Edward J. Orodeckis is president of Farmers Eastern Operations.
Combine a top exclusive agency company with a leading American agency system carrier, and what do you get? Plenty! In this article, we'll find out how the giant Farmers Insurance Group has joined forces with respected Zurich Insurance to offer Farmers personal lines products in several eastern states--not via exclusive agents but through a growing network of independent producers. We'll talk with Edward Orodeckis, Farmers' president of eastern operations, to learn about this groundbreaking marketing strategy and to find out how it's playing with independent agents and their clients.
It all began in September of 1998, when British American Tobacco Industries (B.A.T) and Zurich merged to create Zurich Financial Services, a global insurance and asset management organization. As a result, the former Zurich Personal Insurance, whose customer base is concentrated primarily in the eastern United States, became part of Farmers; and in March of this year, Farmers, previously controlled by B.A.T, began the process of converting Zurich's approximately 200,000 personal lines customers to Farmers' auto and homeowners products. Those coverages are being sold exclusively through independent agents--some 400 of whom previously represented Zurich--with plans to add 200 agencies to the ranks by the end of the year. Farmers agents and policyholders in the eastern states receive underwriting and processing service through a service center based in Timonium, Maryland, that was formerly managed by Zurich Personal Insurance.
Ed Orodeckis says in Farmers' new eastern states of operation the company's brand name and strong marketing support will help drive customers to its independent agents.
With kickoffs being launched state by state, Farmers is on target to complete its expansion into 12 eastern states by the end of this year: Maryland, Pennsylvania, New York, Georgia, North Carolina, Maine, Connecticut, Kentucky, New Hampshire, Louisiana, Vermont, and Mississippi. "We already had a presence in these 12 states via Zurich, so we didn't have to start from scratch," Orodeckis notes. "Also, these states have a favorable regulatory climate, and that's a number one priority with Farmers." Later Farmers will explore the feasibility of moving into additional eastern states. Orodeckis knows the East Coast personal lines market intimately; before the merger, he was president of individual sales at Zurich Personal Insurance.
The insurer's goal is unequivocally ambitious: "We want to be the dominant writer and the number one agency company in these states," Orodeckis declares. "When we enter a state, our goal is to achieve deep market penetration. Within five years, we seek to have a 5% market share; within 10 years, we want to be the first, second, or third leading writer of personal lines in that state."
How's it playing?
There's no question that Farmers, the nation's third largest property/casualty insurer, enjoys widespread name recognition throughout the country--but until recently, it wasn't exactly a household word in the eastern states. How do independent agents there feel about selling Farmers products, and how do their customers feel about buying them?
"The reaction has been phenomenal," Orodeckis responds enthusiastically. "In August, at our Mississippi kickoff, we had an overflow crowd; even the insurance department wanted to come!" How about customers? "We've had an overwhelming response," Orodeckis says. "We're getting 70 to 100 calls a day from customers, which we funnel to our agents." What's more, he adds, "Since March, I personally have received almost 400 calls from agents seeking appointments. I've always worked with independent agency companies, and it's clear to me that this time, we've really hit a home run."
Why are agents so excited about this new marketing opportunity? "A major benefit is Farmers' low expense platform," Orodeckis replies, "and we're well known for our stability and competitiveness. With this initiative, all the benefits of the exclusive agency system are now available to independent agents. Because of our brand and its power, plus our marketing advantage, we can drive customers into agents' offices. Our aim is to attract customers to independent agents. By helping them grow, we grow."
Orodeckis says that agents are seeking the Farmers franchise due to a variety of factors: brand recognition; financial strength and profitability; the group's stable 72-year history (it has never withdrawn from a state); its reputation as a strong marketing company; its low expense ratio (21.8%, lower than State Farm); and its strong emphasis on personal lines. "Companies that also write commercial lines see that as the sexy part of the business," Orodeckis observes, citing as an example St. Paul's decision to sell its personal lines portfolio. Further, Farmers is seen as almost merger-proof, a key factor in a market that sometimes seems to be overwhelmed by the trend toward consolidation.
Why use independents?
Although Orodeckis's enthusiasm for independent agents is genuine and unbounded, it's worthwhile to ask why an insurer that's built a multi-billion-dollar business using the exclusive agency system would turn to independent producers to distribute its products in eastern states. "It makes sense to use independent agents in our new markets," he responds. "The network of independent agents already established by Zurich Personal Insurance reduces the need to recruit and train new agents." Cost considerations also come into play: "An exclusive agency system is expensive to implement, and it's not very profitable at the start because of the higher loss ratios associated with only writing new business," Orodeckis explains. "Independent agents have proven books of business; also, their market share is growing. We think independent agents are here for the long haul, and we believe our customers will benefit from the sound local advice they receive from these agents."
--Ed Orodeckis
A number of independent agency insurers have broadened their distribution channels to include direct and exclusive approaches as well as
e-commerce, sometimes in the same markets in which their independent producers operate. That won't happen in the Farmers eastern expansion. "Our rule is to keep it simple and avoid 'channel conflict,'" Orodeckis says. "It's hard enough to get customers; we don't want to confuse them about who's selling our products. Our strategy is always to have a clear distribution channel and offer a wide variety of products so our customers won't shop." That means independent agents who sell Farmers products in eastern states won't be vying for business with the group's exclusive producers. To further demonstrate its commitment to independent agents, Farmers discontinued a direct response program it had previously launched to sell personal lines in eastern states.
What qualities does Farmers value in independent agents? "We seek an established agent with a proven book of business," Orodeckis replies. "We like working with agents who want to cross-sell, sell multiple products, and have the vision and expertise to do it through automation, which really helps on the expense side. We want to work with agents who share our goal of selling their clients products that meet all of their asset protection needs."
What's on the menu?
In the 12 states Farmers has targeted for the first phase of its eastward expansion, agents initially are offering their customers Farmers auto and homeowners coverages; and plans call for eventually making available a full range of personal lines products, including dwelling fire, boats and yachts, and recreational lines. Until those products are transitioned onto the Farmers platform, clients will continue to receive them under the Zurich brand.
To enhance customer loyalty and boost retention, Farmers has created a menu of what it calls "value added products," which support its personal lines coverages and help tie customers more closely to the company and agent. Among these products are car loans, a new car buying service, mechanical breakdown protection, education loans, a travel and vacation planning service, and a home warranty program. Farmers also offers a full line of life insurance and investment products. "These are useful products for the customer, and they give us the edge over 1-800-CHEAP insurers," Orodeckis observes. "We can offer true one-stop shopping, so our customers have no need to look elsewhere."
Seamless transition
To ensure the smoothest possible transition from Zurich Personal Insurance products to Farmers coverages, Farmers is using a two-step approach in each eastern state it enters. "As we open up a state, we concentrate first on writing new business; then, within 60 to 90 days, we start the rollover of existing Zurich policies to Farmers products," Orodeckis explains. "Our goal is to make the process seamless."
As was mentioned earlier, personal lines insureds in eastern states are unlikely to have heard of the Farmers Insurance Group. "Agents know who Farmers is, but most customers don't," Orodeckis says. "That's why we're doing a radio and TV blitz to educate customers." The theme of the campaign is "Farmers Gets You Back Where You Belong," and advertisements use a George Gershwin song called "'S Wonderful."
Commitment to service
Over the next few years, Farmers expects to build personal lines volume in eastern states by providing outstanding service, especially in the area of claims handling. "We're installing a new 'one-call' claims operation," Orodeckis explains. "An automobile insured makes one call to us to report a claim. We pick up the vehicle, arrange for it to be repaired, and bring it back to the insured--and we guarantee the quality of the work. The insured doesn't have to deal with appraisers or body shops; we take care of that. We know from experience that the faster we can satisfy a customer, the less costly the claim will be."
In marketing its personal lines products in eastern states, Farmers is using a strong community focus. "Our objective is to give agents products they can take to their community," Orodeckis says. "We want to build allegiance to our agents as members of their community." To demonstrate its commitment, Farmers sponsors a program called The American Promise, which teaches students about democracy. In cooperation with agents, the insurer also offers the Youth Education Safety (Y.E.S.) program, which uses videos to instruct students in safe driving habits. Young people who complete the course are eligible for a policy discount. "Agents can take this program to their community and gain access to prospects by teaching driver training," Orodeckis explains. How well is the Y.E.S. program working? "Recently, a customer asked his agent if he could borrow the video to share with his neighbors and friends," Orodeckis says. "The agent got many calls for quotes on auto insurance."
New trends in the market
How does Ed Orodeckis assess current conditions in the personal lines market, and where does he see it heading over the next few years? "Overall, the personal lines marketplace currently is extremely competitive because of the protracted soft commercial market," he responds. "To me, the insurance market sometimes looks like a group of kids playing soccer: 11 pairs of legs chasing the same ball. A lot of companies are scrambling for profits in the same way, and changing direction with every turn of the market. Our formula for success is to stick with what we're good at."
With prices seemingly perennially depressed on commercial business, Orodeckis observes, more insurers are looking at personal lines because of its greater profitability. In no way does he see this trend as a threat to Farmers and its plans to become the leading personal lines writer nationwide. "We tell our agents that, no matter what the market does, we'll be consistent," he says. "We won't offer the lowest price for every risk, but we'll be competitive year after year. We're committed to the distribution systems we have in place. We don't want to confuse customers by mixing and matching sales channels, and we know from experience that you can't force customers to buy insurance a certain way. E-commerce is a great way to facilitate customer contact, and we are examining its marketing potential. People can use the Internet to shop, browse, get a quote; but insurance is a paper with a promise to cover you in the event of a loss--not a commodity like
books or CDs. We need to look at
e-commerce as a marketing facilitator for our agents."
In a market that often bears more than a passing resemblance to that aforementioned kids' soccer game, Farmers has a clear vision of the future. "We have no confusion about where we're going or what we're doing," Orodeckis declares. "I look at our stability and our strength, and I know we have the tools to do the job. I'm excited!" *
©COPYRIGHT: The Rough Notes Magazine, 1999