Managing general underwriter doubles premium to $20 million in '02
By Barbara A. Morris
Kevin M. Ottley (left) is chief underwriting officer for Five Star Managers, and Ralph Blust is managing director.
While many agencies and insurance companies have pulled in the reins on their marketing and advertising efforts, one company has forged into the process head on--convinced that the more aggressively they target existing and prospective customers, the more profitable premium they'll put on their books. Five Star Managers, a full-service managing general underwriter headquartered in Chicago, initiated a major marketing and advertising strategy in 2002 and in only a single year grew its premium from $10 million to $20 million. Much of that growth, maintains Chief Underwriting Officer Kevin Ottley, can be attributed to the definitive strategies adopted by the company last year to target current and prospective clients.
Five Star Managers was founded in 1995, conceived at the request of the London markets, initially as a vehicle through which they could outsource the underwriting, policy issuance, and claims handling functions of business produced through Tri-City Brokerage. Five Star Managers, however, is independent and autonomous from its sister company; and while it continues to do business with Tri-City, it also recognized early on that "it would be shortsighted to rely on only one distribution outlet," explains Ottley. Since its formation, Five Star Managers has significantly expanded its relationships and is now the MGU for many other wholesale and retail agents, with a reach that spans virtually the entire country.
Five Star Managers, recalls Ottley, was achieving success by anyone's standards, having already realized significant premium growth from the $5 million reported in 1996--its first full underwriting year--to $10 million in 2001. Additionally, it had expanded its initial offerings of specialized E&O programs to include EPLI as well as workers compensation and umbrella/excess coverages. The company had also amassed a growing client base, largely through the efforts of Ottley, who brought to the company strong relationships with many agents across the country as well as with the Professional Underwriting Liability Society (PLUS), for whom Five Star Managers presented a number of product and industry-specific seminars.
Five Star Managers executives: (left to rightin lower photo) Ralph Blust; Douglas P. Tobin, assistant vice president of underwriting/program manager; Chi-Yon Shin, assistant vice president/program manager; and Kevin Ottley.
While the MGU was doing well by all accounts, it desired that proverbial shot in the arm, which translated into an aggressive marketing and advertising strategy instituted under the direction of Ralph Blust, managing director, who joined the company last year. This strategy comprises several distinct components which, combined, have served to markedly increase Five Star's premium production and agency relationships.
Beefing up advertising
For example, until recently, Five Star Managers' print advertising efforts were modest, at best, consisting of the occasionally-placed one-quarter page ad. Last year the company's advertising budget was increased substantially to $100,000, much of which was used to gain a noticeable presence in trade magazines with consistently placed half- and full-page advertisements. The budget, reports Blust, has been increased for 2003, with the funds used to continue to heighten the company's industry-wide exposure through a variety of advertising venues. Additionally, Five Star Managers' executives are now providing editorial resources to a number of highly-respected industry publications, through by-lined articles on timely issues and trends related to the liability insurance marketplace.
In addition to expanding its advertising efforts, Five Star also utilized technology to develop a comprehensive list of some 91,000 target prospective insureds, as well as 24,000 agents who met the criteria as being potential customers of Five Star products and services. The insureds were sent mailings intended to educate them about their potential liability exposures and advising them to discuss these issues with their agent who could then contact Five Star. The agents received a different mailing, advising them of Five Star Managers' product offerings and high level of customer service.
As a result of those mailings, says Blust, Five Star has since received "an influx of new business," both from its targeted agency list as well as through other agents who were prompted by their commercial clients to seek out Five Star to address their liability coverage needs.
According to Blust, the business coming into Five Star reflects a mix of sources that are both established--well known to the company and providing submissions on a consistent basis--as well as sources he characterizes as "one-hit wonders"--agencies that may submit only a single piece of business. Both, he says, are viewed as equally desirable. "We are comfortable working with both," stresses Blust, who reiterates Five Star's strategy to do business with any agency as long as the business submitted meets its strict underwriting criteria. Likewise, he observes that "one-hit wonders" often have the potential to transform into more consistent customers presenting consistently profitable business.
In other instances, Five Star's relationships with individual retail agents in a given geographic area have translated into a relationship with a wholesaler in their region. Regardless of the scenario, the end result, observes Blust, is increasing business to Five Star and a steadily growing client base.
The company, Blust reports, has also initiated "blast e-mails" to yet another software-driven list of some 50,000 agents. And while the response rate is low--perhaps only a small percent--a small percent of 50,000, he points out, "creates a lot of dialogue."
At year-end 2002, Five Star was conducting business with approximately 400 agents around the country. Blust is confident that as a result of the company's aggressive marketing efforts, that number will hit 1,000 by the end of this year, generating anticipated gross premium of $40 million--double its current premium level of $20 million.
Retaining quality through underwriting
Five Star Managers staff is dedicated "to provide our customers with service that exceeds their expectations."
While Five Star Managers has placed a strong focus on growing its book through advertising and marketing, it maintains strict underwriting criteria to which it strongly adheres. The company will quote business with any agent, it will not bind a policy until a thorough review of the agency indicates the entity is a solid operation that is likely to submit solid business. Once the relationship is established, Five Star Managers' customers, says Ottley, are the beneficiaries of an operation whose highly automated levels translate into equally high levels of service and quick turnaround times for key processes.
"We streamlined many of our processes in 2002 to make our customers' lives easier," says Ottley. These included shortened time to acknowledge receipt of a submission, which has now been pared down to only 24 hours. The company also provides regular updates during the quoting process, eliminating the need for the customer to initiate follow-up inquiries, and also reports an impressive average timeline of only 30 days from receipt of a submission to policy issuance. Direct billing to the agency, customer access to a toll free line, and quick response to inquiries via e-mail, have all combined to give Five Star Managers customers "a better transaction experience," Ottley adds.
In 2003, Five Star Managers customers will benefit from yet another initiative established by the company to "improve accessibility and reduce the expenses our producers incur with account retention," says Blust. Specifically, he reports that the company recently launched an interactive Web site which will allow many processes to be conducted online. Undergoing testing at the beginning of the year, the Web site designed and managed by Insurance Workz, Inc., once up and running, will be a "major service enhancement," Blust adds.
While Five Star Managers has placed a major focus on marketing to attract and retain customers, the company recognizes that the quality of its underwriting, claims handling, and product offerings will ultimately determine its long-term future.
"We have always exercised strict underwriting discipline--bringing the quality business the carrier wants," says Ottley. Five Star, he notes, resisted the pressures during softer market conditions to compromise its underwriting standards. As a result, it has consistently written profitable business and not only has maintained, but has expanded its carrier relationships during hardening conditions that have seen many MGUs losing key markets. From the customer's perspective, they have experienced "a significant level of stability and rate structure," reports Ottley, who points out that strict underwriting during the soft market has lessened the need to make major adjustments as the cycle hardens.
Additionally, Blust stresses the role that Five Star Managers plays during the claims process--working closely with its customers and providing access to two law firms that specialize in claims litigation related to the products Five Star offers. "Our claims handling is another product advantage and our customers are very quick to recognize that product difference," Blust adds.
Focusing on niches
Looking ahead, the company has plans not only to grow, but to focus on specific product niches.
Doug Tobin, program manager for EPLI, reports that the company has adopted an aggressive strategy to expand Five Star's EPLI book of business. Recognizing the initial need to understand the product and to underwrite it correctly, the company has "become comfortable with rate, underwriting, and claims handling," and has since taken specific steps to become a more formidable player in the EPLI market. While once primarily viewed as a cross-selling opportunity from its E&O accounts, EPLI is now being aggressively marketed beyond its existing client base.
Additionally, while Five Star Managers has primarily targeted smaller commercial accounts of fewer than 1,000 employees, the company plans to expand into the 1,000-10,000 employee range this year. The company, he continues, has also begun to specialize in several homogeneous groups, such as franchise restaurants, and is looking to expand in targeted geographic areas.
As the hard market translates into continued withdrawal by some EPLI carriers, the demand for other providers "will only increase," predicts Tobin. This trend, combined with Five Star's ability to consistently offer competitive deductibles, low minimum premiums, and broad coverage, should enable it to reach its projected goal of doubling its EPLI book in 2003 to approximately $18 million, Tobin reports.
Likewise, the company has set similar goals for its E&O program, no longer depending primarily on word of mouth to achieve growth, but instead aggressively target marketing to potential insureds. Additionally, reports E&O Program Manager Chi-Yon Shin, continuing hardening conditions have prompted many MGUs and carriers to exit the E&O marketplace--a trend that bodes well for Five Star Managers, which has maintained very stable relationships with its carriers. Shin also stresses the company's "commitment to customer service," noting the care and time it takes to underwrite the risk--refusing to make quick or generalized assumptions.
"We've had agents bring us business that in the past had been underwritten improperly," Shin reports. "At Five Star Managers, we take the time to underwrite the risk properly--and we don't automatically send out nonrenewals on accounts that have had a loss as some companies do." Reflecting the company's overall growth goals, specific goals set for Five Star's E&O program include a doubling of its revenues in 2003 and expansion into the Northwest and Southeast as well as into the Midwest.
While Five Star Managers has taken definitive steps to reach a widening client base, the company understands that differentiating it from the competition is the key to long-term success and continued growth. Recognizing this reality, Five Star Managers, says Ottley, is driven by its stated principle "to provide our customers with service that exceeds their expectations. We strive to achieve this standard in every activity of our company.... Reliable, convenient, and complete service beyond their expectation is our way of doing business every day." *
While Five Star Managers has placed a major focus on marketing to attract and retain customers, the company recognizes that the quality of its underwriting, claims handling, and product offerings will ultimately determine its long-term future.
For more information:
Five Star Managers, L.L.C.
Toll Free: (866) 879-6565
Web site: www.5starmgrs.com