annus horribilis

But in spite of the challenges, the beleaguered insurer believes there are brighter times ahead, in large part due to the efforts of its 12,000 appointed agents. AA&B spoke with Juan Andrade, executive vice president for sales and distribution, about what lies ahead for The Hartford and its independent agent and broker partners.

Read AA&B's new story on Juan Andrade: "AA&B speaks with Juan Andrade, new president and COO for The Hartford's P&C."

AA&B

Andrade: While it's true that we've been in the news a lot over the last 9 months or so, the good news is that we're in a very good place from a capital standpoint. While we recently accepted $3.4 billion from TARP, we also have an additional $3.4 billion on hand as a cushion to get through any downturn and $15 billion in liquidity, so we can withstand anything the economy turns our way.

Our property-casualty company has always been stable; our main issues were with our investment portfolio. The p-c division still maintained capital above AA levels, and although it was downgraded to A, that says more about volatility in the economy than the unit's performance. And with a surplus of $6.1 billion, our claims- paying ability is solid.

We're also resilient: our first-quarter core earnings were at $321 million with a 90 combined ratio, a phenomenal posting considering we're in the sixth year of a soft market. Based on the topline numbers, we only saw a 5 percent decrease from prior year's first quarter. Our decision to exit the Florida homeowners market and the sale of our First State excess and surplus line to Beazley Group in March brings that down to 3.5 percent, which is definitely in line with our competitors.

Part of the credit goes to our commitment to disciplined underwriting. Our cat exposures have always been at or below marketshare in those areas compared with our competitors, and our use of sophisticated cat models helps as well.

However, I also give tremendous credit to our loyal group of independent agents and brokers who have stood by us. We credit the fact that we have many good, longstanding relationships with our agents for getting us through the past year. Our message to them is that we are well-positioned for the future.

AA&B: What do you see as your agents' biggest challenges now?

Andrade: There's no question that the economy has hurt everyone, especially small businesses with less credit and consumer demand, who are struggling to stay in business. Over the past 9 to 10 months, these businesses have had fewer employees, lower payrolls, less workers' comp premiums, and less inventories, which translates to fewer opportunities for premiums.

We recently conducted a study based on the total U.S. job losses of about 5 million, which translates to $1.6 billion of workers' compensation premium that simply vanished from the economy. This obviously hurts both agents and us.

Another unprecedented trend we're seeing is customers--both personal lines and small businesses--engineering their own policies by taking higher deductibles and lower limits, which again means lower premiums. Agents must be more aggressive to retain customers, so there's a lot of churn in the marketplace right now.

AA&B: Are you seeing any evidence of hardening rates?

Andrade: We are definitely seeing firming pricing. Personal lines have definitely firmed; we track our competitors and most are increasing auto rates, and now homeowners is catching up. For our first-quarter midmarket commercial business, we reported only a 2 percent drop for written pricing, the best since 2004, and like our competitors, we're seeing positive pricing in auto, property, D&O and E&O.

The question is whether exposure reduction is masking the firming of rates and creating more turmoil in the marketplace. I foresee that as the economy begins to improve, 2010 may be the year we really see the hard market return. However, it will be a different hard market than we've seen in the past, much more gradual.

Also, customers have gotten used to getting big decreases in their premiums. With pricing now flat to positive on renewals when they can least afford it, there may be an adverse reaction from some of those customers.

AA&B: What technologies are you using to assist agents in gaining and retaining market share?

Andrade: This year we plan to invest over $100 million on new IT to make it easier for to do business with our agents. We do a lot of customer research with our agents on company differentiation and ease of use, which typically translates to technology, especially in the current environment. All of our agents have access to our electronic business center, which facilitates automated personal lines and marine insurance quoting directly from their agency management systems and the ability to upload and download information. We also offer a personal lines policy change center, which enables agents and CSRs to manage policy changes in real time uploads/downloads for endorsements, saving them a lot of time and enhancing efficiencies. This capability means one or two less people they need to hire.

Another capability is our Xactpay Web. This allows our commercial workers' comp policyholders to upload payroll information to their Quickbooks, which they use to manage books. This not only saves time for gathering data, but eliminates the need for large premium down payments and the option to pay monthly. Of course, we're also an active member of the Campaign for Real Time, which we're constantly working on improving.<

AA&B: Are any changes in store for Hartford's overall marketing strategy?

Andrade: We have enhanced our sales resources in the field and added a new sales center to service smaller agents more efficiently and aggressively in the marketplace.

In personal lines, we're doing more with our AARP for agents product, which was introduced last fall. This product will be in 20 states by the end of this year, giving us access to 60 percent of the U.S. population. It's getting lots of traction in the marketplace.

For small commercial lines, we're introducing a new BOP called Growing Spectrum. It's a rewrite of our traditional BOP that increases our appetite into different lines of business, higher upstream into small commercial.

And in middle market, we're launching an outpatient health care practice where we'll partner with agents and brokers with verticals in this area, focusing on smaller regional hospitals with 300 beds or less, starting on the West Coast and moving East.

Of course, we're keeping an eye on the national healthcare reform issue. We're concerned about the cost of medical care and anything the government can do to control it would be good.

AA&B: Any plans to expand or reduce your distribution force?

Andrade: We now have about 12,000 appointed agents, and in 2009 we're looking to add another 1,000 throughout the country. The Midwest and parts of the West Coast are good for expansion, although we don't necessarily target regions. We typically focus on areas that we feel are underpenetrated or where we are underrepresented.

AA&B: Any changes or adjustments on how commissions will be handled?

Andrade: We have no commission reductions planned. In fact, we recently looked at all of our compensation programs and recognized the impact that the economy has had on our agents, so we relaxed some of the thresholds agents must meet for higher compensation levels. On our guaranteed supplemental commissions, there is a qualifying component based on agency size, but it's a minimum threshold, not a volume requirement. We don't have specific volume requirements for agents; it's more of a business planning discussion and a healthier exercise for both parties because it focuses on market appetite and business match.

AA&B: What's your position on commission disclosure?

Andrade: Our goal is to be as transparent as possible. Each of our policies includes a notice directing policyholders to a Web site or 800 number to learn about agent compensation and commission ranges. In addition, for all commissions, especially guaranteed supplemental, the agents always know how much they are getting for the business they're writing. In 2007, we were one of the signatories to the original New York contingent commissions lawsuit, so we practice what we preach.

AA&B: What sort of marketing assistance are you providing your agents?

Andrade: All agents have access to I Market, an online warehouse where they can create co-branded material to highlight products; for personal lines, we also offer cooperative marketing dollars to agents, which they can spend to advertise; and for our VIP agents, we provide a strategic marketing allowance for lead generation, producer education, or whatever they deem necessary to grow the agency.

Our Hartford School of Insurance is also popular. When agents come to the school, it's not to indoctrinate them to Hartford, but to educate them on how to be better producer. There's no branded advertising there. We've found that agents get a lot of value from the school. Our studies have shown that it cuts 6 to 9 months off the learning curve for new CSRs.

AA&B: What are your plans for the near future?

Andrade: The clouds have parted for us, and I'm bullish about the next few months, especially as we see green shoots in the economy as consumer demand picks up and small business owners become more confident. With rates firming up, we're setting up for a pretty good run. We're in a good place with solid capital, good products, outstanding profitability and a great bunch of independent agents and brokers.

Special Reports /

Juan Andrade speaks on the future of The Hartford

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