Celebrating Success

Hello, Fred! Hello, Dave!” The welcome came from Tom Johnstone, president of a long-established and successful brokerage in the city which was celebrating its 100th year in business. He shook our hands warmly, “thanks for coming”. A huge sign across the front of their office building proclaimed: “1904 – 2004 ONE HUNDRED YEARS OF SERVICE”. Looking around the room, I saw that the event had drawn a large crowd of well-wishers from every segment of the insurance industry.

I had arrived with my boss Fred Wilson, manager of the downtown branch of the insurer we both worked for. As the company’s senior marketing representative I was very familiar with the Johnstone Agency which annually gave our company a healthy volume of commercial and personal lines business. Standing in the front entrance, we had a brief chat with Tom Johnstone and his son Michael, who was a key member of the firm. I knew that Tom’s son was a very active and energetic part of the Johnstone brokerage now. In fact, he was my principal contact when I paid my regular visit to them.

The office had been decorated with ribbons and bunting for the occasion and spread around the front desks were huge displays of flowers sent by insurers, adjusting companies, legal firms, and other brokers all congratulating the company for its hundred years in business. I felt an arm swing around my neck and turned to see the smiling face of our good friend, broker Bob Davies, partner in a prosperous and successful midtown brokerage. He pulled us both over to a long buffet table set against the far wall which was laden with plates of finger food, trays of sandwiches, snacks, coffee and tea. “I might have known you two would show up if there was food on offer,” he joked. “But, since you’re here – let’s have something to eat.”

We filled our plates, sat down, and Bob looked around the room filled with guests chatting and socializing. “Hard to imagine being in business, and staying successful for a century,” he mused aloud. “You’d think that any firm which has been a going concern for a hundred years must be doing something right. As we all know, a lot can happen in even twenty, fifty, or seventy years, never mind one hundred.”

Beside me, Fred nodded. “It certainly is. We’re part of a very competitive industry and even the best of us make mistakes and errors of judgment every week. When you’re still around and thriving after even fifty years proves that you’ve got a winning formula.”

“And it also means you’ve outlasted a lot of your rivals, who don’t make it beyond ten or twenty years,” I added. “We’ve all known a lot of firms that burned bright for a short while, but fizzled out, or broke up, or were bought out.” At that moment Tom Johnstone, the 72-year-old owner and president of the brokerage, came walking over to our group and handed each of us a small 100th anniversary souvenir: a shiny multi-purpose pocket knife in a leather case. “For cutting out the competition?” I joked. “Well, Dave, I’ve seen a lot of it during my time in this business of ours,” he said. “And I’ll bet my father before me had his share when he started this business.”

“That was ‘way back in 1904,” my boss Fred said. “Things were a lot different in those days, weren’t they?” That brought a slow smile to Tom’s face. “Oh yes, Fred. It was a much different world. The Prime Minister of the day was Wilfrid Laurier. And I can remember my father impressing me no end when he told me that back in those days the provinces of Saskatchewan and Alberta didn’t even exist. They weren’t formally created until September of the following year, 1905.” Then he gave a soft chuckle. “I also recall my dad telling me that, in order to get around the city to make sales calls, he decided to buy one of the very first cars that Ford began to build in Canada. They started making cars here in 1904 and their ‘Model-C’ was the first to come off the line. It was a two-cylinder job that came in a beautiful basic black, and it cost my father four hundred and seventy-five dollars. He really liked the look of the Cadillac ‘Model-A’, called the runabout, but he couldn’t afford it. The caddy cost a fortune for those days – seven hundred and fifty dollars.” He looked around at us and laughed. “Even then they were expensive cars.”

“Tell me,” asked Bob Davies. “Was your Dad a one-man operation at the start?” Tom nodded in response. “That was the size of it all right. He started this business with two people: himself a secretary, both of them working in the same room. He told me later he just had a hunch that insurance was going to be a big business, although at that time there were almost no cars on the roads in Canada. The bread and butter of the business was fire insurance, and with so much wood construction around, it was certainly needed! Back in those days there were only forty fire insurance companies in the whole of the country, most of them British.”

Tom paused as a thought occurred to him. “And guess what the total premium income was for all of ’em? Just over $14 million.” He chuckled quietly. “Now remind me, how many companies do we have in this industry now..?”

“Around 230 the last time I checked,” I chimed in. “And the total premium income for the industry’s over $30 billion. But tell me, Tom, when did you join your dad in the firm?” Tom looked over at me. “Now that’s a date I definitely remember! It was June 1, 1956. I was twenty-four years old, fresh out of university, and raring to go. By that time this firm had grown to eight people and over the years we’d moved three times to new and larger offices.”

“And our industry has changed quite a bit too, since you’ve been involved, hasn’t it?” Fred added. Tom nodded agreement. “It certainly has. When I was brand new and still learning the ropes, I thought we were a pretty decent-sized agency because we wrote about a $1.5 million of business a year. Today, that’s peanuts.” He took a quick swig of coffee. “I tried to learn not only how to survive, but how to prosper in this business. I can recall my dad stressing to me how important it was to follow the rules. He used to hand over the latest Canadian Underwriters’ Association bulletin for me to read as if they were holy scriptures. Of course, back in those days – back in the 1950s and ’60s – most of the major insurance companies belonged to the CUA, and they ran a very tight ship. Nobody questioned their pronouncements, their rate increases, or their underwriting rules, predictions and warnings. They were the kings of the insurance castle and you didn’t ever forget that!”

“Speaking of kings,” Bob Davies offered, “Even I can remember a few of the presidents of the insurance companies: they ran their operations like old-time feudal lords. Their word was law. Heck, I can remember myself going to the annual meeting of our provincial brokers’ association and the keynote speech was given by the CEO of a British insurer. He was a very forceful and intimidating man used to getting his own way – inside his company and outside. Well, he swept into the hotel dining-room, told us all that times were very difficult, that competition was ‘getting out of control.’ He told us that because of this, his company was cutting auto commissions by a whopping three percentage points, and was recommending that all insurers do the same.” Bob shook his head in amazement at the memory. “And you know, when he finished, we actually applauded the man!”

“Somehow I don’t think that would happen these days!” I chipped in, and everyone’s head nodded in agreement. “But the face, and the pace, of competition really began to change our industry back in the 1950s and ’60s didn’t it?” Fred suggested quietly. “Oh yes,” Tom replied. “Along came the Independent Insurance Conference which had many of the insurers who didn’t like the old boys’ club of the CUA.” He laughed. “I used to think they just looked at the CUA rates, cut 10% off them, and skimmed off as much business as they could get! Then, of course, there were also the ‘independent independents”, a bunch of companies who felt they could operate nicely outside all that imposed discipline and cont rol. So they shaved rates even more…”

“Which all made for a pretty competitive market,” I added. Tom nodded affirmatively. “Oh yes, it did, Dave. But then, a little later on, the direct writing companies suddenly burst on the scene. When they arrived in Canada, ready to cut out independent brokers like us and write the business direct, the ‘you-know-what’ really hit the fan! I can remember sitting in at meetings of our provincial brokers’ association and hearing dire predictions that we were all going to be squeezed out of business in 20 years! People were worried. I was worried. At first, their auto insurance prices were lower than anything we could offer, and they began to take a chunk of our personal auto business away from brokers like me every year. In response, of course, our own companies slashed auto commissions to fight this rate cutting. For a few years we thought it would never end.”

Beside me, my boss Fred Wilson began to chuckle, and when we looked at him, he said, “pardon me, but all this talk of rate cutting suddenly reminded me of a silly joke we used to play on every new employee who joined the company’s underwriting department. This was ‘back in the days’ we’re talking about, when the direct writers entered the marketplace and all the talk was of rate cuts. Anyway, at some point, this new chap would be sent looking for the ‘rate-cutter’, having been told that Bill, or, George, or Charlie in auto had it last time it was used. We’d all sit around giggling when the poor young guy went off on his mission impossible!” We all laughed together, and then I threw my next question at Tom. “Tell us: what do you feel has been the biggest change to our business over the past forty years or so?”

Tom cocked his head to one side and scratched his chin thoughtfully. “It’s a good question, Dave. You should probably have given me a couple of days to think it over and to come up with a sensible answer.” He shrugged his shoulders. “But, off the top of my head I’d say that the increased pace of our business is almost overwhelming at times. To be honest, I hardly recognize the business we do today with the way we used to handle things back in the 1950s and ’60s. Heck, we used to mail policy apps into our companies! And can any of you remember when we used to have three-year policies paid in annual installments? Or, before the homeowners’ policy, remember the good old composite dwelling policy? If the policyholders bought any two coverages, they got a 5% discount. If they bought three coverages, they got 10% off, and so on. Boy, these were the generous old days, weren’t they?” He took a mouthful of coffee, then carried on. “I’ve also seen a lot of consolidation in our business over the past 40-odd years. Smaller, less efficient brokers have been squeezed out, or bought out. Same with some of the marginal insurance companies. They didn’t have the capital, or the expertise to modernize so they were absorbed by the big fish in the pond…”

At this moment, Tom’s son Michael came walking over to join our group, and to stand beside his father who continued with his reminiscences. “I think our business has become a lot more professional. Michael here went to university and got his business administration degree before joining the firm and immediately began to work towards his C.I.B. which he now has. That makes sense to me. Our business is so demanding nowadays that you can’t afford to skate along with basic skills. If you do, you’re sure to be in for a struggle, and chances are you’ll be left behind.”

There was silence for a moment as some other guests came over to wish the two Johnstones well, and after they had left, I posed a question to them. “You’ve both seen changes in how our offices process and administer business, but I’d be willing to bet that you, Tom, have seen the most dramatic changes.” The elderly owner laughed out loud. “Isn’t that the truth, Dave! Michael here never saw it, of course, but believe it or not, we used to keep a handwritten transaction journal of all the business transacted in the office on any given day. And heaven help us if that journal ever went missing! As well, most of the information we received, or recorded, was written down by hand.” He smiled. “But, slowly photo copiers replaced the carbon paper we’d all used forever, and I guess all the secretaries in the land got down on their knees in thanks, thinking of those times when they had to try to make five or six carbon copies of a single typewritten letter.”

“And that was around the time we companies were converting from the old keypunch cards to computers,” Fred interjected. “Remember what they promised us when all that converting was going on? They said we’d all soon be working in a paperless office? Hah!” Tom smiled in agreement. “Yes, nowadays everything’s electronic. We started off with a single computer system provided to us by one of our lead companies, thanks to the volume of business we’d placed with them, and since my son was very enthusiastic about computers we sort of stumbled along learning about software and programs and downloads and uploads. Michael’s pretty comfortable with computers and all that they can do for us. Once he showed me what computers are capable of doing in processing data and keeping track of our operations, we were hooked. As I said, our first one came to us free, with some strings attached, from a company. But, as we quickly figured out how useful they are, we kept adding on. They certainly make business life a lot easier.”

As Tom spoke, a melodic jangle of music rang out, and I saw Michael dig into his pocket for the cell-phone which had just rung. He raised his eyebrows, gave us a quick apologetic grin, and flipped the phone to his ear as he moved off to one side. His father watched him leave, raised his eyebrows and shook his head. “Well, speaking of things that make your life easier, cell-phones could be one of them. But, you know, there are times when I have my doubts…”