The Addis Group places its clients on a pedestal. From left are agency principals F. Scott Addis, CPCU, president; Peter R. Unger and William D. Rhodes, III, executive vice presidents.
At the start of this decade, F. Scott Addis, CPCU, and William D. Rhodes, III, left secure jobs to start a futuristic agency that would develop business through "extreme service," utilizing a unique risk management audit process. Scott was vice president and senior account manager with Johnson & Higgins in Philadelphia. Bill was senior casualty underwriter with American Re in Philly. Peter Unger, CPA, ARM, joined about 10 months after the start-up. Peter was director of finance and annual giving for The Haverford School, Haverford, Pennsylvania. Today, Scott is president and founding partner of The Addis Group; and Bill and Peter are executive vice presidents and founding partners.
It turned out to be an auspicious tripling. The three men brought unique skill sets to a business that continues to redefine the level of education, services and resources delivered to the consumer. Although they each manage accounts, they also have areas of concentration that play to their strengths. Peter runs the day-to-day operations and basically serves as the agency manager. Bill oversees account management and quality assurance. Scott is in charge of strategic planning.
The agency was Scott's vision. He was convinced that an insurance agency could grow and prosper without sales people, that education and expanded risk management resources could be the ultimate sales tool that would cement the agent/client relationship and lead to business through referrals. But such an undertaking took time, and there were plenty of naysayers telling him that providing the level of service Scott anticipated could not possibly be done on a profitable basis. Scott readily admits to the "fear factor" creeping in on occasion in 1990 and 1991, especially when his $50,000 credit line was near depletion and his third child was on the way. Indeed, it was the extreme service (the investment of time and research in going beyond insurance) that was causing the problem. The Addis Group spends about three months away from the insurance bidding process in a "deeply engaged risk management audit" of potential clients. And that did not lend itself to quick cash flow. But it did lead to loyalty and referrals.
Needless to say, since The Addis Group is our Agency of the Month, it did survive. Scott's vision proved efficacious. By the end of 1991, the agency had $347,000 in revenue and premium volume of $2.8 million. There were four people at the agency. Today, The Addis Group has revenue in excess of
$4.3 million, premium volume of more than $50 million and employs 22 people. Its service standards have brought recognition. In 1998, The Addis Group was awarded the Business of The Year Award by the Philadelphia Chamber of Commerce for customer service excellence. And, Scott Addis has been a finalist for Inc. magazine's Entrepreneur of The Year Award.
How did they do it? How did an agency with acquisition costs that are probably 10 times that of the competition survive and prosper in an extremely competitive environment? It's because the agency's approach has led to a hit ratio that is multiples better than average and a retention rate that is just shy of 100%. "Even though our acquisition costs are much higher, we succeed because we aren't spending time replacing lost customers," Peter Unger says. "By being information driven, rather than product driven, we land over 90% of the companies and institutions who we walk through the audit process. Our approach has allowed us to show revenue growth in the face of a very soft market. We project revenues to grow 12% to 15% this year." Consistent growth has enabled The Addis Group to be featured in the Philadelphia 100 as one of the fastest growing privately held firms in the region.
Education is key
The key ingredient in The Addis Group's success formula is client education. "The concept was to design a process to enable the middle market consumer to understand the value of risk management," Scott points out. "We really believe we are in the business of education, not sales. We begin by explaining to senior management the logic of the risk management audit approach--that we must understand their business issues in order to design an effective, results oriented risk management and insurance program. About 20% of the time, the consumer chooses not to go through the audit. We place the business on our mailing list and move on.
"For the balance, we go through a thoughtful, meticulous process that includes gathering of research materials, such as quality assurance manuals, substance abuse policies, employment practices programs, safety committee minutes, OSHA logs, five-year claim data, insurer loss control reports and so on. We then analyze this information to come up with an action plan. At the same time, we conduct employee interviews that run about 30 to 45 minutes in length. We talk to the CEO, plant manager, human resource manager, quality control manager, hourly employees, safety manager--pretty much a cross section of everyone in the company. It's totally fascinating what answers you get when you ask them about the company's risk management concerns and how those answers may vary depending on whom we are talking to. By the end of this process, we have a deep understanding of the business, its culture and risk management issues. We are beyond insurance."
Scott continues that "we get involved in every aspect of risk management, not just risk transfer. We explore substance abuse programs, claims management systems, training and orientation needs, employee wellness, employment practices, crisis management, driver training, products liability, compliance and a variety of incentive programs. The consumer loves the process. You can see the clients' interest level jump when they understand the tie between insurance risk management and how it benefits them in terms of lower premiums, better safety records, and improvements in employee morale, absenteeism and productivity. The insurance providers love the process because they get to see better risks and improved loss ratios. And we love the process because we get clients who view us as their risk management partner, not insurance vendor, and they stay with us. The audit process is extremely rewarding for each member ofThe Addis Group. It's a win-win-win for everyone."
The agency started out with three clients who knew Scott from J&H. It then grew to its present size by referrals, referrals and more referrals--from clients and centers of influence. There were no acquisitions and no dedicated sales people out pounding the pavement. "Our clients see outstanding results and tell others about our different approach."
And the clients agree that there is a significant difference. This has helped The Addis Group move up to national accounts that are not convinced they are receiving top notch service from larger brokers. One client that switched to The Addis Group from one of the top two brokers is Lane Industries, Inc., of Northbrook, Illinois, a large holding company with operations encompassing business machines, hospitality, and a variety of other concerns. Dave Jewell, director of risk management for Lane Industries, says of Addis, "Their service is better than what we received from our previous broker. It's really been refreshing."
Bob Enderlein recently joined The Addis Group as vice president of risk management services.
The mid-sized clients are astounded by The Addis Group's efforts. Tony Catelli, president of Catelli Brothers, Inc., says the agency "went overboard educating and teaching us about loss prevention." Catelli Brothers, a veal and lamb processor that caters to the food service industry, has two locations in Collingswood and Shrewsbury, New Jersey. Tony says the relationship with Addis began eight years ago and has "changed the way we do business."
Tony says he basically held his nose and paid premiums prior to The Addis Group. And The Addis Group really put it on the line. "They were so sure that their approach was right that they handled our workers compensation business for a year without any compensation just to show us what they could do, Tony says. "It's really changed us. Our focus is on controlling safety. The whole atmosphere is loss prevention." The Addis Group now has all the coverages for Catelli Brothers. "We get monthly reports on our safety performance. It's really helped us get a grip on what we needed to do to improve our performance.
"In fact," Tony continues, "four years ago, we moved to a captive brokered by Addis. (Addis serves as a consultant for an exclusive heterogeneous captive that is completely owned by the insureds.) Our efforts to improve safety have gone right to the bottom line since that change. I really have trust in The Addis Group and understand where our insurance premiums are going and what we receive for those payments. I view the firm as a professional partner. We're in the process of expanding our operations, and The Addis Group is working with us on that to make certain we make the right risk management decisions."
The Addis Group senior vice presidents
are (left to right) Leslie Bock, Brian Crochiere and Gary Warren.
The numbers speak volumes
One of the most interesting aspects of The Addis Group's success is the financial strength it has shown despite the high acquisition costs. We talked to John Wepler of Marsh, Berry & Co., Inc., Concord, Ohio about the agency. Marsh/Berry is a management consulting firm that focuses on insurance agents and brokers. Among its services is its PHP (Perspectives for High Performance) evaluation of agencies. The PHP report looks at 15 key ratios in three areas--equity, operational and profit. "Addis is better than average in every single ratio," Wepler reports. The agency has an overall PIN (Performance Indicator Number) of 9.24 which places it in "the top 2% of the industry financially." For comparative purposes, Wepler notes, "the average PIN number for the top 25% of agencies is 7.69."
He continues that "what I like best about The Addis Group is that being an idealist has paid off. Addis is the type of agency that destroys the stereotypes. With each of their clients, the people at Addis establish a professional relationship that takes price out of the equation. The clients want and need their professional expertise."
Among the highlights of the PHP evaluation for Addis are the fact that "the owners have been financially responsible, recognizing the importance of funding growth; the revenue per employee is extremely high; and their hit ratio is incredibly strong."
Raising the bar
Scott's ultimate goal is to improve and enlighten the industry, to make The Addis Group approach a norm for the industry rather than an anomaly. As often has been said, timing is everything and there's probably not a better time for this than right now. In fact, the idea of a consulting service as the lead-in to selling already has increased numbers of adherents. One of the largest brokers in the United States learned of Scott's approach and asked him to personally come out and teach its account managers, producers and loss control consultants. Interestingly, this organization has now adopted key components of The Addis Group's approach and successfully incorporated it into their business development process.
Currently, The Addis Group has partnered with Real Growth Strategies (RGS) to develop a quantifiable assessment tool that will "institutionalize their methodology for risk management," says Hal Real of RGS. He admits it is not an easy task. "The tool has to recognize that every business is different. Maybe half the questions can be generic, but other questions also have been asked. The most important part of this," Real adds, "is that it is not part of the renewal process. It is a separate process that involves assessing risk, addressing risk, and going back to remeasure on the statistical side. The other part of the process involves interviewing a cross section of people at the client's business to get a complete picture of their risk management needs."
Real believes that many of the questions asked during the interview can be a part of a systematic approach. "Weighing the responses to those questions ultimately will give us a valid database that should help in recognizing issues and risk management solutions for those situations. Clearly, any tool we develop will need to be flexible. By bringing this down to the small and middle market, we can improve risk management at companies of that size and enable their agent to serve as its risk manager--an integral partner to their business."
In addition, RGS is working with the firm's senior management team on the development of a strategic plan for the agency that will assess where they are today and where they want to be tomorrow. Integral members of the process are Brian Crochiere (senior vice president and account manager), Gary Warren (senior vice president and manager of the captive unit), and Leslie Bock (senior vice president and manager of the personal lines division).
Bill Rhodes of Addis says the strategic plan is the result of "our need to get more and more formalized as we grow. I head up the account management function, making sure that we deliver on what we promise and that we meet our internal quality assurance standards. Our growth has made it imperative that everyone at the agency is in sync with the direction we are taking. At the same time, we recognize the need to stay on the cutting edge and improve what we do. Our audit process has become much more sophisticated. We're getting into organizational behavior and many of the human resource functions in order to help our clients. In some cases, we bring in outside consultants to deal with unique concerns."
Another challenge that growth has produced is finding people who have the combined strengths to be strong account managers and consultants. "We need talented people with the right personality and skill sets. They must have a consulting mentality. There was a period when we needed people and had trouble finding them. Today, we have people in the pipeline. We continue to identify people in the industry who appear to have the right qualities."
One of those individuals is Bob Enderlein, vice president of risk management services. Bob was recently brought on board to work directly with clients to coordinate the delivery of The Addis Group's value-added risk management services. Bob states, "It was apparent to me from day one that this was a special place to work. Each employee of the firm is clearly focused on the needs of the client and thinks and acts with a sense of urgency on their behalf."
Scott Primiano of Polestar Associates, Inc., Furlong, Pennsylvania, is working with The Addis Group employees to "help develop a staff that is in sync with Scott Addis' vision of service-oriented selling. It's been a very satisfying experience. The Addis Group probably has the healthiest culture I've ever run into in the business. There is a sense of teamwork and camaraderie with no egos or bureaucracy getting in the way. Scott really is focused on changing the way insurance is sold and his staff feeds off that vision and are committed to it."
He continues that it is an agency that "has completely departed from the norm. Addis does not even target X-dates. Rather, agency people begin to develop a relationship and selling integrity. They lead with an earnest desire to help clients. There is a true commitment to service. Everyone there works proactively, trying to anticipate client needs and issues. And because of that, clients see them as outsourced entities who are truly attached to their business. The result is a tremendous retention rate and loyalty."
Primiano concludes that "I anticipate a long and gracious relationship with the agency. It is one of the few places I go where I feel energized when I leave. It really is a place where the people are doing what I actually believe needs to be done to change the image of the insurance industry. It's not that The Addis Group ignores the price side of the equation. They still get competitive prices for their clients. In fact, I'm willing to bet that the rates they get from companies generally are better than the market because the insurance carriers know they are getting businesses that have strong risk management programs."
The Addis Group's commitment to "extreme service" for its clients shows that the service bar can be raised without affecting profitability. In fact, its success seems to indicate that going beyond insurance may well be one of the key ingredients toward survival in this increasingly competitive marketplace. *
©COPYRIGHT: The Rough Notes Magazine, 1999