Saying "yes" to small commercial
Travelers Select Accounts delivers on its promise to make agents' paths easy
By Elisabeth Boone, CPCU
Talk is cheap, the adage says, and that is because lofty promises don’t always materialize in the form of concrete action.
In 2004, the newly merged entity then known as St. Paul Travelers launched a multidimensional initiative to become the carrier of choice for independent agents in the booming small commercial marketplace. (See “Small Commercial Is Big Business at St. Paul Travelers” in the October 2004 issue of Rough Notes.)
Now known simply as Travelers, the insurer is a leading small commercial writer and is represented by some 7,800 independent agents and brokers across the country who distribute the products of Travelers Business Insurance. In the five years since announcing its new strategy for small commercial business, Travelers has built its volume in that segment to almost $3 billion, and the Select Accounts team reports impressive progress in delivering on its promises to agents.
“Our vision in 2004 was to be the largest and most profitable small commercial insurer in the United States, and that hasn’t changed,” says Marc Schmittlein, president of Travelers Select Accounts. “We’ve always held to that vision, and everything we’ve done to build our platform has positioned us well to move toward accomplishing that vision.”
Amid troubled times for insurers in the wake of the stock market collapse, the deep recession, and downward pressure on premium rates, Schmittlein says, Select Accounts has been fortunate to enjoy the solid investment support of Travelers senior management and board of directors, and the security of the insurer’s strong capital base.
“The financial strength of Travelers and our long-term approach to strategic investments like our small commercial platform are the foundation for everything we’ve been able to achieve during this extremely challenging economic period,” he asserts.
A simple formula
Although the Select Accounts initiative is ambitious and multifaceted, Schmittlein says, “We’ve actually followed a really simple formula. Two of the core strategies that propel our small commercial platform are product and pricing sophistication. These are the keys to providing our agents and brokers ease of use and time-sensitive responses to submissions.”
Another key component of the Select Accounts Formula for Success, Schmittlein explains, is class breadth. “This refers to our ability as a business unit to go across what we think is now a $70 billion marketplace for small commercial. It’s important that our agents and brokers feel they can come to us with all their customers’ needs in small commercial, and since 2004 we’ve been broadening our appetite across a wide range of classes,” Schmittlein says. “We’ve added 750 new classes of business and are continually expanding our portfolio. An example is our 2007 entry into the technology segment to complement the expertise of our Global Technology business unit.”
Equally important to the formula, he continues, is line of business breadth. “In 2004, we were very much a CMP/BOP-driven player in the BOP market,” Schmittlein remarks. “We weren’t viewed as being strong in workers compensation or commercial automobile. Since then, we’ve been making a concerted effort to bring those products and others into our small commercial portfolio, either as part of a total account solution for a policyholder or as a monoline opportunity.”
The final element in the Select Accounts success formula is a new strategic approach to underwriting and distribution. “In 2004, some 80% of our small commercial submissions were referred to underwriters,” Schmittlein says. “That seriously limited our ability both to serve current agents and to expand our distribution force to accommodate a larger portion of the small commercial market. In 2006 we launched Travelers ExpressSM to increase the flow of new submissions by providing a quote and issuance platform for CMP/BOP without the added touch of an underwriter at the end of the transaction.”
Travelers Express is a rate, quote, and issuance platform that uses automated rules to apply the underwriting, product, and pricing strategies of Select Accounts to submissions at the medium to lower end of the premium range. “With Travelers Express, the agent can get a quote on virtually every submission without having to engage an underwriter unless the risk presents something out of the ordinary,” Schmittlein says. “We’re now moving 83% of our submissions through Travelers Express without the need for the agent to talk to an underwriter.”
Since the launch of Travelers Express, small commercial quotes have averaged a year-over-year increase of 30% and policies in force have grown 8% annually, Schmittlein says. These results, he observes, represent impressive progress toward what he describes as the ultimate goal for Select Accounts.
“We would like the opportunity to quote every small business in America,” Schmittlein declares. “Clearly that goal is aspirational, and equally clearly it encompasses the business that fits our definition inside the $70 billion small commercial market we’ve identified. Assuming that a risk meets our underwriting criteria, we want to be able to bring a bindable quote to the market for that business.”
Paradigm shift
For most commercial lines insurers, the criterion used to define market segments is premium size. In contrast, the Travelers Select Accounts team, in consultation with the insurer’s middle market executives, decided to use risk complexity rather than premium size to separate the two segments and at the same time eliminate the gap between the two business units that traditionally has existed for national carriers.
How has this strategy played out over the past five years?
“Having our middle market counterparts at the table from the start laid the foundation for what has become a great partnership that has significantly benefited our agents and brokers,” Schmittlein asserts. “By not looking at premium size but instead using different exposure definitions, such as property values for condominiums or sales receipts for restaurants, we’ve been able to leverage our distribution resources to close that gap between our small commercial and middle market appetites. Both units have experienced growth because our agents know they can come to Travelers with everything from their smallest commercial accounts all the way up to their middle market business. We have become an attractive solution across the spectrum of commercial customers,” Schmittlein says.
“From a product development and underwriting standpoint, pursuing a strategy based on risk complexity and exposure definition has been extremely productive for Select Accounts and for Travelers as a whole,” says Steve Ward, vice president and chief underwriting officer for Select Accounts.
“Equally important, it’s been highly beneficial for our agents and brokers and ultimately our policyholders,” he remarks. “Over the last five years, as we’ve shifted our focus away from premium size and moved into an integrated underwriting and business model based on risk and pricing segmentation, we’ve been able to expand our product breadth and the number of classes we offer as well as broadening eligibility within both new and existing classes,” Ward points out.
“This represents a highly collaborative effort of integrating technology, project management, actuarial modeling, product development, and underwriting that allows us to put a superior offering on the street for our agents and customers. We’ve reached a higher level of underwriting consistency than we’d been able to achieve before; and, even across our more complex classes, we’re able to say ‘yes’ more often to our agent and broker partners,” he comments.
Talking to agents
In creating its new platform for small commercial business, the Select Accounts team was able to draw on the considerable financial and intellectual capital of Travelers. Schmittlein and his group consulted with colleagues in the company’s commercial and personal lines business units, bringing together specialists in underwriting, actuarial, product development, marketing and distribution, and information technology. At every stage of the process, the team also sought and acted upon input from its agency force.
“A major reason for the success of our initiative is that beginning in 2004 we asked our agent partners to share with us their issues and concerns about small commercial,” Ward says. “For agent and broker partners, these are lower revenue-generating customers. Our average small commercial account is about $6,000 for all lines of coverage, and at a 15% commission rate the agent isn’t earning a substantial amount of money for placing this business. What drove the development of our platform was our commitment to making the path easy for agents with small accounts,” he says. “Our hope was that by doing so we could improve their margins and encourage them to produce more business within Select Accounts.
“Key to this effort was the design and implementation of technology that would allow us to streamline the underwriting process and get the right price that would enable us to earn a profit on small commercial accounts while still being competitive,” Ward explains. “Our growth in numbers of actual quotes and policies demonstrates that our approach to handling accounts with low commission revenue is freeing our agents to concentrate their efforts on selling more and increasing their own revenue stream.
“This tells us that our platform is enjoying a high degree of agent acceptance,” he observes. “We’re not trying to be the lowest price option in any market; we’re striving to offer consistent pricing that will generate the kind of return we’re looking for while writing the kind of business we want. Our agents didn’t tell us they wanted us to offer the lowest price; they asked us for a solution that would allow them to write small accounts efficiently instead of having to submit business to 10 carriers to get the best product and price.”
Power of data mining
As noted earlier, some 83% of the small commercial business that is submitted to Travelers Select Accounts is handled by Travelers Express without being touched by an underwriter.
“We’ve been asked how we can evaluate submissions without hands-on underwriting,” Schmittlein says. The answer goes back to 2004 when Travelers and St. Paul were integrating their technology platforms and undertook an ambitious data mining initiative. The idea was to use the two insurers’ massive amount of stored data to create a sophisticated pricing and underwriting model that would support efficient distribution across a broad range of small commercial offerings.
“We are seeing this data mining effort come to life,” Schmittlein asserts. “Our commercial division has substantial existing books of CMP/BOP, workers compensation, and commercial automobile business, and we’re using that data and scale to continually expand our risk appetite and increase our pricing sophistication.”
Adds Ward: “Scale does matter, and over the past several years we’ve realized the tremendous competitive advantage we can gain by mining our data and obtaining third-party data, then using it to create an efficient underwriting and distribution system for Select Accounts. Our IT vice president, Charlie Coon, and Colleen Batman, vice president of strategic program management, have been instrumental in developing technology and processes that allow us to use our data and rules to generate appropriate coverage and pricing for each risk based on its specific characteristics. We can look at two different exposures that on the surface appear very similar and determine that one represents a higher risk than the other or has a higher propensity for loss,” Ward explains.
“We can make our best offer of coverage and price for that prospect at the point of sale in the agency, with the producer or CSR present,” Ward says. “We’re focused on not just quantity of data but quality of data that enables us to meet the specific needs of each prospective insured. What we present is more than an indication; it’s a bindable quote. If the prospect likes the coverage offer and thinks the price is reasonable, the agent can push the ‘issue’ button and bind the policy. In terms of a value proposition for our agency partners, we think this is a pretty good one,” Ward declares.
Partnering with peers
The agents who place business through Select Accounts, Ward notes, also benefit from the expertise of other business units within Travelers. “The power of that expertise, and the level of cooperation and partnership between us and them, has allowed us to ‘borrow’ from these other business units and incorporate their product and pricing strategies into our underwriting and distribution model,” Ward explains. “That in turn enables us to present a broader portfolio to a wider range of customers in a very efficient, economical way.”
For example, he says, “We’ve embedded into our core small commercial product, MasterPac, a bundle called World Business Essentials, which is a bundle of coverages and services for our small commercial customers who have international exposures. The bundle includes a menu of services for repatriation and other support for insureds when they’re out of the country on business,” Ward explains. “This offering meets the needs of many smaller customers who now find themselves conducting business overseas.”
Also available to MasterPac insureds is boiler and machinery coverage. “Previously we had sold that coverage to only about 25% of our customers. Working closely with our partners in the boiler and machinery business unit, we’ve embedded that coverage in all of our MasterPac products, and now 90% of our customers are buying boiler and machinery protection,” Ward says.
“A key coverage we have on the drawing board for rollout next spring is employment practices liability,” he continues. “We’ve also been partnering with our bond business specialists to bring forward an offering that will be part of our MasterPac and Pac Plus products. Insureds will be able to choose from a wide range of limits and coverage options.”
Saying “yes”
It’s been five years since the Travelers Select Accounts team outlined for its agents a bold set of promises to streamline the underwriting, distribution, and servicing of small commercial accounts across a broad range of classes. Drawing on Travelers’ big-company strengths, the team has built a sophisticated and responsive platform that allows Select Accounts to say “yes” to agents and their customers.
The success of the initiative is gratifying to Marc Schmittlein, whose insurance career spans 27 years. “It’s great to be in the position of actually delivering on our promises to our independent agent partners,” he declares. “I think they’re paying us back with a flow of new business that’s fueling growth for them and for us.”
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