Life Insurance You Could Just Hug?
The new logo looks like a text message icon for a hug. Alabama’s largest non-bank public company hopes the rest of its new corporate strategy is just as streamlined.
Rich Bielen, CFO of Protective Life, foresees more acquisitions in a future of continuing industry consolidation.
In March, Protective Life Corp., the Birmingham-based life insurance company, began rolling out a new brand and customer service strategy. On the most visible level, there is a new logo. It looks like a stylized hug, and company officials hope it will boost customer recognition of the “Protective” name on its bit of the blizzard of documents that financial companies churn out.
More fundamentally, explains Vice Chairman and Chief Financial Officer Rich Bielen, the initiative is aimed at making those documents more understandable, while increasing Protective’s understanding of its customers—some 6 million of them. Ultimately, he says, better customer information will mean less of the increasingly costly business of transferring of risk to reinsurers.
We also talked about Protective’s long-running strategy of growth by acquisition. In 2010, Protective bought United Investors Life Insurance Co., a unit of Torchmark Corp., for $240 million. In the $321 million acquisition of Royal Bank of Canada’s insurance affiliate Liberty Life by Athene Holding Ltd., also in 2010, Protective coinsured all the life and health insurance to make the deal. In 2006, Protective picked up Chase Insurance Group from J.P. Morgan Chase for $1.2 billion.
Protective, founded in 1907, is Alabama’s largest non-bank public company, with 2011 revenues of more than $3.6 billion. Bielen, a CPA, joined the company in 1991, to oversee
Protective’s securities portfolio. He was named chief investment officer and treasurer in 2002.
We rolled out our new strategy and brand at a national conference in which we brought our annuity and life distributors and wholesalers into Birmingham in late February. That was also the beginning of this for our employees, with meetings in all of our offices. And we did a road show. Since that time, we have been reaching out to more individual distributors and wholesalers, going out to talk to them about our branding. The answer as to how effective it will be with the customer will come over the next few years.
In looking at consumer surveys, we found that membership is not growing much, but 50 percent of those surveyed said that they need more life insurance. Also, industry surveys for retirement products—which we also provide—show that Baby Boomers realize they do not have enough retirement savings. We looked at this gap and saw a great opportunity to deliver products to the consumer.
The reason for the gap is probably that we have made the products too complex. If you buy one of our life insurance products, you get a multi-page form. And people have a difficult time reading those and understanding them. If we can find a way to simplify the process, we can translate that into sales. Working with the legal department, we are in the process of redoing many of the policy forms to shorten them. We’ve also been working over the past couple of years on creating electronic delivery of forms. And we’re doing a study of all of our call centers and will be turning those into contact centers over time.
We have put into our budget, for a combination of the expenses of the marketing campaign and upgrading our call centers, $15 million to $20 million over the next few years. That’s compared to an estimated pretax earning in 2012 of $450 million.
Also in our strategy is a focus on how we can do a better job of including our distributors in the process of customer service. What we like to do with our distributors is to be important to them. We help them to optimize their own business and help them get their sales accomplished.
We have weathered the recession extremely well. Our stock price is at a 52-week high, and we recorded a record level of net income in 2011. We were able to take advantage of distress in the marketplace with two acquisitions in 2010, and those two acquisitions are expected to contribute $80 million in earnings to the company in 2012. From a financial point of view, everyone was impacted by the financial crisis, but we have quickly responded and have recovered substantially from that period and have a lot of momentum going forward. We’re in a position to evolve our strategy.
In the acquisition of United, Torchmark deemed United not to be a strategic part of their business. In the case of Liberty Life, which was owned by RBC Bank, they—being a large Canadian bank—decided the U.S. life insurance industry was not something they wanted to continue to do business in. We have done two bank acquisitions in recent years—the RBC sale, and, back in 2006, J.P. Morgan Chase sold us the Chase Insurance Group.
We’ve done 46 acquisitions of one kind or another in the last 40 years. It’s become a core expertise. It’s owing to a combination of: We understand the systems and the policies, and the sellers, like RBC or Chase, are very concerned about whom they sell their business to. They know we can service those accounts. And it is a strategic advantage for us to be able to consolidate them into our organization. We track the earnings of our acquisitions separately and believe that it will be our biggest profit generator in 2012.
A combination of traditional life sold directly to consumers and life policies picked up in acquisitions represents about two-thirds of our earnings. Part of our decision to pursue our strategy of acquisitions is that it gives us an opportunity of serving customers we already have.
We’re continuing to look at possible acquisitions as they become available on the market, and we’re thinking there will continue to be more strategic dispositions over the next few years, so that there will be a lot of opportunity.
In the past four years, we have dramatically reduced our asset allocation to commercial mortgages. At one time, it was as high as 30 percent. Now it’s down to 15 percent. The emphasis has really been on highly rated corporate bonds. We don’t have any exposure to sovereign debt. And we don’t have much invested in corporate bonds of foreign companies.
We have reduced our reliance on reinsurance, as we have developed more knowledge around our consumers. We are retaining more of the mortality risk than a decade ago. That’s something worth emphasizing: The whole theme of understanding the customer and serving them right allows us to reduce our reliance on reinsurance, which is more expensive than it has been a few years ago.
Chris McFadyen is the editorial director of Business Alabama.