When you think of a major international manufacturer of consumer products, the first thing that comes to mind probably isn't a small specialty insurer tucked securely into a suburb of Kansas City. As a matter of fact, that's an accurate, short description of Westport Insurance Corporation, a division of a top reinsurer that's owned by none other than General Electric Corporation.
With a prominent reinsurer as its parent and a strong commitment to sound underwriting, Westport Insurance is moving aggressively to become a key player in some carefully defined niche markets. In this article we'll talk with Westport's president, Jerry Woolard, to learn how the insurer is transforming itself into a focused specialty insurer--and how it's working with agents and brokers to develop attractive, profitable programs in its chosen markets. First, let's briefly trace Westport's origins and history.
Westport is a specialty primary division of Employers Reinsurance Corporation, which is a subsidiary of General Electric Corporate. Westport is the reincarnation of Puritan Insurance, a GE unit that was chartered in Connecticut in 1977. In 1992 Puritan's charter was transferred from GE to Employers Re, and the company was redomiciled in Missouri and renamed Westport Insurance Corporation.
The insurer is named for the Westport section of Kansas City, which in the early 1800s was the last safe outpost for pioneers before they headed west on the Santa Fe, Oregon, and California Trails. The name was chosen for its historical significance, its proximity to the insurer's home office in Overland Park, Kansas, and its image as a safe haven in a world of risk. Woolard, who joined Employers Re in 1972, also serves as senior vice president of the reinsurance company's specialty division.
"Initially Westport was used to do two things," Woolard says. "First, to develop program business; and second, to front business for other GE units." In mid-1994, he continues, "We decided to change direction and position Westport as a true specialty niche-focused insurer and put all of Employers Re's primary business into it." (Although a reinsurer, Employers Re has traditionally maintained a book of primary business.) At that time Employers Re created ERC Specialty, which consists of Westport Insurance and First Specialty Insurance Corporation, a nonadmitted carrier that operates in all 50 states.
The transfer of Employers Re's primary business is expected to be completed at the end of this year. In the meantime, Westport is moving full speed ahead with its plan to play a leading role in the niche markets in which it has particular expertise. It finished 1998 with gross written premium of $350 million. Together, Westport and First Specialty have 250 employees. Much of the business written by Coregis (a remnant of the old Crum & Forster/Industrial Indemnity group), as well as its staff, has been merged into Westport.
Well-defined specialties
As was noted earlier, Westport is focusing its efforts on several selected niche markets where it believes it can be a major player. Its product segments are:
1. Professional liability for accountants, architects and engineers, lawyers; and nonprofit directors and officers liability
2. Communications and media liability (publishers, printers, broadcasters, media and electronic errors and omissions)
3. Select property and casualty programs (both MGA driven and open brokerage products for a wide range of risks, including moving and storage operators, refuse haulers, short-haul and long-haul truckers, pest control services, tool and die makers, timber and forest operations, agribusiness concerns, and food and beverage distributors)
4. Insurance industry professional liability (insurance agents errors and omissions, insurance company-sponsored insurance agents errors and omissions, adjusters errors and omissions, employment practices and discrimination liability insurance, bankruptcy trustees errors and omissions)
5. Surplus lines in all 50 states through First Specialty Insurance Corporation
To serve these markets, Westport is organized into five operating units: professional liability (managed in the Chicago office); insurance industry professional liability (Overland Park home office) with First Specialty Insurance Corporation providing excess and surplus lines support; property/casualty program business (Sacramento, California); and media liability and electronic E&O in Overland Park.
In conjunction with Employers Re, Westport manages the IIAA/ERC insurance agents professional liability program, which since 1984 has provided errors and omissions and related coverages to members of the Independent Insurance Agents of America. Westport is a leading provider of professional liability insurance for both insurance agents and lawyers.
Marketing strategy
In pursuing risks in each of its chosen market segments, what strategies does Westport employ to acquire quality business? "Our vision is to be the industry leader in each of the niches we've identified," Woolard responds. "Those niches are areas where we won't encounter a lot of competition and have the potential to become a market leader." Westport, he emphasizes, is strongly committed to underwriting and doesn't buy business, so it's in a much better position to develop profitable business than an insurer that engages in cash flow underwriting or tackles risks it doesn't understand.
"After we've defined a strategic niche, we work as a partner with MGAs or brokers to custom design a program that meets the unique needs of that market," Woolard continues. Westport does a substantial amount of business through managing general agents, he explains, noting, "This approach lets us serve the independent agent without the need for a large and costly infrastructure. The MGA structure helps us control costs and facilitates distribution of our products, and it lets some of our MGAs focus on meeting the needs of smaller rural agents who otherwise might not have access to our products."
Even in Westport's highly specialized niches, Woolard observes, the market is very competitive. "Today the market is filled with a lot of small 'flank attack' players who jump in and out of markets. Larger companies don't usually come after our business, because they're busy with their own specialties and don't have the flexibility or the desire to move in and out of markets quickly. We try to stay focused on our own particular market segments and protect our flanks."
Agent relationships are key
Westport is represented throughout the United States by some 3,000 agents, brokers, and MGAs. "Probably 75 to 100 of these produce 80% of our business," Woolard says. "About 20% of our business is open brokerage, 50% is program managed business, and 30% is wholesale MGA. Most programs are accessible to independent agents through MGAs, or we can work directly with the agent to develop a program. Often an independent agent comes to us with a program or an idea for one. In fact, many of our program managers are independent agents."
What qualities does Westport value in the agents with which it does business? "We seek an agent who has a well-managed operation and commands a market presence, or the ability to develop a significant market," Woolard responds. "We want to form a long-term partnership with an agent who's innovative, who's willing to work hard to try to overcome the complexities and challenges of today's market, especially with regard to pricing and competition." Equally important, Woolard adds, "An agent must have integrity, so we can establish a relationship based on mutual trust. As a company, we want to be treated fairly and get a fair shot at our share of the agent's business." Westport, he says, prides itself on its close relationships with independent agents and is pleased to be achieving name recognition among them as a program specialist.
"We work as a partner with MGAs or brokers to custom design a program that meets the unique needs of that market."
Westport's marketing strategy, according to Woolard, includes doing a significant amount of business through managing general agents, a structure that meets the needs of smaller rural agents, who otherwise might not have access to Westport's products.
Because Westport's five operating units are scattered around the country, and because each is responsible for a highly specialized market segment, Woolard explains, the company's relationships with its field force are handled not at the home office level but within the individual business units. In each case, he emphasizes, the managers of a unit focus on forming close working relationships with agents and offer them and their clients a wide range of services, from loss control to regular updates on market conditions.
Keeping on course
In today's extremely competitive market, Woolard observes, Westport strives to remain on solid ground in three important ways. "First of all, financial stability is key," he asserts. "Being part of GE and Employers Re is a tremendous advantage for us in that respect, and we enjoy a positive response to these affiliations. Agents understand that we're a solid, well-financed operation that's in business for the long haul, and that helps us attract the quality producers we want to represent us."
Second, Woolard continues, "Westport is a quality-focused and-managed organization. Internally, we use a discipline called Six Sigma Quality, which is a way to address customer needs by analyzing business situations and solving problems, and measuring the processes." The customer in this case is the agent, broker, or MGA rather than the insured, he notes, and that's where the third prong of Westport's strategy comes in. "We use a 'Voice of the Customer' process with our agents," he explains. "We meet with them and listen carefully to what they have to say, without trying to sell them anything. We try to find out what's important to them, then work to devise the best solutions that will be effective in today's marketplace." At Westport, he notes, "We have the capability to conduct a lot of unusual transactions. We can establish captives, set up risk purchasing groups, and help producers finance their business. In this market, we can't raise rates, so we focus our efforts on being more efficient and responsive to our producers."
For example, Woolard says, "A group of agents sits on our Lawyers Advisory Council which is designed to help us manage and improve the performance of our lawyers' professional liability business. They asked us recently to implement a rapid renewal process to help keep their insureds from shopping. We agreed that this made good business sense, and we made the change."
Looking to the future
What's ahead for this focused and disciplined specialty insurer? Each spring, Westport begins a lengthy and complex planning process that continues until October. "We start by considering our objectives and assessing our resources," Woolard explains. "Our long-term goal is to become the major niche market for specialized risks, particularly in professional liability. We'll continue to work with our MGAs and program managers to create programs where there is limited competition. We have an aggressive growth plan that calls for us to increase volume and income by 20% over each of the next three years."
Stable underwriting and market conduct, Six Sigma discipline with continuous improvements in processes, and attention to customer needs: these are the qualities Westport believes make it a successful, profitable specialty insurer--and the qualities it will continue to emphasize as it moves confidently into the new millennium. *
©COPYRIGHT: The Rough Notes Magazine, 1999