MARKETING

MARKET CLOUT IN PENNSYLVANIA

Keystone Insurers Group enables 66 agencies to gain market access, achieve higher contingency income

By Barbara A. Morris

Keystone Insurers Group executives (from left): Joseph P. Joyce, CPCU, vice president/program division; Mike Azar, chief operations officer; Colin R. Buzzard, senior vice president/marketing and franchise; and David E. Boedker, Sr., president/CEO.

Twenty years ago, the principals of four small property/casualty agencies in central Pennsylvania looked to an ominous and uncertain future. They were concerned that they would not be able to compete effectively in a marketplace that was becoming decidedly more competitive. The prospect of merging or selling their agencies loomed as an undesirable option of last resort. Survival was the motivator which prompted these four agency owners to put aside any thoughts of merging or selling and to focus their efforts instead on joining forces to create Keystone Insurers Group in 1983.

The formation of Keystone Insurers Group, explains President and CEO David E. Boedker, enabled these four small agencies to reap the benefits of a cooperative arrangement, with all of its efficiencies and improved market access, while at the same time ensuring that their local identities would remain intact.

"The challenge to those founding members was to get new markets and to meet current demands. They were convinced that a clustering arrangement would help them to overcome these hurdles," explains Boedker, who has been affiliated with Keystone since he joined the company as executive director in 1987.

Colin Buzzard, senior vice president, marketing and franchise operations, likens the Keystone concept to the "Century 21" real estate franchises--each individually owned, with its own local identity and client relationships, yet working under the umbrella of a large corporation that provides an array of competitive services and support, as well as proportionately sharing expenses and profits.

While the model for Keystone was designed to address the challenges of the hard market conditions that had played a role in threatening the survival of the four founders, that same model "flourished" in the soft market that soon followed and prevailed for years, Boedker adds.

Over time, Keystone grew, eventually comprising 17 stockholder agencies; yet the franchise company's leadership, recalls Boedker, felt the need to "expand our footprint in Pennsylvania." The key to that goal, he explained, lay in attracting superior talent to help grow the company, which eventually translated into a recapitalization of Keystone, the hiring of experienced and talented executives to lead the company in several distinct areas, and the formation of two subsidiaries, Keystone Risk Managers and Keystone Financial Services. Mike Azar, COO, with an MBA in finance, was the first senior executive to join Boedker's team and played a major role in the initial formulation of Keystone's franchise platform.

"Keystone wants to be the distribution system of choice--not only for agency partners, but for consumers and carriers."

-- David Boedker

Since late 1999, 49 new franchise partners have joined Keystone, which in all totals 66 partner agencies representing more than 90 locations throughout Pennsylvania. Keystone has grown to become the largest independent agency network in the commonwealth of Pennsylvania, with approximately 500 employees, $200 million in assets under management, and a half-billion dollars in annual gross sales.

The company also has received approval to write business in Maryland and North Carolina and expects to expand into those areas this year. It is also poised to add several additional programs, including transportation and auto dealers, to its list of program offerings, which generate some $19 million in combined annual premiums. Looking ahead, Boedker anticipates Keystone will grow by another 20 new franchise partner agencies during 2003, and the company has also begun initial plans to develop a college recruiting program for P-C agencies.

Looking beyond Keystone's statistics and accomplishments, both Boedker and Buzzard stress that the quality and commitment of the member agencies ultimately will determine Keystone's success. It is a level of quality and commitment that is all but ensured through the high standards to which Keystone holds all prospective franchise partners.

"We are all about relationships," notes Buzzard, who says Keystone views its relationship with its franchise partners as a "lifelong relationship--one that can take anywhere from six months to as many as three years to seal. We don't rush the process--this is not something we're selling," he adds.

Agencies come to Keystone through typical venues--sometimes referred by another partner, or sometimes seeking out Keystone independently. On yet other occasions, Keystone will make the initial overtures to an agency it has come to know and that may be located in an area underserved by the company. Yet whatever prompts the initial discussion, the process of forging what Keystone leaders hope to be a lifetime relationship is rigorous.

"We are looking for agencies of integrity--that have earned a high reputation and that are known for the quality of their people," says Buzzard. Keystone, he continues, is also looking for agencies that are a "match" philosophically--in terms of how they conduct business and in their relationships with both their company markets and clients. And while this latter requirement may be more difficult to initially assess, Boedker says that the many meetings and discussions which are a part of the application process ultimately provide Keystone leaders with the ability to make this determination.

Perhaps more concrete and equally important to the application process are the hard numbers. "One key barometer is the financials--the ratios." Azar applies financial principles in evaluating an agency's current and trust ratios.

"These are very, very important," stresses Buzzard, who adds: "Mike Azar pays very close attention to how agencies manage their finances as well as the results they've had with their companies over the last five to six years." More specifically, Keystone requires that all applicants be able to demonstrate loss ratios for all of their company markets of 55% or less over a five- to six-year period. The bottom line, adds Azar: "Prospective franchise partners need to share our values and demonstrate they adhere to strict underwriting guidelines." Buzzard draws the further distinction: "We are looking for agencies that do not need us."

Driven by these high standards, reports Buzzard, Keystone has "passed" on fully 35%-40% of the agencies they've looked at for reasons ranging from less than stellar financials, loss ratios or, equally important, personalities that simply didn't mix. Upon approval, the remaining 60% of agencies that eventually join Keystone as franchise partners pay an initial franchising fee to cover the expenses incurred during the detailed process to bring an agency into the company. Franchise partners then pay a monthly fee--a percentage of the business they write through Keystone's core companies, with that percentage rate decreasing as their volume increases.

On the other side of the financial ledger are contingency payments, which are shared by Keystone members through a formula reflecting each agency's individual volume for a given carrier as a percentage of Keystone's total writings, and the agency's individual level of profitability on the business written. Yet beyond the appealing financial returns that can be realized through the aggregation of markets, there are many other opportunities and benefits that derive from joining Keystone.

Agency Services Manager Jackie Powell, who has spent her career on both the agency and carrier sides, serves as a conduit for expanding opportunities within the more than 30 core national and regional companies represented by Keystone.

Keystone's growing program division, which creates, develops, services and manages approximately 11 specialty programs, enables franchise partners to serve their commercial clients and enter into commercial niches that otherwise would be unattainable. The program division, headed by Vice President Joseph P. Joyce, CPCU, not only offers agencies competitive products and pricing, but also in-depth training, specialized marketing and underwriting to ensure higher "hit ratios," exclusivity, safety group dividend opportunities, and several statewide association programs.

Franchise members also gain access to the company's two wholly owned subsidiaries, Keystone Risk Managers and Keystone Financial Services, with compensation to the subsidiaries based on the extent of expertise provided and services required.

The Keystone Insurers Group corporate and administrative staff at their new headquarters in Northumberland, Pennsylvania.

Keystone Risk Managers (KRM), headed by Vice President Chuck Lengle, provides franchise partners with the ability to effectively compete with national brokers or larger agencies with in-house risk management expertise by offering a wide range of related services geared to the middle- to large-market accounts. These include risk assessment, portfolio design, and implementation of alternative market vehicles such as captives, rent-a-captives, group captives and self insurance.

The company's Keystone Financial Services (KFS) subsidiary likewise offers franchise partners opportunities to provide financial products for their clients, including business continuation services, estate planning, investment and retirement planning, and pension plans. The subsidiary, headed by Al Markijohn, also assists agencies in recruiting talented financial services professionals should they desire to grow their in-house expertise and capabilities in this area.

Just as important, notes Boedker, are the networking opportunities that derive from membership in Keystone. Keystone agencies come together several times a year for meetings, workshops, and training sessions sponsored by Azar and Powell that enable agency owners and producers to explore common challenges and to share solutions that work. And while the size of Keystone agencies varies significantly--ranging from annual premiums of $1 million to $27 million, when Keystone franchise members gather together for a company meeting or event, "everyone checks their egos at the door--everyone is there to help each other," Boedker says. And many times, he continues, Keystone franchise members forge professional and friendly relationships that exist independently from Keystone, often using one another as resources for ideas or insights into how to address specific problems.

"Because none of us are direct competitors, there is really a valuable opportunity for us to share ideas and to network," observes Lew Kachulis, president of Gilbert's Insurance Agency, Inc., a Sharon, Pennsylvania-based, mid-sized agency that has been a Keystone franchise partner since 1987. Over the years that Kachulis has been with the agency and a part of the Keystone group, he has come to know many of the company's franchise partners and believes that the professional relationships forged over the years are as "valuable" as the more practical benefits--all of which he also applauds.

Kachulis reports that contingency payments to his agency are higher than they otherwise would be because the combined volume from franchise partners enables Keystone to reach a higher threshold. Access to needed markets is also a major benefit--and one that he observes has become more apparent in recent years as the long-lasting soft market has finally begun to turn. The company's program offerings and other services, he adds, have likewise enabled many franchise partner agencies "to write accounts that they would not be able to write on their own."

Keystone looks to the future with tremendous optimism, as it plans to expand into other states, continues to grow its program business, while continuing to offer expertise and support that will translate into an even a stronger competitive position for its franchise agency partners. Keystone, says Boedker, "wants to be the distribution system of choice--not only for agency partners, but for consumers and carriers." *

For more information:
Keystone Insurers Group
Web site: www.keystoneinsgrp.com

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Corporate Headquarters; 1995 Point Township Drive, Northumberland, PA 17857
Phone: (570) 473-4302 • Fax: (570) 473-4303