By Dennis Pillsbury
Ohio Casualty executives are (seated left to right) Dan R. Carmichael, president and CEO; John S. Busby, executive vice president and COO-Specialty Commercial Lines; (standing left to right) Jeffery L. Haniewich, executive vice president and COO-Standard Commercial Lines; and Elizabeth M. Riczko, executive vice president and COO-Personal Lines.
"Our goal is to be a top-flight, mid-tier property and casualty company," says Dan Carmichael, CPCU, president and CEO of Ohio Casualty Group. "Our focus now is on execution, but our real long-term focus is on the business. We are working to get the pricing right and to improve services."
As part of this effort, the company has redefined its lines of business, by reorganizing into three major divisions--Personal Lines, Standard Commercial and Specialty Commercial. "We're still one company with unified service to agents," Dan continues. "And the divisions have complementary strategies." However, there are unique aspects to each division's goals that reflect the conditions of the marketplace. We discussed these strategies with the individual department heads.
"The big change has been the move to a smaller geography," according to Beth Riczko, FCAS, MAAA, CPCU, CMA, CFM, AIM, AIS, ARe, ARP. Riczko, who is executive vice president and chief operating officer of personal lines and senior vice president-finance, explains that "there are 13 states where we had very small business mass and others where the regulatory environment is difficult. We will be pulling out of a number of those states." Ohio Casualty currently writes personal lines business in 40 states.
The overall strategy for personal lines is to achieve "deep awareness" in those jurisdictions where the company will continue to operate. "We have to make certain that our products and services are competitive," Riczko says. She continues that the company has "been really slow in introducing credit scoring. We're now in the process of implementing tiered rating using credit scoring which will really put us back in the game for good risks."
The company will continue to focus on the middle market which "puts us under many of our competitors," she says, noting that this is one of the reasons "our retention has stayed pretty solid."
Riczko points out that homeowners continues to experience "major problems" and she anticipates "significant rate changes in many areas. We're looking at rate increases for property."
She concludes by pointing out the need to "move down the expense ratio. We have initiatives in place to accomplish this." One of these is "an in-house expert system which will handle certain risks automatically without the involvement of an underwriter. We also will be leveraging what is happening in commercial lines in the automation area. But the key will be agents' utilization of these automated processes. We need more agents to interface. We're operating under the theory of 'if we build it, they will come' and are working to improve the usability of our automated systems." She warns that improvement in the expense ratio will take some time because the run-off of business in certain geographies will put upward pressure on the ratio.
According to Jeff Haniewich, Standard Commercial Lines needs to write incidental exposures in all states and thus will remain national in scope.
The strategy in standard commercial lines "is national in scope," according to Jeff Haniewich, JD, CIC, executive vice president and chief operating officer of standard commercial lines. "We need to write incidental exposures in all states," he says. "Thus we are looking at reentering California."
Haniewich continues that one area on which the company will be focusing is workers compensation. "The biggest thing in comp is to get more rate, and everyone is trying to do that. We're looking for around 18% to 20% and we'll also be removing credits and dividend plans." Haniewich explains that the decision to focus on comp is a result of recent trends and their impact on today's market.
According to Haniewich, three key factors have contributed to the company's decision to re-focus.
1) "The customer stopped paying attention to loss control during the soft market. Seven years ago, there was an emphasis on drug testing, safety and so on. We are starting to see that returning as supply diminishes."
2) "The companies were extremely aggressive during the soft market in terms of both price and market penetration. Today, however, there is starting to be a return to underwriting integrity which should eventually make this market more attractive."
3) "The recent full-employment economy made getting labor very difficult, resulting in a lot of untrained people working in high hazard jobs. That's one of the reasons we're starting to see more severity claims emerging. The recent slowdown," he continues, "has started changing this dynamic. We're seeing a labor force that is more concerned about safety. We're also seeing people who, because they are concerned about their employment, are more receptive to working when they are a little bit injured."
Dan Carmichael observes that as part of its effort to "get the pricing right and to improve services," Ohio Casualty has redefined its lines of business by organizing them into three major divisions: Personal Lines, Standard Commercial and Specialty Commercial.
Overall, the strategy in standard commercial lines involves providing a "more definitive list of the kinds of businesses that we want to write through our agent partners," Haniewich says. "We're also in the process of running off MGA business."
"Service also is extremely important," he maintains. "We want to be the best service provider to our agents. We are developing a small commercial system for agents and continuing to improve all forms of interface with them. The agency plant is selling value right now and we want to support them in this effort. Customers are much better educated about insurance products and services than they were during the last hard market. They are looking for real value."
The Specialty Commercial Lines division will focus on surety and umbrella, says John Busby.
In specialty commercial lines, "we will be focusing on surety and umbrella," says John Busby, CPCU, executive vice president and chief operating officer of specialty commercial lines. "We are exiting the small farm market because it has been and continues to be unprofitable."
"Bonds and umbrella are profitable and we intend to expand that business," he continues. "Fidelity and surety have been very good for eight to 10 years and, for that reason, there is not yet a hard market. However, we have been able to use our expertise in this area to maintain profitability. We write bonds for a high percentage of our agents," he adds.
In the umbrella area, the company writes supported, unsupported and excess capacity coverage. "We will continue to use MGAs for some of the unsupported business," Busby adds.
Dan Carmichael says, "We have been on the road presenting our strategic plan to our agents over the past two months. We want their support and are doing everything we can to make it easier for them to do business with us. We've put a lot of emphasis on improved technology and will have a browser-friendly, front-end interface solution by the fourth quarter. Our Java-based commercial lines system is in our field offices already and will be out to the field by the end of next year.
"We are absolutely committed to delivering interface that will allow agents to use their own systems to get to us. Our new system is built on XML standards and is browser oriented. We will be using a GUI (graphical user interface) front end and will constantly be looking for ways to improve. Agency interface does not just stop," Carmichael continues.
Personal Lines has begun to move to a smaller geography, reports Beth Riczko, who points out that some states have a very small business mass while the regulatory environment is difficult in others.
Turning to other areas, Carmichael says the company offers excellent claims handling and loss control services. "We recognize that automation is only part of the picture. We have to provide excellent service to back up our promises. We have 24-7 claims handling and are the 'best of the breed.' Our people respond quickly and enthusiastically. We work closely with the agents and pay claims quickly," he explains.
"However, this does not mean that we simply pay without checking. As part of our strategic plan, we found that we were overpaying claims to body shops and other third-party vendors. That will end," Carmichael continues. "We are using a software application to quickly appraise claims to determine if there is evidence of fraud. It won't slow down the claims paying process, but it will result in a reduction in claims overpayments which we estimate may have been overpaid in years past by $30 million or more. The agents whom we've explained this to are enthusiastic about the fact that we are getting serious about fraud prevention."
Carmichael says the company's goal is to achieve a 12% after-tax return, not including appreciation of the portfolio. "We won't achieve that in the next couple of years, but we will be getting much closer. We expect to achieve a combined ratio of 102.5 by 2003."
He concludes by thanking the company's agents for their "continued support and patience while we have been integrating the business acquired from Great American Insurance Company's commercial division (purchased in 1998). As we continue to get additional pricing, eliminate unprofitable agents and do a better job communicating with our agents, we will return to profitability." *
For more information:
Web site: www.ocas.com