Stephen A. Milne (left), president and chief executive officer of the Erie Insurance Group, and George R. Lucore, senior vice president and agency division officer.
In the annals of modern American history, the year 1925 doesn't mark the kinds of events we tend to regard as significant, like the beginning or ending of a war, the assassination of a president, or a great natural disaster. In fact, the span of time between 1918, when World War I ended with America victorious, and the stock market crash of 1929, which plunged the world into the Great Depression, was an era of unprecedented peace and prosperity for the United States. Business and industry were booming, confidence was unbounded, and automobiles were rolling briskly off assembly lines and into the garages of America.
It was in this halcyon time, described by a social historian as "The Little Golden Age," that the Erie Insurance Exchange was born. Founded in April 1925 by H.O. Hirt and O.G. Crawford in Erie, Pennsylvania, what is now known as the Erie Insurance Group is celebrating its 75th anniversary of service to agents and policyholders. In the three quarters of a century since Erie opened its doors, the pace and dimensions of social, economic, and technological change have dramatically altered the world as it existed in 1925. We'll talk with top executives of Erie and independent agents who represent it to find out how the organization navigates and manages change while adhering to the principles on which it was founded. Contributing information and insights are Stephen Milne, president and chief executive officer; George Lucore, senior vice president in charge of the agency division; and agents Nicholas Frank of Middlefield, Ohio, and Frank Spicer of Fairfax, Virginia.
As agency division officer, George Lucore says, "We exist to support our agents' sales efforts."
Then and now
The Erie Insurance Exchange was organized in 1925 as a policyholder-owned reciprocal insurer of private passenger automobile risks. A reciprocal, Erie explains, is a distinctly American form of mutual insurance company in which the policyholders agree to insure each other for losses up to a specified amount. The Erie Insurance Exchange today is the fourth largest reciprocal insurance exchange in the United States, with some 2.2 million subscribers (policyholders). It has been in the reinsurance business full time since 1990. The Exchange typically participates as a follower on submissions from reinsurance intermediaries.
The Exchange is one of six affiliated carriers known collectively as the Erie Insurance Group, whose managing corporation is Erie Indemnity Company, a stock company. In addition to the Exchange, the group consists of Erie Family Life Insurance Company, Erie Insurance Company, Flagship City Insurance Company, Erie Property & Casualty Company, and Erie Insurance Company of New York.
Erie currently has net written property/casualty premium of $2.2 billion, of which 70% is personal and 30% is commercial lines; more than 2.7 million auto, home, and commercial policies in force, and more than 244,000 life policies in force. Erie's agency force numbers some 6,000 licensed agents representing nearly 1,400 agencies in the insurer's 12-jurisdiction operating territory: Illinois, Indiana, Maryland, New York, North Carolina, Ohio, Pennsylvania, Tennessee, Virginia, West Virginia, Wisconsin, and the District of Columbia.
Carrying Best's top A++ Superior rating, Erie Insurance Exchange is the 13th largest insurer of private passenger automobiles and the 16th largest property/casualty insurance group in the country based on surplus. What's more, Erie ranks 517th on Fortune magazine's list of the top 1,000 service and industrial companies in the nation, and the company has been included in all four editions of The 100 Best Companies to Work for in America.
Stephen Milne, president and chief executive officer, has been with Erie since 1973 and formerly was an agent for the group.
Core values drive actions
Over the 75 years of its existence, the Erie Insurance Group has expanded and diversified to meet the changing needs of its business and personal policyholders. One thing that hasn't changed is the organization's adherence to the values set forth by its founders. Erie's employees believe:
* The ERIE is Above All in sERvIcE®.
* In the Golden Rule-treating others as you yourself would want to be treated.
* In the Erie Family Spirit--Employees and Agents working together as a team for the good of our Policyholders.
* In the responsible use of company resources.
* In operating under the highest ethical standards.
Erie's founding principle sets an extremely high standard of conduct for its 3,400 employees: "To provide our policyholders with as near perfect protection, as near perfect service is as humanly possible, and to do so at the lowest possible cost." How is this principle carried out in practice, and how does it operate to the benefit of policyholders and agents? Let's start by looking at Erie's portfolio of products and services.
Frank Spicer, Jr., Erie Insurance agent, Fairfax, Virginia
Broad range of offerings
As a multiline insurer, Erie has a varied line of property/casualty and life insurance products for both individuals and businesses. On the personal lines side, Erie offers auto, homeowners, personal umbrella, and boatowners policies; business insurance products include property and liability packages, workers compensation, commercial umbrella, business automobile, and bonds. In commercial lines, Erie tends to be a generalist rather than a specialist. "We have no target marketing programs as such, but over the years we've developed considerable expertise in insuring contractors, churches, machine shops, plastics manufacturers, and mom and pop businesses," explains Stephen Milne, president and chief executive officer. "We'll always look at a risk that's good in its class." At Erie, the focus is on small to medium-sized businesses, Milne says. "We can write larger accounts, but our average package policy generates between $1,000 and $2,000 in premium." Erie's average overall account is two thirds workers comp, with the rest being package and commercial auto.
Nicholas Frank, Erie Insurance agent, Middlefield, Ohio
The Erie "advantage"
How does Erie position itself in its chosen markets and vis a vis competitors? George Lucore, senior vice president in charge of the agency division, describes the Erie Insurance value proposition to independent agents: "We offer an exceptional portfolio of products, chock full of extra features, competitively priced, and supported by exceptional service," he explains. "We follow the Golden Rule, which means we do the right thing in the right way for the right reasons, for both our agents and our customers."
In a property/casualty market that over the last several years has been marked by intense price competition and discounting, "We take a 'steady as we go' approach," Milne says. "We didn't dramatically decrease rates during the long soft market, and now that the market is hardening, we're particularly competitive. We remind our agents that in a hard market, we're always there. Because of our relationship with our agents, they recognize the value of our steadiness in the marketplace." Another way in which Erie distinguishes itself, he explains, is by using its own forms instead of the standard forms offered by most carriers, and adding extra features and higher limits.
Yet another key competitive advantage is Erie's claims service. "In a J.D. Powers customer service survey for private passenger auto, Erie was ranked the #1 agent-represented company in the United States and #2 overall by consumers based on customer satisfaction," Milne observes with pride. "This isn't the first time we've been highly rated in third-party customer surveys. We provide a consistently high level of service in claims and other areas, and independent surveys match our internal surveys; both show customer satisfaction in the mid-'90s. What's more, we know our agents feel the same way."
Partnering with agents
At a time when many insurers are exploring or actually using alternative distribution methods, the Erie Insurance Group remains firmly committed to the independent agency system. "We exist to support our agents' sales efforts," declares agency division head George Lucore. "Our customers are not only policyholders; they're also agents, and we recognize the necessity of providing them a menu of value-added services in product development, policy processing, claims handling, and automation support. We strive to earn agents' trust, loyalty, and support--and to re-earn it every day, every week, every year. We're ready, willing, and able at all times to deliver on our promise to independent agents."
What qualities does Erie seek in an independent agent? "Trustworthiness, intelligence, a service orientation, a high degree of initiative, and the willingness to learn and change," CEO Milne responds. "In evaluating an independent agent, we look for reasons to believe that agent will treat us in a way that these expectations will be met." Adds Lucore, "Independent agents are highly motivated entrepreneurs, and that's a good fit with the way Erie does business."
At Erie, an agent's volume and level of experience don't always drive the appointment decision. "We successfully appoint both experienced and new agents," Milne explains. "In either situation, we look very carefully at how we can fit into the agency. We want to be the #1 carrier in each agency we work with. Having a preponderance of their business is not the sole measure; what we want is the opportunity to win that agent's mind and heart." Erie's success in that endeavor is borne out by the numbers: in 90% of its agencies, the insurer has 90% of the volume.
Erie hasn't achieved that enviable position by doing business as usual. Milne offers an example to show how Erie sets itself apart from the crowd in its approach to agency relations. "When we went into New York a couple of years ago, most of the agents we met represented the same or similar companies," he says. "I asked, 'Why add Erie?' They said they needed a carrier to help them compete with Allstate, State Farm, or Nationwide, that they didn't have any way to offer clients what they could get from captive agent companies. I said, 'Did you ever wonder why?' They said no. I said, 'You've treated all of your carriers the same way: you submit applications to all of them, get quotes, then go with the lowest bidder. You've made this happen.'
"Some agents agreed with me; others didn't," Milne continues. "I gave them the bottom line: if I give you an appointment with Erie and you treat us the same way, we'll be like all your other markets. We want agents who want and allow us to be different. I don't want you to agree simply to quote us every time. I want you to sell Erie based on your research and knowledge of what we do."
Of Erie's agency appointments, "80% to 90% turn out well; the other 10% can't do it, despite good intentions," Milne observes. "Those who do make the commitment and do it right are so happy. They tell us, 'This is how insurance companies used to be,' and 'It's fun being in the business again.' It's tough sometimes to break agents of the mindset that the company is going to change direction every three months. Agents have good reason to be wary because so many companies have reinvented themselves so many times. Given the opportunity, we can show them that Erie has been steady for 75 years and will always be steady."
The Golden Rule
In all aspects of its operation, and most particularly in its relationships with agents, Erie adheres firmly to the principles on which it was founded. "Our founder, H.O. Hirt, did everything based on the Golden Rule," Milne says. "Although he was an entrepreneur, he was a socialist in the positive sense. He believed in fairness and instilled that spirit in every member of management. People really want to behave that way, and if you provide the right atmosphere, people will flourish. When we treat our agents fairly and honestly, they're going to deal with their customers the same way."
Adds Lucore: "If there were a quantifiable value we could attach to our agency relationships, it would be a very high number on our balance sheet. We never take our agents for granted. We nurture and protect them with trust and loyalty. As a result, both they and we have prospered."
Accolades from agents
Most carriers make some effort to treat their agents with fairness and respect. The most reliable measure of their success is what agents themselves have to say, so we asked two Erie agents to share their experience with the company. Nicholas Frank, CIC, is president of The Frank Agency, Inc., in Middlefield, Ohio, which has premium volume of $4.5 million and has represented Erie for nearly three years. Frank Spicer owns a
$4.4 million independent agency in Fairfax, Virginia, whose relationship with Erie dates back to 1984, the year his agency opened its doors.
"The best decision I ever made from a business standpoint was to start my own agency from scratch," Spicer comments. "The second best decision I made was to seek an appointment with Erie. When they accepted me, they made three promises. First, to always provide an open market--the big name companies are more restrictive and tend to move in and out of markets, and Erie's never done that. Second, to provide products that are competitive in terms of features and price. And third, to always use independent agents as their sole means of distribution." Erie has definitely kept each of these promises, Spicer declares--and then some. "In my 17 years with Erie, my commissions have never decreased; in fact, they've increased. Other companies have cut commissions to reduce their expenses. Erie's actions breed loyalty."
Spicer has high praise for Erie's genuine interest in agents' concerns and opinions. "There's great mutual respect between Erie management and agents," he observes. "At meetings of the Agents Advisory Council, the CEO and senior vice presidents give us their undivided attention for three days. They listen to us and respond. They don't always say yes, but when they say no or later, they always give reasons. I have a lot of respect for a company that listens."
Of Spicer's total volume, 93% is with Erie. "I place everything with Erie that qualifies," he says. "On a scale of 1 to 10, Erie is 11. They have a complete line of products, all of excellent quality and competitively priced, and they provide unsurpassed service. With their commercial quote unit, I can get a quote in just 20 minutes. They offer 24-hour claims service for policyholders. They help us with our Web site, provide us with marketing brochures--they do everything they can to help us grow our business and sell their products. Without question, Erie is our go-to market."
Nick Frank feels the same way. After less than three years with Erie, the insurer has 10% of his agency's business, and that percentage is growing. "Erie is very innovative and forward thinking," Frank says. "They use broader forms than other carriers, they have an open appetite for business, and their claims service is well above the norm." What's more, he adds, "Erie demonstrates the highest level of commitment to independent agents. From the president's office to the mailroom, they believe they live or die with us. They're always willing to listen, and they always deliver on their promises."
75 years and growing
Adherence to the Golden Rule and other traditional values is a way of life for Erie--and so is preparing for the opportunities and challenges of the future. "We're constantly looking for ways to assist our agents in their marketing efforts," George Lucore says. "We provide a myriad of services through our proprietary intranet, and we update it almost daily. Right now we have some working task forces exploring e-commerce initiatives to help our agents use the Net to market and service their business. We're also developing programs that will enable our agents to leverage their time and talents effectively."
As it moves into its fourth quarter century, the Erie Insurance Group looks back with pride and satisfaction at its accomplishments--and moves forward with unwavering determination to continue delivering on its promise: the pursuit of near perfection. *
For more information:
Erie Insurance Group
100 Erie Insurance Place
Erie, PA 16530
Phone: (814) 870-2000
Web site: www.erieinsurance.com
--George Lucore