Lost amid news of the Kemper Insurance Cos.’ precipitous slide in financial health is how badly its relationships with the agents and brokers needed to market its products had deteriorated. A number of agents have admitted they felt alienated by the Long Grove, Ill.-based group of insurance companies and had trouble developing a working relationship that benefited both parties.
The latest Kemper news is, of course, bad: A.M. Best Co. downgraded Kemper’s companies to “D,” while Standard & Poor’s dropped the intercompany pool to “CCC” and Moody’s cut their ratings to “Caa3.” The actions came in response to Kemper unit Lumbermens Mutual Casualty Co.’s announcement at the end of June that its surplus decreased to $313 million from $697 million at year-end 2002.
After announcing plans to lay off about 1,000 workers in April, Kemper put half of its rambling corporate campus on the block in mid-June. Two of its four buildings are available for lease, and the space amounts to 520,000 square feet—just under half of the company’s total square footage in Long Grove. Meanwhile, the Illinois Insurance Department is considering putting Kemper into receivership to manage the dissolution of its assets, though a Kemper spokesperson said such a move is unnecessary.
As late as the third quarter of 2002, Kemper was ranked 26th in total assets among property/casualty insurers, and Lumbermens was a leading workers’ compensation carrier.
In May, Kemper sold the renewal rights of its middle-market commercial business, including workers’ compensation, package, auto and umbrella to the St. Paul Cos. This took a lot of pressure off agents and brokers whose clients were exposed after a cut-through agreement with Berkshire Hathaway Inc. was dissolved, but St. Paul is not reappointing every former Kemper agent, and some have said it won’t be a good fit.
“We’ve chosen to move our business to other companies instead of leaving it with St. Paul,” said Ed Weeren, chairman of Austin-based Ed Weeren Insurance Agency. “St. Paul’s operation is just not compatible with our agency’s plan. St. Paul has, I think, 15 or 17 different marketing categories and you can represent one or two or whatever. I just don’t think that type of company fits very well with an agency like ours.”
Weeren said the quality of the $100,000 in premium volume business he had placed with Kemper made it “no problem moving to other companies … it was easy to move.”
Weeren added that his agency and Kemper “just couldn’t get in sync. Through the efforts of a marketing rep and renewed efforts on our part we were starting to use them a little bit but then the bottom dropped out.” It wasn’t until Kemper sold its personal division to Unitrin that Weeren “realized we had a problem.”
Other agents were dissatisfied with Kemper even before the financial problems began to mount.
“There was nothing Kemper could provide through coverage, service or pricing that I couldn’t get from other carriers in the area,” said Fritz Mutter, CEO of Monrovia, Calif.-based Golden Pacific Insurance Services. “They were redundant to me. I didn’t feel that they really cared about making it work with me.”
Mutter described Golden Pacific as “a huge workers’ comp brokerage,” and said they did not have any trouble replacing Kemper policies.
Houston-based Wisenberg Insurance+ had fewer than 20 accounts—or in the range of $2 million in premium volume—with Kemper commercial before the warning signs were apparent.
“We saw it coming and I think with the first Best downgrade we began replacing what commercial Kemper business we still had left,” said executive vice president Jay Williams. “They had sort of been out of business for a year anyway. They had been writing high-risk, high-hazard business, environmental business,” as opposed to Wisenberg’s “Main Street middle-of-the-road type business.
“We didn’t have a big book,” Williams added. “It wasn’t foresight. We just didn’t have any success with them … in most cases, we were able to replace the business at the same or lower rate.”
Other agents described how their relationship changed as Kemper’s strategic focus changed.
“Five years ago we probably had 40 or 50 accounts [with Kemper],” said Ed Schreiber of Gem Insurance Services in Houston. “They were one of our larger carriers. Over the years their appetite shrunk and shrunk and they became less of a viable entity … or the business already on the books, when it came time to renew it was not what they wanted.”
Kemper’s criteria became stricter and volume requirements went up.
“At one time we had $600,000 or $700,000 with them in comp business, but it just kind of dwindled over the years,” said Scott Hauge, president of San Francisco-based CAL Insurance & Associates. “We were basically led to believe that they wanted from their brokers at least $1 to 2 million in business and that was not in the cards.”
Bob Lindeman, a Kemper senior vice president who oversaw the middle-market and small business lines, said these agents’ views were not reflective of most producers’ experience with the company.
“We do business with less than 1,200 agents,” Lindeman said. Even within that 1,200 our largest relationship is with a subset of 300 to 400 producers, and half of that group was the biggest portion of our production. There’s a very small number of producers in any given area who we have a strong relationship with. I treasure those relationships.”
Lindeman stressed that in teleconferences held with agents when an attempt to rebirth a “new Kemper” in April failed, they were very supportive and that the transition to St. Paul has gone well, with more than 70 percent of agents being appointed.
When the history of how one of the great insurance companies fell apart is written, the story of its relations with agents and brokers should be a part of the story, according to Mutter, whose Golden Pacific had $7 million in revenues last year.
“They lost the commitment to the agent-broker distribution method and that came around and killed them,” Mutter said. “It’s a two-way street, and no one would support Kemper because Kemper wasn’t supporting any agents.”
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