When Larry Jansen took over as CEO of Grinnell Mutual five years ago, the property/casualty insurer’s future was uncertain. The carrier, he says, had become a “typical 100-year-old” company.

“We were very complacent. We were very lethargic. We were very accepting of the status quo. The feeling I had from a lot of our folks was that, ‘Well, I just come in here every day, I do my job, I go home at night, and no big deal after that.’ They weren’t concerned about the future. They weren’t concerned about growing. They weren’t concerned about how we’re going to be able to survive the next 10, 20, 30 years,” said the personable CEO of the Iowa-based carrier.

Jansen decided that he would energize his employees by giving them a goal: The company, which then had about $400 million in premium, would be a $1 billion company within 10 years. “The first thing was everybody had to have a reason why they were going to come in every day and something to shoot for,” he said.

Jansen did more than just throw out a hard number. He has pursued an ambitious plan that includes obtaining needed rate increases, expanding geographically, building a digital auto product, investing in InsurTech, creating internships and promoting wellness. (See related article, “Grinnell Mutual: Make a Plan, Give Ice Cream.”)

Mutual executives can’t raise surplus by selling stock; instead, they need to grow their surplus through underwriting and investments. These days they must grow in a climate of soft pricing, low interest rates and slow economic growth.

As a group, mutuals appear to be getting the job done.

Guy Carpenter analyzed 314 mutual P/C carriers in its October 2016 report, “Balancing Risk and Growth in a Changing Market.” This group includes mutuals with direct written premiums (DWP) under $2 billion but above $1 million, which captures most small and midsize mutuals. (Larger mutuals such as State Farm and Liberty Mutual are not included.)

The Guy Carpenter report shows that mutuals grew DWP just over 9 percent from $46 billion all together in 2013 to $50 billion two years later, in 2015. The average DWP per mutual, which was $147 million in 2013, came in at $159 million in 2015.

For comparison, public companies’ DWP went from $245.5 billion in 2013 to $277.1 billion in 2015, growing just under 9 percent. The average DWP for public companies went from $2.4 billion in 2013 to $2.7 billion in 2015, according to Guy Carpenter’s report. (For the report, public companies are those with 2015 net earned premium larger than $100 million that have equity shares listed for trade on a public exchange.)

Both public and mutual companies have achieved underwriting gains over the three-year period from 2013-2015.

In terms of surplus, while both public and mutual companies have grown their surplus over the past three years, mutuals have grown theirs by 7.5 percent per year versus 3.5 percent for the public segment, a result influenced by mutuals paying lower dividends to policyholders than public companies have returned to shareholders, according to Guy Carpenter.

In its report, “Mutual P/C Insurers Managing Market Challenges,” A.M. Best reported that net written premiums (NWP) throughout the P/C mutual market grew at a moderate pace of 3.1 percent in 2015 and have grown every year since 2010 at a compound average rate of 3.4 percent. The A.M. Best analysis includes both large and small mutuals.

Looking at underwriting results, A.M. Best financial analyst Kim Muccia said the overall loss ratio for mutuals has been stable in recent years, with improved pricing sophistication behind rate actions, some milder weather patterns and evolving enterprise risk management programs. Given increased premiums and steady investment income, overall operating results have been favorable, she said.

Muccia said that “controlled growth” is important for mutuals, which need “to remain focused on capital preservation and consistent financial stability in the interest of their policyholders.”

Identifying one particular way in which mutuals are managing market challenges, she said that over the past five years, more mutuals have been moving toward small commercial lines and away from personal lines. Since 2011, mutuals’ commercial lines NWP has grown by a total of 28 percent, while NWP for personal lines has grown by 15 percent, the report found. Five years ago, personal lines represented 68 percent of the premium of rated mutuals but had fallen to 66 percent by 2015.

According to Charles Chamness, president and CEO of the National Association of Mutual Insurance Companies (NAMIC), this trend makes sense.

“Business owners are attracted to the same positive customer experience and strong financial profile that other policyholders see,” he said.

Multipronged Strategy Includes InsurTech

Growth by rate increases depends on geography, line of business and other factors, and the resulting growth may be offset by declines in customer retention, noted Jay Woods, chairman of the Mutual Company segment at Guy Carpenter & Co. “Generally, we would suggest increasing rates as just one method in a multipronged approach for achieving growth,” said Woods, urging mutuals to also look at portfolio optimization, telematics, predictive modeling and other actions.

Mutual CEOs are indeed following multipronged strategies: They are entering new lines of business and territories; forging partnerships or merging; adding products like cyber and flood; and upgrading their technology, including predictive models and telematics.

Some are investing in InsurTech startups. Farmers Mutual Hail, Grinnell Mutual and EMC Insurance have joined an accelerator; others including American Family and Liberty Mutual have their own venture capital units. The roster of mutuals in InsurTech keeps growing.

“They want to be on the ground floor and understand it so they can use it when the time comes,” said Chamness.

Some mutuals are taking a cue from InsurTechs and digitizing their own distribution—Grinnell Mutual’s myCompass being one example. Or they are partnering with firms like CoverHound that have a digital presence.

Other mutuals are leveraging their very mutuality to help them grow, believing their philosophy can win over millennial customers and employees. As friends of mutuals like to point out, the super-hyped peer-to-peer InsurTech Lemonade is really a mutual in hi-tech clothing.

Customers First

Mutual CEOs believe that growth starts with strong customer relationships.

“I think as a mutual industry, we need to remember that all of our jobs exist to serve policyholders’ needs,” said Rich Creedon, president and CEO of Utica National. “That’s really one of the key differences mutual companies offer—our heritage, our tradition and our reason for being is to serve policyholders’ needs.”

Chamness noted proudly that mutuals dominate customer service surveys. “Focus on the policyholder is the name of the game. That accounts for much of the success to date and in the future,” he said.

Chamness added that mutuals benefit from their “steady presence” in the markets they serve. “Even though the story isn’t very exciting when it involves just growth in existing lines of business, I suspect that for most of our members, that’s where most of the growth will come,” he said.

Wells Media Team Report

Wells Media editors Andrew G. Simpson, Stephanie Jones, Amy O’Connor and Elizabeth Blosfield spoke with top mutual executives for their views on growth and related hard and soft issues.

See related articles:

For many mutuals, their agents are also their customers, and those relationships are key as well.

“For us, our independent agents are our customers. When I use that term, I’m referring to our independent agency force,” said Jeff Kusch, executive vice president of Insurance Operations for Main Street America. He said maintaining those relationships is key to managing through soft markets.

Grinnell Mutual’s Jansen has two sets of customers. “We spend a lot of time every year going out and having area meetings with our agents to let them tell us what they like, what they don’t like,” he said. “We do the very same thing on the mutual side, on the reinsurance side, going out and meeting with our farm mutuals that we reinsure, giving them a lot of chances to give us feedback. We spend a lot of time with our customers, we really do.”

Mergers and Affiliations

Mergers, partnerships and affiliations are tried-and-true growth moves, and a number of mutuals have recently been involved in deals. Among them: Liberty Mutual acquiring Ironshore from China’s Fosun; Motorists Mutual acquiring Consumers Insurance USA; Mountain States Mutual merging with Donegal Mutual; BrickStreet Mutual and Motorists Mutual affiliating; Auto-Owners Insurance affiliating with Concord General Mutual; NORCAL Mutual acquiring both PPM Services and FD Insurance.

Such arrangements may bring growth through product or geographic diversification, expansion or concentration. They may also address succession, agency representation, reinsurance, technology or other issues for one or both players.

Analysts are expecting more of these deals in the new year.

Guy Carpenter’s Woods sees more small carriers choosing to affiliate. “Affiliations are likely to continue as smaller companies may find it increasingly difficult to compete as large investments in technology are needed to remain competitive in auto and homeowners,” said Woods, citing the expense of mobile platforms, telematics, credit scoring and 24-hour claims handling.

NAMIC’s Chamness believes all the motivations for affiliations are “present today and certainly aren’t going away in the near term.”

Whatever growth strategies mutual CEOs pursue, they will be acting, in the short term at least, in a familiar climate of very competitive pricing, low investment yields and uncertainty over regulation.

“As overall market conditions remain competitive and challenging, top-line growth will be difficult. However, mutuals are not subject to the quarterly pressure of shareholders, so they can be patient and focus on improving net results, growing surplus and have a longer-term view for profitable top-line growth,” advised Woods.

Chamness hopes mutuals will have a friend in the economy.

“We have, it appears, an optimistic environment in terms of growth of business, of economic growth generally that will produce more opportunities for mutuals to serve their policyholders,” he said.

Topics USA Carriers InsurTech Excess Surplus Tech Property Casualty Human Resources