The Hanover becomes a key market
Insurer enjoys strong, profitable growth despite tough economic times
By Susan R.A. Honeyman
If The Hanover Insurance Group is extremely picky in selecting the agents with whom it wants to partner, it can well afford to be choosy. After all, over the last seven years, the Worcester, Massachusetts-based insurer has moved from a period of uncertainity to one of success, shedding its debt-laden life operations that were burdened with obligations from variable annuities, and reinventing itself as a careful, thoughtful, dependable property/casualty company.
Along the way, The Hanover has grown in premium and in profitability, while expanding its product and service capabilities, and its footprint. And it has significantly strengthened its ratings, doing so when the economy and the industry were under pressure during the difficult 2008-2009 period, says The Hanover's President and CEO Fred Eppinger. As a result, the company has become one of the most important markets for its agent partners.
The carrier's successful contrarian pathway is a breath of positive air, evidence that an insurer and the agents with whom it partners can grow profitably in hard economic times. Its property/casualty revenue of approximately $2.5 billion seven years ago is now approaching $4.5 billion, and its book value is the highest it has been in its nearly 160 years, says Eppinger.
The Hanover credits its independent agents—especially its agency partners—with much of that success.
Eppinger explains that in 2010 The Hanover booked more than $3 billion in net written premium, with the great majority, about 80%, written by approximately 750 of its key agency partners. These are agencies that are investing in their businesses and adding value for their clients, enabling them to be successful in these difficult times, he says.
The seven-year "journey," as it is called in The Hanover parlance, began with the arrival of Eppinger in 2003 and has involved shedding its non-performing agents and its life business and restarting with a new goal and an ambitious new game plan to reach that goal. The Hanover planned to become the best partner for winning independent agents. In doing so, it would provide very tailored coverages for carefully selected industry segments through a select group of expert professional independent agents. They would sell value, not price, and they would acquire teams or smaller companies with special skills and make those skills available to agents. The strategy is all about carefully selecting staff, agent partners and markets. "And, the strategy is working," Eppinger points out.
Under his watch, The Hanover has made seven separate and strategic business acquisitions, almost all being specialty businesses that allowed them to build capability to service needs like highly protected risk, industrial risk, professional and management liability, program business, health care business, surety, crime, and fidelity. The carrier recently purchased Chaucer Holdings PLC, a specialist Lloyd's insurer, which immediately expanded The Hanover's specialty capabilities. Over time, it will allow the company's agent partners access to Chaucer's specialty capabilities. Its purchase of renewal rights for OneBeacon's commercial lines business two years ago enabled The Hanover to add more than 30 new segment offerings and expand into the Western market. The company now does business in the 48 contiguous United States.
"We believe in the notion of national capabilities—we now have 5,000 employees, up from 3,000 at beginning of our journey—but at the heart of it are local, dedicated people with authority, who can respond and respond quickly," says Eppinger. "We've invested more than any company in product innovation, which gives agents a lot more product to sell, and we allow our partners direct access to specialty business. Many of our agent partners would say we are their fastest growing market."
But this doesn't just happen. "In the OneBeacon deal, for example, we looked at $500 million of potential business and quickly narrowed it down to a much smaller amount by looking at which agents controlled that business," observes Marita Zuraitis, president, property and casualty insurance at The Hanover. The Hanover immediately walked away from 1,200 agents, and $100 million in renewals, appointing fewer then 300 agents and buying renewal rights to $400 million of the business. The Hanover ultimately wrote some $300 million of the OneBeacon business, most of it middle market. It has been building out small business by providing technology to write it more efficiently, and today, small commercial is available broadly countrywide. Appointment of the OneBeacon agents and purchase of renewal rights also provided a running start in the Western states of almost $100 million of business. Today The Hanover writes more than $200 million of commercial business in the West.
"We work hard to determine which are value-oriented, strong agencies with the potential and the sales culture that enables them to win in their local markets. We are absolutely open to new agents, but we add them thoughtfully," says Dick Lavey, senior vice president, field operations and marketing at The Hanover, noting that The Hanover has 2,500 agents overall, "a small number relative to the 35,000 in the industry.
"We have a nice, solid network of some of the very best agents in the business," he adds.
Walnut Creek, California-based Heffernan Group, which expects to reach $82 million in revenue by year's end, is one of the agencies that came over as part of Hanover's OneBeacon deal. According to John Tallarida, managing senior vice president and board member at Heffernan, the agency brought Hanover $5.5 million of the OneBeacon business at the time of the transfer and has more than doubled the business it sells for Hanover this year—to about $12 million, most of it middle market.
This growth has come because Hanover introduced new product and service capabilities that had been missing in California, Tallarida says, noting he'd been down to about four broad middle market carriers. Hanover also expanded its underwriting classes to fit agency needs. "We do a lot of nonprofits and Hanover wanted to get into that business. They talked to us and took the time to get to know our nonprofit clients and worked hard to partner with us to win some new and existing accounts." The level of partnership and trust is so high that Hanover will write "the right" accounts in a tough class when they make the business case, he says.
Eppinger considers the not-for-profit, human services agency product to be one of The Hanover's most successful launches. "Not-for-profit organizations are in every town in America and most agents love this business," but very few know how to write it properly, he says. "That's the value in partnering with agents who understand such risks and can solve problems," Eppinger adds.
"This is one of the most dynamic partnerships we've had, mainly because they understand our firm and the business we have, and they do a great job in partnering with us to win accounts," says Tallarida. He explains that Hanover has people with a work ethic focused on agents and clients and who are empowered to make decisions rather than going through layers of management.
"Everything we do begins with an agency lens," says Lavey. The Hanover's staff, he says, is focused on how their agent partners are working to improve agency outcomes, and what The Hanover can do to help them. They are constantly considering whether agents need new tools or additional products to improve their outcomes. "Real partnership comes from jointly thinking about opportunities," he says, "so we work hard to bring our agent partners the personal and commercial lines solutions they require." Lavey spent four years as regional president, working directly with agents and learning first-hand about the issues they face, before returning to head field operations. He still spends about 85% of his time traveling and meeting with agencies and staff, he says.
According to Bill Jeatran, chief executive officer at RJF, a Minneapolis-based office of Marsh & McLennan Agency, one of Hanover's most valuable attributes is its creativity and willingness to sit down with agents to develop products that agents need. "Every carrier wants a program that is already established, but very few will help create it from the ground up," he says.
For example, one of RJF's affinity producers was interested in a developing a national program for a particular franchise with a potential of 1,200 accounts. Another carrier writes this franchise now through another broker but there are some gaps in coverage. Jeatran's team believed that many of its risks were not being addressed and they made the case to Hanover.
A team from RJF sat with Hanover's local branch manager and front-office people and, together, they were able to customize a program that would solve the business's risk issues, including professional liability, cyber liability, as well as needs specific to independent contractors. "Our job was to create something better that specifically addressed the risks of the client," he says. Some brand new and innovative coverages emerged from their discussions, and in the few months the product has been available, RJF has landed 30 or 40 new accounts, says Jeatran. He has big hopes they'll be able to capture a significant portion of the franchisees.
"We think of ourselves as a distribution company building product, not a product company in search of distribution, so we build relevant product sets for our agents and with our agents," says Zuraitis.
Jeatran, whose agency has represented Hanover since the carrier started writing in Minnesota five years ago, is most impressed by the people at Hanover. "They are exceptional at capturing the best talent in each marketplace that they enter," recruiting locally for managers who already have strong partnerships, he points out.
Although the industry is rather flat, RJF has been growing organically at a steady rate of 10% to 12% overall and at an even higher pace with Hanover, he says, attributing this to the level of partnership RJF has with the carrier and to a Hanover executive team he calls "accessible and authentic."
"Because they have a limited and targeted distribution, they have very solid relationships. We have strong relationships all the way from the local underwriters, to the branch leader, to the president and CEO", Jeatran observes.
From the perspective of Zuraitis, the relationships all start with having talented and committed professionals. She says, "Our regional vice presidents have the strategic orientation, authority, business acumen, history and experience to add great value to our agent partners." They understand the nuances of local markets and local planning and when an agent brings an account to them, they understand its risk profile and can act. RVPs also have access to all of The Hanover's specialty products, niche solutions and resources, so they really can present a single face for the company, she adds.
"This is a very difficult time for agents—for many it's been four years with no growth," says Eppinger. By giving its agent partners the resources and dedication they need, The Hanover has been able to reverse that trend for many.
How to turn around an ailing company
There's a story that The Hanover President and CEO Fred Eppinger, is fond of telling.
A couple of years ago, he was at an investor conference, taking a lot of ribbing because of his company's conservative investment portfolio. It consisted mainly of investment-grade bonds and lots of excess capital to take advantage of any market disruption. "Within three weeks, the financial crisis began in earnest, and I was a genius," he says.
"My view is you don't take risks on both sides of the balance sheet. We take risk in our business, so we keep our investment portfolio low risk. It makes sense to be focused on your knitting and make sure you are managing your risks because that's what we do for a living."
With his 15 years' experience as a senior partner at McKinsey & Company, Eppinger has come to believe there are four key requirements to turn around any business and keep it successful. They have served as guiding principles at The Hanover, but are quite universal.
• Clarity of vision. The more you bring everyone together around a clear vision and purpose, the more people have the freedom and energy to act. "I'm blown away by how important this is," he says.
• Success is all about people and talent. You can never invest enough to attract, train and motivate people. Eppinger meets every new employee who comes to the company.
• It's all about your customers. If you don't understand your customers' needs and what affects their ability to be successful, you can't be successful. Spending the time and effort to establish real partnerships pays off when times are good, but when times are tough, those partnerships become even more powerful. The trust you've earned allows them to give you the benefit of the doubt.
• It's a game of inches. Success is not about how big your ideas and strategies are but whether you can execute them every day. And when you make mistakes, admit them and move forward.
For more information:
The Hanover Insurance group
Web site: www.hanover.com
Susan R.A. Honeyman, vice president of Word Hive Communications LLC, in New Haven, Connecticut, has spent more than 25 years writing and editing insurance-related stories.
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