TAKING THE PLUNGE

Armed with over 50 years experience in the insurance business, Simon Farrow is ready to lead a new company, Thompson General Insurance, onto the playing field. The market may be competitive, he says, but this “virtual company” is mixing state of the art technology with a community-based approach to tackle its larger competitors. Reducing expenses, distributing product more efficiently and developing superior claims service are the way to win the battle, he claims.

When Simon Farrow was approached by Thompson Valley Savings Credit Union president Tom Douglas with the prospect of starting up a new insurance company in interior British Columbia, his first reaction was “Kamloops is a strange place to start up an insurance company”. But, he adds, “the more information I got, the more interesting it sounded, and the more viable,” says the chief executive officer of newly formed Thompson General Insurance.

With over a half-century of experience in the Canadian property and casualty insurance industry, including forming his own company, Paragon Insurance, Farrow says he’s primed for the challenge of getting a new venture off the ground. Coupled with a desire to settle down in a “very community-oriented city” like Kamloops, he found the offer was something he couldn’t refuse. “I’m a good five years from retirement, but my wife and I thought ‘why not set up now, take the plunge.’ I always wanted to start another insurance company, more along the lines of a virtual company using the latest technology.”

Taking the plunge has been a theme in Farrow’s career, beginning with his education at the HMS Conway Naval College in North Wales. While a life at sea was not for Farrow, “I used to get horribly seasick. After six months on an aircraft carrier, I decided to be a landlubber”, he did make the leap across the pond, taking a bank job in Toronto. “After a year of stamping the backs of cheques, I thought there had to be more to life,” he says, so he applied for a position with Phoenix of London Group in the “glamorous” field of insurance. A series of management positions saw him switching coasts until setting up shop with Paragon in 1979.

After Paragon was bought out in 1983, Farrow owned and operated a Vancouver brokerage and then made the switch to personal lines insurance with Zurich Canada. “Most of my life has been in commercial lines,” he says. “The branch manager [at Zurich] asked me why I would want to work in personal lines and I said, ‘I heard the job comes with a parking space.'” But Farrow says personal lines offers a unique challenge: “You have to be looking at managing a portfolio, not looking at individual policies. It’s a book of business, hundreds of thousands of policies, and you set your portfolio based on your underwriting standards. It’s a big picture approach.”

Making the transition

This big picture approach will no doubt come in handy given the fact that Thompson is not starting its portfolio from scratch. Authorized as a property/casualty company earlier this year, Thompson will inherit the personal lines business of Barton Black & Robertson Insurance, a network of 14 brokerages owned by the credit union. The result is $5.5 million in annual net premiums will be transferred to the company in the next twelve months, as policies come due.

The portfolio was originally “farmed out” to several other companies, and “the thought was, rather than sending all this money out of the company, we wanted to retain the risk ourselves.” Those companies who were underwriting BBR’s personal lines, “with only a couple of exceptions”, will continue to do business with BRR, which will “be giving them as much of the commercial business as it can”, he says. Customers will not be forced to move to Thompson if they choose to remain with a large, multi-national company, and the new company will maintain its business with the Insurance Corporation of British Columbia (ICBC), with no intention to sell private auto coverage. “We don’t want to put [customers] to the trouble of having to deal with two different insurers in the event of a loss.”

Where Thompson hopes to make inroads is as a community-based, high-tech company. A self- confessed “computer-buff,” Farrow says the new company will take full advantage of electronic processing as a way to be more accessible to customers and reduce costs.

High-tech solutions

New software will take a customer’s business from the front counter through all stages from “cradle to grave” with a single entry. And Thompson’s website, www.bbr1.com, will be up and running later in the year. Not only will the site offer company information and claims reporting, “the software company [CCT Systems in London, ON] is going to develop a rating engine for people to get quotes,” says Farrow.

And, the hotels, contractors, law firms and the like which serve Thompson will also need to be on-line. “We will only deal with preferred vendors who can deal with us electronically. We want all the filing done electronically as much as possible,” with the goal of having at least 90% of Thompson’s business carried out this way eventually.

As to whether the fledgling company will venture into the unproven territory of on-line insurance sales, Farrow is convinced this is the direction the company should head. “Ultimately the intent is to be fully automated. Whether that will happen in my tenure or not, that is the end goal.”

Thompson is in good financial position to take advantage of technological opportunities, with capital of $4.2 million (well over B.C.’s regulated minimum of $3 million), as well as authorized capital of $10 million, it has one of the highest capital/premium coverage ratios is Canada, he observes.

Staying lean

The high-tech approach means Thompson can keep expenses down, says Farrow, particularly staff costs. Farrow will be working with a staff of just five: an underwriting manager, accountant, claims manager, claims assistant and chief financial officer. “It’s low cost, with very few people,” Farrow admits, but most of the staff comes from BBR and have experience with the portfolio. “We know our portfolio well. We know where our risks are located, we know the color of the front doors of their houses. We feel we have a unique position in the community. We have a good marketshare and [BBR] has been a well-known name here since 1947.”

Part of Thompson’s unique approach to insurance sales is its small area of coverage, not extending beyond a 150 kilometers radius of Kamloops. “We’re very focussed. We don’t write beyond that area.” One of the reasons is to avoid insuring within B.C.’s earthquake zone. “We were able to get reinsurance at a reasonable cost because of that,” he says. It also means that claims service is carried out directly by the company. “This is possible our greatest advantage [over competitors],” he notes, “because [claims service] is controlled from here in Kamloops. No waiting for decisions from Vancouver, Calgary, Toronto — we make our own.”

Farrow does not see a contradiction in utilizing the Internet — which is usually used to broaden a company’s market reach — to apply on a concentrated area. “Use of the Internet for regional service is a natural extension of our plans.” The goal is to cut costs and serve customers efficiently, he says, and “our long-range plans do not call for any specific expansion. We want to stay small, focused and profitable.”

Keeping the company’s operations community-based (even quotes offered through the website will be limited to the specific geographic area Thompson insures) will provide the company with inside knowledge of the customer base, says Farrow.

This “inside advantage” is expected to provide the necessary edge on the competition, he adds. The net result of this unique “small but high-tech” plan, Farrow hopes, will result in reduced expenses and ultimately lower premium levels for policyholders.