Flexing technology

Rough Notes, Jan 1999 by Doucette, Nancy

Three industry representatives talk about how they put some punch into their operations using technology that's available today

Reflecting a bizarre twist of circumstance, the newspaper headline read: "Man bites dog!" An unexpected result in a familiar situation.

While the "man bites dog" headline is fiction, unexpected (and impressive) results in familiar situations are occurring in the insurance industry thanks to technology.

Consider these illustrative "headlines."

"Insurance company home office, branch offices 'disintermediated'" "Agency volume grows 13% despite principal's extended absence" "Call Web site visitors while they're still at your site"

Steve Doucette, Chuck Killian and Larry Neilson are the names behind these "headlines." What they're doing within their respective areas of the insurance industry brings the "man bites dog" scenario out of the realm of fiction and into the province of the possible.

Rediscovering the agent

Steve Doucette began his career in the insurance business as an agent. He started his own agency from scratch in a small town in central Wisconsin and within six years, he had three agencies. In the meantime, he had an opportunity to join Milwaukee Insurance Group. He eventually sold his agencies and became president and CEO of Milwaukee Insurance Group. But he had a kernel of an idea germinating and he knew more fertile ground lay elsewhere. So with 13 years' experience as an agency owner and insurance company executive under his belt, he headed to Idaho to set up a micro insurance company. (Visit www.roughnotes.com and access the March 1998 issue of Rough Notes, "Personal lines solution," for more information on this operation.)

Great Northwest Insurance Company wrote its first policy in 1993, Doucette recalls. The company doesn't appoint agents as a company normally would. There are a handful of agents in each state operating on an exclusive territorial basis. The size of the territory depends on population density. Each agency is referred to as a micro insurance company. Great Northwest now has micro insurance companies in 12 states and adheres to its principal of allowing its agents to function as the company. "We have no home office, no branch offices, no underwriters, no claims adjusters, no field sales and marketing

representatives," he explains.

(The central office does handle government interaction and electronic quality control. There are nine employees.) And as a result, "Our break-even loss ratio is significantly higher than any independent or direct writing company. So that

translates to our being able to offer better rates."

Looking back at the technology that was in place at the time he was implementing his micro insurance company concept, Doucette says, "The revolution in automation was empowering individuals-moving things out, not centralizing them." And although low cost is close to the top on the customer's list of fundamental needs, the customer also is interested in speed, convenience and accountability. "These things can be done much better on a decentralized basis," he notes.

Each micro insurance company has all the policy information at its site. Great Northwest maintains no customer files. But that's not to say the company isn't keenly aware of the pertinent transactions in each of its micro insurance company sites. Expert systems reside in the software which Great Northwest provides. These expert systems evaluate every underwriting decision made by the agency. Trends can be easily monitored. "This isn't unique stuff," Doucette says of the expert system software. "What is unique is that we decentralize it."

He emphasizes that to get desired results from technology, organizations must start with a business solution and then find the automation to support it. "You must be able to envision the business solution, and then choose and design the hardware and software tools to support that business solution." Trouble occurs when technology leads the business solution, he notes.

"If you're automating the wrong things, it doesn't solve the problem," he continues. "The independent agency system has been unwilling to picture different business solutions. Great Northwest has taken dramatic chunks out of the cost structure." Thanks to timing and technology, he says, his company has "taken what's been described as 'a terribly inefficient system' (personal lines and small commercial lines distributed by independent agents) and made itcost wise-the most efficient system in the industry.

"It's simply a joke that a large, centralized institution points at the local entrepreneurs (agents) and says they're cost inefficient," he adds. Agents are highly efficient because they live and die on their margins."

Do the math Doucette contends that the personal lines market is simply too significant to be ignored. He recalls looking down from an office building window at a busy intersection. Every 90 seconds approximately 50 cars collected at the traffic signal. Using a ball park premium of $800 per car, that worked out to $40,000 in potential premium every 90 seconds.