MARKETING
A dynamic new leader builds a regional powerhouse
with Citizens and Hanover agents
By Elisabeth Boone, CPCU
Frederick Eppinger is President, CEO and Director of Allmerica Financial Corporation.
In business, as in sports, even the best teams sometimes need what's popularly called a "rebuilding year." If they're smart, they use the time to become stronger, sharper, and more flexible so they're ready for their next winning season.
That's exactly what's been happening at Allmerica Financial Corporation, the parent company of two highly respected old-line insurers: Citizens Insurance Company of America, based in Howell, Michigan (founded in 1915), and The Hanover Insurance Company in Worcester, Massachusetts (founded in 1852). Under the dynamic leadership of Frederick Eppinger, who last August left The Hartford to become president, chief executive officer, and director of Allmerica, the company is concentrating its resources on building Citizens and Hanover into an even more successful regional franchise. In January, the A.M. Best Company upgraded the insurers' ratings to A- (Excellent), reflecting the success of a restructuring effort launched by Allmerica in the fourth quarter of 2002. The insurers' ratings earlier had been downgraded because of concerns that Allmerica's life insurance operations might threaten financial stability on the property and casualty side.
At age 44, Eppinger is already a seasoned and respected industry veteran. Before joining The Hartford in 2001 as senior vice president for strategic marketing, and rising to executive vice president of property and casualty field and service operations, he was a partner in the financial institutions group at the management consulting firm of McKinsey & Company. Eppinger welcomes the challenges of his new position as well as the opportunities they create. "I thought the potential here was enormous," he says. "Our industry is going through a tremendous amount of turmoil, and we're seeing some great old-line companies being threatened or going out of business. We're also seeing a lot of small regional companies that are basically subscale now, given the challenges of the industry. There's a real opportunity for a mid-sized company like ours, that has a regional focus, has the scale to invest in technology and people, and has the skills needed to be successful in this very difficult time for the industry.
"Over the last two or three years," Eppinger continues, "the gap between the 'haves' and the 'have nots' has been growing in a pretty significant way. I thought the Citizens and Hanover franchise was a platform from which we could create a great institution composed of world-class, successful regional property and casualty companies. It was really an exciting opportunity for me," he says. "Ironically, when I was at McKinsey I was involved in the writing of a study called 'The Journey.' The issue was: What does it take to be a great P&C company? In its research, which covered the period from 1979 to 1993, McKinsey learned that the Citizens and Hanover franchise was among the top P&C organizations in the country, up there with the best, like AIG and Progressive. Very few companies can say that. So to have a chance to be a part of companies with that kind of legacy and that kind of underwriting strength was a tremendous opportunity for me."
Frederick Eppinger (standing) meets with Richard W. Lavey, Vice President of Strategic Marketing (left); Debbie Mathews, Vice President of Property & Casualty Human Resources; and Bruce Letizia, Vice President and COO of Personal Lines.
Eppinger's 20 years at McKinsey and The Hartford, he says, "were very much about distribution management. My belief is that the independent agency channel is a very solid and thriving channel. I believe that if we want to add value to the products we sell, we must distribute them through outstanding agents. Regional companies, in my view, have it right. They focus on their local markets, they seek out the best agents, and they partner with those agents in a very effective way. What we were trying to do at The Hartford was create a 'national regional' company," Eppinger explains. "We were opening local offices and developing local market plans. So joining Allmerica was an opportunity to put into action what my philosophy has been for a very long time."
Back to winning
With their proud history and reputation for underwriting excellence, Citizens and Hanover clearly had some key ingredients they needed to succeed as a regional franchise. Upon his arrival last August, however, Eppinger unquestionably faced some significant challenges. "For the last five or six years, this institution was not really focused on winning," he observes. "For a while, Allmerica didn't know how much it wanted to invest in the P&C business and how much it wanted to grow the business. So a lot of the challenge was just getting us focused and really crisp on how we were going to win.
"In terms of underwriting results," Eppinger continues, "we've beaten the industry for 18 out of the past 20 years. On the P&C side, this wasn't a financially troubled company; the rating issues--which have been successfully addressed--were on the life company side. But we weren't a world-class company anymore in terms of top-quartile financial performance or agency service. We weren't as focused on winning as we needed to be. So one of the things I did when I first got here was to focus us on getting back to where we'd been: to being a company that really was a winner in the eyes of agents and the financial community. It's been a lot about reconnecting us with what the best companies do," Eppinger says.
"Obviously, convincing Wall Street and the rating agencies of our financial stability, and taking away the risk from our partners by dealing with the life company issues, were also very important," Eppinger comments. "But so much of it is just getting clarity on the journey we're about to embark on. We're working to get ourselves aligned and invigorated, and we like to believe that our time is now. We have a very strong balance sheet, we have no legacy issues to speak of, and it's up to us to do the things we need to do to make the best agents want to partner with us."
Becoming world-class
As noted earlier, a key goal for Eppinger is to build the Citizens and Hanover franchise into a world-class company. In recent years, that phrase has been overused to the point of becoming a cliché. What does "world-class" mean to Eppinger, and how does he plan to move Citizens and Hanover toward that status?
"When we talk about becoming a world-class company, we focus on four things," he responds. "First and foremost is partnering with the best agents. What regional companies do extremely well is that they know their agents. It's not just knowing the risks you write with them, but really knowing their business, knowing what they want to write, what their aspirations are for growth and mix, and truly partnering with them to make sure your capabilities are matched with their opportunities. Also, you know their market; you're not just somebody who flies in from three states away to get sales goals agreed to. You actually know that market, and you partner with those agents to make sure that you're building the products and service capabilities you need to be successful with them. The first thing we always focus on is: How do we partner with the winning agents, the agents who are building their business? We allocate our talent and attention to those agents," Eppinger explains.
Information-based products
"Our second area of focus is to provide our agents the innovative products they need to grow," he continues. Over the last several years, he notes, "The world has begun to use information more effectively. We've seen a more precise segmentation of information so that, for instance, in personal lines, if you really know your local market, you can use tools like multivariate analysis to create a product that can meet a broad array of an agent's needs. My view is that every local market has its nuances that a lot of national companies don't understand. Regional companies do. Citizens is based in Michigan and Hanover in Massachusetts, both of which are very cold locations," Eppinger points out. "We know Michigan and New England much better than the national companies, so our products, our services, our claims service are tailored to the needs of those markets.
"The effective use of information is equally important in commercial lines, where we continue to focus on being a great small-commercial writer whose bread and butter is accounts under $200,000," he says. "A lot of the national players dabble in that area, but they're really focused on the upper middle market. We write the Main Street businesses in the places where our agents live and work, and we are very focused and responsive in providing products for those markets. We want to be sure our products are geared to what our agents need locally."
High-touch, high-tech service
Innovative products, it's generally agreed, are only as good as the service that backs them up. "Our third area of focus is service," Eppinger says. "Again, I would argue that what regional companies have done, and what we're going to do in a very innovative way, is provide service that's both high touch and high tech. A lot of large national companies are consolidating into very few offices. What we've done historically is have good local talent in place. We're going to employ technology that allows us to have a lower-cost operating model and centralize the back office resources, while at the same time having excellent front-line people in our local markets. We're dedicated to our local markets, and we have long-standing relationships.
"Also, with a large percentage of our agents, we're number one, two, or three. Our ability to have people our agents know and can work with locally and make decisions is a big deal. We're going to be very good at responsive service," Eppinger asserts. "At the same time, we're going to be very good as far as ease of doing business. We'll use automation to link with agency management systems to reduce duplicate entry of data. We intend to offer what was known as responsive service in the old days, with that local touch, combined with the high-tech aspect that makes us easy to do business with. I think that combination is unbeatable."
Ron Zaiger (left), whose Massachusetts agency is now part of Hilb Rogal & Hobbs, expresses his confidence in Frederick Eppinger and in Hanover, which his agency has represented for some 30 years.
Partnering with top agents, creating innovative products, and delivering high-tech, high-touch service all are unquestionably worthy aims. But they're of little value until they're actually delivered, and that's the fourth step in Eppinger's plan to make Citizens and Hanover a world-class franchise.
A game of execution
"This is an execution game," he declares; "this is a game of inches. We have a great team throughout our organization, and we will make it even better. We know that we need to earn our partnerships every single day, and the way we do that is by having the best people in every location. People who have the talent, the skills, the tools they need to serve their agents on a day-to-day basis. We are absolutely dedicated to winning by attracting, retaining, and developing the finest front-line people in the industry. A lot of people say it, but we're going to live it," Eppinger says. "We're going to make this a place where the best underwriters and service people in the world want to work. In every local market we're in, we're going to be dedicated to winning, and therefore we're going to be dedicated to having the best talent to write the kind of business we write.
"Any agent in the world," Eppinger continues, "will tell you that a company is only as good as the front-line people he or she deals with every day and whether they have the ability to get the job done. We believe the most important job in this company is the regional vice president; we all work for him or her. If we can make them owners of their territories and make them competent, responsive decision makers with our local agents, we'll win. This isn't magic; it's common sense, but it's incredibly important, and it's something I think big companies lose sight of," Eppinger says. "At many large insurers, all the action takes place in the home office. We believe all the action takes place with the regional vice presidents." Allmerica currently has 16 regional vice presidents in key locations within its marketing territory. Over time, Eppinger sees that number increasing to 20 or 25, in line with Allmerica's regional focus. "We'll need to shrink the geographic areas of some of our RVPs to make sure they know their territory and are focused on its needs," he says.
Summing up his organization's objectives, Eppinger says: "We're trying to combine the scale, the efficiency, and the innovation of the big companies with the local market focus and rapid response aspect of regional companies to create something new. I think we're going to be the model for the future, because in an industry that's changing this rapidly, being able to respond rapidly to the needs of your customers is going to be absolutely critical," he remarks. "We can no longer afford to take four years to get a new product out; that will never happen again. The companies that are growing profitably are moving rapidly, and they'll be the winners."
Agents are lifeblood
Today Citizens and Hanover serve more than 1,800 independent agencies. Citizens works with about 900 agencies in 1,300 locations, and Hanover does business with 950 agencies with 2,900 locations. "The cornerstone of a great regional P&C company is its agents," Eppinger says. "These agencies are our lifeblood. When I look at agencies, I care about partners who are investing in their business. In my view, saying that an agency has to be a certain size is naîve, because size means something different in every local market. In Michigan and in other markets we have a lot of smaller agents who are outstanding," he comments. "They're in markets where they're incredibly successful, and often they've been with us for many years. Because of the nature of their location, being small is perfectly fine. In my view, the important question about an agency is: Are the owners investing in their business? Do they understand their local market? Do the producers have good sales skills? Are they motivated to win and grow? We will always do better with agencies that are thriving and growing, just as we are."
Equally important, Eppinger notes, "We care deeply about customer retention. Some agencies have a philosophy of 'turn and burn.' They're only interested in putting business on the books, and they don't nurture their clients. Those agencies put a strain on their client and company relationships. We always look for agents who nurture their customer relationships and have outstanding retention. We also look for agents who partner with their companies," he continues. "Our success is built on agents who can close the deal, so that we write an attractive percentage of the business we quote on. For agents who partner with us instead of competing, our relationship is clear. They understand our appetite, they send us what we are good at, and we give them a good price. Together we manage our businesses effectively and efficiently." If we're going to be a successful world-class regional P&C company," Eppinger says, "our goal has to be to help our agents win and to achieve profitable growth. If we do, they're going to give us an unfair percentage of their business, which is what we want. We want more than our fair share," he says with a chuckle, "and the way we're going to get it is to help those agents win more than other carriers do. We're going to help them build a profitable business and provide the kind of service that will help them retain their business. If we're responsive both on the claims side and with day-to-day service, we'll grow together. If we have good products that address a broad array of their market's needs, we'll grow together. If we provide the right price for a particular segment of business, we'll grow together. If we're efficient and cost-effective and we reduce duplicate entry, we'll grow together.
Agents speak out
Loyalty and service to agents clearly are at the top of Fred Eppinger's agenda for Citizens and Hanover. What do agents think of his efforts to build the insurers into a world-class regional P&C franchise?
Ron Zaiger, whose Massachusetts agency is now part of Hilb Rogal & Hobbs, exudes confidence in Hanover, which his agency has represented for some 30 years. Given the ratings downgrade, he says, "It would have been easy for us not to use Hanover. But that would have been a cop-out. We had grown significantly with them over the years and, even during the changes, the key people remained on board, so there was tremendous consistency on the management side. They did a great job of developing trust between Hanover and us, and we've continued to maintain a mutually attractive relationship. We believed they'd pull out of their temporary setback. Best's decision to restore Hanover's A- rating was warranted and appropriate." What's more, he adds, "our customers trusted our choice to continue working with Hanover."
Equally enthusiastic is Tom Zuellig, a vice president and principal in the Emil Rummel Agency in Frankenmuth, Michigan. Founded in 1950, the agency has represented Citizens Insurance since 1963 and placed a wide range of risks with the company: offices, small contractors, restaurants, and light manufacturing, among others.
"We represent primarily regional carriers; they're our bread and butter," Zuelling says. "The best thing about Citizens is its people. They're very good to work with, and they're now more strongly focused on helping agents write business and handle claims. They're willing to listen and make changes, and to do things for agents," he says. "They have good products, and their service is improving."
With respect to the ratings issue, Zuellig notes, "We were confident they would get through it. Knowing the problem was on the life side and not property/casualty, we were sure they'd get back their rating, and we believe it will continue to be upgraded."
Energy and passion
Clearly, Fred Eppinger has reinvigorated Citizens and Hanover with a powerful mix of energy, focus, and passion, with both tangible and intangible results. On the tangible side is the restoration of the insurers' ratings to A-, as well as a steady increase in the value of Allmerica's stock. At year-end 2002, the stock was trading at $10.10 a share. It opened at $23 the day Eppinger's election was announced in August 2003. As of mid-February the price was $37.16.
Although clearly pleased with these key signs of financial health, Eppinger strongly believes that the true worth of a company goes beyond numbers. "You can tell a company is good by the energy and passion you feel when you walk through it, and by its responsiveness to its customers," he says. "You don't need to see numbers; you can just feel it. I believe that when agents talk about a good company, they talk about the little things that company does for them: the phone call late Friday afternoon; dropping something off at the agent's house if the field rep is driving by versus e-mailing it or mailing it; a phone call on a difficult situation instead of an e-mail. It's the little things that differentiate the best from the rest. We've been a good company for a long time," Eppinger observes, "and we have a great team and a great foundation, but over the last five years, we have not been as good as we could be. Now we're going to be as good as we can be, and therefore we'll be a better partner for our agents."
Citizens and Hanover not only have a proud tradition but also a bright future as Eppinger spearheads their progress toward becoming a world-class regional property and casualty franchise. Backed by the faith of the rating agencies, the financial markets, and their agents, there can be no doubt: Citizens and Hanover are truly back in the game. *
Zuraitis named president of Allmerica's P-C Companies
Marita Zuraitis has been named president of Allmerica's property and casualty companies, effective April 19. She comes to Allmerica from St. Paul Travelers. Since 1998, she served as president and chief executive officer of St. Paul's commercial lines division. Zuraitis also held management positions at Aetna Life and Casualty from 1982 through 1993.
For more information:
Allmerica Financial Corp.
Web site: www.allmerica.com