President’s Commentary

Have you ever wondered what you’re really buying when you purchase insurance with a new insurance company or renew your policy with your current one? Surely, it’s not the stack of paper that makes up the legal contract between the insurance company and you!

Purchasing insurance is not like buying a stick of lumber, a new car, or an ice cream cone, which are all tangible products. The insurance “product” for that matter isn’t a product at all! It’s a service – a promise to be there when you (the insured) need us (the insurance company) to help you through a difficult time in your business.

Benefits of Insurance

So, what is the benefit or the value of the insurance promise? When looking at an insurance policy, it primarily includes payment for covered losses. But it also reduces the level of uncertainty in your business by transferring certain loss exposures to an insurance company. It can assist you from a loss control and risk management perspective to help make your business a safer place. It supports the credit needs of your business by providing financial protection that all lenders expect. Try getting a mortgage or a line of credit without an insurance policy from a reputable carrier!

Insurance promotes the efficient use of financial resources. With an insurance policy in place covering various aspects of your business operation, you don’t need to have a large amount of cash put aside to pay losses should they arise. Finally, insurance satisfies the legal and business requirements of regulators, financial institutions, and other entities of this nature. So, when you look a little deeper into it, you quickly realize that insurance offers a lot more than the promise to pay for covered losses.

However, don’t let anyone fool you. Just as all those tangible products outlined earlier are not the same and come in different sizes, shapes and quality, most financial services like insurance are not the same!

All Service is Not the Same

Keep in mind the complex service of insurance is delivered by a person. You want that person to understand not only insurance and risk management, but you want them to understand your business. Believe me, at the time of the loss, you don’t want to have to explain your business operation to your insurance carrier. You want people that have the industry experience to immediately address your claim to get you back to business sooner. You want people who know the specific risk and loss factors of your business to consult with you to implement a risk management program or safety initiative.

Now that we have determined that insurance is a service, the problem is that this service cannot be demonstrated in advance other than by reference to similar situations with other clients or your own experience with the service provider. This is important because in the absence of a reference point, how will you value your insurance program? Service providers like PLM do not get “do-overs”. We must do the job, and do it well at every opportunity, in every situation. We all have service standards that we aim for. We must achieve them ALL THE TIME. In PLM’s case, those targets or standards have been developed and designed by what you have demanded. Meeting our standards is not good enough if we do not understand what your expectations are and that our standards exceed those expectations.

You do not want to feel like you are alone or lost when you suffer a loss. You want your renewal 30 days before it expires. You want to be talking to a claim representative within 24 hours of a loss. You want the loss control people that visit your business to understand what’s important and what’s not from a wood risk perspective. You want PLM leadership to be available to you at any time to discuss any problems. When a mistake is made, you want an apology, and steps taken to quickly rectify the mistake. You want phone calls, emails and other communication responded to quickly (24 hours max), even if we do not have a complete answer. I could go on, but in short, you have told us you want to be treated as a valued customer. I think we do a pretty good job in most of these areas, but more importantly, so do you! Our Net Promoter Score (NPS), which measures customer satisfaction, is in the 80’s, 25 points above the insurance industry average. Do we make mistakes? Absolutely, but when we do, we admit it, apologize, fix it and move on.

Value Versus Price

I often talk to prospects and current insureds. Many times, they want to talk about the price of their insurance coverage, regardless of being a PLM customer or a customer of another insurance carrier. I usually try to point out to them that quality products and services cannot be cheaply developed and supported. It’s not about the cost of your insurance coverage, it’s about the value you receive for the service provided by your insurance company. The cost of the ice cream cone from the box in your home freezer is going to be cheaper than the hand dipped cone at your local ice cream parlor. They are both ice cream cones, but which one do you really want to eat on a hot summer day? The same point can be made about the level of service provided by your insurance carrier.

Value does not mean cheaper; it means superior service provided at a fair price. We at PLM strive to provide that superior service at a fair price. If price is all that is important to you, give me a call and I can tell you who the big carriers are today. But don’t call me when you are dealing with a loss and that insurance carrier that provided you with a cheap price is not returning your calls and you feel alone! (Actually, you can always call me, and I promise I will not remind you of value versus price more than once before helping you!). Most customers that leave PLM for price come back, usually on the second renewal — it’s like clockwork.

Financial Update

Changing topics, I would like to give you a brief financial update regarding where PLM finds itself through the end of the second quarter of the year. First off, the big news is that our policyholder surplus grew past the $200 million mark for the first time in our 130-year history. Policyholder Surplus reflects the financial strength of an insurance company, the surplus we hold on top of claims reserves. In a stock company you could consider it “stockholder equity”, but keep in mind we are not a stock insurance company, we are a mutual which our policyholders have a membership right in.

Premium production, while behind target, is growing nicely, up over 14%, on a year-over- year basis. We’re rapidly closing in on a half a billion dollars of wood-related business throughout the country. Our new business premium is strong. We have produced over $17 million in new business in the first six months of the year and are on pace for perhaps our best new business year ever! Our renewal retention (our insureds that decide to renew their policies with PLM) is at record highs, and as indicated earlier, our Net Promoter Score (NPS) is outstanding.

Profitability suffered a setback earlier in the year from a rash of large fires (six retail/wholesale and light manufacturing fires, totaling over $40 million of losses over a six-week period) and from some very difficult weather. We continue to see poor results with our general liability losses due to construction defect claims that also reflect general inflation, social inflation or “legal system abuse” and increased expenses associated with handling and defending these claims, even when we win! Auto losses on retail and wholesale lumber dealers continue to be problematic for much the same reasons but we have seen a downtick in the number of new autos claims.

Overall, we finished the six months with an underwriting loss but due to strong investment income we saw an operating gain that fueled the aforementioned surplus growth.

Focus on Risk Management

Finally, a few words about this issue of the Lumber Memo. In the summer months we like to run a special edition where we focus on a specific topic. This issue focuses on risk management and the different tools and services that PLM offers along with our safety partners.

Going back to the topic of what you are getting from purchasing insurance, one of PLM’s services is to provide our customers with valuable, industry-specific resources to help them protect their wood-related operations.  We do this through our loss control representatives who partner with our insureds through consultative services, helpful recommendations, and custom training plans to help mitigate areas of risk. We also utilize our years of experience in the wood industry and the claims data we have compiled to produce resources, guides, and other safety tools. Finally, we look for new technologies to partner with to provide risk management solutions for our insureds. We do all of these things to not only provide our insureds with the security of paying covered losses, but to actively work with them to build safer and more resilient businesses.

If you have questions or comments, please contact me at jsmith@plmins.com or by calling 267-825-9246.