Vickie Kartchner, is president of Kempes, based in Scottsdale, Arizona.
Last September Kemper Insurance found a way to become a major player in the specialty program business overnight while at the same time getting into it gradually. Kemper entered a joint venture with Gulf Insurance Group whereby the specialty programs business written by Gulf Underwriters, a Gulf subsidiary, and the employees connected to it were absorbed into a new Kemper business venture. That's the overnight part.
The gradual part is that most of the business previously written on Gulf paper continues to be written on Gulf paper. New business may be written on the paper of either company. The Kemper specialty program business unit, called Kempes, now controls some $115 million of specialty program business.
Whatever the insuring-reinsuring type of arrangement which Gulf (which is owned by Travelers) and Kemper maintain, from the standpoint of the customer the mechanics are probably unimportant. The idea is to deliver high quality specialty programs to customers--the insurance buyer, the program administrator and the agent--utilizing the expertise of specialists.
Perhaps the Kemper-Gulf joint venture is like the situation in the mutual fund business where Fidelity Investments sells mutual funds of its competitors through its own "supermarket" of funds. Do customers care about the relationships at the top as long as the companies are solid performers? Probably not. Just give them a good product and deliver it efficiently.
Vickie F. Kartchner, former president of Gulf Underwriters, who became president of Kempes, explains, "The transaction which created Kempes was intended to be invisible to our customers. Neither Gulf nor Kemper wanted to disrupt existing relationships and the book of business. For people who do business with us, it's as simple as contacting us directly and doing business with us as they always have."
Kempes customers include approximately 29 program administrators nationwide who currently handle 15 specialty programs. These administrators, in turn, serve thousands of retail agents who gain access to programs for such diverse lines of business as DIC, excess property, high value homeowners, security guards, public entities, and a variety of professional liability and E&O coverages.
Program business as it exists today may seem like a relatively new phenomenon, but Kartchner has more than two decades of experience writing programs. Before heading up Gulf Underwriters, she handled programs for 13 years at Scottsdale Insurance Company where she ultimately served as president.
Speaking for herself and the team of executives she brought with her from Gulf, Kartchner says, "We were program underwriters when it wasn't popular to be program underwriters. What has always intrigued us about this business is that it allows us to focus on the individual nuances within a class of business, or a risk group within that class, and to isolate the individual needs of that group. It's a more customized approach to risk underwriting and risk taking than is possible with the traditional market approach."
"It used to be possible to write a program and then look at seriously rewriting in three to five years. Today you can't do that. For example, we've had our public entities form updated four times in the last three years."
--Vickie Kartchner
Today, the program business has become more popular, and it has attracted some players who are too focused on price, Kartchner believes. "Price is important, of course, but we look at risk management and the whole range of issues that affect a program's participants." Once a program is established, she adds, it must be continually monitored. "It used to be possible to write a program and then look at seriously re-writing in three to five years. Today you can't do that. For example, we've had our public entities form updated four times in the last three years."
John Keane, who heads the professional liability division of Kempes, comments on another competitive issue of the program business. "It's difficult for an insurance company to write both program business and individual risk business with the same people. One big risk comes in and the company needs to turn it around quickly and the program stuff falls to the bottom of the pile. At Kempes we don't do any individual risk business, so we can concentrate on serving our program customers."
Keane stresses that Kempes, by working as a specialist in partnership with other specialists--the program administrator, the agent and the companies issuing the paper--can more effectively serve the customer's needs than a single company trying to perform multiple functions. "The administrator handles the quoting. We're just thinking about the marketing, the product development and how to make the coverage better, whether it's by changing a filing or changing a rate."
Glenn Clark, president of Rockwood Programs of Wilmington, Delaware, runs two professional liability programs written through Kempes. "What appeals to us about Kempes," Clark says, "is that we're working with decision makers. Everyone there that we talk to has the authority to make decisions. In the dynamic professional liability market, that's important."
Approximately 35 former Gulf Underwriters employees are now part of the 50-person staff of Kempes, most of them in the Scottsdale, Arizona, headquarters. Kempes also has territorial managers located in regional offices in Chicago, Minneapolis, Orlando and Orange County, California. "By having underwriting specialists in the geographic areas of the individual agencies," (program administrators)," Kartchner says, they can easily visit the offices of the administrators when necessary."
Martha Lynch, who heads the Kempes Property/Casualty Division, is responsible for a wide range of programs, ranging from fire protection and sprinkler contractors--available in most states--to high value homeowners in Florida only. "We look at the individual programs and the needs and we focus all our resources on what needs to be done to accommodate the program and work with our partners," says Lynch.
"We're excited about our new affiliation with Kemper," she continues. "Not only do they bring us a lot of potential resources, but their agents (some 1,800 of them) provide our program managers with an additional distribution base."
Since its formation some nine months ago, Kempes has taken the baton from Gulf and not missed a stride in running programs that were already successful. What it plans to do in the coming year is not only add to those programs, but also strengthen its internal resources.
"We're building a strong claims unit as a complement to our strong underwriting unit," Kartchner says. "We've hired a senior claims executive and general counsel whose objective will be to build an outstanding program claims operation."
Another major upgrade, especially in terms of making Kempes more identifiable in the marketplace: "We'll soon be issuing our own paper," Kartchner says.
But more important perhaps, Kempes will continue to provide the grassroots, point of sale support to its administrators and agents, which has always been the trademark of its veteran team. Says Kartchner, "We'll be moving forward on the same basis as we have for decades in the program business." *
©COPYRIGHT: The Rough Notes Magazine, 1999