A familiar face in the Massachusetts insurance industry for over 40 years, most insurance professionals know Sumner Gilman for his many years serving on the CAR Governing Committee. Aside from representing the Exclusive Representative Producers (ERPs) of Massachusetts on the CAR Governing Committee for over 30 years as the owner of Economy Insurance Agency, Mr. Gilman is also the founder and owner of Thrifty Financial Services. With so much experience, Agency Checklists asked him to share some of his thoughts about being an urban agent in Springfield, why premium finance is still a good bet for agents and what his overall outlook on the state of the Massachusetts insurance industry is. Read on to find out what he had to say…
Your career spans over 40 years in the Massachusetts insurance industry. How did you first get your start?
I originally started with Tom Black as a part-time runner for the agency. I was a young teenager and worked for them from November until Valentine’s Day in February during the height of the season for auto insurance agents. In those days, all auto insurance expired on December 31st. I was in charge of bringing registrations to be certified at the various companies, as well as new business applications to the assigned risk plan.
After college I went back to the Tom Black Agency and became an underwriter at the agency’s main office at 33 Broad Street in Boston where I sold automobile insurance over the counter. When Tom Black became affiliated with Motor Club of America, I became an outside sales rep. marketing Motor Club of America to agents originally in Rhode Island and Connecticut. MCA was an automobile club comparable to the AAA, but only sold by insurance agents.
I eventually came back to Massachusetts and worked with agents throughout the Commonwealth. If I remember my history correctly, Motor Club of America eventually got into financial problems. As a result of the demise of MCA, the Tom Black Agency organization created Safety. I believe that would be approximately 1978-’79.
I, however, was not personally involved with Tom Black in the transition to Safety. By then, I had already left the agency. In February of 1977, I bought Economy Insurance Agency.
How did you come about to buy an Agency?
During my travels throughout Western Massachusetts as an MCA Sales Representative, I learned that this agency, Economy Insurance, was having multiple problems and that it was for sale. I decided to buy and so formally purchased it in February of 1977.
What kind of agency is The Economy Insurance Agency?
Economy Insurance Agency is a classic inner-city automobile insurance agency, providing auto insurance to consumers in the Greater Springfield Area. It was originally a designated broker and then an exclusive representative producer.
Our agency is located on Main Street in downtown Springfield and our customer base is predominantly inner-city consumers residing in the Greater Springfield Area. I would say 90% of our business is auto insurance. We currently do business with all 19 insurance carriers through the Massachusetts Automobile Insurance Plan or “MAIP.”
Does Economy write anything else beyond automobile insurance?
While 90% percent of our business is auto, the balance is renters and homeowners insurance. We have a relationship with Universal Property and Casualty. They are pretty aggressive, but are very easy to do business with. Their underwriting is not overly restrictive, but we do have some business that is not eligible from Universal, so we write that in the FAIR Plan.[pullquote]The biggest change that has happened to automobile insurance is the advent of competition and subsequently, the direct writers coming into the marketplace [/pullquote]
Is your homeowner’s business primarily written in Holyoke and Springfield?
It is predominantly written in Greater Springfield. I have some business in Holyoke, but not a significant amount.
You have been running Economy Insurance for 39 years now. What are the changes you have seen over the course of that time?
The biggest change that has happened to automobile insurance is the advent of competition and subsequently, the direct writers coming into the marketplace. While we have always had Metropolitan and Liberty Mutual in Massachusetts, we never had GEICO, nor Progressive. Thank goodness we do not have State Farm…yet.
I remember distinctly when Allstate left Massachusetts, but now they are back again. The Commonwealth’s auto insurance mechanism is now exactly the same as it is in the rest of the country.
What has been your agency’s biggest challenge?
The advent of competitive rating has been the largest challenge to our agency business. Prior to April 2009, during the time of “The Fixed and Established” rating system, unless we made an error calculating the rate, Economy’s rate would be no different from any other agent’s when quoting the same territory and coverages. We target-marketed Economy to inner-city consumers and arguably, all we had to do was to open the front door of our agency to do business.
The other major challenge to our agency business is competing with direct writers. In 2015, 61% of the Transfer of Insurance (2A) Notices we received came from direct writers.
Where do you see the Mass. auto insurance industry heading?
I think this is the way the auto insurance marketplace is going to exist in Massachusetts for the future. Of course there is the advent of online companies coming into Massachusetts. They are all chipping away whether you’re an insurance agent or you’re insurance company. Direct writers are chipping away at the market.
How is your own agency Economy currently doing?
I will tell you … I was a little encouraged because Economy’s numbers for January, for the first time in quite a while, were ahead when comparing January of ’16 with ’15 with ’14…Unfortunately, other than January, each month through August we have experienced decreases in unit volume.
But, I have to be realistic … On main street in Springfield there used to be seven or eight automobile insurance agencies. Now there are only two. And we are right across the street from each other. It is all about direct writers now. In addition, every insurance agent in western Massachusetts is now my competitor because of the varying rates by auto insurance companies. Quite frankly, I think it would be reasonable for me to say that I am glad that I am at the end and not at the beginning of my career in the auto insurance business. It is a tough market.
Do you see any possibility for urban agents to expand their offerings beyond personal lines?
In my case, no. We have a couple of commercial auto accounts, but beyond that, we are 90% automobile with the balance being homeowners. Unless an auto agent were to diversify by creating a market in commercial lines, I do not know what else they would do.
You are also the owner of a premium finance company as well…
Yes, Thrifty Financial Services is an insurance premium finance company licensed by the Massachusetts Division of Banks doing business with insurance agents throughout the Commonwealth.
How did Thrifty Financial Services get its start?
Almost 30 years ago, a very dear friend asked me why my insurance agency used a premium finance company in Boston, rather than me forming my own premium finance company. Early in 1988, I took his advice and formed Thrifty Financial Services, Inc., which became licensed by the Mass. Division of Banks in March of 1988. We began officially operating in July 1988 financing only the customers of my agency, Economy.
A few years later, our lender agreed that if we could finance one agency’s customers, why not expand our services to other agencies. So in the early years of the 1990s, we began expanding Thrifty’s footprint. By the summer of 2003, it was apparent that Thrifty was in the process of outgrowing its existing software. So with the assistance of our lender (TD Bank), we found a California-based company – Input 1 – that specialized in providing all of the “backroom” functions of a premium finance company to many finance companies across the country.
So now our corporate headquarters are in Springfield, while our service center – Input1 – is located in Woodland Hills, California.
What type of premiums does Thrifty actually finance?
Thrifty Finance provides premium financing to customers of insurance agents across the Commonwealth for auto, home, FAIR Plan, Commercial lines and Mass. Workers’ Compensation.
What do you think has been the secret of Thrifty Financial’s success?
Thrifty has grown over the years for a combination of reasons. Initially, my having been the President of the E.R.P. Association was helpful. Additionally, my involvement in CAR also helped attract agents to Thrifty. Finally, our Vice President of Marketing, Dick Vaughn, also has been very successful over the years marketing Thrifty to producers all across the state.
Thrifty really distinguishes itself from other premium finance companies, however, because of our integrated exclusive partnership with Winrater. This is an absolute game changer for agents who use the Winrater product to rate automobile insurance. When the agent is premium financing the insurance, the information entered into winrater to quote the insurance is automatically populated onto a finance agreement. The agent merely has to click on the Thrifty option and the contract will be printed and signed.
All insurance producers in Massachusetts can benefit from using us. We give them the benefit of offering a flexible payment plan to their customers. In addition, multiple insurance policies can be financed with one premium finance agreement.
Are there any risks to agents for using premium finance in the agencies
No. There is no added risk to an agent who premium finances his business; any more than an agent who has his business directly billed by the carrier.
What should an agent look for in choosing a premium finance company?
I think the most important consideration an agent should look for in a premium finance company is the service that will be provided to the agent and the agent’s customers. The agent should also consider the value of the relationships that exist between the finance company personnel, the insurance agent’s employees, as well as the insurance company employees, really relationships that can only exist as a result of years of experience.
Has Managed Competition had any impact on the premium finance business?
Managed Competition has had some impact to the premium finance business in that consumers who have left their agent to insure with a direct writer are being directly billed by that company. This has created some negative impact to Thrifty.
Where do you see premium finance companies going in the future?
Looking forward, I think there will always be a market for a premium finance company since Massachusetts has some unique requirements. Firstly, there are always going to be consumers in the Commonwealth that need the assistance that a premium finance company can offer, namely the ability to make monthly installments. Secondly, in Massachusetts, if a consumer’s auto insurance has been canceled for nonpayment of premium in the past two years for default in payment, the statute allows all insurance carriers to require 100% of the premiums paid up front before re-insuring that consumer. Most consumers cannot afford this on their own, but they can with premium financing.
Do many companies do that? Or all companies
The statute says they can. Not every company avails themselves of that. There are some, but not every single carrier.
Does Thrifty Finance own other premiums beside auto premiums?[pullquote] I think there will always be a market for a premium finance company since Massachusetts has some unique requirements [/pullquote]
Yes. We premium finance homeowner’s, commercial. We also premium finance the FAIR Plan and the Mass. Worker’s Compensation. In essence, if the insurance product has a return premium, we can finance it.
How competitive are your rates with the rates of other premium finance companies?
In Massachusetts, the interest rate is fixed at 18% by the banking department. National premium finance companies use their own money, so they are very competitive. Their rate is 7-8% in comparison to our 18%. I can charge less, but I can’t charge more than the 18%.
Would that be on the personal line auto only or is that on all of it?
No. Commercial, too. But, on our core business, auto insurance policies, we are competitive because of the customer demographic and the lesser late fees allowed premium finance companies as compared to installment billing plans for voluntary carriers and the MAIP. The reality is that many of the risks insured through the MAIP have to budget their insurance premiums. On average, Thrifty sees these insureds having two to three late payments plus a possible notice of cancellation issued and rescinded over the life of the policy. The MAIP charges these insureds twenty-nine dollars for any late payments, any bounced checks or any cancellation notice. When that insured is earning a relatively low salary or hourly wage, three, four or five such twenty-nine dollars added to their insurance bill really hurts them.
When they premium finance, Thrifty or its competitors, can only charge, by law, 5% of the installment or $5 maximum, whichever is the lesser. Likewise, a premium finance company cannot charge more than ten dollars for a returned check while the cancellation fee is only five dollars but that can only apply once for the life of the premium finance contract.
Aside from your businesses you are also a long-time appointed member of
Commonwealth Automobile Reinsurers Governing Committee…
My original involvement with CAR began in 1984, when I was first appointed to the Market Review Committee.
How did that appointment come about?
A gentleman by the name of Arthur Remillard, who was the founder of Commerce Insurance, appointed me to the Market Review Committee. He was the Chairman of the Governing Committee at the time.
How did he happen to pick you?
I believe he chose me first, because we were acquainted with one another, business-wise, and second, based on my involvement with the ERP Association.
What is the ERP Association?
Back in the days of ERPs, we were the only organization in Massachusetts representing the interest of auto insurance agents who were exclusive representative producers appointed by CAR to servicing carriers . The ERP Association monitored the industry on behalf of our membership. More specifically, we monitored the auto insurance industry and helped shape some of the rules and regulations affecting ERPS at that time. The majority of our member agents had been designated brokers who were then re-branded as ERPS.
Does this Organization still exist?
No. It faded away as a result of the transition to “Managed Competition.” For a while after the transition, there was a successor organization called the Urban Agents Association. That Association, only lasted for a couple of years, and eventually faded away too because the intense regulation by CAR of auto insurance agents disappeared with managed competition. Now, the main problem for auto insurance agents is competition not regulation. As a result, there really is not a need for an association.
How long in total have you served on the CAR Governing Committee?
In 1986, I was appointed to the Governing Committee by then Commissioner of Insurance Peter Hiam. I was chosen to fill the vacant ERP. seat at the time,being the then President of the ERP Association.
From 1986 to 2004, I served three consecutive six year terms, or a total of 18 years. When my appointment expired in 2004 … I was appointed to fill the seats of two retiring Governing Committee members, which was from From 2004 to 2011. In July of 2012, I was appointed to an additional six year term by then Commissioner of Insurance, Joseph Murphy.
Is this an unpaid position?
There is a small stipend paid to agent representatives on the Governing Committee.
You were present during a lot of the turmoil in the Massachusetts auto market between 1986 to 2004. Any particular things stand out that you could tell us that were things that you would say were exceptional and of interest to other agents?
I think what was the fundamental common denominator among all the auto companies in Massachusetts was operating within the confines of the CAR rules and the taking advantage of those rules. Some companies were adamantly opposed and some companies were very successful and very favorable. Those were also the years with the rise of domestic insurance companies. Commerce was the first. Followed by Premier, Plymouth Rock, and Trust Insurance Company, if you remember.
Safety and Arbella too?
That’s right, Safety and Arbella too. There you go…For whatever the reason, some of the established carriers just could not understand or digest how the business was distributed. Some of the newly appointed carriers were inundated with ERP assignments which ultimately caused their demise. That is a little historical information which I admit I have not thought about in a long time. It is a different world today.
Do you see any possibility that the system will revert back to a Fixed and Established rating system, including assignment of agencies again?
I would love it if that happened, but I really cannot conceive of the industry going backwards. Not that competition as an agent, not that competition is better, but the perception that there are people who are saving auto insurance dollars I think is the reason that the Legislature would not go along with going back to a fixed and established system.
Both Economy Insurance and Thrifty Financial Services are family-owned businesses correct?
Yes, both my wife and I own them.
Are any of your children interested in joining the family business?
Unfortunately, no. My oldest daughter is a speech pathologist and my youngest daughter is a Spanish teacher. Neither one of them could care less about either Economy or Thrifty.
Do you have a perpetuation plan in place?
Yes. We have a perpetuation plan legally in place at Thrifty, that should something happen to me, my wife, Teri, will perpetuate the company, a company that she has been intimately involved in all aspects of since its founding in March of 1988.
Aside from the future of your own agency and premium finance company, what is your overall outlook on the state of the Massachusetts insurance industry?
The existing automobile insurance market is as stable as I have ever known it to be. The only issue facing all of us in the automobile insurance industry, whether a company or agent, is the competition we have from direct writers. I do think independent agents in Massachusetts are learning how to survive in a competitive environment. The reality, however, is that whether you are an agent or company, we are all being negatively impacted to varying degrees.
The trends that I see developing in the agency business that will have a negative impact is the direct relation to how much market share direct writers and on-line carriers can acquire; let alone the impact that State Farm will have if it comes to the Bay State.[pullquote]I do think independent agents in Massachusetts are learning how to survive in a competitive environment. The reality, however, is that whether you are an agent or company, we are all being negatively impacted to varying degrees.[/pullquote]
How about for independent insurance agents here in Massachusetts?
Independent agents in Massachusetts are going to suffer a diminution of personal lines customers to direct writers. In April of 2009, the Massachusetts auto insurance market became comparable to the rest of the United States. In every other state, the proportion of personal auto insurance business written by direct writers is a significant portion of that state’s market share. In other words, my point is that I don’t know why the same will not occur in Massachusetts over time.
As such, my outlook on the state of the independent agency system in Massachusetts is that it will continue to be weakened over time. Since I cannot imagine that the regulatory environment will revert backwards to a Fixed and Established Rate Making Mechanism, in my opinion, the independent agency system has an ominous future.
Well, in the meantime, how should an independent agent interested in using Thrifty Financial Services get in touch with you?
Interested agents should first take a look at the Premium Finance Checklist on Agency Checklists. Next, they can contact Thrifty via our web site at www.thriftyfinancial.com. Or if they prefer, they can also call our V.P. of Marketing, Dick Vaughan, at (978)417-1809, or our Manager, Margie Camacho, in Springfield at 800-987-1011, EXT. 50.
