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Fast Times in the Insurance Industry
When You Ride in the Technology Rodeo,
Hang On to Your Hat.
BY REBECCA CHARRYFORM, Dec. 1994
Is the insurance industry still a viable market for independent distributors? It depends on whom you ask. But most industry participants agree that, these days, it takes a pretty tough cowboy to ride what one distributor calls the "bucking bronco" of technological change.
"The electronic forms revolution is impacting insurance more than any other industry," says Ken Larney Jr., president of Quality Business Forms and Equipment in Alsip, Ill. For example, insurance companies are among the first to implement imaging systems, but "changing over is a very slow process," says Jane May, payroll/purchasing coordinator for Montgomery Mutual Insurance of Sandy Spring, Md., a company in the midst of conversion. As one distributor in the Northeast who sells to insurers reports, the transition to imaging technology can take two or three years. After investing one year and $1.8 million in an imaging system, one of his clients still has only 40,000 policies on line.
As large insurers move slowly but surely toward automation, distributors need to plan accordingly. Larney is currently investigating automated forms and keeping abreast of new technologies by attending seminars and distributing information to his employees through books, magazines and tapes. One employee has earned CFC certification, and Larney hopes to hire a "techie person" in the near future to handle software, networking and imaging technology. Although he worries about how to integrate the new employee into his company and how to establish a suitable compensation plan, Larney says keeping abreast of the latest developments means clients will "look to us" to meet their changing needs.
Creative and fast-thinking distributors can take advantage of "glitches" in the transition to new technologies. For example, when ITT Hartford Insurance Co. of Hartford, Conn., switched from a paper-based filing system to a Wang imaging system in 1991, it had problems implementing OCR. Eventually the company abandoned the plan when paper of varying size and quality could not be processed by its equipment. The vendor had designed a form with dropout ink for borders and headers, but typed or handwritten characters that abutted preprinted ink still caused a readability problem. John Lawler, systems manager at The Hartford, says that scrapping the OCR plan was "a big disappointment." Savvy distributors can turn disappointments like these to their advantage. Insurance companies in the process of converting to imaging need help redesigning forms for "return text." Return text is any form that the company sends to its clients, who fill it out and send it back.
Industry Turmoil
Impending health care reform has spurred an increasing number of mergers and acquisitions in the insurance industry. Insurers diversify as they grow, offering a variety of services to their customers. For example, some insurers now offer financial planning services and even credit cards, says Frank Burgess, president of Yankee Systems Inc., in Reading, Mass., and a member of NBFA's board of directors. That means more opportunities for distributors to sell new products and services. When Larney's client began offering annuity services, he redesigned documents to keep up with changing interest rates.Brian L. Shawver, CFC, vice president of marketing and sales at Centro Business Forms Inc. in Bend, Ore., has sold to the headquarters of Pacific Health and Life Insurance for the last four years. When Pacific recently was acquired by a much larger company, Shawver was unsure what that would mean for Centro. It turned out to be a benefit. Since the parent company was much more diversified, Pacific had to diversify. It expanded from health insurance into life insurance, began offering supplied Medicare and added financial services such as annuities and investments to its service line. Centro, in turn, had to broaden the range of products and services it offered. Shawver recently sold the insurer a package of marketing materials that included a 2-color brochure and custom plastic holders for a counter display. The brochures and holders were sent to all of Pacific's agents. Centro also provided warehousing and distribution services. The combination of products and services made the package "a complete system," says Shawver.
Changing Needs
Kendall Wheaton Jr., vice president of Wisconsin Graphic Forms in Madison, Wis., finds that although the market for traditional forms in the insurance industry is "drying up," new opportunities are available in commercial printing and laser cut sheets. He estimates that the three insurance firms he sells to account for 40 percent of the company's $400,000 business. He reports that he sells insurers "less and less [multipart and unit set] forms," but an increasing amount of envelopes, AP and payroll checks, multipage booklets, certificates and 2- and 3-color brochures. Policy jackets on 60 and 70# cover stock and envelopes with die cut windows are also big sellers, he says. He gets orders for 75,000 to 200,000 printed pieces and envelope orders in the millions.In Shawver's experience, the biggest profit margin in selling to insurers is in promotional printing material, including marketing materials, 2-pocket folders, 3-ring binders, Post-it(tm) notes and ad specs. Centro saves money by typesetting and designing in-house. Unlike many distributors, Centro outputs its own negatives. Shawver charges the client an hourly fee for time and materials. He estimates that his business with insurers is about 40 percent traditional forms products and 60 percent commercial printing and promotional material (including advertising specialties).
Shawver also sold Pacific a piece of commercial printing for its short-term health insurance that included a 2-color brochure with a rate sheet, a check box form and a self-mailer all in one. The client's customer simply filled out the form, folded it into the built-in envelope and added a check. The whole piece weighs less than an ounce and can be mailed at the first class rate. Pacific is one of Centro's top accounts, says Shawver. Centro has rewarded the company by placing it in the exclusive "first class" segment of Centro's accounts. That means the insurer gets quick turnaround, price guarantees and the best service. Pacific earned top status through prompt payment, high volume and a good relationship with Centro.
Insurance documents often need to be reworded or redesigned because state regulatory boards audit insurers frequently. The auditors check for compliance to rules on document security and changing legal requirements. That translates into more business for distributors marketing themselves as design experts. Wheaton's company does the redesigning in-house on a computer. He says he often does the work himself, starting with a freehand sketch. After meeting with the senior vice president of the insurer, he sends a "cut and paste" draft to his composition department, which sends proofs to the company for final approval. The most profitable order he completed was redesigning an insurer's cancellation notice. The challenge was to reword the document, reduce some type and enlarge other type without increasing the overall size of the form.
Larney acts as a consultant, "constantly redesigning" forms to conform to changing regulations. When the client turned to Larney for help in cleaning out the storeroom, he helped it throw away $20,000 worth of obsolete stock. Larney is encouraging his client to open an in-house print shop, which would be cheaper than sending short runs to a local commercial printer, he says.
Insurers still buy lots of traditional paper products, and Shawver's biggest sellers are four or five types of custom continuous forms. Insurers also buy return-text forms, mailers, letterhead and envelopes. For example, Pacific was getting a poor response rate on its auto accident report. The long questions were hard to read, took a long time to answer and discouraged clients from responding. When Centro redesigned the form with check boxes and included a business reply envelope, the response rate improved dramatically. Shawver says he has sold the company several similar projects in recent years.
"Just-in-time" buying habits are common among insurers who want to avoid obsolescence. Order size is dropping, and turnaround time is increasing, according to Wheaton, who says 72-hour deliveries are common. He sees a market opening up with smaller companies who are only now beginning to computerize.
Thomas Darling, vice president of Lyle Printing & Publishing Co. in rural Salem, Ohio, says a small, independent insurance agent who buys consistent volumes of traditional products is "one of his best accounts." The insurer buys custom continuous and unit set forms, laser cut sheets for internal use and lots of #9 and #10 envelopes. The insurer has his own software engineer design the forms in-house. Darling then supplies the forms to meet those specifications. The account consists heavily of reorders, and the insurer has no plans to implement any electronic forms or imaging systems.
In general, independent insurance agents in small towns and rural areas are small business owners who are less likely to consider implementing some newer technologies. National and regional headquarters of large insurers in major cities, however, seem to be gravitating towards new technologies faster. A recent study from the Association for Information and Image Management, a trade association in Silver Spring, Md., confirms this trend: "Large firms, those with revenues in excess of $1 billion, make up the large majority of users who are implementing EDI and workflow." For businesses with small volumes, imaging systems may not be worth the high price.
Buying Habits
Larney says that a major insurer is one of his top two customers and accounts for approximately $500,000 in sales yearly. Quality provides the company with 235 different products, mostly internal forms. Quality's relationship with this customer dates back to the 1950s, when the insurer was just getting started. Larney's father, then president of Quality, was "with them from the get-go." He got to know the insurer's purchasing agent and data processor well and worked primarily with them. Today, his son prefers to work with many individuals in different departments. Larney gets to know the heads of individual departments because they are not likely to be "constant targets" for competitors' sales reps, he says. "This is really relationship selling," says Wheaton. "People want to know who they're buying from." He encourages independent distributors to "go after the small accounts" that larger manufacturers are too big to handle.Insurers are "trustworthy, prompt and solid," says Shawver, and they are "less subject to economic shifts" than other industries because everyone needs insurance regardless of the state of the national economy. J. David Rich, CFC, president of Databank Inc. in Pflugerville, Texas, agrees that insurers are "stable customers, and they pay well." He sells mostly traditional products such as 1-part custom continuous forms, stationery, envelopes, renewal notices, premium notices, brochures and newspaper inserts to insurance agencies. About 15 percent of his business comes from small insurance agencies, and he plans to expand his accounts in this vertical market.
Not everyone is thrilled about change. One veteran distributor who sells to large insurance companies says, "you plan for a rainy day, not an earthquake." Changes in the forms industry are "shaking everything to the foundation," he says. He sees insurers moving to cut sheets for laser printers and an accompanying decrease in smaller-run insurance documents. Insurers increasingly use DocuTechs™ and other on-demand equipment. "It's a smaller electronic printing situation," he says.
Some insurers are closing their in-house print shops, which may be good news for distributors, although insurers are doing more and more design work in-house on their own PCs and printing on laser printers. Some large insurers load custom printed jumbo rolls onto roll feed equipment and print items such as statements.
An insurer with no plans to implement electronic forms may buy fewer unit sets and continuous forms, says a purchasing agent at the regional headquarters of a large insurer. She works with a core group of 15-20 vendors, mostly small to mid-sized companies. The company still has an in-house print shop, but closed its warehouse and now outsources its warehousing needs. Agents in separate departments purchase ad specialties, marketing materials and paper forms. The insurer prints small orders (runs of 300) of brochures and directories on DocuTechs™.
One distributor hasn't sold a unit set to an insurance company in years, but has sold bags, bookcases, hats and coolers. He warns, however, that distributors who are seen as ad specialty salesmen get little respect from customers. Business forms are perceived as more prestigious and are treated with more respect, even though there might be more money to be made in ad specs than in traditional forms. Also, distributors venturing into commercial printing should be prepared for new rhythms of production and delivery and should educate their customers to expect the same. Vast source selection in both fields can be overwhelming. There is "a lot of opportunity but it's a whole different animal," he says.
Rebecca Charry is staff editor of FORM magazine.
Special thanks to Wise Business Forms of Alpharetta, Ga., for assistance with this article.
Insurers diversify as they grow, offering a variety of services to their customers. That means more opportunities for distributors.