Neal Ruffalo
ACUITY
Helping to transform his company from a distributed to centralized model meant turning the business into a technology-driven enterprise.
We virtualized 25 percent of our work force, Neal Ruffalo explains, talking about one of the many bold IT initiatives ACUITY, formerly Heritage Mutual, has done over the last decade.
Ruffalo is vice president of enterprise technology at the Sheboygan, Wisc.-based carrier. That title is a functional description of what a CIO actually is, and Ruffalo says the company uses the CIO name internally. He has spent his whole career at ACUITY, all of it in the IT department, joining then-Heritage after graduating in 1980 from the University of Wisconsin, Stevens Point, with a major in business administration and minors in finance and computer sciences. Id have taken more computer courses, if Id known where I was going to end up, he says. Given a choice of underwriting, claims, or data processing (as it was called then), he joined the IT department as a programming trainee.
Over the years, he steadily moved through a standard progression that included programmer, analyst, team leader, and director, among other positions. In the late 1980s, Ben Salzmann joined Heritage as CIO, and Ruffalo began reporting directly to him. Hes worked directly for Salzmann ever since. Salzmann, with a background in insurance marketing at another larger carrier, and with Ruffalo backing him up, began a series of steps to look at where Heritage was and where it really wanted to be. Salzmann moved to change the company to a technology-driven enterprise.
Along the way, Heritages board recognized what was happening and moved Salzmann into the presidents chair, and Ruffalo moved up to the CIO slot. It has since added CEO to Salzmanns duties. There are very few (if any) carriers where an executive jumps from CIO to the CEO position.
In 1995, Salzmann and Ruffalo began a series of steps to move the company from a distributed model, with branches and claims offices, to a more nimble and cost-effective centralized model. Without resorting to mass layoffs or a lot of personnel moves, they began training their non-home-office employees to become virtual, remote employees. In addition to extensive computer training, they outfitted each with a portable computer, cell phone, and an allowance to set up a home office. Today, almost all of those employees connect via broadband and can connect on the road through a cell phone-computer connection. Over a reasonably short period, they closed three branches (all but one) and all of their claims offices, resulting in first-year savings alone of over $6 million.
The first years savings were mostly based on propertyless costs, taxes, maintenance, etc., Ruffalo says. Today, the savings are even greater and come mostly from improved work flow, faster turnaround, and other efficiencies.
ACUITY is an IBM shop, and the company writes all of its applications internally. We have virtually no outsourcing, he says, pointing out the 90-plus IT people develop their own applications, provide tech and user support, and do most repairs in-house. The current model is to use the IBM mainframe as the enterprise storage server, with almost all transactions happening in real time with a GUI connection. Agents, employees, and policyholders all have access to a real-time, transactional Web site. Commercial policyholders75 percent of ACUITYs business is commercialcan view images of their policy, order certificates, get up-to-the-minute loss runs, and do many other transactions.
The carrier was one of the original three insurers to adopt Transformation Station, allowing the 60 percent of ACUITY agents who have Applied Systems to do auto, home, and personal lines package policy quoting and submission without the need to go to the Web site. We actually tunnel the transactions through our Web site logic, although the users dont see the screens, so we only have one set of edits to maintain, Ruffalo points out. Recently, the company added direct bill inquiry to Transformation Station. Inquiry through TS is a real big home run for us, he says. The agents like the ability to get the information without having to leave their management system. The work flow is better than leaving to go to our Web site.
ACUITY wrote its own interfaces to IBMs content management system so recorded claim statements, photos, videos, and documents all feed in automatically and all paperless, of coursecutting-edge stuff. And the company is not through. Our new home-office campus addition will include, among other things, Voice over IP (VoIP), he adds.
Thats a lot of technology for a Midwest carrier writing $525 million in premium through a thousand agents in 11 states. Does it pay off? Without detracting from the companys underwriting and claims departments contributions, Ruffalo points out ACUITY finished off 2002 with a combined ratio of 90.9, fully 15 points below the industry average.
Lowell Schmidt
Farmers Alliance Mutual Insurance Company (FAMI)
After 115 years in business, his company continues to support the special needs of its agents and looks forward to the spread of broadband to migrate to the Web.
Farmers Alliance Mutual Insurance Company (FAMI) has been insuring farms since 1888. And its still doing lots of it.
The McPherson, Kans.-based insurer writes about $125 million of insurance, in nine states, entirely through its network of 700 independent insurance agencies. Were heavily committed to our independent agents, says Lowell Schmidt, chief information officer, and a lot of our focus is to support them. Forty of FAMIs 365 employees report to Schmidt.
Nearly half of our premium is written on farm accounts, Schmidt explains, and personal lines and commercial lines [35 percent and 15 percent, respectively] are the rest. Supporting all that farm business takes a little extra work. A farmowners policy is more than just a slight modification of a homeowners policy.
Its significantly more complex, Schmidt asserts. As a result, while FAMIs agents can use comparative raters for auto and homeowners, the company supplies them with desktop rating for their farm business. In addition to rating, it also creates the completed applications for the agents. Wed love to migrate that to the Web, and we will, someday, he adds. Most rural agents, he explains, can now get to the Web over dial-up lines, but the Web wont really take off with the farming communities until broadband becomes more pervasive. Thats still several months away, he speculates.
We have a lot of different projects going on all at the same time, Schmidt says, but our main focus is on three areas. The first is adding lines of business and greater functionality to the companys (PMSC, now CSC) Series III mainframe policy processing system. He gives commercial lines as an example.
It was a gut check, Schmidt says, referring to the hard look FAMI took at commercial lines. Commercial is its smallest line, but to support its farm-writing agencies, FAMI needs to provide them with a market for light commercial risks. Policy issuance has been done manually, but now the plan is to automate, since the company is going to stay in it.
The second area is agency interface. The company has implemented an agency Web portal, called fami.connect, and has been expanding it. FAMI now offers real-time personal auto rating and upload and is in the process of expanding this service to commercial auto and homeowners. In addition to offering its agents electronic manuals through SilverPlume, FAMI is creating them in PDF format for eventual distribution to agents in lieu of hard copies. It also has billing and claims inquiry.
The third area were targeting is cost efficiencies, Schmidt continues. As a mutual company, FAMI cant just go out and raise capital, so cost savings are especially important. The carrier is particularly targeting paper reduction and just recently implemented an AcroSoft imaging and work-flow management system. It no longer prints home-office copies of policies, relying instead on an IBM product, OnDemand, which creates printable copies only when theyre actually needed.
Schmidt is equally adept at talking the insurance side of his job as the technology. After graduating from the University of Nebraska, with a major in mathematics and minors in computer science and actuarial science, he joined the actuarial department at Employers of Texas, in Dallas. About 20 years ago, he moved to Farmers Alliance to set up its actuarial department. Between his background and his interest in technology, he evolved into his current position as the top tech at FAMI. The actuarial department still reports to me, though, he adds. Old loves really do die hard.
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