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Back to its basics Meadowbrook learns from the past and grows stronger in the process By George “Rusty” Capulet
The history of Meadowbrook Insurance Group (Meadowbrook) and the history of the alternative risk transfer (ART) market mirror each other very closely, according to Robert S. Cubbin, president and CEO of Meadowbrook. Some may find it surprising that Meadowbrook, a NYSE-listed risk management specialty program company, which celebrated its 50th anniversary last year, began its life as a small local retail agency. As a matter of fact, during its first 20 years, Cubbin notes, Meadowbrook was focusing on “growing the retail side of the business.” But then, during the late 1960s and early 1970s, the company began to move towards mass marketing and program business. Merton J. Segal, company founder and chairman of the board, believed that they could access business more effectively through groups and associations. It’s the “grouping together of similar risks and similar minded business people” that served as the centerpiece of Meadowbrook’s movement into the alternative risk market, says Cubbin. By the mid-1970s, this movement went into high gear when Meadowbrook took the novel step of establishing its first client-owned captive insurance company for a group of manufacturers. Of course, the ART market was just beginning to gain a foothold in Bermuda at this time and it meant that Meadowbrook had to outsource all of the component parts—everything from fronting and reinsurance to claims management and loss prevention services. But over the next 15 years, Cubbin says, “We built all the necessary infrastructure internally.” As a result, today Meadowbrook has developed its own internal divisions of specialists to handle critical components of risk-taking. Completing the circle While Meadowbrook was successful in developing its captive insurance company infrastructure with operations in both Bermuda and Barbados, it took another major step forward in 1985, by forming an insurance company. “This was the last piece of the puzzle,” says Cubbin. “Clients could now have control over their own destiny, because we now had our own fronting and reinsurance capabilities. We had, in effect, developed a one-stop shopping approach for our clients’ risk management needs,” Cubbin points out. This was unique for risk management service providers in the mid-1980s. Access to their own fronting carrier and reinsurance facility was one of the major success factors for Meadowbrook during this time period. Today Meadowbrook has 90-plus programs that are handled through 14 regional branch offices. This fact brings up another unique feature of Meadowbrook’s approach to the specialty niche market. There was a decision early on in the organization’s evolution to focus on small to mid-sized programs. Over time, Meadowbrook has found that its “sweet spot” is specialty programs in the $3 million to $10 million range. And for the most part, those are written on a regional basis. “We’re not looking for the $50 million to $100 million national programs,” Cubbin says. “We’ll leave those types of programs to the large, international companies and brokerage houses.” Meadowbrook believes that these $3 million to $5 million accounts represent an underserved segment of the program business because as Cubbin points out, “most carriers cannot efficiently manage programs of this size.” He is quick to add that Meadowbrook can manage accounts of this size very efficiently.
Branch basics One of the distinctive features of Meadowbrook’s corporate culture is the strong commitment to the regional branch office structure. Gregory Wilde, executive vice president, is in charge of Meadowbrook’s branch operations. He notes that it is this branch concept that has led to Meadowbrook’s current success. Wilde says, “One of the key success factors to making the branch concept work is that you need the underwriters in the field with the people who produce the business.” That way, he says, “They have a much better understanding of the local environment. From a strategic standpoint, Meadowbrook is driven from the field back up to corporate.” This means that each branch must develop its own approach and product mix that will allow the branch to accomplish its individually developed strategy. Cubbin puts it like this: “Each branch knows that the programs they are involved with need to be successful on both a gross and net profit basis,” so there is little confusion about this at the end of the day. It’s this regional approach that has helped Meadowbrook develop such a successful operation. “We have established a culture,” says Karen Spaun, Meadowbrook’s chief financial officer, “that centers on control, discipline, and communications.” The regional branch concept allows us to leverage the knowledge of our branch operations. “Corporate provides the controls and discipline, so we know how the strategies will be executed at the branch level,” she says. So, with the addition of good communications, “we are not surprised by what our people are doing in the field,” Spaun says. Over the past year, this relationship has helped with Meadowbrook’s efforts to comply with the Sarbanes-Oxley Act (SOX). Cubbin indicates that, since Meadowbrook is a public company, it was required to become SOX compliant. Management sees this as a positive since it provides documentation of the company’s internal controls. This ultimately allows Meadowbrook to provide a high level of service via its branch management approach, while “still knowing all the numbers,” according to Spaun. Challenging times For the most part, Meadowbrook is a case study in how a local broker can participate effectively in the ART movement. Rather than sit on the sidelines and watch the large, national brokers carve up the pie, Meadowbrook early on decided to become an active participant and trendsetter in the ART market. But like other ART providers, Meadowbrook has had its share of challenges. One of the most challenging events took place in 2000, when the rating agencies downgraded its insurance company operations. The primary cause of this problem was the decision to begin writing contractor surety bonds—a line of business in which Meadowbrook had little experience—and the soft underwriting market. This experience, according Cubbin, served as a wake-up call for the entire organization. “The main lesson we learned from this poor experience,” says Cubbin, “is stick to what you know and play on your expertise.” He goes on, “We can’t take on lines of business that we are not completely comfortable with.” Bottom line, he points out, “We have exited that line of business and will not return.” He also notes that, “Today, there are significant opportunities to grow in the ART and specialty program markets and we are concentrating our efforts on those.” Meadowbrook constantly strives to find good partners with which to do business. The company realized that its success with specialty programs and the ART marketplace is directly tied to its ability to identify and work with agents and brokers who have solid experience in the group and association business. Cubbin notes, “It’s different from traditional property and casualty business, where there is the usual insurance company to policyholder relationship.” He indicates that the group and association approach fosters more of a “we” type of view, rather than the typical “us and them” attitude. It is important that the agent/broker partner fully understands the cultural differences, Cubbin says. Despite the fact that Meadowbrook usually works through what it calls a “semi-exclusive relationship” with its specialty program agents, Meadowbrook continues to entertain new business. However, it is important to point out that “we are not interested in market share,” Cubbin says. “We are only interested in long-term programs that meet the needs of the group program or association policyholders.”
The future With so many insureds moving into ART programs already, is there still room for small agents and brokers? Cubbin says, “Absolutely. A lot of industries that have yet to be touched by ART (or a program approach) could benefit.” He also points out, “High hazard classes of risks were in some ways forced into the ART market. But now lower hazard, better classes of risk are beginning to see the advantages as well.” He notes that the increasing participation in the alternative market has resulted in adverse selection in the general insurance market and over time will begin to impact the rates of those accounts that are left behind. And this, in turn, will also hasten the movement to the ART market. A recent trend that Cubbin points to is that many agents and brokers are now positioning themselves to take advantage of the ART movement. He thinks that agents and brokers are now beginning to move away from just a defensive view of the ART market where agents/brokers became involved in and knowledgeable about ART just as a way to make certain they did not lose business to other brokers. “But now,” he points out, “they are learning more about ART, and are seeing it as a major strategic focus to grow their business, to stabilize their revenues, and to become more involved with their clients’ risk management needs.” Meadowbrook has noted this trend and wants to continue to partner with those agents and brokers who share a similar vision. * |
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