This interview originally appeared in the Spring 2013 Edition of IASA’s Interpreter. It is the 30th in a series of interviews conducted for the publication by Dennis Sullivan.

Sullivan: Jack, we’re delighted to have the opportunity to talk with you today. Please give us a brief overview of American Family Insurance.
Salzwedel: In early October, American Family celebrated our 85th anniversary. We were founded in 1927 with the concept that farmers don’t pose the same risk as city dwellers, and so should get a different kind of a rate. Through the years we have grown to be in the Top 10 auto insurers in the U.S. and the Top 10 homeowners’ insurer – even though we’re only operating in 19 states. We’re really the only regional or super regional left in the Top 10 for private passenger auto and homeowners. Our success stems from our 3500 exclusive agents who provide us with a very strong distribution system. They do a great job in their communities and truly embody the American Family brand.

Sullivan: There’s been a great deal of discussion in the industry about “the death of the agent.” American Family has a significant commitment to the career agent distribution system. With your recent acquisition of The General, a direct channel with a call center, how do you balance multiple distribution and “channel conflict?”
Salzwedel: I started my career in the field as a claims adjuster and then moved into a position as an agent before I joined the corporate team. That background gives me a deep appreciation and understanding for what agents do and the value they deliver to customers. We spent a lot of time over the last few years considering the impact changes in the industry might have on the career agent. I really believe long term there are great opportunities for great agents in the future. But, the flip side is it’s probably never been a worse time to be a mediocre agent in the industry. Where the agent wins in the marketplace is in multiple line sales. The concept of a professional agent giving advisory trust and doing it with multiple lines saves the customer time. That’s the model for our agencies and I believe there will continue to be a need for that in the future. It’s a great way to market, distribute and serve a great customer base.

We also know customer segments are changing, and we cannot ignore the realities of what the customer is requesting in terms of buying and servicing options. The advent of direct selling hit a sweet spot with the high-risk market segment, and The General is a perfect complement to American Family for a market segment that our agents aren’t able to serve as well as they did 15 to 20 years ago. We were very transparent and worked to educate our field about our ideas around buying The General, and because of that we were able to build their confidence that this side-by-side approach could be of benefit to them.

Sullivan: In your years with the company, what product or distribution changes have been most significant?
Salzwedel: The multichannel distribution changes we just discussed are a big one. However, the changes in technology and how consumers use it, is the really big game changer, and a great one. With the ability to glean more insights about our customers, we can build products and service models to better suit their needs.

On the flip side, legacy systems must be adapted more quickly and that can be limiting. So, adapting with technology and the speed necessary to react as an organization are some of the most significant challenges.

Sullivan: Analytics is a very hot topic right now. What data actually drives you to move and do something different operationally?
Salzwedel: If you can’t tie data to a business need and create a solution, it doesn’t do any good at all. We rely on data to help us make decisions. But, sorting through data and creating the inflection points that come together to enable us to actually use it for something is the challenge. You have to be able to determine what metrics are needed and relevant to make an informed judgment. Many companies are using data in an effort to get ahead or get up to speed in terms of sophistication. But, data means nothing if you can’t match it with your loss data and get something that’s unique for you. Otherwise, we’d all have the same model and would be using the same variables. We’re in the middle of a technology transformation right now that will unfold over the next few years. It will require a significant investment just to get in the game. Differentiation is the key. I think the next five to ten years could be very tumultuous in our industry. There’s high potential for M&A and the situation with interest rates is a factor. It’s a real balancing act.

Sullivan: As the only super regional left in the Top 10, American Family is known at a national level for having outstanding service. Will you talk a little about the people at American Family and what differentiates you?
Salzwedel: One of our strengths is our organizational structure. We’re a mutual company. We don’t have any lack of focus around who our owner is or who our ultimate customer is. In 2007-2008, we made a huge commitment toward getting our service standards in the top tier of customer satisfaction. This ongoing commitment differentiates us from a service standpoint and flows all the way through our organization. It’s something that our people are passionate about and it shows up in the bottom line. Our American Family brand represents the type of honest, caring values and the outstanding service that our people provide. There’s a lot of equity in that.

Sullivan: Financial services organizations have been going through some difficult times since 2008. How has American Family addressed the challenges?
Salzwedel: We recognize one thing: Investment returns are not going to be what we traditionally had 15 to 20 years ago. We’re in a period of lower investment returns and that means we will rely more on operating return. First, you have to be able to align on operating return and then investment return. That’s the only way to have an operating return in order to continue to get ROE, and continue to grow your organization. With investment returns being lower and the expectation that you’re not going to have as much of that return, your operations need to stand up firmer. From a P&C standpoint, if interest rates spike, we’re all going to have a very difficult time getting ahead of the curve as far as loss costs. We’ve spent a lot of time on investment planning and considering all the variables. Our approach uses conservative risk management and investment in product and distribution to help position us for growth.

Sullivan: There’s been a great deal of press on climate change, and the frequency and severity of weather events over the last few years have had significant impact on the P&C industry. How has that impacted your plans for CAT design and what you’re doing as far as preparation?
Salzwedel: We are not making changes in response to the scientific and political discourses on global warming. We’re using the data from the events in specific geographic areas to more precisely and more intentionally create better models for how we price for those risks.

Sullivan: Can you talk in general terms about technology advancements at American Family?
Salzwedel: I’m really happy with our progress in this area. We made a decision a few years ago to address our legacy systems. We’ve invested in a review and transformation of our agency portal and platform, processing systems, billing systems, claims system, data management system, analytics and our data hub. These systems are starting to roll out and will allow us to be much more dynamic with the product in our existing territories. It also has implications for us in [terms of] geographic expansion into new states and will allow us to grow much more quickly.

Sullivan: And now the big challenge is getting the payback.
Salzwedel: I think these technology advances are lower table stakes and they need to have a cost benefit. It’s table stakes to be able to change your products. As laws change in different states, you’ve got to react more quickly. It’s table stakes to be able to push product innovations, and things like weather modeling tools could come out of that. It’s the constant improvement effort that goes on.

Sullivan: With the new Federal Insurance Office (FIO) being established, do you see more difficult regulation? Will it lead to more standards? Could it have an impact in easing today’s challenge of having to file in 50 states and dealing with 50 state insurance commissioners?
Salzwedel: I do actually. I think the FIO is one step there. International companies have this issue. It could be a game changer quite honestly. But at the end of the day these are all costs that are being borne by the consumer. Whether regulation is state, federal or dual, we need to set ourselves up so we can win regardless of what happens.

Sullivan: Can you share your philosophy on management?
Salzwedel: Leaders today have to be very authentic and transparent. Effective leaders typically don’t have a lot that they hold back. They’re approachable by employees and agents, and they can articulate where the organization is going in a way that rallies those around them. That’s the type of leader I hope I am. I think communicating effectively and adopting new media for that purpose allows us more opportunity to be honest and open with employees, agents and customers. When I think about my style in relation to working with our executive group, my goal is to reach a decision, shake hands, and go out of the room with everyone on the same page.

PUBLISHER’S NOTE:  This article was originally published in the Spring 2013 issue of IASA’s Interpreter. All rights reserved. Copyright ©2013