By Phil Zinkewicz
Thomas M. Van Berkel is president of insurance operations for MSA Group.
During the last decade, there were some dire predictions made about the future prospects of the independent agency system. Critics of the system called it too costly and questioned whether the "value added" services agents provided to their customers justified their commissions. Swayed by the open denunciations of the independent agency system and lured by the potential for streamlining expenses, many insurers, particularly the nationals, began experimenting with multiple distribution approaches. Not wanting to risk alienating their agency forces altogether but anxious to branch out into other types of marketing ventures, insurers began supplementing their agency business with various direct writing approaches. The advent of the Internet and its potential for reaching vast audiences only added impetus to insurers' efforts to "go direct." But, today, something unexpected has happened.
Several recent studies have shown that, despite the wonders of new technologies, most consumers prefer buying their insurance coverages through independent insurance agents, preferably those who live in their neighborhoods or surrounding areas. Sales of personal lines insurance over the Internet have been lackluster, and some insurers are beginning to question the wisdom of moving away from the independent agency system.
The Ohio Casualty Corp. is one example. Recently, Ohio Casualty announced that it was abandoning its "Avomark" brand direct personal lines auto marketing in favor of an independent agent sales force. "The independent agency system is a better way to produce personal auto in general," said President and CEO Dan Carmichael. "It is a better value for both the buying public and the insurer," he said.
A recent study by Progressive Insurance found that less than 1% of 31,500 consumers queried purchase their auto insurance over the Internet, 21% purchase direct over the telephone and 67.6% purchase their auto insurance through a local insurance agent with an office in their area. Other studies have produced similar results. Is it any wonder, then, that some insurers are now considering reaffirming their commitments to the independent agent?
-- Philip D. Koerner, Chairman and CEO, Main Street America Group
Philip D. Koerner notes that MSA Group has never wavered in its commitment to the independent agency system in the company's 80 years of operation.
At least one insurer doesn't feel the need to conduct any such examination of conscience. The Main Street America Group is a regional property/casualty insurance carrier operating along the East Coast from Maine to Florida and, according to its chairman and chief executive officer, Philip D. Koerner, the company has not wavered in its commitment to the independent agency system in its 80 years of operations.
"The American consumer has sent a message, loud and clear: they want to use agents to satisfy their insurance needs," says Koerner. "We are committed to helping independent agents grow and will continue to dedicate time and resources to proclaim our belief that the independent agent is now and will be the distribution system of choice for Main Street Americans."
Koerner says that, while just a few years ago industry observers were saying that the agency system would not survive, now they are being forced to admit that, not only is it surviving, but it is flourishing as well. "More than 94% of personal insurance customers and 99% of commercial insurance customers buy through captive or independent agents," he emphasizes. "That's because of the unique nature of insurance. Insurance is about people serving people. It is a business grounded in confidence, trust and peace of mind.
"Consumers know independent agents offer the best possible value because they provide a choice," continues Koerner. "Since they carry a number of products, they can create a perfect fit between their products and what each customer needs. Agents live in neighborhoods with their consumers, sharing a life and future. They serve on the same boards, are involved in the same causes, and care about the same issues. These rich, multidimensional relationships significantly enhance their value to customers."
Main Street America Group is a holding company, whose subsidiaries include National Grange Mutual Insurance Co., Old Dominion Insurance Co. and Main Street America Assurance Co., all of them providing personal lines and commercial insurance coverages. The holding company has other subsidiaries, which provide services such as asset management for small insurance companies and information systems and services.
Tom Van Berkel, president of insurance operations for MSA, echoes Koerner's praise for the independent agency system and says that the company's agents are at the core of MSA's success to date. In 2000, MSA Group continued to make progress toward the goal of reducing its combined ratio. "The industry was forecast at a 110 combined ratio, but our pooled results improved to 103.3%," says Van Berkel. "Our 2000 accomplishments include solid premium growth on our terms, significant improvements in our accident-year loss ratios and a reduced operating expense ratio. The individual-risk underwriting actions, claim initiatives and price increases that began in 1999 and continued through 2000 are now reflected in our accident-year results. More important, all new and renewal policies, as well as all claims, now face a more rigorous set of standards. That sets the stage for us to realize continued improvement through 2001."
Jeanne H. Eddy, executive vice president and chief financial officer of MSA Group, meets with Tom Van Berkel.
Koerner and Van Berkel say that MSA Group's favorable results, compared to overall industry results, are due to the company's insistence on maintaining underwriting integrity. In other words, company underwriters refuse to chase after business at the expense of sound pricing. This, they say, is why the independent agent is so important. "We're not the cheapest company on the block," says Koerner. "We rate a risk properly and fairly. We look to the independent agent to form relationships with his or her customers that will enable us to retain and attract new business at proper rates."
Van Berkel echoes those sentiments strongly. "We try to emphasize any way we can that the independent agent is our customer. Our job is to assist the agent in satisfying the insured, in term of products offered, in terms of questions that need to be answered and in terms of claims handling--especially in terms of claims handling."
Van Berkel maintains that one reason for MSA's improving loss ratios is that it has enhanced its claims handling practices. "The concept of our Adjuster Center was developed as a result of feedback from our agents telling us that superior claim customer service and prompt settlements were critical to them and the success of their business," he says. "The Adjuster Center favorably impacts our results by taking in all claims at a central point, making a quick decision to handle the high volume, low severity claims at the Center and promptly referring the more complex claims to a product specialist based in a regional office. This enhanced focus on prompt claims handling leads to faster settlements and lower claims costs."
In the area of technology, Van Berkel says that MSA Group's efforts have focused on what the company's agents need. "Our technology vision and commitments are to develop an Internet-based system for our agents. We see the need as two-fold: to replace or retool our back office legacy systems and, at the same time, provide functionality to the agent's desktop. We have a heavy investment in defining the functionality we envision for the future and have a major commitment to our customers--our agents. Our replacement strategy is to integrate our knowledge of desired functionality with the new technology products of established vendors. In 2000, we implemented our new Web site with expanded features for our agents and began the development of a Web-based transaction capability to support our legacy system."
Jeanne Eddy, executive vice president in charge of financial and information technology functions at MSA Group, agrees. "The moves we're making in utilizing new technology are not for the sake of just keeping up with technological developments," she says. "What is driving us in the way of technology is finding ways to make our customers'--our agents'--jobs easier. We want to make it easier for our agents to do business with us. Also, we want to make it easier and more efficient for our agents to interact with their customers--their insureds. In this way, everybody is happy."
When asked about MSA Group's expansion plans, even here the company focuses on its agency forces. "Geographically, we are currently concentrating on the East Coast," says Koerner, "and there is still plenty of room for expansion there. But we are also looking to expand westward and we are interested in partnering with other regional companies. But we will consider partnering only with firms that share our values and have a similar approach to doing business. For example, we would consider partnering only with a company that has a strong and total commitment to the agency system."
Koerner says that MSA Group would also like to partner with firms that could round out the company's portfolio. "For example, I don't believe we do as good a job as we can with coverage for recreational items such as snowmobiles, personal watercraft, etc. If we can seek out a relationship with a company that knows how to underwrite and service those kinds of coverages for our insureds, that would be a great way of offering a full line of personal lines products."
But whatever expansion opportunities lie ahead for MSA Group, it is certain that they will involve independent agents. "Other property/casualty insurance companies are just beginning to come around to the notion that the independent agency system is the way of the future," says Van Berkel. "We think we have an advantage because we never thought any other way. Our relationships with our agents are strong and we intend to keep it that way." *
For more information
www.msagroup.com