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Outsourcing Public Relations And Marketing
It’s often difficult for an agency to hire an in-house PR specialist. And assigning PR responsibilities to an existing employee has its drawbacks. This document by Henry Stimpson examines the advantages and disadvantages to hiring an out-sourced PR consultant. Just about every company — insurer, consultant, hospital, or zoo — wants to get more coverage in the news media as part of its marketing plan. Having your organization’s products, services, and people featured in relevant media builds credibility and works hand-in-glove with other marketing efforts. Who produces the most public relations (PR) bang for the buck? Is it a staff PR person, a traditional PR agency, or is there a better choice? Today, more organizations are using out-sourced public relations professionals — independent contractors who work with a small cadre of clients. Why hire independents? The advantages include responsiveness, experience, dedication, and lower costs for more results. With out-sourcing, a company doesn’t pay an employee’s salary and benefits, nor the hidden costs of office space, phone lines, computers, furniture, and support staff. A company might not be able to justify hiring a full-time PR person, but it can justify buying the services of a highly skilled professional without the obligations of employment. In-house PR staff often get pulled into time-wasting activities. Internal meetings, memos, and e-mail can be so pervasive that a staff PR pro might have little time or energy to court the media. An independent doesn’t have those distractions. Additionally, having multiple clients gives an independent an advantage with the media. Often, I’ve spoken with a reporter regarding something that Client A was doing. The reporter wasn’t interested, but was very interested in Client B’s new service. This kind of give-and-take benefits both reporters and clients. Outsourcing is also more cost-effective than hiring a traditional agency. Most independent PR consultants have low overhead, working either from a small office or at home. You’re buying the individual’s brainpower, experience, and skills instead of subsidizing a fancy office and perks. Traditional PR agencies make their profits by marking up their employees’ time. In most of them, people just a few years out of college do the bulk of the work. The agency pays them modestly, as befits their experience, but bills companies at top rates. For clients, it’s a gamble. You don’t know whether your young account executive is capable or not. And if you do get a capable person, you’re likely to be disappointed in a few months or a year when the individual leaves for greener pastures, leaving you to educate a new person about your business and industry. Most independent PR people accumulate many years of successful experience before launching their own businesses. The out-sourced PR person can and should show the client a solid track record. Responsiveness is another plus. You can get short shrift in a traditional agency if you’re one of its smaller clients. Because an independent PR person has a handful of clients, each becomes a big fish in a small pond meriting prompt attention. They don’t require a big staff. In the old days, you needed a fleet of typists and helpers. Today, communication technology — e-mail, fax, computers, and the Internet — lets one person accomplish a lot. Of course, no individual can do everything. When they need more bodies, an independent PR pro can simply rent the necessary resources, such as media-distribution companies, clerical help, graphic designers, and photographers. Additionally, many independents work with other PR people, who can provide specialized expertise. HOW OUTSOURCING WORKS The ability to hire an independent PR pro for a project is one of the advantages of outsourcing. You can start and stop as desired. Ideally, however, there should be an ongoing program because companies need continuous PR. For a continuing relationship, a set monthly fee is the most satisfactory arrangement for both the client and the service provider. Unlike hourly billing, this gives the client predictable costs and shows the PR pro that the client is committed. An out-sourced PR person does the same things that a staff professional or traditional agency does, from advising you on overall strategy and creating a PR plan. To implement the plan, the PR pro will establish and maintain personal contact with reporters and editors at relevant media; develop and pitch story ideas; write and place news releases, articles, and case histories; set up interviews with your company’s executives and experts; and perhaps plan events and press tours. The out-sourced PR person might also produce your newsletter, Web site, annual report, brochures, or other marketing materials. Does geography matter? It’s perhaps slightly preferable to have your out-sourced PR person nearby, but getting the right one is more important than proximity. Most of the time you can do everything by phone, fax, and e-mail. Are there any drawbacks to out-sourcing your public relations functions to an independent professional? If you have a qualified, capable consultant, there are only two. First, the individual might not be readily available during vacations. With a little planning, that shouldn’t be a problem. Second, your out-sourced PR person might get run over by a truck someday or decide to take off for Tahiti forever. Not much you can do about that, but it’s a pretty small disadvantage considering the advantages of out-sourcing.

Outsource Claims Management & Realize Reduced Costs
Within most agencies and insurance companies, claims servicing ranks near the bottom of the organizational hierarchy. Why? One reason: Claims don't bring in revenue. For agencies, the primary source of revenue is commission on premium sales. For insurance companies, it's the return on invested premium dollars. Here's another reason: Most resource dollars have already been spent for account acquisition and policy management-making claims organizations suffer in a number of ways (for instance, inferior automated systems and nonprofessional staff). This situation has created a cycle of low performance, with consumers ultimately bearing the cost and aggravation of an ineffective business model. CASE HISTORY Let's examine the process for handling Auto Physical Damage claims as it might happen today. Here's the experience of someone we'll call Joe: Joe bought his Auto insurance from Midwest Insurance through the Middletown Agency, whose principal is Joe's lifelong friend. Last month, Joe was in an accident that damaged the right rear side of his new Mercedes. He called Midwest, who took the accident report and called a tow truck, which took the car to ABC Body Shop. Midwest then referred the claim to the Middletown Agency. When Joe called the agency to inquire about ABC, he was referred to Sally, who handles claims. Sally said that Middletown would never recommend ABC and that he should take the car to Prime Auto Body or Top Notch Auto Body-the agency's usual recommendations. Joe had the car towed to Prime. ABC told him that they would send him a bill for an appraisal, which they were authorized to perform based on the tow job order. Prime performed its own appraisal, which was sent to Midwest and Middletown. Midwest then informed Middletown that Joe had to use ABC (because its appraisal was lower) or that Prime had to match ABC's price (which was based on after-market parts). Prime refused to lower its appraisal, which was based on OEM parts. After three weeks, Midwest agreed that Joe could have the car repaired at the body shop of his choice, but insisted that he accept after-market parts. Joe refused. He called his old friend Bob at Middletown Agency and asked for help. Bob was unable to resolve the issue with Midwest. After a heated discussion, Joe decided to have the car repaired at Prime and pay the difference between the Prime and the ABC estimates. Repairs were finished in six weeks, but when he picked up the car, Joe noticed that it didn't handle properly. An inspection by the Mercedes dealer revealed that damage to the wheel assembly had never been repaired. Joe returned the car to Prime, who began renegotiations with Midwest. After four weeks, Prime was able to complete the repairs. What was the final result of the claims experience? As a result of this claim, not only did Joe have to pay $2,800 to get OEM parts, but the time he devoted to solving the problem came to $3,500 in lost earnings. (As a corporate tax accountant, Joe's time is billed at about $350 per hour.) His irritation was immeasurable. Midwest Insurance and the Middletown agency lost a good client. And Bob nearly lost a friend. While Joe's example may seem exaggerated, it does happen and it illustrates how flawed the system is. But there's a better way. It's called 'managed auto care,' and a number of companies provide it to insurance companies and self-insured fleets. MANAGED AUTO CARE To understand managed auto care, let's examine how one company, First Priority Group (FPG), of Plainview, NY, handles its managed auto care program. For the past 16 years, First Priority Group has been providing managed auto care services to self-insured fleets for Fortune 500 companies. Under the FPG service model, a driver in an accident simply calls FPG's 800 number, where the report is taken and all service arrangements are made. Services include towing, door-to-door pickup and delivery of the rental car, appraisals, scheduling, repairs, a lifetime warranty on the repairs, and enrollment in the company's Driver Shield™ program: a package of services valued at about $400. FPG has developed a network of more than 2,400 body shops that are certified and under contract to perform repairs according to strict industry standards. FPG routinely performs quality audits with customers and unannounced on-site inspections of the shops. Any shops not meeting the company's performance guidelines are dropped from the network. The company is able to improve quality and reduce claims costs in several ways. The company electronically accesses digital photos and appraisals of auto damage directly from the body shops. FPG then validates the appraisals using industry-standard appraisal- and repair-estimating software. Discrepancies are resolved on the spot. The repair is scheduled, and all service arrangements are made for the insured. Once the repair is completed, inspections are performed to ensure quality. Payment is made to FPG, which then pays the body shop after deducting a small processing fee. FPG's organization includes a special subrogation and salvage division, which ensures capture of all available claims dollars. The company's tight estimating and quality-control process results in repair cost reductions of 10% to 30% (compared against industry averages). In addition, the repair cycle is significantly reduced, thus saving rental fees and reducing customer inconvenience. For self-insured fleets, there's no insurance company involvement throughout this service cycle. Does FPG achieve the same results working with insurance companies? Yes, but it takes the insured's cooperation. In most states, insurance companies are not permitted to require use of a particular shop. That choice is left to the insured. Consequently, FPG must convince the insured to use one of its shops. This happens about 30% of the time, and when it does, results are the same as for self-insured fleets. The auto managed care program with insurance companies is called 'Direct Repair Program' (DRP). The benefits for insureds under DRP are the same as they are for self-insured fleets. The benefits for agencies and insurance companies are that DRP can effectively improve customer service while reducing channel costs associated with auto claims. Insurance companies derive savings from reductions in two interrelated areas: processing costs and settlement costs. The latter is the more important component. IMPACT OF DRP ON CARRIERS' CLAIM COSTS In insurance companies, average total premium and earned investment income is intended to cover policy-acquisition costs, premium taxes, general overhead, reinsurance costs, allocated and unallocated loss adjustment expenses, and claims settlement costs and profit. According to studies published by McKinsey and Co., the greatest potential for savings within this cost mix is in the reduction of claims leakage, which is caused in part by inadequate quantity and quality of staff, improper supervision, delays in handling claims, and improper investigations. Claims workload within insurance companies is comprised of 'arisings' (new claims) and 'pendings' (claims being processed). The unallocated loss adjustment expense just referred to is essentially staff cost, which is a function of pending claims. Adjusters 'hug' these pendings, since they know they'll lose their jobs when the pendings go away-which means that there's an inherent disincentive to resolving claims quickly. Thus the arising/pending ratio hovers at around 3:1 to 5:1 in most companies. This is perpetuated in large insurance organizations that still value staff size over real productivity, and continue to reward inefficiencies by default of outdated strategies and policies. Progressive, by comparison, uses a modified DRP model and maintains an arising-pending ratio of 1:1, the best in the industry. Progressive also betters its peers on loss adjustment expense by 1 or 2 points and loss ratio by 5 to 10 points. Using DRP, insurance agencies derive savings because the amount of time required to manage their auto claims-from first report through closing-is reduced. How much time you can save or put to other uses depends on your agency's auto-claim volume and how much of the claim is handled by your agency, as opposed to the insurance carrier. Most important, however, is the improvement in your customer service, derived by involving the services of experts in managed auto care. And your agency is not on the hook for making shop referrals to its clients. The clients still make the final choice of which shop to use. SOME CAVEATS Many agencies have a relationship with one or two shops and promote them heavily. Therefore, one of the caveats to using DRP is that your agency may have to give up the benefits it used to get when your clients were referred to these preferred body shops. In addition, some insurance carriers maintain informal, preferential relationships with certain body shops. Although these shops may indeed be better than others, as shown in Joe's story, it's not the same as using a shop within a managed care network. Regardless of these prior relationships, all concerned parties should consider the managed auto care model. After all, no agency would want their clients to suffer Joe's experience.

Pitfalls to Avoid in Running a Captive Premium Finance Company
You've made the decision to form a captive premium finance company. You've also chosen to run your operation either by outsourcing to a third-party vendor or using software to run the operation in house. Chances are that your lending arrangement and state licensing are also in place. You're now ready to get started and you want to book your first loan. Before you open your doors for business, take a moment to consider some important factors in this new frontier of insurance premium financing. PRICE AND TERMS Building a sound game plan and understanding the components of your business are critical. The fundamental choice of the right interest rate, for example, is an important factor in determining your overall return. Make sure that you charge an appropriate APR that will not only cover your borrowing costs, administrative overhead, and other expenses, but also provide a healthy return on your investment. The down payment and installment terms you offer will affect your overall return. For example, playing it safe and offering a 25% down payment and nine installments on your business will keep you above water in most circumstances. In specific cases (i.e. certain coverage types or geographic regions) you might be able to offer a lower down payment; but in other cases, you'll want to require a higher down payment. The same holds true for the number of installments — in some cases, nine or even 10 installments is just fine. In others, seven or eight might be a more prudent decision. Your outsource service provider and/or lender should be able to provide you with a pro forma income statement that will help you determine the terms to offer and the return you can expect from your business. TYPE OF COVERAGE AND POLICY PROVISIONS Believe it or not, one of the most important factors in accurately determining the down payment and number of installments on a loan involves a clear understanding of the provisions of a particular policy. It would be nice if every policy you plan to finance had a 10-day cancellation, no minimum earned premium, no auditable provisions, and was earned on a pro rata basis. As you know, this is seldom the case. What you might not know is how these provisions can affect the financing. For example, if a policy exhibiting a short rate return instead of pro-rata return, is cancelled, you'll receive 5% less in unearned premium. If you financed a $10,000 policy, this means that your finance company might be as much as $500 short on the loan balance. This difference will come out of your pocket unless you're lucky enough to convince the insured that they need to pay it. In California, for example, the state requires a pro-rata return when a policy is written by an admitted carrier and financed by a California-licensed finance company (however, this is not the case in all states). Other policies such as Liquor Legal Liability and D&O might have provisions that make the policy either fully earned or have an accelerated earning provision, thus making any expected return of premium lower then you expect. The effect of reduced unearned premium can eat into the profits of your company. There are other policy coverages that you will want to become more familiar with, as well. Consult with your vendor; if they're worth their weight, they should be able to help give you sound advice and feedback in this area. CARRIER INSOLVENCY Although the risk of an insurance carrier becoming insolvent is very low, you still need to consider it in running your premium finance company. It's advisable to finance premiums with carriers that have strong A.M. Best or Standard & Poors financial ratings and size. Most commercial premium finance companies will only consider financing premiums if the insurer has an A.M. Best rating of B+ (Very Good) or better and a financial size of at least V (capital, surplus, and reserve funds between $10 and $25 million). The standards you set for your own company will depend on your risk tolerance. KNOW YOUR STATE LAWS Let's say that you're running along smoothly and financing a lot of business when you get a phone call from the state governing body that oversees financing for the state(s) in which you operate. The regulatory body(ies) will want to conduct an onsite audit of your operation. If you've outsourced the servicing, the service provider usually handles the audit. Ensuring that you're charged the correct interest rates, set the correct late fees, and sent back all refunds exactly as required by the statutes will keep the regulators at bay. Be sure to choose a vendor that has a solid understanding of the laws in the states where you operate. The software, whether you outsource it or keep it in house, must comply with such items as maximum allowable interest rates, minimum and maximum late charges, and when cancellation notices can be mailed to the borrower. However, because it's your responsibility and money on the line, take a little extra time to become familiar with the laws. SUMMARY Any endeavor that offers a considerable upside potential for profit requires a solid understanding of the risks and operational requirements involved. Captive premium financing is by no means risk free; but you can greatly mitigate the risk by doing your homework on the vendor with whom you chose to work, the states in which you plan to finance business, and the type of business you'll be financing. Captive premium finance companies have usually provided their owners with a tremendous return on their initial investment. It's up to you to determine when you're ready to start earning the additional profits from the business for which you've already worked so hard and paid so much to bring in.