MARKETING
A powerful blend of next-generation technology and traditional
values makes Selective Insurance a force to be reckoned with
By Elisabeth Boone, CPCU
Selective executives are (from left): Jamie Ochiltree, III, executive vice president of insurance operations; Gregory E. Murphy, chairman, president and chief executive officer; and Richard F. Connell, executive vice president and chief information officer.
How does a regional carrier gain national stature? Ask a top-flight insurer based in northwestern New Jersey, and the answer is "being Selective." And what does it take to "be Selective"? Think about a solid mix of basic ingredients--commitment, discipline, integrity--seasoned with a healthy measure of high-tech savvy, unwavering agent loyalty, and carefully planned diversification.
That's the winning formula for Selective Insurance Group, Inc., which this year celebrates its 75th anniversary. And it has plenty to celebrate: Selective is the nation's 61st largest property/casualty insurer, has carried an A+ Best's rating for 39 consecutive years, and this year was ranked the #2 businessowners policy and commercial package policy writer by Crittenden in two national surveys. What's more, Selective's National Flood Insurance Program Write Your Own (WYO) program recently was endorsed by the Independent Insurance Agents of America.
Selective Insurance Group, Inc., is the parent holding company of several multi-line property/casualty insurers. The group employs 1,000 persons at its New Jersey home office and has some 1,500 employees in the field. Selective is represented by approximately 900 independent agents in its 20-state operating territory in the Northeast, Midwest, and Southeast.
In addition to its insurance operations, which generate about 82% of total revenue, Selective also operates a group of companies in related fields. Known collectively as Diversified Insurance Services, these entities contribute about 8% of revenue. We'll learn more about them later from James Coleman, executive vice president of Diversified Insurance Operations.
With assets of over $2.6 billion, total revenue for 2000 in excess of $1 billion, and $844 million in written premium, Selective clearly has come a long way from its founding in 1926 by a small business owner in Branchville, New Jersey. D.L.B. Smith, a local grocer, established Selective Insurance Company of America because he was displeased with the poor service rural customers were receiving from large insurers. The company's results over the past 75 years reflect the solid, steady growth that comes from putting customers first, and from doing the things that build loyalty with both agents and their clients.
Then and now: change fuels growth
The 75 years of Selective's existence have witnessed a veritable tidal wave of change--economic, social, political, technological--whose scope almost no one could have imagined. During that time, the automobile went from being a slow-moving, eccentric curiosity to a machine of speed and sophistication that's now an essential mode of transport; the stock market that made barbers and sales clerks paper millionaires crashed to launch a worldwide depression; and Japan's surprise attack on Pearl Harbor catapulted the United States into the cauldron of World War II. The postwar baby boom gave birth to the nuclear family, spurred the creation of the suburban lifestyle, and fueled a culture of consumption that turned rich men's toys into tools of the common man.
Since joining Selective Insurance Group, Inc., in 1980, Greg Murphy has seen many changes within the organization, such as expansion from six to 20 states.
Marching along with the sweep of history, Selective Insurance likewise has undergone some fundamental changes in its structure, its operating territory, and its business appetite. Gregory Murphy, Selective's president and chief executive officer since 1997, joined the organization in 1980 and can chronicle some significant changes that have taken place during his tenure.
"First, we've taken the company from a six-state operation to a territory of 20 states," Murphy says. "But more important, we've also changed our product mix. When I joined Selective, close to 75% of our volume was in personal lines, and now our business is 80% commercial and 20% personal." Other major changes Murphy identifies, which will be explored in depth later, are the group's top-down commitment to ease of doing business through improved technology, its embrace of project management, its shift to a field-based service model, and its diversification strategy.
Agents are looking for five key qualities in their agency-company relationships, Murphy says. These are (1) relationships at all levels of the organization, (2) ease of doing business, (3) stability in the marketplace, (4) technology, and (5) growth.
"At Selective," he says, "we're constantly working to improve each of these important qualities and to develop new strategies that push us to the forefront. New competitors are entering our marketplace, so it's essential for us to maintain a sustainable competitive advantage. This is why we've expanded our Diversified Insurance Services operation to offer our agents a new payroll and human resources product for their small commercial clients. Our field underwriting and claim model are clear advantages to agents in terms of ease of doing business, and these are key reasons why agents place profitable business with Selective."
Field service: a win-win
A key success factor and major competitive advantage is Selective's decision in the mid-1990s to move to a field-centered, customer-oriented model. Field underwriters, called Agency Management Specialists, and adjusters, known as Claims Management Specialists, are located throughout Selective's operating territory and are assigned to the agents in specific areas. These field representatives report to one of Selective's six regional offices. "Our Agency Management Specialists only call on about 12 agencies apiece, so they're able to see their agents a lot," says Jamie Ochiltree III, executive vice-president for insurance operations. "They work with the agents on a day-to-day basis. They live in their territories, they see the risks many times, and they know the clients. Agency Management Specialists are the key people responsible for driving new initiatives with our agents, as well as the primary contact between the agency and Selective."
Selective's 150 Claims Management Specialists handle most of the claims generated by the agencies in their territories. "Agents love this, because they know who's going to be handling their claims," Ochiltree says. "Agents sell insurance so their clients will be protected in the event of a claim. It's scary for agents to worry about what will happen when an insured has a claim. They think, 'If the company doesn't handle this well, I could lose the account.' We just don't get that, because our agents know their Claims Management Specialists, and they have a level of comfort with them."
The company maintains specialty claims units for lines like workers compensation and higher-end property, but the Claims Management Specialist generally is the first point of contact for every claim an agent reports.
The Agency Management Specialists and Claims Management Specialists report to one of Selective's six regional offices; these facilities handle underwriting, new policy issuance, renewals, and related functions. The personal lines operation is based at Selective's New Jersey home office, as is the corporate claims department.
The field service model gives Selective a distinct advantage over insurers with a more centralized operating structure, Greg Murphy comments. "The main advantage is that the decision maker is in the agent's office," he says. "In addition, cross communication between the claims specialists and the underwriters gives us the kind of detailed knowledge about accounts that companies that handle these functions from the home office may never be able to acquire." What's more, he notes, "We also get the benefit of fraud deterrence; people are much more likely to be truthful when they're discussing a loss face to face with a claims specialist with whom they have an established working relationship."
The best field service model in the world, Ochiltree points out, is only as good as the agency force it supports. "We are a 100% independent agency company, and we're going to continue to be a 100% independent agency company," he asserts. As its name implies, Selective is very particular about the agents who represent it. "We don't do business with a lot of agents. We only have about 900 agencies, and they average close to
$1 million in written premium with us this year," Ochiltree explains. "If you pick the right agencies, you always have the opportunity to write the best risks. We choose good agencies, and we try to build strong relationships with them and give them highly competent people to work with in the field. That's our approach, and it works."
Putting it all together, Ochiltree says: "We try to find ways for our agents, who have a lot of different opportunities cross their paths, to come to Selective with most of those opportunities. We have the horsepower of a large national company, complete with modern technology that makes it easy and cost-effective to do business with us, yet we have the flexibility and the relationship model of a regional insurer."
Richard Connell is responsible for all aspects of Selective's insurance information technology.
Insurance operations:
Under Ochiltree's leadership, Selective's insurance operations are organized into seven customer-focused Strategic Business Units (SBUs):
* Mercantile and Service: retail stores, wholesale trade, and service-oriented business
* Contractors: building, grading, excavation, carpentry, electrical, and other construction businesses
* Community Services and Organizations: municipalities, school boards, private schools, volunteer fire/rescue units, religious institutions, and other nonprofit entities
* Habitational and Recreational: hotels, motels, inns, golf establishments, country clubs, restaurants, and fraternal organizations
* Manufacturing and Processing: light industrial and processing businesses with a focus on low-hazard product liability risks
* Bonds: fidelity, contract surety, and commercial surety products, specializing in bonds for individual, business, and government needs
* Personal lines: automobile, homeowners, and personal catastrophe liability
Although Selective has the capacity to write large and hard-to-place risks through its Alternative Markets/Selective Risk Managers unit, its focus is on small to medium-sized commercial risks. "Eighty-five percent of our commercial policies are less than $10,000 in premium," Ochiltree explains. "We define a small account as about $10,000; mid-size is up to $50,000."
Large commercial accounts (over $250,000) are handled by Selective Risk Managers (SRM), enabling the company to take advantage of increased alternative market opportunities. "Although the field and branch offices are involved, the primary underwriting is done by SRM," Ochiltree says. "Selective Risk Managers also gets involved in many different kinds of risk sharing mechanisms: loss-sensitive rating, retros, large deductible plans, self-insured plans, groups, associations, joint insurance funds," he continues.
Technology is tops
Another major change Murphy has observed over his 21 years with Selective is the power and speed of advances in technology. Quick to perceive the competitive advantages of an efficient high-tech operation, Selective invests significant resources in creating and enhancing such an environment.
"As with other major initiatives, our technology investments are determined with the guidance of our Enterprise Project Management Office (EPMO)," Murphy explains. "This ensures that our initiatives are aligned with corporate strategy and that projects are completed on time and on budget." Selective is highly focused on the project management skill set, a discipline that centers on planning, organization, and control. "Since implementing these techniques, we've increased our success rate in bringing new products and systems to the marketplace," Murphy says. "The best example of these efforts is our new Service Center initiative, which was successfully launched within one year and which keeps us on the competitive frontier by meeting our agents' changing needs."
At Selective, information technology resources are deployed at the highest level; chief information officer Richard Connell is an executive vice president who reports directly to Greg Murphy. Connell, who has 30 years of experience in his field, directs a staff of 250 with an annual budget of $30 million. Connell is responsible for all aspects of insurance information technology for Selective and its affiliates, including computer center operations and telecommunications, business applications, and information technology strategy and direction.
"We rely on technology as a differentiator," Connell says. "We have a vision around technology of providing straight-through transaction processing and delivering the right information to the right people at the right time. We see technology as a way to set ourselves apart from our regional competitors especially, but also our national competitors."
At Selective, information technology is a key factor in virtually every operating decision. "In any business initiative we're considering, IT is a critical component, and every IT initiative supports our overall business strategy," Connell says.
Jamie Ochiltree oversees Selective's insurance operations, which are organized into seven "Strategic Business Units."
Among Selective's key business initiatives are those that use technology to better serve the company's agency partners and their customers. Examples are:
* One & Done: A BOP and small contractors processing system that enables agents to enter an applicant's information once; if it meets underwriting criteria, the policy is automatically issued and mailed the next day. One & Done was launched in January of this year; business processed through this system already represents 13% of Selective's new policy counts.
* Small Business Service Center: Located in Richmond, Virginia, this facility was created in response to requests from Selective's agency councils. Staffed by licensed agents, it provides back office support to agents who request it for commercial accounts under $10,000. The Service Center began operations last January, and thus far Selective has moved about $5 million worth of premium volume into the facility. "Basically it's a way to take small commercial lines servicing out of the agency and move it into a cost-effective structure," Connell remarks. "It's been quite successful so far, and it's another way we're using technology to maintain a competitive advantage."
* ESelect: A Web site for agents that offers access to a wide range of information: for current insureds, claims information, loss runs, and direct bill inquiry; for agents, monthly profitability and business experience reports and agency survey; forms and manuals; and products Selective is currently emphasizing. "ESelect is really our agency portal," Connell says. "It's a way for agencies to come through the Internet and get into some of our systems. We expect to add more functionality to it in the future for other types of processing."
* Commercial Lines Automated System (CLAS): Selective's Windows-based commercial lines policy processing system. An initiative is now under way to Web enable this system; the project is expected to be completed by early 2003.
* Mobile Claims System: Enables Claims Management Specialists to process all asp[ects of a claim from any location, and gives agencies and claims personnel instant access to claims information.
* Web sites: Selective has public Web sites for all of its companies and has redesigned them to add functionality and improve ease of use. The "new look" was unveiled on November 1. "We're starting to use the Internet to differentiate ourselves from the rest of the pack," Connell remarks.
Diversity = stability
Selective's prudent underwriting standards definitely act as a bulwark during periods of intense competition, when other carriers are awash in red ink on the swirling waters of cash flow underwriting. Even the most scrupulous standards, however, can't prevent those inevitable swings in the cycle, and that's a major reason why Selective pursues a carefully planned strategy of diversification.
James Coleman is executive vice president of Selective's Diversified Insurance Operations (DIS), a group of companies in insurance-related fields.
Selective's Diversified Insurance Services (DIS) operation is based in Sarasota, Florida, under the leadership of Jim Coleman, an executive vice president whose career with Selective spans 20 years. He describes the considerations that motivated Selective to embark on its diversification strategy. "First, we wanted to diversify our revenue stream, and we also wanted to bring more products to our agents. We also looked at some of the core competencies we thought we were going to need as an insurance company, such as managed care to control medical costs. We decided to buy a company that had expertise in that field and then resell those services."
The entities that comprise DIS support Selective's insurance operations yet are unlike insurance because they are fee-based, low-risk, non-capital intensive sources of revenue. Operating under the DIS banner are:
* Alta Services: managed care services
* Consumer Health Network: a managed care organization that offers a network of providers, point-of-service options, workers compensation programs, and utilization review and management services. to insurance companies and other businesses
* Selective HR Solutions: a professional employer organization (PEO) that offers human resource and administrative services and risk management products
* PDA Software Services, Inc.: insurance software development and processing services
* Selective Flood Services: flood insurance and claims adjusting services under the auspices of the National Flood Insurance Program
* SelecTech: claims, loss control, and medical cost management programs for self-insured businesses, groups, and associations
"As we implemented our diversification plan, our strategy began to crystallize," Coleman says. "We wanted to provide more complete solutions to business owners--solutions that weren't entirely driven by the insurance product." The solutions provided by DIS not only give agents new products and another source of income--they also can enhance client relationships and boost retention, he comments. For example, Selective HR Solutions allows smaller employers to outsource employee benefits, workers compensation insurance, payroll, and human resource administration. This relieves business owners of burdensome back office tasks and frees them to concentrate on expanding their businesses, Coleman explains. To reinforce this point, the tagline on Selective HR Solutions materials says, "Freedom to Succeed." Small business owners also benefit from the purchasing power of Selective's PEO, which buys products and services for a total of 22,000 employees. What's more, Selective and its agents benefit from virtually "competition proofing" their clients by providing them essential services and giving them even more reasons to stay with the company.
Challenges and opportunities
As consolidation continues among independent agencies, Greg Murphy observes, agents are taking a much closer look at the carriers they represent. "In today's market, it seems unimaginable that an agency could have as many as 20 or 30 commercial lines markets," he says. "I see agents starting to focus their marketing plans on perhaps three to five commercial lines writers, and if you're not one of those key markets, you're not going to be a successful company over the long term." Another issue for agents is distribution, Murphy comments. "A lot of companies face a certain amount of channel conflict; as well as having agents as partners, they're actively looking for ways to market around them, direct to consumers. Selective's commitment to the independent agent is one of our key differentiators. It gets back to the whole value proposition: We're not a low-cost provider, but we need to be a more efficient provider, and we need to drive the costs out of the company-agency distribution model. That's the goal of our Web-based initiatives." What's more, he notes, many carriers face tremendous technological challenges that may lessen their appeal to agents. Playing catch-up at this stage, he says, may be difficult if not impossible.
When he established Selective Insurance three-quarters of a century ago, D.L.B. Smith could have had little notion of what he was creating for the future. Today, his company's blend of common sense, techno-savvy, competitive products, and outstanding service make it clear that the way to succeed truly is by "being Selective." *
For more information:
Selective Insurance Group, Inc.
Phone: (973) 948-3000
Web site: www.selective.com