James O. Matschulat, Chief Executive Officer, Middlesex Mutual Assurance Co.
James O. Matschulat, Chief Executive Officer, Middlesex Mutual Assurance Co.
A couple of years ago, the small town of Deep River, Connecticut, was hit by a brief but devastating hailstorm. In just 22 minutes, this town of some 4,000 people was decimated. The local agency, Mather & Pitts, continued to operate, using Coleman lanterns to provide needed light lost when the power was knocked out. The agency, which wrote about $3.5 million in premium, had claims totaling $4.5 million. "And we weren't writing a lot of new business that year. We spent most of our time dealing with the claims," John Solovei remembers. "Needless to say, companies weren't lining up to give us our contingency checks. But Middlesex Mutual came through with our incentive bonus. We needed that money for operating expenses. It was critical to our survival."
Why did Mather & Pitts qualify for a bonus?
Because Middlesex Mutual Assurance Co. (MMA) of Middletown, Connecticut, rewards quality and has set up its incentive program along those lines. "We're convinced that over time, adherence to best practices by our agents will result in high levels of sales and service," says Gary Vallo, executive vice president of MMA. "We've built a paradigm based on best practices identified by the Independent Insurance Agents of America (IIAA). We identify those practices, and agents are paid directly for adhering to those practices."
In the case of John Solovei, this meant he received the highest incentive award offered by Middlesex in the year of the hailstorm. It even included a special bonus of a foreign trip. (And it was even a round trip ticket.) "It wasn't John's fault that hail fell in Deep River," Gary adds, "and we don't think he should be penalized for it." Under typical plans based on loss ratios, however, "the contingency would have been pulverized."
The long-term result of this approach has been lower-than-average loss ratios and better retention rates.
The emphasis on quality is not just with agents. MMA looks for quality policyholders as well. In Connecticut, the company writes preferred personal lines and offers an artisan contractors program in Maine. What distinguishes MMA's view of a "preferred" customer from others is not that it is looking for people who are claims-free.
"We are looking for responsible people who may or may not have had an accident," says James O. Matschulat, chief executive officer of MMA. "We try to identify those people through an understanding of what happened if they have had an accident." For example, he continues, "a small claim can be quite revealing, so we don't just focus on large losses. If the claim involved an accident that occurred at three in the morning when the individual was returning from a certain unfortunate type of activity, that is a warning sign. Conversely, if a large claim was fortuitous in nature, then we're willing to stay with that account."
Matschulat goes on to point out, "We really underwrite. Many of our finest underwriters have been with us 20 or 30 years. They try to understand the profile of each individual we insure--to paint a picture of that individual. Once we're convinced we have a responsible individual, we happily write the insurance and pay the claims."
Not commodity thinkers
Although the lines of business written by MMA are handled as commodities by many companies, Middlesex tries "to sharpen our focus to handle this business not as a commodity," Gary Vallo says. "No line of business is naturally a commodity," he adds, "there are only commodity thinkers and we try not to be one of those. We align with consumers who are looking for value."
John Solovei points to one of the differences MMA offers in its homeowners coverage. "Ordinance coverage is part of the package. They pay to bring old damaged buildings up to code. A lot of our insureds would have been unhappy if that coverage hadn't been there after the hailstorm."
On the auto side, MMA pays for OEM (original equipment manufacturer) parts.
Jim Matschulat says the company's approach is "to do business with people we would want to have as employees and offer them coverage we would want. We want OEM parts in our autos. So that's what we provide to our policyholders."
Bill Morris, a partner with the agency of H.D. Segur, Waterbury, Connecticut, says that MMA is "much more focused on the local market. Their people had a better grasp and offered immediate response on issues." The agency, which has 70 employees and writes some $55 million in premium, has had an appointment with Middlesex for over 15 years; but "in the last eight, we've grown tenfold."
Bill continues that MMA "has very strong underwriting. We've developed a strong relationship built on trust and confidence." He adds that H.D. Segur is a sales-oriented organization with a lot of ego-driven people. "At the time we started to really grow, a lot of companies were not interested. Middlesex Mutual decided they wanted to do business with us. They're really in the business. They meet with us every three months and make things happen. The management attitude is to get things done quickly. This year, we've written $6 million in personal lines and 90% of that is new growth. We submit some 1,500 new apps a year. MMA responded by actually putting an underwriter here in our office."
Turning to the new incentive agreement, Bill says he is "really an advocate of what they did. We've been able to negotiate similar plans with other companies."
He concludes that the MMA incentive program has "actually made us a better agency. Other carriers have benefited from the change."
John Solovei echoes Bill's remarks, noting that the improvement in quality has had a "trickle-down effect. It's made us better for all of our companies."
John sums up his relationship with MMA this way. "The company has three major qualities that are important to us:
"It is a company that has absolute integrity on both the personal and professional level.
"It is a company that has one of the most creative partnership arrangements in the business.
"It is a company that is committed to the Independent Agency System."
Unfortunately for many agents, it is a company that, at the present time, does business only in Connecticut and Maine. *
©COPYRIGHT: The Rough Notes Magazine, 1999