Greg Ator, president of Bituminous Insurance.
Those who remember their grade-school lessons on natural resources know that "bituminous" describes a variety of coal. Those in the insurance business know that Bituminous also is the name of a strongly capitalized and highly focused carrier that's renowned for its expertise in insuring selected industries at the heart of the American economy.
Bituminous Insurance owes its unusual name to its origins as a reciprocal exchange that was established in 1917 to provide workers compensation insurance to the coal mining industry. Bitco, the carrier's holding company, consists of Bituminous Casualty Corporation and Bituminous Fire and Marine Insurance Company; and since 1985 Bitco has been part of the Old Republic International Group. Bituminous carries an A rating from A.M. Best and in 1999 posted gross written premium of $215 million. Licensed to operate in 48 states, the group concentrates its activity in 35 states and does not pursue business in New England or on the West Coast.
How did Bituminous make the transition from monoline reciprocal exchange to sophisticated multiline insurer, and how does it meet the needs of its challenging target markets? For answers, we'll talk with members of the company's top management team: Greg Ator, president; Mark Jorgenson, senior vice president-underwriting; Bruce Horack, senior vice president-claims; and Randy Hervey, vice president-underwriting and manager of the forest products program.
A niche pioneer
In the course of expanding beyond its original, highly specialized mission, Bituminous has moved through several stages of evolution. "We were a niche marketer before anyone knew what that was," Ator comments. "First the company brought in workers compensation customers from outside the coal industry. In the 1970s we became more of a generalist, writing a wide range of risks, from apartment buildings to car dealers. In the 1980s the market hardened dramatically, and we realized we couldn't be all things to all people. We asked ourselves: What classes of business do we know well and handle competently? In the last 15 years, we've moved from identifying specialty markets to becoming actively involved in them."
Bituminous executives (from left): Bob Rainey, senior vice president and treasurer; Bruce Horack, senior vice president, claims; and Mark Jorgenson, senior vice president, underwriting.
The markets in which Bituminous now specializes truly are at the core of the American economy. Some 55% of the insurer's premium is generated by programs for a wide range of construction and construction-related risks: general contractors and building trade contractors, transportation construction contractors, utility construction contractors, land improvement contractors, and specialty contractors (water well drilling and structural moving). Another 5% of premium comes from construction materials suppliers: quarries, sand and gravel, and cement/concrete products. Accounting for 20% of premium are programs for forest products risks such as logging and lumbering operations, sawmills, planing and molding mills, pallet manufacturers, and building material dealers. Another 15% of premium comes from onshore oil and gas extraction risks: oil or gas lease operators, oil lease contractors, well servicing contractors, and drillers from the Rocky Mountains to the Appalachian Basin. For each of its programs, Bituminous offers a full complement of coverages, with primary emphasis on workers compensation, general liability, commercial automobile, and commercial property.
"We're betting that the more attention we pay to adding value, the more favorable our results will be."
Meeting market challenges
Each of Bituminous's target markets presents its own set of challenges and opportunities. In construction contracting, Mark Jorgenson points out, these differ according to specialty. "In street, road, and bridge contracting, there's tremendous market dislocation," he comments. "Insurers are not eager to get involved with these risks." In contrast, he says, pricing is more consistent in the land improvement sector.
Randy Hervey, an underwriting vice president who also manages the forest products program, talks about his specialty. "Much of our volume is in logging and sawmill operations, and to a lesser extent we're involved in insuring pallet manufacturers," he explains. "The market in forest products has been very competitive for the last several years, but we've seen some price increases in the last year. We've done a significant amount of re-underwriting, and we expect to show a profit in the program this year." When it comes to producers, "We focus on selecting agents who know and specialize in forest products," Hervey says. "We do work with some agents who have a broader base of business, but our largest volume comes from specialists, and that's where we get our best results."
In the oil and gas sector, "Our competitors to a large extent are regional carriers like National American and Mid-Continent," says Greg Ator, who previously managed the oil and gas program. "St. Paul and Chubb are the only national carriers involved in this market, and they're handpicking business." Compared with construction and forest products, Ator comments, the oil and gas market is much more stable and somewhat less competitive. "We've worked hard to understand the business," he says. "We send people from underwriting, risk control, and claims to a training school at Texas A&M University so they can learn what oil and gas customers need."
The winning edge
To respond to the needs of its highly specialized niche markets, Bituminous has structured its home office and branch operations along program rather than functional lines. "One of our distinguishing characteristics as a specialist insurer is that each of our program managers has corporate-wide responsibility for the shape, size, and functioning of that program," Senior Vice President-Underwriting Mark Jorgenson explains. "Our organizational scheme is the platform for everything we do in underwriting, claims, marketing, research and development, and advertising--it all comes back to the program manager."
Each of the 20 Bituminous branch offices, Jorgenson continues, is staffed with experts in all service disciplines: underwriting, claims, risk control, and premium audit. "We distinguish ourselves from competitors because we place these experts close to the point of sale and the customer," he comments. In selecting these experts, the insurer looks for people who understand the specialized needs of its niche markets.
Similarly, "Our claims philosophy is to provide service as close as possible to the point of sale," says Senior Vice President-Claims Bruce Horack. "Our claims people call on customers regularly to become familiar with their businesses, so when a loss occurs we can handle it fairly and efficiently." Adds Ator: "We provide highly personalized claims service. Our people are accessible, they talk the customer's language, and they know the answers." At Bituminous, there's no such thing as a cookie-cutter approach to claims. "Ours is not a 'one size fits all' claim operation," Jorgenson asserts. "We invest a great deal of time and money in helping our claims people understand the unique needs of our clients."
At Bituminous, the term risk control is used in preference to loss control, Ator explains. "Our home office risk control department supervises 32 representatives in our branch offices," he says. "The home office staff provides technical expertise, research, and support information to the branches. Our branch people call on customers on a daily basis at their job sites: logging operations, drilling rigs, construction sites. We take a very hands-on approach to risk control and all other facets of customer service."
Stability amid volatility
The niche markets Bituminous pursues clearly present some hazardous exposures--the kind that might prove daunting to a less specialized insurer. "Our markets have high-severity exposures and volatile loss experience," Jorgenson observes. "We're not immune from market pressures. It's a matter of the degree to which you succumb to them. In the last four years, we've allowed revenue to slide in favor of underwriting discipline with respect to account selection and pricing. In today's changing marketplace, Bituminous is in a position to step up and provide rational solutions in terms of coverage and pricing to customers who may not have had these options. As a member of the Old Republic International Group, we have the backing of extraordinary financial resources, and that fosters a climate in which we can grow our business with above-average customers." As a former competitor, Jorgenson adds, "I've always been impressed by Bituminous's stability in its markets, its staying power and consistency
of presence."
Growing with agents
Throughout its 35-state operating territory, Bituminous is represented by approximately 800 agents. "We seek to develop long-term relationships with our agents; many have been with us for 25 years or more," Ator says. "We look for agents who have the same commitment we do to specialization. As the ranks of independent agents have shrunk, agents are becoming more specialized, and a growing number have decided to specialize in the programs we offer. Our best agents have the same service discipline we do, and they want to provide value-added services to their clients. They see Bituminous as complementing that strategy." Adds Jorgenson: "We repeatedly hear kudos for our claims and risk control services and our quick turnaround time on endorsements and other documents."
In claims, Bruce Horack notes, "We're developing a protocol to give agents secure access to claims information online, and we're launching a pilot program for direct reporting of claims via the Net. In our e-business communications with our customers, we're doing everything we can to keep the agent's 'frustration index' low as we implement technology."
To recognize and reward agents' achievements, as well as to provide them an opportunity to communicate openly with the executive team, Bituminous has established annual Circle of Excellence Awards based on premium growth, profitability, and professionalism. One award is made to the agency that records the largest premium volume growth over a three-year period. Nine awards go to agencies whose business with Bituminous has resulted in the highest percentage of profits on premiums written. This award features five levels of competition based on premium dollar volume. One award is presented to the outstanding new agency based on average two-year premium volume and profitability, and three awards are made to the outstanding construction, oil and gas, and forest products agencies based on profit and professionalism in these specialty areas. To help select award winners, the company gets information throughout the year from branch office employees. "Our program managers make regular field visits, calling on agents and customers and getting feedback from both," Ator says.
What's next?
Looking at the spectrum of Bituminous specialties, Jorgenson observes, "In a general sense, all of our programs have more opportunities for intelligent risk selection and pricing than in the past. We expect this trend to continue for some time, although not indefinitely. We see a window of perhaps one or two years; we don't anticipate the market remaining firm for as long as it stayed soft."
In today's market, Ator asserts, "Customers will pay more for value and be more discriminating in what they want from an insurance company. It's a 'me too' world. We're betting that the more attention we pay to adding value, the more favorable our results will be." *
For more information:
Bituminous Insurance Companies
320 18th St.
Rock Island, IL 61201
Phone: (800) 475-4477
Web site: www.bituminousinsurance.com
©COPYRIGHT: The Rough Notes Magazine, 2000