Fireman's Fund's Daugherty talks about new personal auto product

Daugherty: Fireman's Fund already has personal lines products with auto, home, valuables and umbrella; this was a strategic move to expand our appetite outside of our current auto offering that was more of a complementary offering to our home product. This benefits our agents in two ways: first, it will open us up to more consumers in the marketplace, making us a more efficient offering for our agency force; and next, it opens us up to market expansion as we will be entering markets that we've not had an automated platform before. When we looked at the auto contract we offered to our higher-profile customers, we saw there were lots of bells and whistles in the products that the general consumer doesn't need. There was an opportunity to hone in on a product that more consumers buy every day and take advantage of more precision pricing. Based on a competitive analysis of different rate plans, we built in more competitive price points for both our general and high-end products. The product's core engine will complement the general market offering and Prestige Auto for our most exclusive clients; we decided to introduce a more traditional coverage contract and market it with the Allianz brand to leverage the financial strength of our parent. It is important for agents and consumers to know the financial strength of Allianz will be there to back the contract when a loss occurs.

AA&B: What sort of marketing assistance are you offering your agency force to help it sell this product?

Daugherty: The product launched in Arizona this past June, and in 10 other states by November. It is now available in Colorado, Connecticut, Illinois, Kansas, Maryland, Missouri, Ohio, Oregon, Tennessee and Texas. What we really focused on with our independent distributors was training, product appetite, and how they should think about our product as it competes with other competitors they are already using like Travelers, Safeco, Hartford and others. Our agents already know about our superior claims and customer service with their high-net-worth clients; now they can offer that same service to a broader range of customers.

AA&B: What are your sales expectations for the product in its first year?

Daugherty: Looking out across what our distributors are doing with other lines of business and other carriers, a 20 percent close ratio is competitive, given that the agent may have 5 to 10 carriers they are quoting. We're trying to get on the agencies' "short list" with this product. Given that we already have a presence in the agency with our high-net-worth clients, there's a huge growth opportunity for us to be able to compete for their everyday client as well. If an agent writes an app a week with us, it opens us up to double-digit growth. In addition, it expands the number of options for agencies to provide a competitive product. We're targeting 15 to 20 percent growth in each agency on average. Some agencies that are small with us today will see breakout growth, and some of our larger partners may only grow with us 10 percent, but on average, double-digit growth is our goal. Today, we're at about $173 million of premiums in personal auto; we'd like to grow that by almost the same number over the next year.

AA&B: What are some of the coverage's unique features?

Daugherty: The key element is the comparison of coverages we offer in our products. In our current offering, Prestige Auto, we offer expanded coverage such as an extra $10,000 of medical payment; "valuelock" coverage, which allows customers to lock in the existing price of their car; coverage for lost keys, $0 deductible for glass breakage, and original OEM parts. Few contracts in the marketplace offer customers those types of add-ons. Our general market auto product removes many of these wproduct features and makes some of them optional coverages. This gives agents the ability to lower pricing 20 to 25 percent. The second piece is segmentation. For example, instead of classifying customers into age groups that are grouped in 5s (16 to 21, 21 to 26, etc.), we can price each age group based on their loss experience that may look more like 16-, 17- and 18-, 19-21-year- olds, each having their own price points. This allows us to be more accurate with our rating and more competitive for our agency force.

AA&B: How do you expect the product to be unique enough to compete with direct writers?

Daugherty: Insurance itself doesn't have to be sexy in order to compete. First and foremost, our goal was to have a product that meets the expectations of our agency force. We know that execution and delivery is important, which hinges on what kind of relationship our sales people have with our agents. We're known for that, and for our ability to take a vanilla risk and customize it to meet the needs of the agent and the customer. Our superior claims service also differentiates us; every agent interview I've seen speaks of our claim and customer service, and the fact that we're known as having a closer relationship with our agents than some carriers out there. By getting an offering they're used to and applying claims, customer service and sales relationship, differentiates it enough to make us stand out. We are working hard to earn their business everyone day, one policy at a time.

AA&B: Any strategic reasoning behind the states where it is first being rolled out?

Daugherty: We started with Arizona because our agency partners were willing to dig deep with us, and because we were changing our product pricing, target markets and business platform. In the past, Fireman's Fund has been known for having agents fill out an app or ACORD form and faxing it to us, after which we'd quote and contact them within 48 hours. Agents find this process expensive and most other companies are Internet based, so we moved to an Internet-based platform last September. We worked with our partners in Arizona to roll out that platform based on input from them, with enhancements we made in June. Additionally, the regulatory environment is easy to navigate in Arizona. From there, it was just a matter of making sure we were rolling out in key states and key markets where there was a product need.

AA&B: What sort of back-office processes will be in place to service the business?

Daugherty: We've experienced a lot of change at Fireman's Fund this year as we move to a more technology-based platform, which changes some of the internal infrastructure to support it. For example, instead of having every risk analyzed by an underwriter, we are doing more aggregate underwriting where the underwriter may be looking at a series of policies for a number of states. We also have done some centralizing of our customer service groups, and added a 1-800 number for agents where they can reach us 24/7, along with infrastructure changes to support changes in technology as well. It's important for us to continue to deliver on our claims and customer service and build on that.

AA&B: When will you complete national rollout of the new product?

Daugherty: We have completed our launches for 2009 with the 11 states mentioned above. We will be in 25 states for Auto by the end of 2010. We continue to work through the balance of the states and the timing for their release with our leadership team as part of our 3-year plan–more to come on that as we finalize those plans.

In addition, we're working hard on the expansion of our home, valuables and umbrella offering for the general market and will be launching our first state, Arizona, just after the first of the year.