Fireman's Fund Refocuses Business Without Losing Sight Of Its History

While having a brand name everyone knows gives Fireman's Fund a leg up in the market, the carrier had to overcome an "identity crisis" before it could build a new, profitable business model based on the competitive advantage its history provides, the carrier's newly elected president contends.

When Joseph Beneducci was named executive vice president and chief operating officer in May 2003, "we had one of the most recognized brands in the business, but the biggest challenge was resolving an identity crisis from the late 1990s stemming from not focusing on what we really did well and what made us distinctive in the market," he told National Underwriter in an exclusive interview here last week.

"We didn't use our own intuition," added Mr. Beneducci--who was elected president on Feb. 3, while retaining his COO title. "We talked to our agents and customers to determine what value they saw in us and what they really needed from us. We became a very disciplined organization in meeting those demands, concentrating on markets where we could distinguish ourselves by offering unique, value-added products and expert services."

As a result, according to Mr. Beneducci, "we've evolved from a generalist to an expert underwriter and service provider in the areas where we can stand out. We've got to be seen as a market leader, not just someone who's improved their internal business. We've got to be valued by agents and buyers for what we offer."

To accomplish this, the Novato, Calif.-based carrier (a member of the Allianz Group since 1991) narrowed its target markets to three main business groups: small-to-midsize commercial accounts; high-end personal lines; and a specialty unit that includes marine, casualty and crop programs. Each has its own president--Robert Courtemanche for personal insurance, Gary Bhojwani for commercial, and Art Moossmann for specialty.

In addition, the carrier recently assumed a 50 percent ownership stake in a life sales wholesaler that will carry the Fireman's Fund brand, offering Allianz Life and other carriers' products (mostly annuities), thus providing its property-casualty agencies with access to life and retirement coverage for premium personal lines customers.

The carrier's independent agency force was consolidated from "well north of 5,000 to about 3,100--a special group that appreciates what Fireman's Fund brings to the table and where we maintain a prominent position in our key target areas," explained Mr. Beneducci.

The company also reorganized internally to better integrate its brand identity and business strategy. It established one agent contact point for all lines under a chief sales officer (Larry Hannon), appointed a chief marketing officer (Darryl Siry) to unify the carrier's message, and combined back-office functions into one shared services group.

"Before we made these changes, there was a picture of us in the dictionary under the word 'silo,'" joked Charles Kavitsky, chief executive officer at Fireman's Fund since May 2004. "Now everyone is focused on the same sustainable business model."

The "discipline" imposed by the reorganization required a major internal cultural change, the two executives stressed. "In the past, only a small minority here believed we could achieve profitable growth," said Mr. Kavitsky. "Everyone here embraces that now. It's an entirely different attitude toward how we do business."

The change has paid off, with the carrier's 2005 combined ratio expected to be "well under 100," noted Mr. Beneducci.

However, despite the internal and external changes, Fireman's Fund is determined to remain true to its historic mission to help its customers--both agents and insureds--prevent and recover from catastrophic losses, the duo emphasized.

One key element of the company was untouched by the reorganization--the carrier's long-term philanthropy arm, Fireman's Fund Heritage, which supplies equipment and training to firefighters and the communities they serve, funded in part by employees and agents. This follows the spirit of the carrier's founding in 1863, when Fireman's Fund was named for an arrangement in which 10 percent of profits went to widows and orphans of firefighters.

"We are very proud of our history, and rightfully so, but you can't live off the past," said Mr. Kavitsky. "You have to keep making history and be proud of what you do going forward." The key challenge, he added, is "how do you manage with your heart as well as your head, and is there a return on that? We believe the answer is a resounding yes."

As an example, he noted that as it had in 2004--when a grand slam of hurricanes hit in rapid succession--Fireman's Fund announced last year that a single deductible would apply to claims from Hurricanes Katrina and Rita.

"All I asked [in 2004] is what would happen if we waived the deductible for the second event," recalled Mr. Kavitsky. "The knee-jerk reaction was all the reasons why we can't or shouldn't do that--the reinsurance wouldn't kick in, the money it would cost us, the precedent it would set."

However, after a few days of review, he noted, "we found many of these issues wouldn't be a problem, while there would be a definite business benefit in terms of generating loyalty and establishing a value proposition. That loyalty has already rewarded us with a higher retention rate."

He noted a second benefit--less costly claims resolution. "Beyond getting lots of accolades, we had very little litigation. We didn't have a problem over whether a tree that fell on a house went down in the first or second storm, or whether the owner couldn't get someone out to fix the damage from the first event in time to prevent more damage from the second disaster."

The carrier also provided, "free of charge," recovery services to insureds and agents devastated by the Gulf storms, including trauma counseling, identity theft prevention, and assistance in "coping with the practical and emotional effects of the hurricanes," a company release noted.

Fireman's Fund has "somewhere north of 6,000 claims, and counting" from Katrina, noted Mr. Beneducci. "But because we took a disciplined approach to diversifying our portfolio, Katrina itself was not catastrophic in terms of our exposure."

For that reason, Fireman's Fund does not back calls by Allstate and others for a federal catastrophe reinsurance fund to help cover future disaster losses.

"We oppose it," said Mr. Beneducci. "To spread this exposure to others not in the storm path is not the best solution for the vast majority of customers. Instead, each company has to look at their exposure in each of these cat-prone areas and make sure they can handle the capacity at risk."

A more effective approach would be to alter accounting rules to allow for long-term catastrophe reserves, Fireman's Fund believes, along with discouraging state governments from artificially suppressing rates in disaster hot spots. "The repair and restoration people we hire raise their prices after a disaster--not to price-gouge, but to reflect the higher demand and increased cost for labor and materials," noted Mr. Kavitsky. "If they can raise prices appropriately, why can't insurers?"

Terrorism is a different story, however, they conceded, "at least if you're talking about nuclear, chemical, biological and radiological attacks--events the industry just cannot handle," said Mr. Beneducci. "As bad as 9/11 was, insurers did absorb those losses and can still function, but an NCBR event could cripple the whole industry."

Speaking with NU from his New York office--two blocks from "Ground Zero," the World Trade Center site--he noted that "a dirty bomb" set off in New York might not only "make the area uninhabitable, but could also bring the financial markets down, undermining the ability to pay claims."

He said he hopes the industry focuses its lobbying efforts on replacing the federal reinsurance backstop in the Terrorism Risk Insurance Act--expiring at the end of 2007--with a long-term solution to relieve insurers of NCBR exposure.

"We have to have protection against those events that could literally cripple the whole industry," he said. "We need to respond before something happens that causes the industry's surplus to evaporate."