By Thomas A. McCoy
William D. Smith (right), president and chief operating officer, joined Kemper in 1996. Dale Hammond (left), executive vice president of personal lines, came to Kemper in March of this year.
If you call out the Kemper cavalry, you'll find some new generals in charge. In the last two years Kemper Insurance Companies has added a new CEO and a new president. Two months ago it also named a new executive vice president of its Personal Lines Group.
The CEO, David Mathis, is a long-time Kemper executive who headed up Kemper Corp. from 1992 to 1996 while that financial services subsidiary was being sold to Zurich. The other two executives--Kemper Insurance President and COO William D. Smith, and the executive vice president of personal lines, Dale Hammond, came to Kemper Insurance from companies that are competitors.
Do these changes mean Kemper will be heading in new directions? Yes and no. Smith says Kemper will continue to emphasize its traditional strengths. But recent product introductions and the company's marketing emphasis over the last two years does represent a shift, and it is one that should benefit the company's agents.
"As a result of our new product introductions, we're now in a better position to handle most of the business that can be written by our agents," says Smith. While Kemper does not intend to add dramatically to its number of commercial lines agencies--which now number about 1,460--it does intend to boost significantly the business it gets from its producers.
The Kemper producers who stand to gain the most from the company's new products and strategies are likely to be its independent agents, rather than the national brokers who write for Kemper. That's because Kemper is putting increasing emphasis on middle market accounts.
Recent initiatives include a broad new property program, called Kemper Property Resource; the creation of an environmental insurance unit; entry into the excess casualty market; and new experiments in personal lines.
"When I arrived at Kemper, I could see three things that will be tremendously important to our future," says Smith. "First, Kemper has a very powerful brand identity, both in the agency market and the ultimate consumer market. Second, Kemper has a tremendous reputation for service. And third, we have an enormous pool of well-trained people."
Kemper traditionally has carved out its reputation in workers compensation, which provides almost 40% of revenues; large accounts business, a sizable amount of which is written through national brokers; and risk management expertise. Its Kemper Reinsurance Company is the fifth largest broker reinsurance organization in the U.S., based on sales.
In 1996 Kemper made some financial strengthening moves, shoring up its asbestos and environmental liability reserves, and beginning a process, which continued in 1997, of realigning its geographic mix of business. "We had too much coastal property business in some states, to the point where our probable maximum loss was more than 17% of surplus," Smith says. "By substantially reducing our large national HPR accounts and cutting our coastal exposures in personal lines, we reduced our probable maximum loss to 3% of surplus."
"Entrepreneurial companies tend to view their people as a source of revenue, rather than an expense. So they value our approach to return-to-work."
--William D. Smith
The coastal area cutbacks, while not popular with agents in the affected areas, strengthened Kemper financially and, along with the A&E liability reserving, set the stage for future growth. That growth, Smith believes, increasingly will come from middle market companies. He explains why.
"In 1997 about 80% of the nation's workforce (in the nongovernmental sector) worked in entrepreneurial businesses--firms where the founder is still active in the business. Only 17% of the workforce worked in Fortune 500 companies. This represents a complete reversal from 20 years ago. We think our Partner (preferred status) agencies in commercial lines are the ideal source for entrepreneurial business clients. These can be very small companies. There's a whole universe of customers that are almost entirely served by independent agents. It's not the natural market for a national broker.
"Last year," Smith continues, "we began pushing to write entrepreneurial business accounts in the middle market and upper middle market through our Partner agents. So, even though in commercial lines our number of agents didn't grow in 1997, our penetration, especially in some of our larger agencies, grew rather dramatically."
A year ago Kemper introduced its HealthyReturn workers compensation program which is designed to provide quick access to care and diagnosis. "The one thing that studies have shown that we do better than any other company is get people back to work quickly," Smith says. "Entrepreneurial companies tend to view their people as a source of revenue, rather than an expense. So they value our approach to return-to-work."
What if the person who is off work due to an illness or injury happens to be the one in charge of the company? The situation can be critical, possibly threatening the continuing existence of the company. So Kemper recently added a feature to its HealthyReturn workers compensation policy, which provides automatic disability coverage on a company's top-ranking executive. The coverage, called Kemper Executive Decision, will reimburse the insured company for the financial resources required to locate, recruit and pay the salary of an experienced, temporary chief executive.
"With the rapid growth and fast pace of many firms, particularly in the middle market, transition and succession planning isn't always on the front burner," says James S. Kemper III, executive vice president of Kemper's commercial lines group. In fact, Kemper's research showed that nearly half of middle-market firms (those with annual sales between $10 million and $250 million) do not have formal contingency plans for leadership in the event a chief executive is disabled. Yet 83% of them have "key person" life insurance.
Kemper's Executive Decision has been added at no additional cost to new and existing HealthyReturn workers comp policies which have an estimated annual premium of at least $25,000.
By emphasizing entrepreneurial-type businesses Kemper has written a large number of accounts in certain fast-growing areas of the economy. "Probably the two biggest growth segments for us are technology and health care," Smith says. "We have a significant presence in the hospital maintenance contract business, for example."
John Bloomstine, president of Insurance Management Corporation of Erie, Pennsylvania, recently quoted one of Kemper's maintenance contracts for hospitals. "I'll be surprised if I don't get the business," he says. "It's an excellent product, either on a stand-alone basis or as a lead into other lines such as boiler and machinery."
Dale Hammond will direct Kemper's planned expansion in personal lines, which may include joint ventures or mergers with mid-sized or small mutual companies.
The newest product in Kemper's arsenal is an upgraded commercial property form known as Kemper Property Resource.(sm) "We felt we needed a better form because while our property policy was very good, it wasn't one of the two or three best in the industry," says Smith. "Also, we needed to find a simpler way to process the property side of our package business."
Kemper has produced a brochure consisting of four 8 1/2" by 11" pages devoted entirely to a comparison of the policy's features to "the competition." "It's impressive market information," says Bloomstine.
Among the features of Kemper Property Resource are automatic, seamlessly added boiler and machinery and commercial marine coverages; automatic ordinance or law coverage on all covered property and income loss; and the elimination of a number of exclusions, such as for landslide, mudslide and surface water accumulation.
It also includes a claim arbitration clause which the company says is a property insurance industry first. Under the clause, Kemper agrees to enter binding, third-party arbitration in disputes with customers. If the decision goes against Kemper, it is considered final. But if a decision is rendered in favor of Kemper and the customer disagrees, the customer may still take the issue to court.
Late last year Kemper created an environmental insurance business unit which now has 60 people working in it. "This unit is producing $5 million of new business a month--well ahead of our expectations," says Smith.
In personal lines, which currently represents 27% of Kemper's revenues, the company will employ a different expansion strategy. It has 920 agencies under contract for personal lines, and it plans to add significantly to that number. "We have several areas of the country where we are essentially unrepresented in personal lines," says Smith. "Our strategy will be to function very much like a regional company or a series of regional companies."
One way Kemper is emulating the regional company model is through a new program in Illinois called KemperChoice. It has divided the state of Illinois into four territories, each with a marketing manager whose job will be to appoint 30 agents by the end of 1998. A goal of KemperChoice will be to have 300 agents by the year 2000.
The KemperChoice program may be exported to other states beyond Illinois. But Kemper is looking at other ways to grow in personal lines as well. These include joint ventures or mergers with mid-sized and smaller mutuals. "I think we'll see some of that happen during 1998," Smith says.
Kemper has just appointed Dale Hammond executive vice president of its personal lines group. Hammond comes from Travelers Property-Casualty Group where he had been a personal lines executive for 27 years.
Overall, Kemper Insurance Companies' sales grew by 9% in 1997, more than double its rate of growth in 1996, and its combined ratio improved from 114.8% to 103.9%. In most areas of the company its number of employees has been reduced "fairly significantly" over the last year, Smith says, although the number of branch offices has increased and will again increase this year. "We've worked very hard at getting "people out of nonproductive back-room jobs and into roles where they are touching the customer."
Dick Gernhold, president of Gernold Agency in the Buffalo, New York area, had not represented Kemper since 1983 but decided to take them on again three years ago when he was looking for an HPR market. "Some carriers have the rates, but not the loss prevention services which Kemper has," Gernold explains.
"Our accounts are heavily workers compensation-driven, and Kemper has strong products," Gernold continues. "But the real reason for going back to Kemper was not the products; it was the service. Their branch office in Syracuse is very responsive. For instance, when they say a quote will be ready on a certain day, it is, without exception."
Smith mentions one final advantage which Kemper has to offer in today's market--a certain peace of mind which most of its competitors can't provide. "As a mutual company, we aren't going to be bought by somebody."
"There's constant turmoil brought on by the rate of consolidation in the industry, and it has an effect on our competitors, on agents and on customers. The fact that we are a mutual insurance company and the fact that the people here, including Dave Mathis and me, are insurance people, has been very positive for us in the last six to nine months." *
©COPYRIGHT: The Rough Notes Magazine, 1998