one of the best performers in the business. Mercury's average premium growth has exceeded 20% annually since 1993 with a combined ratio averaging 90.1% over the last five years and a return on equity averaging 19% annually. Today, in addition to writing auto insurance in its home state of California, Mercury operates in Florida, Georgia, Illinois, Kansas, Oklahoma, and Texas.
We talked to Bruce Norman, CPCU, marketing vice president at Mercury about how his company has managed to grow and prosper in an area that so many claim is a sure loser.
Norman says that "the biggest thing that has helped us grow is the relationship we have developed with our agents. We've developed the kind of market where agents don't have to worry about remarketing the product. Once the business is placed, it stays. This allows agents to focus on developing new business."
Another key ingredient is underwriting. "We've started out trying to be a little better and a little more careful. Our goal is to find the appropriate price for the business that we are writing. In our efforts to accomplish that goal, we have developed a fairly complex underwriting and rating system. This allows us to write a broad range of auto insureds. We don't have to worry about adverse selection, because we price according to the risk."
Because Mercury relies on price rather than selection, it can go into an agency and write all or part of its auto business. "We can go into an agency and not disturb their markets," Norman explains. "We don't demand certain premium levels or ask to be the lead carrier. We just tell those agencies to give us the business their companies don't want. Sooner or later, those companies become non-competitive and then we have an opportunity."
As most agents out there are aware, there have been times when the "business their companies don't want" could be categorized as virtually everything. It's hardly surprising that this strategy has proven successful in producing strong growth. However, the fact that it has also produced highly profitable business is a testament to Mercury's underwriting acumen and its insistence on agents' adherence to its strict criteria.
It has been the mercurial (pardon the pun) nature of the national agency companies in regard to auto insurance that also has been a key factor in Mercury's success. As these companies moved in and out of the market, agents were looking for a stable auto market. "A specialty market like Mercury was the answer for a lot of agents," Norman points out. Clear evidence of this is that today, Mercury is the leading independent agency system writer of private passenger auto in California.
Of course, Norman admits that it hasn't always been easy. When it was easy for agents to place auto insurance business, they "didn't always buy in to the Mercury system. A lot of agents said we were too difficult to deal with, they didn't adjust right away and some fought the system for a while. We go to a lot of trouble verifying information on applications. Agents weren't used to that. If an app was wrong, we would send it back to the agency."
However, Norman continues that this insistence on doing things the right way and not compromising eventually paid off for both the company and its agents. The average commissions are a little over 15%, and Norman insists that is completely appropriate.
"We ask for a lot from our agents. There is a misconception among many companies that cutting commissions actually cuts costs. We don't find that to be true. It's really a case of getting what you pay for. We want quality agents who can hire quality staff. We're asking them to inspect cars, take pictures of the autos, screen applicants, develop underwriting information, make certain the information is accurate. We're convinced that the role our agents play in front-line underwriting really reduces the total cost of our auto insurance." It should be noted here that Mercury is recognized as one of the lowest cost auto insurers in California by studies produced by the California Insurance Department.
Norman concludes that he has followed with amusement the predictions about the demise of the independent agent from atrabilious prognosticators who clearly did not understand the system. "The strength of the system is the relationship that agents have with their clients and as long as agents understand that and build on that, there is no danger that the system will ever disappear. And it's because we believe in that strength that we don't have service centers. Why should we do anything that interferes with that relationship? There is a myth that insurance is a commodity. It is anything but. For most people, insurance involves a relationship with an agent who provides service and expertise. That's why the vast majority of the market buys insurance from an agent and why we're convinced that will continue." *
©COPYRIGHT: The Rough Notes Magazine, 1998