MSA group has unwavering confidence in agency system

Rough Notes, Jul 2001 by Zinkewicz, Phil

East Coast regional insurer prices products realistically, sets stage for future growth

During the last decade, there were some dire predictions made about the future prospects of the independent agency system. Critics of the system called it too costly and questioned whether the "value added" services agents provided to their customers justified their commissions. Swayed by the open denunciations of the independent agency system and lured by the potential for streamlining expenses, many insurers, particularly the nationals, began experimenting with multiple distribution approaches. Not wanting to risk alienating their agency forces altogether but anxious to branch out into other types of marketing ventures, insurers began supplementing their agency business with various direct writing approaches. The advent of the Internet and its potential for reaching vast audiences only added impetus to insurers' efforts to "go direct." But, today, something unexpected has happened.

Several recent studies have shown that, despite the wonders of new technologies, most consumers prefer buying their insurance coverages through independent insurance agents, preferably those who live in their neighborhoods or surrounding areas. Sales of personal lines insurance over the Internet have been lackluster, and some insurers are beginning to question the wisdom of moving away from the independent agency system.

The Ohio Casualty Corp. is one example. Recently, Ohio Casualty announced that it was abandoning its "Avomark" brand direct personal lines auto marketing in favor of an independent agent sales force. "The independent agency system is a better way to produce personal auto in general," said President and CEO Dan Carmichael. "It is a better value for both the buying public and the insurer," he said.

A recent study by Progressive Insurance found that less than 1% of 31,500 consumers queried purchase their auto insurance over the Internet, 21% purchase direct over the telephone and 67.6% purchase their auto insurance through a local insurance agent with an office in their area. Other studies have produced similar results. Is it any wonder, then, that some insurers are now considering reaffirming their commitments to the independent agent?

At least one insurer doesn't feel the need to conduct any such examination of conscience. The Main Street America Group is a regional property/casualty insurance carrier operating along the East Coast from Maine to Florida and, according to its chairman and chief executive officer, Philip D. Koerner, the company has not wavered in its commitment to the independent agency system in its 80 years of operations.

"The American consumer has sent a message, loud and clear: they want to use agents to satisfy their insurance needs," says Koerner. "We are committed to helping independent agents grow and will continue to dedicate time and resources to proclaim our belief that the independent agent is now and will be the distribution system of choice for Main Street Americans."

Koerner says that, while just a few years ago industry observers were saying that the agency system would not survive, now they are being forced to admit that, not only is it surviving, but it is flourishing as well. "More than 94% of personal insurance customers and 99% of commercial insurance customers buy through captive or independent agents," he emphasizes. "That's because of the unique nature of insurance.

Insurance is about people serving people. It is a business grounded in confidence, trust and peace of mind.

"Consumers know independent agents offer the best possible value because they provide a choice," continues Koerner. "Since they carry a number of products, they can create a perfect fit between their products and what each customer needs. Agents live in neighborhoods with their consumers, sharing a life and future. They serve on the same boards, are involved in the same causes, and care about the same issues. These rich, multidimensional relationships significantly enhance their value to customers."

Main Street America Group is a holding company, whose subsidiaries include National Grange Mutual Insurance Co., Old Dominion Insurance Co. and Main Street America Assurance Co., all of them providing personal lines and commercial insurance coverages. The holding company has other subsidiaries, which provide services such as asset management for small insurance companies and information systems and services.

Tom Van Berkel, president of insurance operations for MSA, echoes Koerner's praise for the independent agency system and says that the company's agents are at the core of MSA's success to date. In 2000, MSA Group continued to make progress toward the goal of reducing its combined ratio. "The industry was forecast at a 110 combined ratio, but our pooled results improved to 103.3%," says Van Berkel. "Our 2000 accomplishments include solid premium growth on our terms, significant improvements in our accidentyear loss ratios and a reduced operating expense ratio. The individualrisk