Daniel H. Kraut (seated) is president of The Litchfield Insurance Group, while Robert G. Phelan serves as the company's chairman and CEO.
The Litchfield Insurance Group, Torrington, Connecticut, is a new, old agency that has become successful through a philosophy of "thinking differently."
* It traces its beginnings to 1917....
* It traces its beginnings to 1975....
* It traces its beginnings to 1998....
Like many agencies today, Litchfield has had to change to meet the changing needs of its clients and has had many "beginnings." The agency decided that its competitive edge would be to provide innovative "Fortune 500"-type insurance solutions to middle market companies. "We wanted to drive down long-term costs for our clients and develop a loyal clientele that stayed with us because of our value-added services," says Bob Phelan, chairman and chief executive officer. The agency's retention rate is consistently 95% or higher.
Of course, the agency's historical roots are important. It is known and respected and has built up a solid reputation since it began doing business in 1917. "That's been a key component of our success. We have a fabulous reputation. We're the gold standard in our marketing area," Daniel Kraut, president, notes. "But, equally important was the period from 1975 to 1990, when the agency purchased more than 20 other agencies to move from a small local agency to one with five branches and 80 employees," Dan adds. And then came another milestone--the dramatic "migration from a traditional insurance broker to a non-traditional broker."
The impetus for that change was the purchase of the agency by Bob Phelan and three associates in 1998. A new logo was adopted that emphasized the new direction in which the agency focused solely on middle market commercial lines. The logo on their business cards placed a blue dot over the "i" in Litchfield, with everything else black. The blue dot is carried over to the opposite side of the card, where it is enlarged and contains the agency's new motto: "We think differently."TM
Bob started in the insurance business in 1977 when he joined his father's agency after graduation from college. Bob's father started that agency in 1955, the year Bob was born and, interestingly, purchased an accounting system from Rough Notes that same year. Litchfield purchased that agency in 1993.
Dan Kraut joined Litchfield in 1973, became president in 1982 and was involved in many of the acquisitions. When Litchfield was started in 1917 as a small insurance agency, most of its money came from making loans to local residents and businesses. "We actually have some of the original $2,000 mortgage loans and business loans that were made at that time," Dan says. Up until 1995, the agency remained a typical property/casualty agency, writing all kinds of business. In addition to its book of commercial lines accounts, the agency had a large book of personal lines that involved 15,000 households in the area.
In 1998, Bob Phelan (left), along with (left to right) Ed Sparkowski, Carol Zuck and James Fabiaschi, purchased Litchfield Insurance Group.
--Robert G. Phelan
"The personal lines department was very profitable," Dan remembers, "but it was shrinking in policy count. We tried a lot of different approaches to reverse that trend, including a sales center. It was still growing from a premium and commission standpoint, but we were concerned about the lack of policy count growth. Still, we had no intentions of selling the business because of its profitability. That was until we got a call from a consultant who asked if we were interested in selling. We said "no" but were willing to look at his proposal. The offer proved to be one we just couldn't refuse. The sale actually took care of a lot of concerns. We had some outside stockholders at the time and this was an opportunity for them to receive some value. It also made it easier for Bob and his team to purchase the agency in 1998."
It also changed the complexion of the agency dramatically. Litchfield suddenly became a smaller, but more focused agency, concentrating on commercial business. In 1998, Bob Phelan, Carol Zuck (chief operating officer), James Fabiaschi (vice president) and Ed Sparkowski (vice president) purchased the agency and tightened the focus even further. Today, the agency focuses solely on providing middle market businesses between 50 and 1,000 employees with a wide range of insurance products and value-added services encompassing both property/casualty and employee benefits. The agency has clients with operations in 22 states and 25 foreign countries. It
has 27 employees and revenues of
$4 million. To help focus the staff on the new orientation as consultants to this market, Bob says, "I came up with an acronym to focus our new company's efforts: RISK--Results, Innovation, Speed, Knowledge. These are the deliverables to our clients."
The purchase was a 100% leveraged buyout. "The only reason we were able to do it was that we got help from Royal & SunAlliance," Bob notes. "Steve Ward, the local vice president for the company at the time and now area president-Middle Market Northeast, was convinced that we had a good plan and convinced Royal & SunAlliance to help out. It was the first time the insurer ever did this. After our deal, they created a formal program--the Funded Growth Program--that provides financing for mergers and acquisitions. To facilitate our deal, Royal went to First Union Bank in Charlotte. First Union loaned us the money and Royal unconditionally guaranteed the loan. It really meant a lot to have a business partner who believed in us and our future."
A unique approach
"What we do is really different for a company our size," Bob says. "We are consultative brokers to the middle market and truly focus on providing innovative Fortune 500-type solutions to our clients." Some examples of the types of services are:
-- "We can do a captive feasibility study for our clients. We formed our Captive Solutions subsidiary in 1995 and started out selling a group captive product managed by Captive Resources and sponsored by Group 500. With that as our base, we moved on to become experts in captives. The growth of our captive business hasn't been significant over the last few years because of the extreme softness of the property/casualty market, but we're ready for the emerging hard market and will be able to offer traditional or alternative market solutions to our clients."
-- "We provide human resource services to our clients." Litchfield has a strategic partnership with an HR consultant who is also a lawyer. "Through him, we have an HR hotline (an 800 number) where clients can call and get help with all areas of employment law, regulatory compliance and practical HR issues. We are also hosting a series of seminars on contemporary HR issues. In addition, we are introducing a group of online employee benefits administration products." Bob continues that many of their clients have overloaded HR departments where "people are lined up outside the door with questions. These products allow employees to go to a self-service model that is available 24x7 and allows our clients' HR departments to focus on their most critical task--hiring, training and retaining the best people."
-- "For our technology clients we have a cyberliability program that includes disaster recovery planning as well as a network security audit."
-- "We have had a safety consultant on staff since 1989. Of all the things we do, this probably has had the greatest impact on our retention. It is very difficult for any carrier/broker combination to duplicate the high level of capability we deliver in the loss control area."
-- "We're members of RiskProNet International (RPNI). One of the benefits of being in this broker network is that it allows us to offer global resources to our clients." RPNI is a confederation of 30 brokers throughout Canada and the United States with $500 million in revenue, making it the 5th largest broker organization in the United States. RPNI has a partnership with Globex, an international insurance consulting firm, which has member brokers in 103 foreign countries. "With Globex at our side, we become the international insurance department for our clients in both property/casualty and employee benefits. Combining the assistance of our broker partners in foreign countries with the expert guidance of the Globex staff, we can provide a customized solution to protect the worldwide operations of any global company."
"Since innovation is a big part of what we do, we're a beta site for a number of different products and services. That's a risk we're willing to take to stay at the leading edge." Bob explains that "because of the leveraged buyout, we have a lot of debt, so we have to take risks and try new things that will allow us to be more efficient and creative." One of the new things the agency is trying involves recruiting new salespeople. "Our goal is to have 10 new producers within the next three years and we're using two brand new recruiting programs.
"One program, by Bud Antrim of Woodgate Partners, is a college-recruiting program. Woodgate serves as our on-campus recruiter and also provides a recruiting Web site where college students can learn about us. Bud is recruiting for us on 8 to 10 campuses in the Northeast. Bob adds, "The new generation of college graduates is looking for a career where they can independently hit goals and have an impact. They don't want to be just another employee hidden in the cubicles of a large company. We're told that we're the first choice of most of our candidates and our hope is that three or four will be joining us upon graduation."
The second recruiting initiative has been developed by the Sitkins Group and is being run by Mike Meeneghan. "Our goal with this program is to recruit more seasoned salespeople from inside and outside the industry. A lot of talented people are looking for a new place to work and we want to tap that market," Bob says. Litchfield is one of five beta sites for this program that began in March.
-- "We're a beta site for something else as well." In order to understand their customers better, large companies use a new technology called Customer Relationship Management (CRM). CRM software is a relational database that allows a company to create a very detailed database of its customers. This intimate knowledge of the customer helps the company customize its offerings to the specific needs of specific clients. A former agency owner, Jack McMahon, developed an insurance industry CRM product called Baetis. "Jack has taken the CRM model and adapted it for the insurance agency business. He has also taken the CRM concept to the next level and created eCRM. That means that our customer database is accessible 24x7 over the Internet, and later in the year our producers will be able to access it wirelessly from a standard handheld device. For an insurance broker of our size to get this advanced technology at an affordable price is unbelievable."
"We owe a lot of gratitude to consultants," Bob continues, many of whom are mentioned above. Another key consultant who has been "instrumental in helping us achieve success is Roger Sitkins. All of our sales people went through his training camp in 1997 to help us with the change we had to make in our selling style in order to become consultative brokers. In 1999, we became one of his private clients. We owe a lot of our recent success to what Roger has taught us."
Bob concludes that the "real strength of the agency is our people. We have only $4 million in revenue but have capabilities of large regional and national brokers because our staff can deliver results. They're really committed to our customers. The knowledge that our account managers have is off the scale. Our salespeople are extremely talented and are selling solutions, delivered by a team of professionals who have a consultative relationship with the clients." *