ST. PAUL OFFERS "SOMETHING ELSE" IN THE SMALL COMMERCIAL MARKET

St. Paul responds to agents survey in designing product offering

By Phil Zinkewicz

About two years ago, The St. Paul Companies sent shock waves through the medical malpractice insurance arena by announcing that it was pulling out of the marketplace. Perhaps "shock waves" is too strong a phrase. The medical malpractice insurance market had been on the edge of a crisis for some time. The severity of medical malpractice settlements and jury awards was such that most players in the medical malpractice insurance business were losing money in a big way. No significant reforms of the medical malpractice insurance system loomed on the horizon, and some medical malpractice insurers had been forced out of the business either by bankruptcy or regulatory fiat.

Therefore, St. Paul's withdrawal from the market was not all that surprising. Yet it did send a clarion call to regulators at the state level and legislators at the federal level that reform of the system was essential, and there are movements in that direction right now.

As for St. Paul, its withdrawal from medical malpractice, which was a major source of income for the company, left the organization with a need to find a new area of concentration. It had capital to spend and it wanted to focus on a new area to attract the premium dollars it was losing. The area it has decided on is small to middle market commercial lines insurance.

Marc Schmittlein, president of small commercial for the company, says that St. Paul's leaving the medical malpractice market was a factor in its looking for new markets to penetrate. But, he adds, Jay S. Fishman, chairman of St. Paul, and Marita Zuraitis, president and CEO of commercial lines, had already been looking at the small commercial lines marketplace as a potential area of growth because of the characteristics of the marketplace.

"The small commercial insurance marketplace represents between $50 billion and $80 billion in potential premiums," says Schmittlein. "According to the Small Business Administration (SBA), small business creates between two-thirds and three-quarters of all new jobs. A December 2002 survey by the National Federation of Independent Business (NFIB) shows that cost and availability of insurance is the number one concern of small business owners. Jay recognized that small business commercial lines represented a more predictable earnings stream, and he felt it would be beneficial for St. Paul to take advantage of that."

However, according to Schmittlein, Fishman recognized that small commercial lines is still very competitive, even in today's hard marketplace. So, in order to attract agents and brokers, St. Paul had to bring to the table something other than capacity and competitive rates.

To determine that "something else," St. Paul went directly to agents and brokers and asked them what they wanted from a carrier. The company surveyed producers to find out such things as:

* "What was the biggest challenge in selling small commercial policies?" Fifty-four percent said "too much time spent for too little return."

* "How important is technology, for example, online policy quoting and issuance, to your ability to serve the small commercial market?" Eighty-nine percent said "very important."

* "What is the most important factor in choosing a small commercial carrier?" Sixty-six percent said "ease of doing business, including technology and customer service."

Armed with such information, St. Paul set upon designing a model that would satisfy agents' and brokers' needs. "One thing we did was to re-examine our definition of small commercial accounts," says Schmittlein. "Other carriers base that definition on premiums taken in. We decided to define small commercial accounts based on sales and receipts. We look at each individual risk based on exposure characteristics rather than premiums. That way we can write the $500 account all the way up to the account size that could be considered middle market. We can accommodate the small corner barbershop to the small wholesale company. Our St. Paul MainStreet^SM small business product complements our St. Paul Advantage^SM product, a product designed to bridge the gap between small business and middle market customers."

The target market for St. Paul includes small business owners, generally with annual revenues of less than $15 million and with fewer than 100 employees, representing various business segments such as offices, retail, distributors, services and real estate owners. Schmittlein says that the company offers a cafeteria-style package product, which features a broad portfolio of automatic coverages that may be modified or written individually, as well as a range of optional coverages that may be selected, to serve the business needs of the small business owner. The company also offers newly expanded workers compensation capacity for small commercial and an appetite for many classes in most states, he said.

"We can write the $500 account all the way up to the account size that could be considered middle market. We can accommodate the small corner barbershop to the small wholesale company."

--Marc Schmittlein, President of Small Commercial, The St. Paul Com

But designing the product and targeting markets is all well and good. Getting the word out is also important. For that reason, St. Paul embarked upon a nationwide tour, which it launched March 2002 in New York. At this session, independent agents from the New York City area heard from St. Paul executives about the company's small commercial strategy, asked questions and tried out the new technology in more than a dozen kiosks.

"We learned in our research with agents that they wanted to work with a carrier than can help their producers and support staff write small commercial business quickly, easily and profitably," said Schmittlein to his audience. "Agents and brokers told us they wanted a flexible product that spanned more of the entire small commercial marketplace [and that offered] technology to quote and process the policies quickly, an online guide that clearly defines the types of businesses the company will insure, local sales and underwriting expertise positioned across the country, and service center capability to help agents and brokers process and maintain their small business accounts. We listened, we developed, we tested and now we have delivered."

Schmittlein describes as the centerpiece of The St. Paul's small commercial initiative a new technology platform, SPCXpress. This is a Web-based online tool that enables contracted agents and brokers to qualify, price, issue and endorse typical small business policies online in much less time than it normally takes to underwrite and process this type of business. In addition, agents and brokers can view customer billing records, claim status and other account information right from their agency desktops.

"SPCXpress is unique in the marketplace in its ability to not only quote and issue business for the traditional small business client, but also [for] its ability to allow the agent to quote and submit more complex small business accounts without having to re-enter data into the system," Schmittlein says. "This technology saves time, and time is money to agents and brokers."

In addition to technology innovation, The St. Paul has also retooled its commercial insurance products offerings to include both the typical Main Street types of businesses as well as products designed specifically for larger and more complex businesses. "The St. Paul offerings, St. Paul MainStreet and St. Paul Advantage, are flexible and transcend many other carriers' definitions and criteria for small commercial," Schmittlein says. "Together, these products address the insurance needs for the majority of small businesses, from the corner florist to the multi-location bakery to the medium-size wholesaler," he says.

Schmittlein says that St. Paul has also invested in a new sales force dedicated to its small commercial business. "Regional sales managers and state-specific sales executives across the country are charged with implementing the platform, helping our agents utilize the technology, learn about our products and new appetite, and grow profitable business. The sales managers are aligned with The St. Paul's eight regions of its commercial lines segment in order to drive a unified message on the company's commitment to profitable growth across the entire commercial lines operation."

Finally, Schmittlein says that The St. Paul took a major step toward meeting its agents' and customers' service needs with the 2002 debut of a Commercial Service Center in Atlanta. This Service Center handles customer requests and policy renewals for small commercial agents, thereby reducing the amount of time agents and brokers spend on small commercial account maintenance and allowing agents to spend more time selling to new clients. Underscoring The St. Paul's continuing investment in the small commercial marketplace, the company plans to open a second service center in the Mountain or Pacific Time Zone this year.

"Our customer Service Center further eases the burden on our small commercial agents by taking care of the backroom processing, customer requests and renewal of small business policies. The Center is the result of two years of research into what agents want in a service center: 24-hour access, resolution of customer requests with one phone call, and service from licensed insurance professionals."

Said Marita Zuraitis: "With the emergence of The St. Paul's small commercial platform, combined with the company's middle market and large account platforms, we now have a commercial lines business that can compete with the best in the business." *

For more information:

The St. Paul Companies
Web site: www.stpaul.com