Dare To Dream

doesn’t condition his response with a lot of political muttering, operations — they analyzed how the executive staff made decisions.which is good at this level of management.” Of five key decisions theyWorking with Executive Vice President of Finance Paul King reviewed, the chairman had made four and the president one. Seniorand Vice President of Actuarial Brad Gleason, who succeeded management recognized they were making too many decisions Lyle Sorenson in 1990, Mathwich that should be made at a lower level; every fax machine purchase, and Pierce began supporting rate for example, needed Klokner’s approval. Mathwich and Pierce increases where appropriate, confi- decided to actively push author- ity down the management ladder. dent that other companies would “Dale deserves a great deal of credit for that,” Pierce said. “He allowed follow their lead. They also eyed more change to occur in this company than anybody I had seen expenses, stressing cost control as a in his position.” Bert Hutchison Clayton Nelson matter of survival in the extremely Part of that change was to allow the president to manage the competitive environment of the 1990s. Both men promoted American Family’s process improve-Brad Gleason ment program as the best way to control costs and improve effi-ciency. To lead by example, Mathwich and Pierce applied processimprovement to senior management. Working with the fourexecutive vice presidents — King, Jim Klokner in administration,Bert Hutchison in corporate legal, and Clayton Nelson in fieldABOVE: Shown here in 1990, American Family’s Chairman Dale Mathwich and President Harvey Pierce. Dare to Dream | 195

QUAKE,RATTLE & ROLLIn the fall of 1990, the biophysi- ABOVE: Through a training program with insurance carrier USAA, Amer- cist and inventor Iben Browning predicted a December 3 earth- ican Family property claims examiner J.R. Reeder inspects earthquake quake in one of three areas — Japan, damage to a Los Angeles home in 1994. California or along the little-known New Madrid fault in the United procedures to respond in the event emotional meeting. “We’ve got to States. Although seismologists ridi- of a quake. protect our people.” culed Browning’s prediction, they conceded that a major quake along December 3 passed with- With continued support from the New Madrid fault, stretching out a rumble. But the threat of a Midland Region Vice President from Mississippi to Central Illinois quake remained, and American Russ Lemons and Missouri East and Indiana, was likely within the Family went ahead with Hunter and State Director Al Meyer, the agents next 40 years. Smelling a story, the Johnson’s earthquake exposure accepted the changes. “We spent media ignored quake-prone Japan reduction program. a month crying in our beer,” Meyer and California, turning instead to the recalled. “Then we decided as a Missouri boot heel. Patterned after earthquake cover- team that we weren’t going to Within days of Browning’s predic- age in California, the plan raised focus on what we couldn’t do but tion, insurance agents in the St. rates on earthquake endorsements instead focus on what we could Louis area, including nearly 50 and increased deductibles from 2 do.” As a result, Missouri East American Family agents, were percent to 10 percent on homes agents turned to life insurance, awash in requests for earthquake in Illinois, Indiana and Missouri. eventually becoming some of the coverage. The number of American Eventually, the plan also called for company’s leading life insurance Family policyholders with earth- retrofitting brick homes to meet producers. quake endorsements in eastern earthquake standards. To further Missouri jumped from 3 percent reduce exposure, American Family Over the following two decades, before Browning’s prediction to 95 put the brakes on production in the the company continued to miti- percent by the end of the year. As area, leaving vacancies created by gate the risk represented by a applications for earthquake cover- retiring agents unfilled. potential earthquake, implement- age rolled in, American Family ing new earthquake rating zones, officers began to worry. After a The program wasn’t popular in capping coverage limits and increas- sleepless night, Chairman Dale the field, and in January, Mathwich, ing deductibles. By 2017, thanks Mathwich called together President Pierce and 10 American Family offi- to earthquake exposure reduction Harvey Pierce and the executive vice cers held a town meeting in St. programs and American Family’s presidents. “This thing could break Louis. “There are 8,000 careers financial strength, a major quake the company,” Mathwich said. “Let’s and the security of nearly 5 million along the New Madrid fault would find out what our exposure is.” policyholders at stake,” Mathwich shake the company but not shatter it. Working with American Family told the agents during the highly actuaries, underwriters and a consulting firm, Vice President of Underwriting Alan Hunter set American Family’s probable maxi- mum loss above $2 billion — more than twice the balance in the exist- ing policyholders’ surplus. Hunter and Controller Brent Johnson put in long hours developing a plan to lower American Family’s exposure. At the same time, Jim Eldridge, then vice president of claims, set in place196 | Strong, Growing and Friendly

ABOVE: Debuting in January 1992, these three commercials represented a dramatic shift in American Family television advertis-ing. Rather than use actors, as the company’s TV spots had done for more than 25 years, Three Generations (top), Classic Cars(bottom left) and Pictures used actual policyholders telling real stories in their own words.organization. “You’re the chief operating officer,” Mathwich told Darnell Moore, for example, implemented numerous changes,Pierce. “I expect you to run the company.” Despite his personalpreference for digging into the details and practicing hands-on including partnering with Information Services to develop anmanagement, Mathwich began to step back from the day-to-day operation of the company. This freed up Mathwich to spend online loss report so customersmore time as American Family’s ambassador to industry andcommunity groups and meet with agents, employees, district could submit auto claims using themanagers and state directors. company’s amfam.com site. Using the process improvement concept, each division tooka fresh look at long-accepted processes and initiated fundamental Though process improvementchanges aimed at ultimately reducing operating expenses to lessthan 30 cents per premium dollar. New Vice President of Claims and necessary rate increases were to have a significant positive impact on American Family’s profitability in the years ahead, they came too late to salvage 1990. Like watch- ing a train wreck in slow motion, Darnell Moore Dare to Dream | 197

American Family officers and board members tallied the under- estate markets, forcing several largewriting losses at each quarterly meeting: $24.9 million the firstquarter, $92 million the second, $169 million the third, and $228 life insurance companies into insol-million the fourth. At the Feb. 7, 1991 board meeting, TreasurerPaul King reported that the American Family Group turned in vency. Although the vast majorityan underwriting loss of $235 million for 1990. To make mattersworse, a sharp recession beginning early in the year knocked the of life companies remained finan-wind out of the stock market, adding a $13 million capital loss tothe group’s balance sheet. Despite record profits from American cially strong, Congress couldn’tFamily Life and larger than projected earnings from AmericanFamily Financial Services (AFFS), the group suffered a $48.6 resist weighing in on the high-pro-million operating loss, forcing American Family to dip into poli-cyholders’ surplus for the first time in 16 years. file issue. Warning that insurance “That’s the way Dale and I came into this,” Pierce said. “It company insolvencies could rivalwas a real wakeup call.” the savings and loan crisis, some Pete WaltonGETTING lawmakers called for federal over-BACK ON TRACK sight of the industry, leading to yetEveryone in the companyheard the call. Working with another attack on the McCarran-the executive vice presi-dents, Mathwich and Pierce Ferguson Act. “The reaction fromredoubled their efforts toreverse the trend. In 1992, Congress and the regulators wasAmerican Family loweredits combined ratio 8 points an overreaction,” said Jim Eldridge,to 105 percent, givingthe group a $97 million who succeeded Hutchison as exec-operating profit. Afteradding $158 million to utive vice president of corporatesurplus, American Familyended the year with legal in 1992. “So we had to suffera $2.10-to-$1 capac-ity ratio — beginning along with the other companiesseveral years of recordgrowth and profit for that were strong and solvent.” Tom KingAmerican Family. Rather than sink money into Financial strength was a concern to more than just AmericanFamily. In 1990, the bottom fell out of the junk bond and real high-risk, high-return investments to pay higher dividends on itsABOVE: American Family sent its 1991 financial statement to life insurance products, AFLIC Vice President Pete Walton andall policyholders to assure them of the company’s financial Investments Vice President Tom King preferred to set consistenthealth. The report contained an easy-to-understand summaryof the company’s growth over the previous five years. returns based on a conservative, secure portfolio. While American Family as a whole suffered a severe financial setback in 1990, American Family Life celebrated its most profitable year in its 32-year history, prompting “U.S. News & World Report” to list American Family Life among the nation’s 10 strongest life insur- ance companies in 1990. Capitalizing on its strength, AFLIC set a new application record in 1991, pushing the number of policies in force beyond the half-million mark. Application records followed in 1992, 1993 and 1995, driving policies in force over 650,000. The American Family Group continued its ascent in 1992. The group turned in the first of four consecutive $200 million operating gains; policyholders’ surplus stood at $1.1 billion and all-lines policies surpassed 5 million. That year, AFFS turned a record $4.5 million profit. Recognizing the potential to grow Financial Services, Mathwich promoted Gary Switzky to vice president of American Family Financial Services in May 1992. As a group, American Family celebrated its best year in history in 1993, posting a record $169 Gary Switzky198 | Strong, Growing and Friendly

EVPS WITH STRONG OPINIONSTo a person, the four execu- on issues — something Mathwich that Klokner invited King to step tive vice presidents report- viewed as a positive because it led outside and have a fist fight! King ing to CEO Dale Mathwich to thorough discussions. recalled initially accepting thewere assertive men with strong offer but things quickly calmedopinions about most aspects of the However, during a coffee down and the boxing match neverinsurance business. As one might break one day, a conversa- happened. The two remainedexpect, they sometimes disagreed tion between Jim Klokner and good friends. Paul King became so heated Dare to Dream | 199

LEFT: Public concern about the solvency of life insurance com- panies prompted American Family to publish this financial report card in 1991, highlighting American Family’s financial strength. ABOVE: The company launched the You’ve come to the right place slogan in 1992.million addition to surplus. Meanwhile, loan volume in Financial Managed care’s grow-Services surpassed $100 million for the first time in seven years. ing popularity continuedThe most serious debate over national health reform in 20 years to drive down Americandominated Congress in 1993 and 1994, placing the future of Family’s healthcare policyAmerican Family’s health lines in jeopardy. With input from a counts. The line, however,high-profile taskforce, President Bill Clinton proposed a national remained profitable,health reform plan that would have herded Americans into giant thanks to strict costmanaged care networks, making American Family’s individual controls, the success ofpolicies obsolete. its preferred provider organization (PPO) A coalition of employers, insurance companies and health- — established in 1987care providers helped defeat the plan in 1994. The national — and the vigilantdebate over controlling healthcare costs readied consumers for scrutiny of healthcareAmerican Family’s Premium Care Health Plan. Introduced in claims by the medical1994, the plan combined lower premiums with higher deductiblesand co-payments. The new policy enjoyed immediate popular- ABOVE: Using material from the National Association of Inde-ity, attracting more than $17 million in premiums that year andhelping health lines, after several dismal years, log its best year pendent Insurers (NAII) on President Bill Clinton’s healthever. The excitement, however, was short-lived. The company reform plan, American Family produced this Fantasy andstopped selling major medical policies in Minnesota after the Fiction booklet and distributed it to the company’s agentslegislature passed a health reform plan that relied exclusively on and employees.managed care organizations. American Family resumed sales ofmajor medical policies in Minnesota in 1997.200 | Strong, Growing and Friendly

services unit. American Family’s Medicare supplement policy and approaches for American Family’sthe Limiterm policy for people between jobs remained popular.(Down the road, however, a sweeping, fundamental change in the communication with policyholders,health care market would eventually force the company out of thehealth insurance business entirely.) the media, agents, employees and The increasing political pressure on insurers convinced industry groups.Mathwich that American Family should take a more visible rolein advocacy and public relations. In 1992, Legal Executive Vice To improve American Family’sPresident Jim Eldridge reorganized the public relations depart-ment. In addition to consumer affairs, corporate communications government relations efforts,and corporate contributions, the public relations departmentassumed responsibility for the media production center. To Eldridge also hired lobbyist Markdirect the revamped department, Eldridge hired Rick Fetherston,a veteran television news anchor in Madison. Fetherston, who Afable as associate general counselcompleted his law degree during his first year at AmericanFamily, had taught journalism at the University of Wisconsin- in the government affairs division. Rick FetherstonMadison. As public relations director, he developed strategic Before joining American Family in 1994, Afable lobbied for Allstate and the National Association of Independent Insurers (NAII). He and a team of seven lobbyists covered all the state legislatures in the company’s operating territory. The hiring of Afable and Fetherston raised a few eyebrows in the company. Up until that time, almost all director-level appoint- ments went to people who came up through the ranks as partBELOW: American Family’s team of officers in 1996. Seated (from left): Paul L. King, executive vice president (EVP), finance, trea-surer; James R. Klokner, EVP, administration; Harvey R. Pierce, president and chief operating officer; Dale F. Mathwich, chairmanand chief executive officer; Daniel R. DeSalvo, EVP, sales; James F. Eldridge, EVP, corporate legal, secretary. Standing (from left):Bradley J. Gleason, VP, actuarial; Ralph E. Kaye, VP, sales, Valley Region; David N. Krueger, VP, sales, Great Lakes Region; David R.Anderson, VP, information services; J. Brent Johnson, VP, controller; Vicki L. Chvala, VP, human resources; Clayton H. Nelson, VP,sales, Mountain Region; Gary M. Switzky, VP, American Family Financial Services; Darnell Moore, VP, claims; Thomas S. King, VP,investments; Alan E. Meyer, VP, marketing; Nancy M. Johnson, VP, corporate research; Alan F. Hunter, VP, underwriting services;Joseph W. Tisserand, VP, American Family Life Insurance Company; Richard J. Haas, VP, office administration; Russell W. Lemons,VP, sales, Midland Region; Peter B. Walton, VP, sales, Northwest Region. Dare to Dream | 201

ABOVE: 1996 American Family Board of Directors. Seated (from left): Dr. Beverly S. Simone, president, Madison Area TechnicalCollege; Rockne G. Flowers, president, Nelson Industries, Inc.; Dale F. Mathwich, chairman and chief executive officer, AmericanFamily Insurance Group;Barbara A. Parish, president, Wis-Pak, Inc. Standing (from left): Richard R. Renk, chairman, Wm. F. Renk& Sons; Albert O. Nicholas, president, Nicholas Company, Inc.; Carl A. Weigell, chairman, Motor Castings Company; Harvey R.Pierce, president and chief operating officer, American Family Insurance Group; Dr. David Ward, chancellor, University of Wiscon-sin-Madison; Dr. Robert E.Walton, chairman, World Dairy Center Authority Board.Mark Afable of the company’s strong “promote Insurers (NAII). Since the days of Irving Maurer, American from within” culture. That philos- Family’s chairman had served as the company’s representative ophy would change over the years to the association, with others occasionally sitting on special as top management encouraged committees. But Mathwich believed that American Family, as hiring managers to find the best one of the largest property/casualty groups in the nation, needed person for each job, looking both to become more of a leader. “I wanted our people to be on all the inside and outside the company. principal committees,” Mathwich said. “We became involved in the plans, in the legislation and in the lobbying.” Mathwich also pushed for broader involvement in the National Though political debates consumed a great deal of manage- Association of Independent ment’s attention, American Family posted yet another “best year202 | Strong, Growing and Friendly

Between 1979 and 1994, only Family had an enviable corporate capacity ratio of $1.93-to-$1; nine of the nation’s top 35 prop- at the beginning of 1997 the capacity ratio stood at $1.29-to-$1 erty/casualty insurance companies held the — the strongest in the company’s 70-year history — ensuring that combination of claims paid and operat- American Family could weather any storm and still meet its obli- ing expenses to less than $1.05 for every gations to its policyholders. $1.00 of premium collected: AIG, American Family Insurance, Chubb, GEICO, Gen Re, TAPPING THE POTENTIAL Hanover, Progressive, SAFECO and USAA. OF URBAN MARKETSever” in 1994. The number of agents representing the company Beginning as a class mutual serving Wisconsin farmers only,exceeded 3,000 for the first time since 1950, and policies in force Farmers Mutual/American Family gradually evolved to offer agrew to 5.5 million. broad spectrum of insurance and financial service products to people in every walk of life. Over the following decades, the American Family continued to shatter records in 1995. The company spread geographically, moving from farms to smallgroup turned a $227 million profit on revenues of $3.1 billion and towns to cities. By the mid-1980s, American Family, alongadded a record $363 million to surplus, giving American Family with its fellow insurance companies, began stepping up effortsa remarkable capacity ratio of $1.42-to-$1. to increase sales in its largest urban areas, including Chicago, Minneapolis-St. Paul, Milwaukee, Kansas City and St. Louis. Tornadoes, wind and hailstorms in 1996 caused a record Not only was it an expansion opportunity, but regulators and$240 million in catastrophic storm claims — $100 million above politicians were strongly encouraging insurers to increase theirprojections. American Family’s ability to handle these unexpected marketing in inner cities.losses served as a testimony to its strength. With the help of$270 million in capital gains, American Family added Bruce Thalacker, marketing’s management developmentan impressive $322 million to policyholders’ director, pushed district managers to recruit more metro agents.surplus, bringing the balance to just over $2billion. Policies in force jumped 5 percent ABOVE: American Family put its financial strength to work inand premium income 6 percent — twicethe rate of the property/casualty indus- the 1990s. In addition to entering several large metropoli-try as a whole. tan areas within its existing territory, the company expanded into Ohio in 1995. The process improvement changesthat Mathwich, Pierce and the exec-utive vice presidents initiated duringthe gloomy days of 1990 were payingoff. Productivity increased 21 percentbetween 1990 and 1996, and the group’sexpense ratio stood at a lean 32.2 percent atthe start of 1997. As American Family focusedon being a low-cost producer, growth followed.The number of policies grew by a third, from 4.6 million inJanuary 1990 to 6.1 million seven years later. With that growthcame unprecedented financial strength. American Family openedthe decade with $3.3 billion in assets; seven years later, the grouphad amassed assets of more than $6 billion. Policyholders’ surplusat the beginning of 1990 totaled $367 million; at the beginningof 1997, surplus exceeded $2 billion. In January 1990, American Dare to Dream | 203

ABOVE: Throughout his tenure as president and CEO, Harvey Pierce led the company’s efforts to promote diversity among itsemployees, agents and customers. Shown here with his wife, Delores and Urban Marketing Manager Gwen Jones, he attendedmany urban marketing events, such as the Circle City Classic in Indianapolis. But lacking experience recruiting insurance to minorities in certain in urban markets, district manag- sections of Milwaukee, a practice ers found little success. In 1987, known as redlining. “We were the Marketing Vice President Jack largest writer of homeowners insur- Chopp and Thalacker went a step ance in Milwaukee,”Executive Vice further, establishing the urban President Jim Eldridge said. “By agent program. the time we reached a settlement, Progress came quickest in we had more than 35 percent ofBruce Thalacker Milwaukee. Officials within the the inner-city market — a higher Jack Chopp Wisconsin Insurance Plan (WIP), percentage than we had in the a state-sponsored homeowner’s whole state of Wisconsin. It wasinsurance program for inner-city residents, were eager to reduce very frustrating, because we knew we weren’t redlining.”WIP enrollment. Working with WIP representatives, American But the NAACP had a “smoking gun.” A district manager,Family solicited public program enrollees, converting them to violating company policy, had urged an agent to stop writing soAmerican Family coverage. “Extraordinary is how we would much life insurance for African-Americans. The NAACP alsodescribe American Family’s efforts in central Milwaukee,” said documented cases in which busy suburban agents didn’t respondWIP manager Tom Roeder in 1990. to some inquiries about homeowner’s insurance from inner-cityThe momentum, however, stalled on July 27, 1990, when residents. Besides vigorously denying that the company redlinedthe National Association for the Advancement of Colored in Milwaukee or anywhere else, American Family argued thatPeople (NAACP) filed a lawsuit charging that American Family the Federal Fair Housing Act did not apply to insurance. Givenhad violated the Federal Fair Housing Act by refusing to sell the McCarran-Ferguson Act’s barriers to federal intervention204 | Strong, Growing and Friendly

ABOVE: While a sales director in Milwaukee, Jack Salzwedel (right, black cap), joined by Dave Krueger (left, white cap), sales vicepresident, Great Lakes Region, worked hard to build strong relationships with the African-American community. He was a visiblepresence at neighborhood events such as Shermanfest.in the insurance market, congressional intent to exempt insur- ABOVE: U.S. Attorney General Janet Reno, flanked by Americanance from the Fair Housing Act seemed clear.The issue, however,remained largely untested in the courts, making the Milwaukee Family secretary/general counsel Jim Eldridge (left) and civilcase important to the entire industry. The trial judge agreed with rights chief Deval Patrick, announces a settlement in a prec-American Family’s argument, but the Seventh Circuit Court edent-setting Milwaukee lawsuit that applied the Federalof Appeals in Chicago reversed the ruling, stating that the Fair Fair Housing Act to the sale of homeowners insurance. (ThisHousing Act did apply to homeowner’s coverage. In 1993, the Associated Press photo appeared in the media, includingU.S. Supreme Court refused to hear American Family’s appeal, USA Today.)paving the way for the NAACP lawsuit to proceed. To avoid continuing huge legal fees and to fully implementan aggressive urban marketing program, American Family optedfor a negotiated settlement. Eldridge and Associate GeneralCounsel Chris Spencer led the negotiations for American Family,assisted by others, including Assistant General Counsel AliceKissling, outside counsel in Washington, D.C. and MilwaukeeSales Director Jack Salzwedel, who had developed positive rela-tionships with many African-American leaders. Under a 1995 consent decree, the company negotiated a $16million settlement to compensate the plaintiffs and help inner-city residents purchase and repair homes. The settlement alsoestablished a number of goals regarding urban market penetration, Dare to Dream | 205

most of which already were encompassed in the company’s urban Family’s Public Relations Director Rick Fetherston met inmarketing plan. Washington, D.C. with the U. S. Justice Department’s communi- cation officer, former NBC News reporter Carl Stern. Fetherston Once the settlement had been agreed upon, the question and Stern agreed that rather than dueling press conferences, theremained as to how the deal would be announced. American Renee Bolden Nannette McCullough Jaime Mercado Keith PowellUniversity City, MO Chicago, IL Milwaukee, WI Kansas City, MO Jodi Sarntee Doranita Tyler Danette TrujilloWestminster, CO Lynwood, IL Colorado Springs, COMIRROR THE MARKET ethnically and racially diverse diversification of the agency force people were rare among American across both gender and racialAmerican Family’s custom- Family’s agency force through its lines, and his successors contin- ers span a wide range of early history. But as the company ued that emphasis. ethnicity and beliefs. They moved into more urban markets,have diverse values and ways of company leaders took steps to It worked. By 2017, the percent-viewing the world. That’s why the make sure agents mirrored their age of ethnically and raciallycompany developed a field force markets to stay competitive and diverse people in the agent rolethat reflects the melting pot of grow. By the mid-1970s, several stood at 16 percent; some areascustomers the company serves. African-American agents were with more diverse populations on board. During the 1990s and had much higher representation Given the historical cultural 2000s, former President and CEO of people of color, with Georgiamores of the insurance industry Harvey Pierce championed and Chicago Metro at 50 and 41and society as a whole, as well as percent, respectively.the company’s rural roots,206 | Strong, Growing and Friendly

Dan DeSalvo settlement would be announced BELOW: Introduced in 1997, this brochure told Spanish-speak-Kazell Pugh jointly by Attorney General Janet Reno and Jim Eldridge, ing people about American Family and described the com- American Family’s chief legal offi- pany’s multiple lines of insurance protection. cer. Ultimately, the settlement drew generally favorable media coverage. Pugh and his team created a corporate urban marketing Dan DeSalvo, the former initiative, as well as plans for Colorado state director who each region.The nearly 30 urban succeeded Chopp as vice presi- markets in American Family’s dent of marketing in 1992, had 13 geographic states repre- actually stepped up American sented unique challenges and Family’s urban marketing effort opportunities. To serve these years prior to the lawsuit’s even- areas, the urban marketing tual settlement. He wanted to find initiative included new prod- the right person to lead the initia- ucts and services such as the tive, someone to give it an identity. Custom Value Homeowners He eventually hired Kazell Pugh, a policy introduced in 1994, successful sales director in the hotel support of minority- and industry who had grown up in the women-owned businesses Watts-Willbowbrook area of South Central Los Angeles.BELOW: Attending the ribbon-cutting ceremony for the new urban co-op office in Phoenix were (from left): Jeffery Campos, PatrickBrennan, Carl Cox, Al Meyer, Terrance Hunter, Lungen Howard, Gwen Jones, Don Alfermann, and Gary Hunter. Dare to Dream | 207

ABOVE: Not even the bright sunshine or frigid temperatures could keep President Harvey Pierce (left), Marketing Vice PresidentDan DeSalvo (center), and Chairman Dale Mathwich from smiling as they prepared to raise the Ohio state flag above AmericanFamily’s national headquarters, signifying the company’s Jan. 1, 1995, entry into the state.in urban areas, community involvement and investment, more Metropolitan markets provedurban offices, a continued focus on recruiting minority agentsand employees, and involvement in government affairs. Support to be rich ground for the company.from the regions was vital to the program’s success, so Pughand DeSalvo put urban marketing managers in each region — Among American Family’s topHarriett Brewer in Midland, Elliott Cohen in Great Lakes andTheresa Upton in Northwest. In 1997, Jeff Campos was named agents for 1996 were Dominic Laiurban marketing manager in the Mountain Region and DebbieLacey was appointed to the same post in the Valley Region. and Edward Beavers in ChicagoResponsible for building strong relationships with minority lead-ers and groups, these managers coordinated their efforts with and Charles Vang in Milwaukee.Pugh but reported to the regional vice presidents. In fact, a dozen of the compa- Advertising was an essential component of the urban market-ing initiative. The urban advertising initiative recognized that ny’s top 100 agents attending thetraditional approaches often fail to reach some underserved audi-ences. Working with a Chicago agency that specialized in minority 1996 All American Convention Gwen Jonesadvertising, Gwen Thompson Jones, senior advertising specialist for in Orlando sold in Chicago. “Ifurban marketing, developed and placed advertising to reach specificgroups in each market. American Family’s first Spanish language Herman Wittwer were alive today,ads debuted in 1996.The following year, American Family unveileda Spanish language television commercial and all-lines brochure. he would be proud of our involvement in the inner city and the roots we’re establishing,” President Harvey Pierce said. Complementing the urban marketing push, the company started to consider additional states. With most of its busi- ness concentrated in the Upper Midwest, American Family was susceptible to heavy catastrophic storm losses, which happened in 1994 and 1996. A 1995 regional realignment plan created two new regions — Mountain and Valley — and kept responsibility for policy issuing and other support services with the Great Lakes and Midland208 | Strong, Growing and Friendly

ABOVE: Over more than two decades, veteran Chicago agent Dominic Lai (left) was very active in his neighborhood community,meeting people face-to-face at many events. regions, saving millions of dollars companies chartered in Ohio, and allowing the new regional vice American Family formed two new presidents to focus on sales. companies — American Family Pierce and DeSalvo chose Al Insurance Company and American Meyer to head the Valley Region. Standard Insurance Company of Calm and unflappable, Meyer Ohio — on Nov. 21, 1995. had proved his mettle as Missouri Expansion into Ohio followed East state director during the New the Arizona plan, with an empha-Al Meyer Madrid quake scare and the result- sis on rapid growth. Maloney and Pat Maloney ing earthquake exposure reduction his team focused on a single urban plan.To lead the Mountain Region, area — Columbus — and startedPierce selected Executive Vice President of Field Operations with an aggressive advertising campaign and competitive rates.Clayton Nelson. Strong-willed and independent, Nelson had Unlike Arizona, the marketing division didn’t allow agents tolong wanted to return to the field. He had extensive experience transfer to Ohio, nor did it appoint agents with previous experi-outside the home office as Colorado state director and northwest ence. Growth in Ohio was slow. By the end of 1995, Maloney’sregional vice president. team of 13 agents had more than 6,700 policies in force.To open Ohio, Meyer named Wausau, Wisconsin, District In September 1995, the board of directors promoted DanManager Pat Maloney as state director in Ohio South Central. DeSalvo, then vice president of marketing, to executive viceMaloney recruited Gregg Antony, Joe Krolikowski and Tim president of field operations. He immediately tapped Meyer toMiller as district managers. Sales began Jan. 1, 1995. To take succeed him in the marketing role.advantage of a law offering a premium-tax incentive to insurance The Ohio plan called for entering a second Ohio market three Dare to Dream | 209

years after opening Columbus, with additional areas opening every female state director; the former Jean McCarterthree years. But DeSalvo proposed opening Ohio Northwest in Missouri Central district manager Cassandra Ruffin1996.The strategic planning team agreed, and DeSalvo approved began sales in the Toledo area on Don Alfermannthe appointment of Jean McCarter as American Family’s first Jan. 1, 1996. The company soon announced plans to enter the Ranger Duran A RISK PAYS OFF Cincinnati-Dayton area, beginning Jan. 1, 1998 and Cassandra Ruffin Regan Fackrell exemplified the was selected to lead the new Ohio company’s new stable of state South sales state. A Chicago Metro sales directors — smart, high- district manager, Ruffin became the energy and motivated. After finishing company’s first African-American graduate school, he began a successful, state sales director. More than 150 well-paid career as an accountant with new agents came on board. the multinational professional services firm Deloitte. But in 2007 Fackrell But the push to develop decided it was time to pursue his dream the Ohio market was tougher of starting his own business, which he did than expected. The company had as an American Family agent. It was risky. “jumped into Ohio without real- “I had never sold anything before and izing the extent of the challenge; didn’t know if I could sell insurance. Did many successful insurers were I really want to become Ned Ryerson from domiciled there or had huge exist- ‘Groundhog Day’?” Fackrell said, referenc- ing policy bases that were hard to ing the stereotypically pushy, bumbling tap,” said Meyer. and annoying insurance agent depicted in the 1993 film. Starting out was tough, But the company perse- as Fackrell grappled with an income cut vered, and by 2016, Ohio Sales and 70-hour workweeks that severely Director Regan Fackrell was cele- curtailed time spent with his family. But brating a third consecutive year of his persistence paid off with a successful profitability with his 136 agents, agency and ultimately led to his decision totaling around $30 million over to move into sales management. “You the three years. will accomplish what you believe is possi- ble,” he said. In 2016, Fackrell was named In 1995, as Meyer began to customer strategy director, part of the grow Ohio,Clayton Nelson returned customer experience team at NHQ. to Denver as regional vice presi- dent and converted the Colorado state office into the new Mountain Region headquarters. Two years later, in May 1997, he retired after more than 35 years with the company. To succeed him, DeSalvo chose Colorado State Director Don Alfermann as sales vice pres- ident. Replacing Alfermann was Colorado District Manager Ranger Duran, the first Hispanic-American state director in the company. Duran would eventually succeed Alfermann as Mountain Region vice president upon his retirement.210 | Strong, Growing and Friendly

HARVEY R. PIERCECHANGING THE FACE OF AMERICAN FAMILYExamining a portable air condi- President 1990 - 1999 Pierce and his family enjoyed tioner at an auction in Fargo, Chairman and CEO 1999 - 2007 Windom and the district, prompting him North Dakota, Woodrow Wilson to turn down several promotions. But in Pierce saw an opportunity for his son Three years later, Pierce accepted 1978, Regional Vice President Clayton Harvey. He bought 60 of the units for a district manager position in Windom. Nelson divided Minnesota into two oper- $19.95 apiece — $40 below the retail The challenging southwest Minnesota ating states and convinced Pierce to price. “I’ll front you the money,” Pierce district was dominated by 18 long-term, lead Minnesota North. Five years later, told his son. “You and your older brother part-time and independent agents. Pierce succeeded Dale Eikenberry as can sell these as a summer project.” Pressure was mounting to develop an Midland regional vice president and Demonstrating an instinctive ability exclusive field force, and State Director oversaw American Family’s entrance into to capitalize on a promising sales oppor- Joe Stephan gave Pierce three years Arizona in 1986. tunity, Harvey agreed. He also told his to convert or terminate part-time and older brother and a friend they could independent agents. It was a difficult In 1988, President Dale Mathwich keep anything over $39.95 for each air time for Pierce, whose income dropped brought Pierce to the home office as conditioner they sold. “My father never steadily, and he often considered return- executive vice president of field oper- had told them what I was paying for the ing to an agency. But new State Director ations. On Jan. 1, 1990, he became units,” Harvey recalled. Noel Warren saw great potential in him president of the American Family Born Jan. 5, 1942, Harvey Pierce grew and spent time with Pierce, teaching him Insurance Group, helping engineer up in Willmar, Minnesota. His father, a used how to recruit, train and manage agents. dramatic growth and increased finan- car dealer, taught his daughter and five Warren’s efforts paid off. Pierce became cial strength. In 1999, Pierce succeeded sons the value of initiative. Rather than a leading district manager whose agents Mathwich as CEO, serving in that role give them an allowance, he gave them wrote profitable business. until his retirement in 2007. opportunities to earn money. Meanwhile, Pierce’s mother, Farolyn, insisted that her As a hands-off leader who believed children learn to play the piano. Pierce in very broad delegation, Pierce spent initially resisted, but the discipline of prac- his time on those issues he believed tice eventually drew him to the instrument, critical. He was the driving force to which he thoroughly enjoyed playing. diversify the company’s agent and Pierce graduated from high school in employee ranks, requiring senior execu- 1960 and married his high school sweet- tives to show genuine progress in their heart, Delores Petersen. He started operational areas. “I want to be remem- selling insurance for Penn Mutual Life bered as an agent of change,” he said, Insurance Company and became friends “as someone who brought diversity to with his auto insurance agent, Rob American Family.” Larson. In December 1962, Larson’s district manager, Arch Schrom, recruited Family was always Pierce’s No. 1 Pierce as a part-time agent for American priority. His love of children led him Family. Recognizing greater opportuni- to partner the company with the ties in multiple line sales, Pierce signed University of Wisconsin to help build on as an exclusive agent a month later the American Family Children’s Hospital, and soon moved to Fairfax, Minnesota, one of the nation’s premiere pediatric to build an agency. medical facilities. Pierce believed spiri- tuality is essential for personal success because “it leads to purpose, which provides focus.” Dare to Dream | 211

COMMERCIAL-FARM/RANCH GROWS TO MEET CUSTOMER NEEDSAfter its inception in 1975, as Commercial Umbrellas, General While CFR business grew during commercial lines experi- Liability policies, Special Multi- the next 25 years, it was a strug- enced 20 years of rapid Peril package policies, Commercial gle to achieve an overall underwrit-growth, and in 1997, became Vehicle polices, Inland Marine cover- ing gain. However, Rekowski and hispart of a new Commercial-Farm/ atges, Crime and Fidelity Bond successors worked hard to reduceRanch (CFR) division. At the time, coverages, Commercial Fire insur- CFR’s expense ratio — the percentAmerican Family was the fifth-larg- ance and Glass insurance. of premiums that pay expenses.est farm writer in the United States.The company’s strategic plan The new CFR division faced a Committed to profitability, thefocused on becoming a true multi- price-competitive and challenging CFR team began underwriting largeline company, meeting customers’ marketplace. Rekowski’s team took market segments, including habi-personal, life and commercial insur- a proactive approach, increasing tational dwellings, manufacturingance needs. Marketing Director Jerry emphasis on loss control services, and restaurants, which led to theRekowski was named vice presi- claims expertise and returning the development of an improved busi-dent, and Dan DeSalvo, executive line to profitability. In 1998, under- ness-owners package policy (BOPP).vice president of sales, told him his writing and policy processing for Endorsements were enhanced andcharge was to grow the line to a commercial lines was centralized more attention was paid to market-billion dollars of premium. from three processing offices to ing. To increase competitiveness, American Family’s regional office in CFR created an industry standard Within a short period of time, St. Joseph, Missouri. The goal was business-owners policy (BOP) —agents were excited to provide to give customers the competitively which combined the most requestedcustomers with many different priced products they wanted with business coverages into one conve-Commercial Lines products, such the consistent service they expected. nient plan. ABOVE: Commercial-Farm/Ranch Vice President Jerry Rekowski visits some Farm/Ranch employees in Madison. Pictured (from left): Andy Lee, Lenore Wagner, Kecia Taylor, Jerry Rekowski, Kevin Thorp and Michelle Keel. Rekowski made it a priority to visit with his employees in every office.212 | Strong, Growing and Friendly

BECOMING president. He was later promoted operations, to help preserve andMORE SELECTIVE to line president, assuming respon- grow market share. sibility for profit and growth, prod-Over the next few years, from 2001 uct design and pricing, underwriting Over the 40-plus years of itsto 2004, a hard commercial market and claims for commercial and farm/ existence, CFR faced a number ofincreased commercial lines applica- ranch. His goal: effectively address challenges achieving scale in sometions and written premium, with the underlying profitability challenges small business segments. At year-line becoming more selective in the while maintaining customer focus end in 2016, CFR had more thantype and pricing of risks covered. and uncovering new opportuni- 568,700 policies in force and nearlyA focus on profitable risks, and an ties for growth. The Advance initia- $762 million in written premium.increasingly expert underwriting and tive implemented new PolicyCenterloss prevention team collaborating technology with an underwriting By 2017, the line had narrowedwith agents helped grow customers predictive model to more effec- its underwriting focus by segment-and premium. tively quote, underwrite and price ing commercial small business commercial products. options to grow. The strategy used When the market turned soft enterprise resources to providein 2005, becoming more competi- CFR-FUSION agents with broader opportunities.tive — the CFR division stayed the GIVES FOCUS This included the ease and conve-course by sticking to adequate nience of the Small Business Salespricing and selective underwrit- In 2014, CFR’s annual premiums System (Homesite platform) to selling strategies, while providing were $710 million, down slightly American Family-branded products,expert customer service. By CFR’s from $713 million in 2007. Taking a as well as B&A Insurance Solutions10th anniversary in 2007, under look at the long-term profitability with carrier options to meetthe leadership of newly named of CFR’s book of business, the divi- customer needs.CFR Vice President Gerry Benusa, sion began to focus on an indus-annual premiums were $713 million. try niche: habitation, farm/ranch This allowed CFR to deepenBenusa had succeeded Rekowski, and small businesses of less than 50 its own underwriting exper-who was promoted to the senior employees. The CFR-Fusion strategy tise in certain markets, allocatingleadership team. aligned with the overall American resources, investment and priori- Family enterprise strategy to grow tization in markets where it could In 2009, Carolyn Gilb was named in ways that best meet customer deliver competitive solutions andCFR vice president, succeeding needs and purchasing preferences, excellent customer service.Benusa, who was elected exec- through American Family brandedutive vice president of sales. In products as well as B&A Insurance Work also continued on Fusion:2010, target market programs for Solutions carrier coverage options. Habitation in 2017 — building aCommercial and Farm/Ranch were proprietary, industry-leading solu-introduced to help agents pros- On July 1, 2015, CFR celebrated tion for customers in the grow-pect and diversify their book, still 40 years selling commercial lines ing habitation (apartments, condosfocusing on profitable business. insurance, growing from 15 employ- and condo associations) market,The markets were selected based ees in 1975 to 625. while continuing to refine pricingon sustained growth opportunity, in anticipation of the new productunderwriting and claims capabili- With its farm/ranch busi- planned for 2018.ties, and cross-selling opportuni- ness ranking fifth in Americanties for commercial auto, business Family’s footprint and seventh “The CFR strategy is groundedkey policies (BKP) and workers in the country in direct written in being customer-driven andcompensation. The Farm/Ranch premium, in late 2016 and early agent-focused,” said Listau. “We’reprogram helped agents aggressively 2017, CFR updated a 25-year-old dedicated to providing more valuecompete with leading farm carriers. policy originally developed for for our customers by deliveringIn one year, the average premium small Midwestern farms. It deliv- exceptional customer service andfor a target-market farm increased ered Fusion: Farm/Ranch—new the competitive, industry-stan-to $3,325 per policy — a 32 percent farm/ranch products with more dard products and coverage theyincrease. sophisticated pricing on a new expect. It’s our people who make system designed for growing farm the difference, and we’re work- In 2012, Sales Vice President ing hard to support our agents toChris Listau became CFR vice help them grow profitably. This is how we’ll make every customer moment matter.” Dare to Dream | 213

DEALING WITH DIRECT COMPETITORS Although most customersThroughout its history, Farmers Mutual/American Family continued to prefer to buy theirencouraged agents to develop deep, friendly relationships withpolicyholders. In turn, those relationships created high levels insurance with the advice andof loyalty among the company’s customers. But in the 1990s,competition in the property/casualty industry intensified and counsel of an agent, others viewedAmerican Family found itself facing aggressive direct-writercompetitors who used call centers and the internet to sign up price as the most critical factor. Incustomers, spending huge sums to advertise their “low” rates. the early 1990s, President Harvey For many years, American Family and other exclusive agentcompanies didn’t pay much attention to these companies, such Pierce hammered on expenses,as GEICO or Progressive. “We were focused on exclusive agentcompanies that looked like us,” says Bill Westrate, then a young even in the wake of record profits.actuary who eventually became American Family’s enterprisepresident. Company leaders continued to believe most customers “Every dollar we spend finds its way Bill Westratewanted exceptional personal service and dependability from their into our premiums,” he said. “If weinsurance provider, and that these customers didn’t buy insur-ance on price alone. However, the company would eventually pay can get our expense ratio below 30 percent and at the same time,a price for underestimating these direct competitors, who weregaining a competitive advantage with sophisticated pricing to emphasize the value of the agent to the customer, no one couldattract low-risk customers. compete with us.” With agent commissions and district manager compensation impacting operating expenses, Pierce knew any cost-reduction effort had to include the field force. “There aren’t any sacred cows,” he told his senior management team. “We have to look at commissions.” Intent on meeting Pierce’s demand to squeeze 1 percent out of the existing commission structure, Marketing Vice President DeSalvo took on the issue in 1993.To get input from the field, heBELOW: Communicating with agents and others challenged American Family in 1996 as the company announced plans to trimagent commissions from 10 percent of premiums to 9 percent over 10 years. Pictured here (from left): President Harvey Pierce,Executive Vice President Dan DeSalvo, Marketing Vice President Al Meyer, and Director of Public Relations Rick Fetherston satdown for a question/answer session that appeared in employee and agent publications.214 | Strong, Growing and Friendly

convened an advisory panel of agents, district managers and state direct marketing partnership expanded to all states, begin-directors. The goal was not to cut agent income but to reduce ning with American Family Financial Services informationcommissions as a percent of premium. So DeSalvo and the panel and mini-applications in homeowners’ renewal notices. Theproposed dropping auto commissions 0.1 percent a year for 10 program also offered free multiple-line mailings to new agentsyears, thus bringing overall commissions down from 10 percent in selected “growth” states. In 1997, the direct marketing partner-of premium to 9 percent by 2006. The task force reasoned that ship expanded to include auto and homeowners coverage.inflation and the natural growth of an agency would more thanoffset the reduction, meaning agents shouldn’t see their incomes As a former district manager himself, Pierce became deter-decrease under the plan. mined to change the field management structure in 1995. Traditionally, the optimum size for a district had been 20 agents, Nevertheless, the panel felt any change would be viewed but that goal was also a limitation. Besides recruiting agents,by the field force as a pay cut. “The agents said we couldn’t district managers were responsible for managing and motivatingchange their commission without helping them lower expenses,” their people, in addition to providing them with sales training,DeSalvo explained. “If we could trade commission dollars for product training and computer training.They showed agents howexpense dollars, they’d support us 100 percent.” to keep records, staff their offices and do everything else that would help them succeed. “It had become almost an impossible Under the agency expense study, the panel spent nearly task,” said Al Meyer.a year interviewing agents and analyzing reports. Afterward,they recommended nearly 50 changes to help agents cut costs. At the 1996 sales management conference, Dan DeSalvoImmediate steps included taking television advertising off the asked district managers to visualize a different role for themselves:co-op plan, saving agents $450 a year; giving them a $75 annual The company would offer more sales and technical training so theallowance for brochures and other promotional materials, and district managers could spend more time sharing best businesstaking numerous steps to reduce the paper flow that demanded practices with their agents, thereby helping them lower expendi-staff time. tures and maintain profit. Another bonus would be that managers would have more time to recruit new agents and build stronger In addition, to help agents increase their policy count, in districts. “The future of the district manager is different,” Meyer1995 Pierce and DeSalvo asked Advertising Director Annette said. “But it’s much brighter.”Knapstein, who succeeded Bob Salisbury in 1990, to develop adirect marketing partnership with agents.The new direct market- In 1996, Mathwich and Pierce decided to also examine theing partnership began with a pilot project in Wisconsin, North role of the regional vice presidents, a decision that was contro-Dakota and Missouri, offering Medicare supplement insurance versial at the time. For four decades, the regional vice presidentsto current policyholders. A complex product that many agents had been the company’s undisputed generals in the field, over-avoided, the Medicare supplement was an ideal product for the seeing huge operations including sales, underwriting and claims.program, and 825 agents participated. The following year, the They were intensely competitive with one another, which helped sales, but each also had his own distinct style and procedures. In Munich Re estimated insur- effect, each regional vice president ran his own private American ers paid $92 billion in losses Family company in his region. due to weather-related natural disasters in the 1990s. That was four times the Pierce felt the regional vice presidents had focused primarily amount paid during the previous decade. on sales and should do so exclusively to make sure agent numbers and productivity kept increasing. And both Mathwich and Pierce believed returning control of underwriting and claims to the home office would improve consistency and efficiency across the various regions. With board approval, the change became effec- tive March 31, 1997. Dare to Dream | 215



Information technology and business are inextricably interwoven. I don’t think anyone can talk meaningfully about one without talking about the other. — B ILL GATES, co-founder, Microsoft10 COMPUTERS, THE COMPANY AND CUSTOMERS

CHAPTER 10 | COMPUTERS, THE COMPANY AND CUSTOMERSIn 1996, American Family made a critical hiring decision, though its true impact wasn’t immediately apparent. The company’s longtime finance director, Dave Anderson, was named vice president of Information Services (I/S). The decisionABOVE: As finance director, one of Dave Anderson’s priorities puzzled many: Why was a finance major with no significant technology experience selected for that key position?was significantly improving the Controller Division’s technol-ogy capabilities. On top of that, Anderson had long been a vocal critic of I/S, viewing it as slow-paced and unwilling to try new things. In the mid-80s, he had raised eyebrows across the company when he purchased several Apple III computers for his finance employ- ees, setting up his own technology operation to meet his area’s needs. His employees could start building complex financial models for the first time. A few years later, Anderson bought Apple Macintosh computers and hired programmers, enabling the controller’s area to do more sophisticated financial modeling. That computer pioneering would eventually help him become the company’s I/S leader. At the time, CEO Dale Mathwich and President Harvey Pierce were looking at various compensation alternatives for agents. They had asked I/S to model different plans, but the218 | Computers, the Company and Customers

ABOVE: As vice president, Information Services, Dave Anderson created an I/S Transformation initiative to institute a new culture.Many I/S employees participated in a symbolic “Hands Around the Pond” celebration, joining fellow workers from other areas ofthe company. The event showed support for the division’s new direction, aimed at collaboration, teaming and treating I/S busi-ness partners as “customers.” I/S Director Steve Clemens remembered the day well, saying “the mosquitoes were brutal!”division had limited capabilities and responded slowly. Anderson’s Anderson realized his first and most important task was toboss, Controller Brent Johnson, mentioned the problem toAnderson, who immediately suggested his department could gain the confidence of his division’s employees. He sensed thatproduce some compensation models. “We took the models up tothe executive vice presidents,” Anderson recalled, “and after some might be difficult, especially given his past as a critical outsiderdiscussion, Dale asked if another model could be produced witha few changes.” Mathwich asked how many days it would take to of the division with limited technology experience. He began bycreate the new model, and Anderson replied, “How about afterlunch today?” That quick, successful use of technology “set the meeting often with his new team members, listening more thanstage for how I was viewed by senior management,” Anderson said. talking. He demonstrated trust in his department directors by In 1996, when senior management decided it was time fornew leadership of the I/S division, Anderson applied for the posi- delegating responsibility and decisions.tion with Administration Executive Vice President Jim Klokner,who recommended Anderson be selected. “Dave has been directly Anderson also quickly made some fundamental changes ininvolved in many strategic issues and worked closely on thesystems and information development for projects such as state operational philosophy, based on his experience working withexpansion, long range planning, catastrophe planning and busi-ness lines re-engineering,” Klokner said. the division. Prior to his arrival, I/S was essentially a passive For his part, Anderson told the organization, “A very crucial order-taker. Divisions would decide what technology theyobjective for this corporation over the next five years is thetargeted reduction in our operating expense ratio. This will not wanted and ask I/S to provide it, rather than I/S driving thehappen unless we can leverage the effective use of technologyinto increased productivity and thereby reduce expenses. That decision. “I/S tended to say yes to every request,” Anderson said,is my goal.” “so it took forever to complete a project.” As one of his first steps, Anderson brought the officer team into the technology budgeting process. With his new approach, each year the divisions were allo- cated a negotiated number of I/S hours, the currency of technology at American Family. If divisions used those hours up before the next budgeting cycle, they had to wait Greg Polster Dare to Dream | 219

until the next year for I/S assistance. “It gave officers an under-standing that I/S resources were finite and that projects had tobe prioritized,” said Anderson. I/S director Greg Polster saidAnderson brought his finance department discipline with him,requiring division requests include a detailed cost-benefit anal-ysis. “For the first time, there was some thought about what wasimportant to the organization overall and what could be donewithout,” Polster said, adding “while it was radical at the time, itseems so logical now.”THE Y2K CHALLENGE ABOVE: Employees in the Y2K command center kept tabs onOne of Anderson’s first big challenges was the Y2K problem, all computer operations. Shown checking systems are (fromset to occur at the brink of the year 2000. The bug — which left): Greg Polster, Diane Wisniewski, Mark Payne and Brendaprogrammers and other observers believed might bring Wagner.computer-driven activity around the world to a screeching halt — was a glitch that could cause computers and other date-reliant systems and devices to malfunc- tion on Jan. 1, 2000. At the time, A.M. Best estimated U.S. insurers industry experts thought the prob- spent $6.5 billion updating their lem could potentially cause havoc computer systems for Y2K prior to the year 2000. for individuals, companies and governments around the world by disrupting any activity that relied on a computer — and by the 1990s,Stacie Swiggum that was almost everything. Anderson created a project team and delegated substantial responsibility for finding a way to avoid debilitating Y2KBELOW: As January 1, 2000 dawned, the Y2K command center team cele- problems to Stacie Swiggum, program manager. “We knew that the first policybrated the company’s hard work that prevented any serious technology renewals to have year 2000 dates in themproblems. The Command Center team (clockwise from top left); Rich Edge, would be coming up at the end of 1998,”Paul Easton, Tom Umhoefer, Bob Ness, Joe Laubmeier and Dave Bertsch. she said, “so we made it a goal to complete all necessary re-coding changes on all the critical computer systems by the end of Oct. 31, 1998.” The scope of the project was enormous: Roughly 800 employees and 250 contractors spent 377,000 hours completing the project on time and on budget. Swiggum led planning and devel- opment and Rich Edge, a program manager peer, succeeded her for implementation. The stakes were high. Paul King, the company’s influential finance executive vice president, said, “In my career at American220 | Computers, the Company and Customers

Bill SimonTheresa Breunig- ABOVE: Steve Clemens was an early advocate for bringing the internet to American Family employ- Silbernagel ees and agents, sometimes defending the new technology when skeptics questioned its value.Family, I have seen only two things that could have brought remembers helping establish the first www.amfam.com website.the company down — the New Madrid earthquake insurance “It was memorable,” he said, “because the server it was running exposure and the year 2000 problem, and both have now been on was underneath the desk of one of my employees!” Not the resolved.” Again, Anderson had helped senior leaders successfully best security, he later acknowledged, but he also pointed out confront a significant challenge, something they would not forget. that “in those days, we were only publishing information, so the risk was low.”“THIS INTERNET THING…” By the end of 1999, the companyIn 1997, the internet finally came to made the internet available to all agentsAmerican Family. By then, 47 percent and employees. Some of them remained of American homes had a computer deeply reluctant to use the new tool, but and 20 percent of them were using Marketing Field Automation Directorthe internet. Bill Simon prodded and coaxed them along. Marketing Vice President Al Although the web is so common Meyer noted that, “[The internet] allowstoday that even toddlers can use it, in agents to communicate with people thethe ‘90s it was still viewed with great way the insured wants to communicate. suspicion by some, who didn’t under- Not having internet email now is like stand why this techy new “fad” had to change the way they’d always not having a phone.” done business. This new development wasn’t Steve Clemens, a network embraced by everyone, includ- computing systems manager, ing a few people in senior management. More than once, Anderson and Dare to Dream | 221

COMPASS:CONNECTING THE ORGANIZATIONL“ ost in a forest of informa- benefits and approach in 1997. Field and Employee Compass. tion? Looking for direction? The team believed an intranet By then, most paper information You need a Compass!” The would be an important business had shifted to the intranet and printed flier promoting American tool to improve internal business the volume was overwhelming Family’s intranet launch in 1998 operations. The team decided its audience. Targeting the links, touted the benefits of web tech- divisions should create their own information and news to a specific nology to an audience over- sites — stand-alone islands. audience reduced clutter. whelmed by paper manuals, memos and bulging file cabinets. Public Relations Vice President Leader Compass was intro- Fast forward two decades and Rick Fetherston also saw tremen- duced in 2008, so leaders Compass would be the place dous potential for the intranet could receive previews of major to announce such a company as a communications tool. He announcements, learn what was milestone. persuaded CEO Dale Mathwich expected of them and effectively The home page of Compass and the strategic planning team share information with their teams. became a shared daily experi- to fund creation of a homepage, ence, putting information, data, called Compass, to share news From acquisitions to new prod- news and tools at the fingertips of and serve as a central access ucts, the Compass home page thousands of employees, agents point for the sites. became the place to find out and their staff across American what’s going on at American Family’s operating territory. When The first big change came Family. In the very early days, Compass was introduced, all with splitting the home page into there wasn’t a set schedule for system applications were on the two separate sections in 2002: publishing news stories. Fetherston mainframe. Over the years, those shifted to web-based technolo- gies, increasing the reliance on Compass for navigation. An intranet exploratory team, initiated by Information Services Vice President Dave Anderson, started evaluating the potential222 | Computers, the Company and Customers

changed that, insisting daily news Jack Salzwedel backed him up. accessingwas a must for a company this size. Cube with a View reader blogs Compass viaThe early articles were one-way their device in 2016. Compasscommunications with leaders and and Salzwedel’s Beyond the Tweet became a constant in an evolv-business areas sharing changes blog put individual perspec- ing and increasingly digital world,and information. tives front and center. These continuing to guide its users first-person blogs shared new through the information forest. In 2011, the introduction of insights and helped readersemployee and agent comments feel connected to colleagueson stories transformed news into they may never have meta dialogue, where readers could otherwise.share their opinions and ques-tions with leaders and each other. Over the years,It was a milestone in evolving to improvements toa more transparent culture and a Compass, like itsstep few companies were willing roots, were inspired byto take. Some reader comments the technology agentsabout company actions or deci- and employees used insions were positive, others their personal lives. Internalhighly critical. At first, a few offi- social media, Connections,cers privately questioned allow- debuted in 2012, giving visitors aing employees and agents to way to collaborate and share ideasvoice their opinions; Fetherston across the company similar todefended the concept and CEO their experiences with Facebook. Mobile users were able to startBELOW: Agent Pete Paynter used his newly installed computer in 1998, part of a massive Clemens heard the comment, “I don’t think this internet thingproject to equip all agents with Microsoft computers and servers. is going anywhere.” I/S Technical Support Supervisor Theresa Breunig- Silbernagel led an $8 million project to provide comput- ers to 7,000 employees by the end of 1997. Her teams of soft- ware and hardware experts in I/S were assisted by equip- ment handlers from Office Administration, trainers, outside contractors and others. She remembers call- ing Dave Anderson to inform him that Underwriting Vice President Al Hunter refused Dare to Dream | 223

ABOVE: Storms hit American Family policyholders hard in 1998, with the company recording more than $200 million in claims byJune 5th. An American Family banner welcomed customers to one of two drive-in claim centers in the Twin Cities metro area.A May 15 storm in Minneapolis caused nearly $100 million in losses alone. to accept the new technology. THE DARK HORSE WINS Anderson told Breunig-Silbernagel In late 1998, the hottest topic of conversation among employ- ees and agents was who would be named president and chief to tell Hunter he was going to have operating officer when Dale Mathwich retired and Harvey Pierce moved up to CEO. Many predicted Sales Executive a computer on his desk, and if he Vice President Dan DeSalvo would get the nod because, like Mathwich and Pierce, he was from the field and a Mathwich didn’t like it, to call Anderson to protégé. By summer, however, Dave Anderson emerged as a dark-horse candidate when he was invited to be interviewed discuss it. Knowing Anderson’s for the president’s post by Pierce and Mathwich. Anderson was surprised by the invitation and thought his odds were poor. After reputation for a short fuse and blunt all, just four months earlier he had applied for the finance exec- utive vice president position to succeed the retiring Paul King, talk, Hunter decided that he would, but was told by Pierce that he needed more executive experi- ence. Instead, Anderson’s mentor Brent Johnson was selected in fact, accept the new computer. for the post.Larry McNish On the field side, Breunig- Rather than single-handedly selecting his eventual succes- sor, Pierce sought additional viewpoints. He asked Mathwich Silbernagel and Network Staff to participate in the interviews, along with board member Dr. Robert Walton. This was the first time a board member becameAdvisor Larry McNish co-led a massive undertaking to equip directly involved in hiring a top executive, and it occurred because Mathwich and Pierce thought the board should have early inputagents with Microsoft Windows® workstations and servers, into such an important decision. The trio interviewed DeSalvo,as well as an internet-enabled network. This new step forward,called the Agency Data System (ADS) came with a hefty $30million price tag.Adopting this technology did prompt a few new problems, notall of them serious. Some managers complained employees werespending too much time browsing the internet and using email.Clemens recalled one manager telling him employees were beingunproductive, using email to set up a department pot luck lunch.In his typical droll, soft-spoken manner, Clemens responded, “Yes,but email is allowing your employees to be unproductive faster!”224 | Computers, the Company and Customers

decided that rather than having two people from sales at the top of the organization, American Family would ultimately be better served with Anderson’s finance and tech- nology background complementing Pierce’s field experience. Recalling the days after his own selection as president years earlier, Pierce said, “I had very little knowl- edge of the financials and was at a big disadvantage in board meetings. I’d have to go back to my office after meetings and look up some of the financial terms!” He wanted some- one who already knew the company’sABOVE: Dave Anderson, American Family’s new president and chief operating officer, finances forward and backward. His only concern about Anderson: “He(right) prepared to depart on a January 1997 cruise with his family. Standing with him wasn’t a people person, but I thoughtfrom left to right are: (front row) Joe and Sarah; (back row) Kristine; Matthew; Dave’s the positives outweighed that.”wife, Mary; and David. Pierce and Mathwich respected the other three candidates in the mix, but concluded Anderson was the better choice for the future. MeyerExecutive Vice President Jim Eldridge, Marketing Vice President was young, smart and articulate, but had less experience thanAl Meyer and Anderson. Pierce said, “Going in, I wanted Dan DeSalvo if they were to select someone from the field. Eldridge,DeSalvo and I believe Dale wanted Dan.” The two men initially too, was thoughtful and experienced, but viewed as cautious andfavored him because both had also come from the field and they unlikely to embrace significant change.believed DeSalvo would continue to grow the company.But Anderson also had some talents and experience thatmade him a contender for the position, even if he remaineddubious about his chances. Most important, he had demon- BELOW: Incoming Administration Executive Vice Presidentstrated he could get things done. Mathwich viewed Andersonas “one bright guy, very ambitious, with a good track record of Darnell Moore greets his predecessor, Jim Klokner.accomplishment.”Anderson had built a solid team in his finance department,hiring MBAs, CPAs and actuaries, providing them with thecompany’s first personal computers so they could produce timely,accurate information and models. One of his director peers and afuture company president, Dan Schultz, later credited Anderson“for bringing professional analysis into our decision-making forthe first time.”This had put Anderson at the table for every majorcorporate decision over the previous decade. He had directed theprofit and growth planning process with oversight of the budgetand loss reserving areas. No one in the company, other than hisboss, Controller Brent Johnson, knew the intricacies of companyfinances as well as Anderson. In the end, Mathwich and Pierce Dare to Dream | 225

For his part, “I thought the surprised about the choice. Anderson was not widely known in the field and some agents grumbled that a “bean counter” was interviews with Dale and Harvey now in charge. And, truth be told, Anderson was not particularly comfortable mingling with agents; he wasn’t a hale and hearty and Dr. Walton went well,” back-slapper who enjoyed small talk. Anderson said,“but I was convinced What the agents didn’t know was that behind the scenes, Anderson would prove to be one of their strongest advocates. I wouldn’t get the job.” He believed Whenever he had a chance during his tenure, Anderson would stress the value of agents. At an officers’ meeting early in his pres- DeSalvo had the inside track idency, Anderson said, “Our policyholders vote every day on that value and you can look at our statistics. Just in this current year with his field experience and long we’re going to grow 6 to 7 percent, two to three times the indus- try rate. This is not a distribution system that’s being challenged personal association with Pierce and to the point where we have to question its value, not when it’s producing solid growth.”Brent Johnson Mathwich. Much to Anderson’s surprise though, after a routine day ADDING AGENTS BIG TIME of meetings and decisions, he was Strong growth in policy counts and revenue continued through the late 1990s. Group revenue rose 9.1 percent in 1997, doublecalled upstairs to the executive suite on Nov. 17, 1998 and toldhe was American Family’s next president. “I was just blown away!”Anderson and Pierce assumed their new positions on Feb.1, 1999. They were creating a new team, with Finance ExecutiveVice President Brent Johnson, who had succeeded Paul King andDarnell Moore, who would succeed Jim Klokner as administra-tion executive vice president in September.Some agents, managers and sales executives were deeplyskeptical about Anderson’s selection. Many had bet the farm thattheir boss, Dan DeSalvo, would lead the company and they wereBELOW: Oregon State Sales Director Rob Quesnel welcomed guests to the grand opening of the Portland office. American Familyentered Oregon in 1998.226 | Computers, the Company and Customers

the industry average. The strategic planning team called for 12 Scott Bazz Lamar Dismukepercent premium growth in 1998 and 7 percent in policy growth.While results fell short of those targets, American Family did ABOVE: Scott Bazz and Lamar Dismuke were two of the 544add a hefty 316,000 additional policies. Finance Executive VicePresident Paul King said, “If we’re growing at 7 percent and the agents appointed to full-time agency between the end ofrest of the industry is growing at 3 percent, we will become a 1996 and the beginning of 1998.much larger presence in the industry.” On the positive side, however, diversity in the field increased The company’s strategy was simple — add agents and dramatically as more qualified women and people of color joinedincrease advertising. In 1996, Mathwich and Pierce outlined a the company and industry. The company’s new urban marketingseries of aggressive agent recruitment goals, and sales manage- program successfully recruited quality candidates who reflectedment came through, adding 852 agents in a 3-year period. By theend of 1998, the company achieved its goal of 4,000 agents. Manyof the new agents were in fast-growing areas such as Arizona,Colorado, Chicago Metro and Oregon, which the companyentered in 1998. Field force dynamics had also changed significantly, whichcreated a new set of challenges for the company. Fully 42 percentof the expanded field force had less than three years of experience.That was problematic because it takes time for less experiencedagents to become proficient at sales, service and underwriting.Ultimately, many of the new agents failed.BELOW: The neighborhood donut shop attracted a lot of foot traffic past Cesar Pinzon’s office. He increased walk-in business byattracting attention to his office by placing a clock and Company logo in his window. Pinzon would eventually become one of thecompany’s regional sales vice presidents. Dare to Dream | 227

ABOVE: Portland, Oregon, agent Edward Chen was one of the provided through a few classes developed by the marketing divi- sion. But in 1998, marketing had only five sales trainers, threefirst agents in the state, starting in 1998. Pictured are Amy of whom would eventually become company officers — RichWragge, Oregon/Idaho state sales director, Chen and Shawn Steffen, Chris Listau and Todd Fancher.The beleaguered trainersHunter, district sales leader. were overwhelmed by the number of new agents, and the district managers, some of whom were managing districts with 30 to 40 agents, were unable to meet the training needs of their rookies. Marketing Vice President Al Meyer acted quickly: He added 50 staffers and set up in-house “foundation training” sessions for all new agents, covering core products, sales-and-service and business operations. Managers helped agents through their first year, and then agents attended eight 1-day fast-track sessions with the sales trainers. Marketing provided two sales trainers for each sales state to lead the classes. the communities they served. This PURSUING CUSTOMERS IN NEW WAYS focused recruitment was part of In June 1998, after a successful pilot in Colorado, Illinois and the company’s goal to “mirror the Indiana, Meyer set up a telemarketing call center using an market,” and many of the new outside vendor. The vendor called prospective customers to ask agents developed successful agen- about their insurance needs, and if the person expressed inter- cies and enjoyed long careers with est in a quote, their name was passed on to an agent in their area. American Family. The call center produced results, and marketing quickly One of the sales directors moved the center in-house to save money and improve qual-Jack Salzwedel watching the rapid increase in ity control. By the end of 1999, the telemarketers had logged agent numbers with a cautious more than a million calls, talked to 200,000 people and generated eye wasJack Salzwedel in Wisconsin East.He remained skeptical of the drive to BELOW: Marketing Vice President Al Meyer significantly expanded the company’ssimply add agents without sufficientmarket analysis to better gauge their training capabilities to accommodate a huge increase in agent numbers.chances of success. He believed, in thelong run, that agents and the companywould prosper best with fewer, largeragencies run by well-trained agentswho were savvy businessmen andwomen, assisted by competent staff. Hedidn’t know it, but years later he wouldbe in a position to make that happen.To address the massive influxof new agents who had little expe-rience in the industry, the companyimplemented new training proce-dures. Traditionally, each district salesmanager had trained his or her ownnew agents, with some later education228 | Computers, the Company and Customers

20,500 leads. Unfortunately, the program was scaled back after agents said they couldn’t handle the volume. In December 1998, the company had started another program to generate leads, this time using the internet. MarketingAndy King research showed an increas- ing number of customers were using the web to research insur-ance alternatives. Direct Marketing Manager Andy King set upa partnership with InsWeb, the leading web-based provider ofinsurance leads at the time. Customer leads generated by theprogram were referred to the field for follow-up. King advisedagents that sales success rates were directly related to agentresponse time. His common-sense advice seems almost quaintin retrospect: “If response time is a day or two, agents can expectto find some success; if agents don’t respond in the first two days,sales are unlikely.”By the end of 1999, marketing took a hard look at theInsWeb program because it was losing money. The company’snew president and chief operating officer, Dave Anderson, wasupset that while more than 100,000 leads had been generated, asurvey showed half of the prospective customers asking for anAmerican Family quote never received a response from an agent!Marketing concluded it had initiated the program without suffi-cient staff, procedures or training to handle the large volume ofleads received. It was also clear that some agents were cautious,even fearful, of the web because of aggressive internet competi- ABOVE: The direct marketing call center’s team of eight peopletors like Progressive and GEICO. reached a milestone on Sept. 5, 1999, passing one million outgoing calls for the year, doubling the calls from the previ-To address these issues, the program was scaled back to one ous year. The team had reached 200,000 people and gener- ated 20,500 leads passed on to agents for follow-up.state in each of the five sales regions at the time. Agents whochose to participate paid $3 for each lead they received. Thoughthe company could have decided to use employees to directlyrespond to quote requests to manage the volume generated byboth the telemarketing and web-based lead programs, that wasn’tseriously considered. Cost was an issue, and sales leaders were recalled that he sold three auto policies, one homeowners and aconcerned about agent reaction if employees started getting too small business policy to a customer who found his agency on theinvolved in the sales side of the business. company’s homepage. “We were lucky to be on the system,” heLate in 1999, the company began offering auto quotes said, “and we responded within two minutes.” The customer camethrough amfam.com. Customers entered their auto infor- into the office and purchased the coverages.mation online, and it was forwarded to an agent who in turncalled the customer. Closing rates hovered around 25 percentand 792 policies were sold in the first quarter of 2000. Aftervisiting amfam.com, some customers contacted agents directly.For instance, Agent Lloyd Heinselman of Mason City, Iowa, Lloyd Heinselman Dare to Dream | 229



I learned to always take on things I’d never done before. Growth and comfort do not co-exist. — VIRGINIA ROMETTY, Chair, CEO & President, IBM11 GOOD TIMES AND CHALLENGES

CHAPTER 11 | GOOD TIMES AND CHALLENGESAs the 21st century dawned, with less than a year on the job as president, Dave Anderson decided to increase his visibility across the organization. He felt the company’s vision – strong, growing and friendly – was “nice but fuzzy.” He wanted every employee and agent in the organization to better understand the company’s primary objectives, and to do that, he had to deliver the message personally and share his vision directly. Working with his executive vice presidents, he developed what he termed The Big Three corporate goals: aggressive growth, customer retention and leveraging innovation. A concerted program of posters, intranet messaging and management discus- sions drove those objectives home; surveys quickly showed widespread understanding and support across the company. Anderson, with his strong financial background, always preferred using concrete examples when discussing The Big Three. For growth, he said the company had to focus on building more policies per household, rather than depending too much on geographic expansion. For retention, he constantly reminded everyone that “it costs a lot less to keep a policy than to get a new one.” He urged agents to embrace technology to help their agencies grow, citing the company’s first electronic application for life insurance policies that made it easier to write business because it eliminated paperwork. Some agents were skeptical. Others quickly jumped on board. Dennis Gutman of Manitowoc, Wisconsin, was the first agent to submit an electronic application for American Family on June 22,ABOVE: CEO Harvey Pierce, right, delegated significant author- 2000, noting that it was both fastity for leading the company on a day-to day basis to Dave and easy, adding, “I liked it becauseAnderson, president and chief operating officer. it reminded you to include all the information you needed.” Dennis Gutman232 | Good Times and Challenges

RIGHT: President Dave Anderson LEFT: Prior to 1997, thebelieved every employee and sales vice presidentsagent should understand the had been regional vicecompany’s three main priorities. presidents in charge ofThrough an aggressive commu- claims, underwriting andnications campaign, he achieved sales in their regions.widespread understanding and One of the most influen-acceptance. tial was Midland Region Vice President Russ Anderson had long been frustrated Lemons.with the pace of activity in the company,as he had been earlier with the slow- Dare to Dream | 233moving I/S division. He repeatedly saidthe biggest cultural change the companyneeded to make was “speed of thought toidea to product or result.” And, just as important, Anderson wasdetermined to improve personal accountabil-ity throughout the business. The company’sculture had long stressed consensus, which inpractice required too many meetings beforea decision was acceptable to nearly every-one. “I don’t want decisions made at the lowestcommon denominator, which is the point atwhich everyone can agree,” he insisted. He alsodidn’t want decisions made by one or two people,but instead, “There needs to be someone involvedin every project who is ultimately accountable for the pace of thediscussion and the decisions that result from it.” Anderson also would tackle a huge cultural challengethroughout his tenure: top-down management. He knew thatthroughout American Family’s history, too many decisions hadbeen made by senior executives rather than at the appropriatelevel. “The directors and VPs have got to feel that they don’thave to run every decision up the ladder, and know that we’re notgoing to come down on them if a mistake is made.” However, hewould learn it would take years to overcome skepticism in thelower ranks that top leaders really were willing to delegate deci-sion-making authority. As chief operating officer, one of Anderson’s first tasks was totidy up the tangled aftermath of the 1997 transition of regionalvice presidents to regional sales vice presidents. Prior to thechange, the regional vice presidents oversaw sales, claims andunderwriting in their regions; their new role focused exclusively

Soon after becoming administration executive vice president, Darnell Moore said one of his top priorities wasinsuring all homes to 100 percent of their value. This protected policyholders in the event of loss and increasedcompany revenue.on sales. “It was clear we never had set up a structure to replace would complain about higher premiums. And Underwriting Vicethe regional operations,” Anderson said. “We needed to take the President Al Hunter wasn’t excited about the prospect, either.underwriting, claims and actuarial staffs and have them become He told Moore he was too close to retirement to undertake suchoperational and centralized in the home office under a single a big task, and would retire early.divisional vice president.” The transition was more than a simplereporting change. The vice president of claims, who had previ- A FUTURE CEOously managed a small team numbered in the dozens, suddenly JOINS THE OFFICER TEAMwas in charge of the company’s largest division, with more than3,000 employees. When Hunter left the company Jack Salzwedel early in 2000, Moore wanted a Underwriting became the new personal lines division. The replacement who had field cred-executive vice president overseeing personal lines, Darnell Moore, ibility and who could buildhad a mission: All homes insured by American Family should be support for his plans to insure allinsured to 100 percent of their value. “We had lots of underin- homes to full value. Anderson insured homes,” he said, “and I felt we had an obligation to make turn wanted an aggressive leadersure they were fully insured in case of a loss.” And Moore also who would accept responsibil-believed the company was losing millions of dollars in premium ity for profit and growth of autobecause of that value gap. He didn’t have much support. “The sales and property, the company’s twovice presidents and Sales Executive Vice President Dan DeSalvoweren’t enthusiastic,” he said, because they worried policyholders234 | Good Times and Challenges

primary lines. Anderson thoughtWisconsin East Sales Director JackSalzwedel was the logical choice.Salzwedel had implemented innova-tive profit programs to focus on losschallenges in districts and agenciesand encouraged individual develop-ment of agents and managers. Andhe had built strong bridges withthe African-American communityduring and after the MilwaukeeNAACP redlining lawsuit filedin 1990 and settled five years later.Salzwedel had an engaging person-ality and dealt well with people,important attributes for this newchallenge.Moore, known for his inde-pendence, made it clear he wouldmake the hiring recommendation onhis own terms. He thought well of ABOVE: Former CEO Irving Maurer, one of the company’s pioneer leaders, visited theSalzwedel, but insisted on conduct-ing a rigorous interview process with national headquarters in 2000. Pictured with Rick Fetherston, public relations viceseveral candidates. Minutes after president, and his wife, Nan, Maurer said he hoped the company would continue to expand — nationwide — something he proposed 40 years earlier.his interview with Moore, a down-cast Salzwedel dropped by PublicRelations Vice President RickFetherston’s office. “Jack was disappointed because he felt the made several years earlier, when the traditional resident under-interview with Darnell didn’t go very well,” Fetherston recalled. writer position was scaled back. For decades, underwriters in the(When asked about it years later, Moore agreed with Salzwedel’s field had inspected properties and worked closely with individualdownbeat assessment of his interview. But, Moore added, he never agents, teaching them how to write good business.hired anyone solely on the basis of a single interview, whether it However, in the early 1990s, over just two years, the companywas good or bad.) “After the interview, I did a lot of background had removed the resident underwriters and cut the number ofchecks, calling up people who knew Jack or had dealt with him,” personal lines underwriters by half, resulting in the loss of yearssaid Moore. “I always heard the same thing: He’s a proven leader of veteran underwriting expertise. The move had serious unin-who works well with people to get things done.” Those recom- tended consequences.mendations cinched the deal: Salzwedel became vice president Salzwedel’s new personal lines property director, Joeof personal lines in April 2000. Zwettler, recalled, “That underwriting experience could never beSalzwedel took over a division facing strong headwinds. He replaced, and budget restrictions for the use of outside inspectioninitially focused on Moore’s drive to insure all properties to 100 services allowed for only very limited underwriting for risk selec-percent of value, but quickly realized there were serious quality tion.” He added, “Little attention was being paid to enforcingissues with the property line’s book of business. New property proper insurance to values and there were inadequate resourcespolicies were pouring in the door with insufficient underwriting for underwriting customers with excessive claims activity.”attention, which posed a serious problem since good underwrit- And on top of that, more than 40 percent of the company’sing is the heart of property casualty insurance. newer agents had little experience selling, much less under-In fact, the new personal lines vice president thought the writing. Salzwedel and Zwettler were convinced the quality ofcompany was suffering the lagging aftereffects of a decision the company’s property and auto business was declining. Their Dare to Dream | 235

into a broad age category of 35-49, creating a single price point, Progressive segmented by individual year, generating a price that more accurately reflected risk. The new models used that same approach and created thousands of price points for rating terri- tories, vehicles, miles driven and other factors. The critical result: prices that more closely matched individual risk to price. Lower risks paid less and no longer subsidized their fellow customers who were higher risks. In the early 1990s, some competitors had also begun using credit scores as a rating factor to determine a customer’s premium. Companies were creating “insurance credit scores” for custom- ers based on their ability to pay loans and bills on time; actuarial studies indicated people who managed their financial affairs well were less likely to file a claim. Insurance companies, including American Family, had long used credit reports to make yes-or-no decisions about new busi- ness; underwriters would look for red flags such as collections, repossessions, judgments, liens, foreclosures and bankrupt- cies. However, American Family did not use credit ratings to set premiums. The idea of using credit scores as one of many factors in setting premiums was unpopular within American Family. Legal Executive Vice President Jim Eldridge believed that state regulatorsABOVE: Joe Zwettler, left, was an underwriting veteran selected would ultimately force insurers toto become property director after Jack Salzwedel became abandon the practice. Both CEOpersonal lines vice president in 2000. Harvey Pierce and President Daveconcerns grew as they realized American Family was significantlybehind the curve on pricing. Progressive and a few other insur- Anderson agreed and adamantly Jim Eldridgeance companies had developed much more sophisticated pricingmodels, enabling them to attract lower-risk customers by provid- opposed it. Most agents didn’t likeing them lower rates. As a result, higher-risk customers withhigher loss costs were coming to American Family and other it because they feared it would hurt their customers.companies that hadn’t yet improved their pricing. However, Moore and Salzwedel still thought competitorsDATA DRILLING LEADSTO BETTER PRICING were gaining an advantage. They made two formal presentationsProgressive and a few other insurance companies were using data to the strategic planning team outlining how credit was an essen-to create millions of price points, compared to far fewer usedby most others. Where American Family might group drivers tial element in new pricing models but were turned down flat. Salzwedel, fresh from the Milwaukee market, believed senior leaders were hesitant to use credit scoring following the company’s 1995 redlining lawsuit settlement with the NAACP. He would eventually conclude the litigation “shaped our organi- zation more than any other factor in the last 50 years.” “It wasn’t simply the $16 million settlement,” he said, “but the changes we made in the 90s, centralizing the regions and underwriting to gain ‘consistency,’ a lack of systems to handle the changes, the loss of talent in critical areas such as underwrit- ing, delaying the use of credit as a pricing tool, slow changes to pricing — all had their roots in the consent decree.” He said it236 | Good Times and Challenges

all contributed to millions of dollars in underwriting losses, but BELOW: The first Nevada sales management team gathered foracknowledged the major positive outcome was increased diver-sity among agents and employees. a meal on the Las Vegas strip. From left, Tony Grilz, district sales manager, with his wife, Stephanie; John Thedinga, state Although Salzwedel lost his first attempts at incorporating sales director, with his wife, Mary Kay; Julie Schroeder, dis-credit into pricing, the discussion wasn’t over. trict sales manager, with her husband, Vern; Keith Conboy, district sales manager, with his wife, Anita; Doug Robinson,BOOMING BUSINESS district sales manager, with his wife, Brenda; and Sherrie Pelusi, Nevada sales trainer.In early 2001, the company’s pricing deficiencies didn’t seemurgent because business was booming! Hundreds of thousandsof new policies were coming on board. Nevada became thecompany’s 15th state on Jan. 1, starting with 22 agents and 10marketing specialists in Las Vegas and Reno. The state’s popula-tion had grown by nearly 800,000 people in the previous decadeto 2 million. John Thedinga, longtime Minnesota sales director, movedto Las Vegas to lead the Nevada effort. He implemented groupBELOW: Company leaders cut the ribbon to officially open the Nevada state office building. Pictured (from left) are Darnell Moore,EVP; Dan DeSalvo, EVP; John Thedinga, state sales director; Dave Anderson, president; Don Alfermann, West Region sales vicepresident; CEO Harvey Pierce, Jim Eldridge, EVP; and Brent Johnson, CFO. Dare to Dream | 237

ABOVE: After entering Nevada in 2001, the company participated in many community events to engage with customers and poten-tial policyholders. In 2014, American Family supported the Susan G. Komen breast cancer event in Las Vegas.hires, providing extensive training before an agent sold a single in Nevada were getting our lowest rate, even if they were higherpolicy, laying the foundation for what would become the New risk,” Westrate said. The company increased surcharges onAgent Training Program company-wide. Agents were placed in higher-risk customers who couldn’t be moved to a lower tier, ascompany-leased marketing center offices, and by May 2001, four well as implementing rate increases across the board. Customersagents were averaging 90 policies per month. started to leave in droves, headed to companies with lower rates. The entry featured a new multi-tiered rating plan with a NEW PRODUCTS—top tier for the lowest risks. Customers initially placed in lower AND A NEW NATIONAL LANDSCAPEtiers could gradually work their way up into a higher tier withlower prices. But Bill Westrate, at that time a young actuary In addition to adding a new state, American Family provided itswho later would become American Family’s enterprise presi- customers with some new offerings in 2001 — variable prod-dent, said the tiered plan was seriously flawed from the start ucts, both variable universal life insurance and variable annuities,because it was “greatly underpriced.” Even more problematic, which combine features of insurance and securities investments.when a customer in the top tier began to have traffic tickets or The 1980s’ bull market had created increased consumer interestclaims, they remained in the top tier and state regulators prohib- in variable annuities, in part because proponents highlighted aited changes to the tiering rules that would allow the company potential for higher returns and a tax deferral on earnings. Someto move the customer down into a higher-risk tier with appro-priate premiums. Eventually “the vast majority of our customers238 | Good Times and Challenges

THE IMPACT OF 9/11In late summer 2001, like everyone, American Family’s agents and employ- ees were stunned by the September 11 terrorist attacks in New York City. While the company didn’t have a single reported loss (because it didn’t market products in the eastern part of the country), it did pay out $3 million as a participant in a life insurance pool with industry partners who sustained losses. To comply with the federal Patriot Act, one piece of legislation that would quickly follow the terrorist events, American Family invested an addi- tional $800,000 in compliance requirements, including access to a federal online database to confirm prospective and current policyholders and claim- ants were not on the list of individuals who might be questioned for possi- ble terrorist links. Dare to Dream | 239

financial advisors urged The Bloomington, Illinois-basedtheir clients to consider the company had also reduced auto rates whileproducts for their retirement others were raising them, gaining marketor investment planning. share at a heavy cost. A.M. Best, the firmAmerican Family that rates insurance companies’ finances,Securities, LLC became the would soon downgrade the State Farm prop-federally required broker- erty casualty companies in 2003, giving themdealer, providing oversight a negative outlook because of poor under-and the extensive training writing results and sizeable surplus declines inrequired for agents to become recent years.licensed representatives. Joe Industry publications such as PropertyTisserand, life vice president, Casualty 360 predicted others in the marketplaceinvited the most experienced would see “opportunity in the areas of auto businesshalf of the field force to apply abandoned by State Farm.” Ed Liddy, then CEO ofto become licensed regis- Allstate, noted, “When a market leader steps aside,tered representatives, and the action clearly creates an opportunity for profitableabout three-quarters of those growth, but one that must be approached with disciplineagents accepted. and care.” American Family leaders saw that opportunity as well and aggressively went after the business. However, American Family still remained signifi- cantly behind the curve on pricing. Personal Lines ViceWHY ARE WE GROWING SO FAST? President Jack Salzwedel continued to press for using credit in pricing, the key element in competitors’ new ratingThe company again set records with extraordinary growth in 2002. plans, but he faced a hurdle because there was little incentive toPolices-in-force grew 652,000, up 8 percent from the previous improve pricing when so much new business was coming in theyear. Revenue was up $700 million, a 12.6 percent increase. Dave door. Bill Westrate, who eventually led actuarial and personalAnderson thought much of the company’s success was due to lines before becoming enterprise president, reiterated that littleimproving profitability and a lower expense ratio than peers, attention was paid to Progressive and others’ better pricing plansbut there were other important factors inplay as well.A key competitor, State Farm, was step-ping back significantly in the marketplace to BELOW: Agents and their families celebrated American Family’s strong growthrestructure operations, focusing on profitabil- at the 2002 All American convention at Disney World in Orlando.ity and expense management. The nation’sleading insurer restricted new homeownersinsurance sales in 21 states and pulledback new auto insurance productionin some as well. State Farm had beenpaying out $1.20 in claims and expensesfor every dollar of revenue. A State Farmspokesperson, Phil Supple, said “Rapidand significant growth magnifies losses,when a company is already experiencinglosses.” He noted rising claim numbersand costs, inadequate premiums and reducedinvestment income. “Growth in insurance isnot always a good thing.”240 | Good Times and Challenges

because “we didn’t consider them our primary competitors; we insisted the financial bleeding had to stop and it becamewere more concerned about how we compared to companies that Salzwedel’s top priority.looked like us.” The challenge led to the first interaction between Salzwedel Whatever the reason, higher-risk customers who faced and Westrate, then a director in the actuarial division. Westratehigher premiums with companies that had developed more accu- had proposed a new home and auto discount and Salzwedelrate rating plans were selecting American Family. This worried backed it as a way to mitigate the impact of premium increasesSalzwedel and his property director, Joe Zwettler, both of whom on multi-line customers.also knew the company was still haunted by less stringent under-writing practices. “We were flying blind,” Zwettler said, “not really The two worked together to develop a property ratingknowing the quality of all that new business.” program (PRP) designed to surcharge customers with multi- ple claims, provide a discount to those who were claim free andTHE PERENNIAL PROPERTY give additional discounts or less of a surcharge to longer tenuredPROFITABILITY PROBLEM customers. Salzwedel suggested the concept and Westrate refined it with his team.State Farm wasn’t the only company worried about profitability.American Family was experiencing huge losses in its property The company had already raised rates by 10 percent online — $627 million in 1998, $500 million in 1999, $635 million average in 2001, and double-digit increases were planned forin 2000 and a whopping $1 billion in 2001. The company was 2002. Homeowner premiums were going up for nearly everypaying out $1.45 in claims and expenses for every property homeowner in America and American Family’s increases werepremium dollar received. Harvey Pierce and Dave Anderson generally smaller than most competitors. Salzwedel told agents, “We’re realizing that our homeowners policy has gotten too broad for the price we charge.” His division moved to tighten up the property policy by restricting coverages,BELOW: After first working together in 2002 to develop a property rating program, CEO Jack Salzwedel and Bill Westrate, enter-prise president, developed a strong professional relationship through several different roles. Dare to Dream | 241

such as limiting exposure on sewer backup or ABOVE: American Family expanded westward to spread itsmold claims. Claims examined its paymentpolicies and procedures to ensure payments geographic storm exposure and to serve customers in rapidlywere accurate and fair. Adjusters started growing states.using new estimating software and followedmore consistent practices company-wide. spreading geographic risk. OregonEmployees and contractors surveyed 156,000properties to make sure they were meeting Sales Director Rob Quesnelunderwriting guidelines. initially oversaw Idaho’s entry, Salzwedel prodded agents to get back inthe underwriting game. “You have to get out there while Nevada Sales Director Johnand look at the physical risks you’re insuring, run all ofthe reports, ask all of the questions and look for potential Thedinga managed Utah.underwriting problems when the application is written.” And, hesuggested,“You also need to coach clients and help them understand Anderson supported the Utahthe homeowners policy is not a maintenance contract. You need toeducate them on when it makes the most sense to file a claim.” and Idaho entries, but was grow-NEW STATES, ing increasingly concerned aboutNEW CUSTOMER OPTIONS the impact of state expansionAmerican Family entered Utah and Idaho — its 16th and 17thstates — on July 1, 2002. Both states were growing rapidly on the bottom line. New states Rob Quesnelwith populations consolidated in a few small cities. Both weremostly outside the tornado and storm activity of the Midwest, were not meeting the operatingBELOW: American Family entered Utah in 2002. Fifteen years results projected by the expan-later, some first and second wave agents celebrated their sion models, even though somesuccess at their annual spring awards gathering. Pictured(from left) are Kim Oliverson, Marco Alcaraz, State SalesDirector Tony Grilz, Bessie Porter, Dave Platt, Scott Hirschiand Heather Hansen. Clint Caswell, another first wave agent,is not shown. were meeting growth projections. American Family’s price discount strategy was running up against the more sophisticated pricing models of competitors. Anderson and Controller Dan Schultz asked Doug Stoffels and Dennis Loper John Thedinga in the controller division to do “layering analysis,” which meant estimating the impact of each state’s operating results on the combined ratio and layering the results on top of one another. After reviewing the combined ratio impact, the strategic planning242 | Good Times and Challenges

team decided it was time to slow down; next year’s planned entry delighted when network bandwidth expanded to improve over- all delivery speed. Online quoting modules and other web-basedinto Washington and New Mexico would be delayed. reporting and business applications made it easier for agents to access information and process transactions.Meanwhile, a team from marketing, personal lines and I/S A MILLION POLICIES IN TWO YEARSwas hard at work setting up the company’s first online vehi- American Family’s extraordinary growth continued in 2003,cle quoting system. Customers could already enter information with 400,000 additional policies, providing a $750 million increase in revenue. A million new policies in just two years!online at amfam.com and wait for an agent to contact them with The agent count stabilized at just under 4,000, but the company added 500 employees to support the growing number of policy-a quote. But now the team was working on a new online quot- holders. As Sales Executive Vice President Dan DeSalvo looked at the huge numbers of new customers, he told agents there wasing system that would provide the quote directly to the customer. huge potential for even more growth because more than half of the company’s policyholder households had just a single policy.Their work wasn’t highly publicized within the company because His sales management team reminded agents those households provided them an opportunity to grow their agencies by sellingmany agents and managers were still dubious about the internet. additional products to people who already were customers. And for the first time in a decade, American Family made an under-After all, just two years earlier, Marketing Director Bill Simon writing profit on the homeowners line, despite heavy storm losses. The personal lines and claims property profitability initia-had traveled to Eden Prairie to meet with then-Minnesota Sales tive was bearing fruit. However, in October, A.M. Best lowered American Family’s financial rating from A+ to A. The changeDirector John Thedinga’s district sales manager team. Thedinga reflected Best’s transition from focusing on financial strength to a greater emphasis on operating results. And Best likely hadwas excited about the prospect of genuine online quoting, but questions about American Family’s rapid growth: Were prod- ucts underpriced? How strong was underwriting? Was surplushis managers didn’t share his enthusiasm. Simon remembered sufficient to support the growth? And why was growth concen- trated in the Midwest?an awkward meeting. “After I made a brief presentation, the AN EPIPHANY IN A CAR DEALERSHIPmanagers asked me to leave the room so they could talk to John As American Family grappled with both the pleasures and perilsprivately; they made it clear they wanted nothing to do with it.” of explosive growth, leaders also began to make customer satis- faction a top priority.But shortly after that, Thedinga left Minnesota to open The company’s first major customer satisfactionNevada and told Simon he’d welcome a pilot program with his program started after Marketing Vice President Al Meyer had his vehicle serviced at a Ford dealership.new agents and managers. The Meyer was sitting in the waiting area when he saw a sign boasting Ford had earned the prestigious J.D. Powerteam took him up on his offer, and certification for service excellence. It hit him: American Family should work to become J.D. Power-certified, too!after a successful 2001 pilot, the That epiphany resulted in a powerful program that would impact every American Family agent and customer.new online vehicle quoting systemquickly expanded to 10 states. Thesystem allowed prospects to receiveimmediate estimated premiumsfor up to four vehicles, generatinga quote in seconds. They receiveda follow-up call from an agent tofurther evaluate eligibility and Byrne Chapmanrating. By May 2003, online quot-ing was available in every operating state.There was little negativereaction from the field; most agents accepted online quotingbecause they remained in the loop with customers.During this time, Byrne Chapman, who succeeded Andersonas I/S vice president, also helped introduce technology to improveagent productivity. He spent significant time in agent offices tosee firsthand how technology mighthelp them. He continued hard-ware upgrades, starting withthe oldest desktop comput-ers, replacing monitors andservers. Agents were Dare to Dream | 243

EXCEEDING when the company landed at the convention and achieve higherCUSTOMER top of a list, those results were bonus incentives. And for employ-EXPECTATIONS analyzed just as closely to see ees, good AmStar survey results how they could be repeated. could positively impact payouts inAs American Family the Corporate Incentive Program. worked to become American Family also kept the most trusted and a close eye on customer senti-valued customer-driven insur- ment through the American Starance company, leaders knew program surveys. Every quarter, ait was critical to keep track of random sample of roughly 45,000both customer satisfaction and customers would respond to thecompetitor rankings. One key surveys, which collected data onto doing that became regular customer satisfaction regardingsurvey results from J.D. Power and services, prices and other factors.Associates, which tabulated insur- Agencies achieving specific satis-ance companies’ customer satis- faction ratings would be certifiedfaction rankings for auto, home as an American Star (AmStar)and business offerings, website Excellence in Customerinteraction and a variety of other Experience agency, and agentscategories. With each study, lead- could promote the honor iners discovered insights that drove marketing efforts.actions for improvements. And Overall satisfaction results also would help agents qual- ity for the annual All American Meyer wanted an initiative distinctions among agents; after all, if some were declared all-stars, would it impact the morale of others? One executive vice presi- to challenge and incent agents to dent worried agents might make their offices so professional that customers wouldn’t be comfortable. Anderson dryly responded, help ensure consistency and quality “We’re a long way from that point,” adding he looked forward to the day when agent offices were so polished that management of customer service company-wide. would have to rein them in a bit. He reminded his colleagues that the company was owned by its policyholders and “their satisfac- The company was committed to the tion with us needs no further justification.” independent contractor model, but Meyer had asked Research Director Steve Willan to check out the idea of pursuing certification. Willan turned the project that model restricted the company’s over to a bright new employee named Sam Geraci, who later said it was Anderson’s insistence that allowed the project to proceed. ability to control certain aspects Anderson authorized spending $3 million for the initialAl Meyer of the agents’ business operations. contract with J.D. Power & Associates ( JDPA), which covered Meyer realized customer service the cost to survey agents, set up a website and conduct some on-site office visits for agents. Late in 2003, the first of some would likely improve with agentincentives and customer ratings of agent performance.The “satisfaction rating” concept was controversial from thestart, with lukewarm enthusiasm among some strategic plan-ning team members. However, Dave Anderson thought it was agreat idea. At an offsite meeting of senior executives, a couple ofexecutive vice presidents wondered if the company should create244 | Good Times and Challenges