Late last week, Madison, Wisconsin-based American Family Insurance Group and Florida-based The Main Street America Group announced they are pursuing a merger.
The deal, expected to close by year-end, will require approval by mutual policyholder-members of both companies and state insurance regulators.
The merger will diversify American Family’s product mix, increasing commercial lines from 8% to 14% of the combined entity’s direct written premium. It will also spread the geographic risk for both companies over a larger area. At this time, no major employee or operational changes are expected as a result of the merger.
Although this is the second announcement in recent months of a captive agent company making a move to embrace the independent agency channel, American Family has made it clear that the merged company will leverage both the captive and independent agent distribution channels.
“Our commitment to our exclusive agency force has never been stronger,” said Jack Salzwedel, chairman and CEO of the American Family Insurance group in the announcement. “This merger will give our agents more products to offer policyholders while providing the American Family Insurance group another avenue through which to sell products—independent agents.”
IA talked with Tom Van Berkel, Main Street America’s chairman, president & CEO, about the merger and what it means for independent agents.
IA: Why was pursuing this merger the right move for both companies, but in particular for Main Street America?
Van Berkel: We’re not a little company—$1.2 billion in revenue and surplus. But for a company our size, there are certain things that are difficult for us to do really well. Things for all businesses are changing so fast. It really centers around speed to market, and being able to analyze data and make adjustments.
That’s the perspective I started with. And frankly, the input we're getting from our agency councils—and I'm sure they've giving the same feedback to all companies—is that we need better pricing, better speed to market and easy-to-use interfaces between company and agent. We've made significant investments in technology over the years, but I think in the future it will be even more critical and more expensive. So with all those things in mind and trying to get the product to market fast, we just felt like we needed to think about things a little differently.
What companies did you consider working with?
We've been an acquirer of companies and we continued to look at that, but it wasn’t going to solve the issues. That would be doubling down on existing problems. About a year ago, we started thinking maybe we should look at opportunities with companies that might be larger than us, but have made investments in data analytics, product delivery and technology. We sought out companies that would have a commitment to mutuality and independent agents, but at the same time, have made the proper investments.
We had a list of companies, but the first one we approached was American Family. It was a little bit outside the box because American Family has historically been a captive agent carrier that has bought a couple of direct companies—The General and Homesite. But American Family had made significant investments over the last six or seven years in infrastructure. They have the capabilities and very much want somebody to run the independent agency channel for them. They were also looking for a company with better commercial capabilities.
That's where we entered. It’s a perfect match when you look at what we do well, which is commercial and independent agents. And then from a geographic standpoint, it's almost perfect because almost all our business is not in a space that they're strong in.
What kind of feedback are you hearing from your agents? What kind of feedback is American Family hearing from theirs?
The feedback that we're getting from both constituencies is really good. For most people, when they first hear the news, there's a little bit of a shock and a little bit of a "wow." But then they realize what it means. Let’s take our independent agents. They say, “So you're going be able to get products to market faster, you're going to get better products, have better ability to price because of data analytics capabilities, and you're going to have more ability to invest in the kinds of things we need from a technological standpoint.” They're on board and they're very excited about it.
We also made sure that in our announcement we talked about our commitment to Trusted Choice®. We will continue to be huge supporters of the brand.
When do you expect that your agents will be able to offer American Family personal lines policies?
Anything that we would sell would be under one of the Main Street brands. It may be the American Family homeowners product, but from the agent's perspective, it’s going to be marketed under the Main Street brand. We haven't gotten far enough down the road to be able to say exactly what the differences will be, but the policies will be very broad with comprehensive features that you find in the marketplace today.
The bigger difference will be our ability to get it out faster. It's very difficult right now for us to be able to roll out a new product and get it to all of our 30-plus states quickly. American Family just has a much better capability to do that.
Do you think the separate brands of American Family will continue as separate identities in the long term, or do you think that they'll eventually try to harmonize all their brands?
You can look at their track record for both Homesite and The General, and they have kept their brands. Main Street will be a separate brand. They don't know independent agents; we do. Main Street will be the brand market for independent agents.
And are there any plans to change your company appointment contracts or commission structures? Will you continue to appoint agencies?
That’s ours to manage. We have a plan for a certain number of new company appointments this year just like any other year. That will not change. The contracts won't change. Commissions won't change.
Anything else you’d like to add?
This is something I think all companies are facing in a very fast-changing world: speed to market and data. Data is king, and speed to market wins. This merger is going to give us those capabilities. We’re positioning Main Street America very well for the future, and I think we're going to see an explosion of growth.
Katie Butler is IA editor in chief.