State Auto links its future to strengths of its agency force

Rough Notes, Feb 1998 by McCoy, Thomas A

Agents characterize the company as conservative but innovative

Our strategy is sort of boring," says Robert L. Bailey, chairman and CEO of State Auto Insurance Companies-by which he means that dramatic changes in direction are not State Auto's style. Compared to many carriers, that seems like an apt description.

Employee turnover at State Auto is less than 4% countrywide, including retirements. Its agents describe the company's rate adjustments as gradual, rather than sudden. And having started out as an auto carrier 76 years ago, State Auto's book is still heavily personal lines, with the remainder of its business concentrated in small to mediumsized commercial accounts.

Yet over the last 10 years State Auto has grown from $402 million in annual sales to $700 million, expanded from 16 to 24 states of operation, bought two small companies-Milbank and Midwest Security-and strengthened the products and services it provides for its agents. It is rated A+ by A.M. Best Company.

State Auto also has steadfastly adhered to its dependence on the independent agency system. "We have no plans to market our products beyond the independent agency system," stresses Bailey. "Most people still want to buy products and services from other people."

It's not that Bailey can't see ways the independent agency system can be improved. In automation, especially, he is passionate about the need for a greater commitment by both companies and agencies to reaching Single-Entry-MultiCompany Interface (SEMCI). But he remains confident that both old and new challenges to the agency system will be overcome.

Among the older challenges are direct marketing via the telephone or direct mail. Among the newer onesthe Internet. Bailey and Robert H. Moone, president and COO of State Auto, are both candid and confident about how they will deal with these challenges.

"Direct response marketing has been around for a long time, Bailey points out. "Yet it still has captured only about 10% of the market. Will the Internet be a factor in the market? It probably will. But we don't see the 10% that has gone to direct response growing significantly We think some of that telephone direct response business will go to Internet marketing."

Moone who, himself, is comfortable ordering and paying for certain products over the Internet, says insurance isn't the kind of product to benefit from Internet marketing. "It reduces the transaction to the lowest common denominator. There's no one to give you advice about coverage or the competencies of the insurance companies involved. It comes down to `what's the lowest price?"' Moone says.

Low price is one thing. The need for advice is another. Bailey is fond of telling the following story to illustrate the point.

"My former next-door neighbor bought his insurance from a direct response company. Yet, he would always come over to my house with his insurance questions. He'd say things like, `I'm going to help my sonin-law move and I'm renting a truck. Is there any special coverage I need for that?' Or, `what should I do about covering my wife's jewelry?'

"One day I said to him, `I'm getting farther and farther away from the day-to-day insurance business and spending more of my time on management and reinsurance. I'm probably not the person you need for coverage advice. Why don't you call your company with your questions?' "He thought about it for a second, and then he said, `I'd rather do business with someone I can trust."'

State Auto is represented by about 2,000 independent agencies mostly in Midwestern and Southern states. State Auto agents whom we spoke with characterize the company as conservative but innovative-not always having the lowest price, but being responsive to the needs of both the buyer and the agent. "They understand the changing dynamics of the consumer's service expectations," says John Schnebly of the KellerStonebraker Insurance Group in Hagerstown, Maryland.

"Our cost per transaction with them is good, adds Schnebly, but the hidden component with State Auto is stability. They're still run by insurance people, rather than financial people. They don't jump in and out of lines of business every few months."

State Auto is the lead personal lines carrier for Keller-Stonebraker, a $10.5 million agency with four branches. "We also do business in West Virginia and Pennsylvania," Schnebly, adds, "and they've helped handle the multijurisdictional problems for us."

Tom Wiseman, president of The Wiseman Agency of Gallipolis, Ohio, last May's Rough Notes Marketing Agency of the Month, describes State Auto as being "on the cutting edge in automation." The agency uploads and downloads business with the company, and has represented State Auto for about 60 years, writing both commercial lines and personal lines.

"In commercial, they're very good on main street business, and they have some appetite for larger accounts too," says Wiseman.

In the personal lines market State Auto has long encouraged electronic interface with its agencies. It owns an agency automation vendor, Strategic Insurance Software (S.I.S.), profiled in the September 1997 issue of Rough Notes. As early as 1979 State Auto had some 300 agencies interfaced using a proprietary system. Today the company has moved almost entirely away from proprietary interface in favor of APT-enabled interface through which it is currently downloading with more than 800 agencies and uploading with nearly 500.