Extreme service

Rough Notes, Aug 1999 by Pillsbury, Dennis

The Addis Group boasts high retention and hit ratios

At the start of this decade, F. Scott Addis, CPCU, and William D. Rhodes, III, left secure jobs to start a futuristic agency that would develop business through "extreme service," utilizing a unique risk management audit process. Scott was vice president and senior account manager with Johnson & Higgins in Philadelphia. Bill was senior casualty underwriter with American Re in Philly. Peter Unger, CPA, ARM, joined about 10 months after the start-up. Peter was director of finance and annual giving for The Haverford School, Haverford, Pennsylvania. Today, Scott is president and founding partner of The Addis Group; and Bill and Peter are executive vice presidents and founding partners.

It turned out to be an auspicious tripling. The three men brought unique skill sets to a business that continues to redefine the level of education, services and resources delivered to the consumer. Although they each manage accounts, they also have areas of concentration that play to their strengths. Peter runs the day-to-day operations and basically serves as the agency manager. Bill oversees account management and quality assurance. Scott is in charge of strategic planning.

The agency was Scott's vision. He was convinced that an insurance agency could grow and prosper without sales people, that education and expanded risk management resources could be the ultimate sales tool that would cement the agent/client relationship and lead to business through referrals. But such an undertaking took time, and there were plenty of naysayers telling him that providing the level of service Scott anticipated could not possibly be done on a profitable basis. Scott readily admits to the "fear factor" creeping in on occasion in 1990 and 1991, especially when his $50,000 credit line was near depletion and his third child was on the way. Indeed, it was the extreme service (the investment of time and research in going beyond insurance) that was causing the problem. The Addis Group spends about three months away from the insurance bidding process in a "deeply engaged risk management audit" of potential clients. And that did not lend itself to quick cash flow. But it did lead to loyalty and referrals.

Needless to say, since The Addis Group is our Agency of the Month, it did survive. Scott's vision proved efficacious. By the end of 1991, the agency had $347,000 in revenue and premium volume of $2.8 million. There were four people at the agency. Today, The Addis Group has revenue in excess of $4.3 million, premium volume of more than $50 million and employs 22 people. Its service standards have brought recognition. In 1998, The Addis Group was awarded the Business of The Year Award by the Philadelphia Chamber of Commerce for customer service excellence. And, Scott Addis has been a finalist for Inc. magazine's Entrepreneur of The Year Award.

How did they do it? How did an agency with acquisition costs that are probably 10 times that of the competition survive and prosper in an extremely competitive environment? It's because the agency's approach has led to a hit ratio that is multiples better than average and a retention rate that is just shy of 100%. "Even though our acquisition costs are much higher, we succeed because we aren't spending time replacing lost customers," Peter Unger says. "By being information driven, rather than product driven, we land over 90% of the companies and institutions who we walk through the audit process. Our approach has allowed us to show revenue growth in the face of a very soft market. We project revenues to grow 12% to 15% this year." Consistent growth has enabled The Addis Group to be featured in the Philadelphia 100 as one of the fastest growing privately held firms in the region.

Education is key

The key ingredient in The Addis Group's success formula is client education. "The concept was to design a process to enable the middle market consumer to understand the value of risk management," Scott points out. "We really believe we are in the business of education, not sales. We begin by explaining to senior management the logic of the risk management audit approach-- that we must understand their business issues in order to design an effective, results oriented risk management and insurance program. About 20% of the time, the consumer chooses not to go through the audit. We place the business on our mailing list and move on.

"For the balance, we go through a thoughtful, meticulous process that includes gathering of research materials, such as quality assurance manuals, substance abuse policies, employment practices programs, safety committee minutes, OSHA logs, five-year claim data, insurer loss control reports and so on. We then analyze this information to come up with an action plan. At the same time, we conduct employee interviews that run about 30 to 45 minutes in length. We talk to the CEO, plant manager, human resource manager, quality control manager, hourly employees, safety manager-pretty much a cross section of everyone in the company. It's totally fascinating what answers you get when you ask them about the company's risk management concerns and how those answers may vary depending on whom we are talking to. By the end of this process, we have a deep understanding of the business, its culture and risk management issues. We are beyond insurance."