Financial Highlights and Financial Difficulties in 2000
2000 Budget Revenue (Retained Commission) Expenses Trading Profit $4,246,000 $4,945,000 ($699,000)
2000 Forecast $2,069,000 $2,786,000 ($717,000)
1999 Actual $1,739,000 $1,988,000 ($249,000)
Sponsored personal lines P&C initiatives began with the acquisition of PHH Insurance Associates in December 1998. This acquisition included exclusive distribution rights to established and un-established prospect channels. Cendant Mortgage, the established and only active program in 1999 continues to show strong growth with 2000 revenues forecasted to increase 20% over 1999. However, start-up programs budgeted for revenue production in 2000, including Century 21, Coldwell Banker, ERA Real Estate and Cendant Mobility have been slow to develop. Fortunately, expenses associated with these start-ups are mostly variable and have been managed to offset budgeted revenue shortfalls.
Plan Financial Highlights and Financial Difficulties in 2001
2001 Plan (prospective) Revenue (Retained Commission) Expenses Trading Profit $2,726,000 $3,201,000 ($475,000)
2000 Forecast $2,069,000 $2,786,000 ($717,000)
The Cendant Mortgage program is expected to continue to produce double digit revenue growth in 2001. Expansion strategies targeting currently excluded states and tighter integration with Cendant‟s mortgage process are designed to increase lead flow in spite of anticipated 2001 macro-economic pressures, such as interest rate increases. A re-tooled, re-launch of failed 2000 start-ups, coupled with new programs scheduled to launch in 2001, are expected to contribute an additional $400K of New Business revenue in 2001. Positive expense leverage gained through increased workflow efficiencies is expected to increase 2001 trading profit over 2000 by 34%. Business Segment Personal property/casualty insurance premiums totaled over $145 billion in 1999. These premium dollars were split among a highly fragmented group of 4,500 P&C insurance carriers. The proliferation of insurance carriers has lead to a high level of consumer segmentation with insurance carriers adopting “niche“ appetites for consumers. Consumers are burdened with finding the carrier with the greatest appetite for their risk profile while carriers are challenged by attracting the right consumer and risk profile for their marketing dollar. Our client base, the broad market consumer, requires a panel underwriting approach of multiple carriers so that the prospect is matched with a competitive product to ensure our marketing spend is maximized.
In 1999, the industry‟s combined loss ratio worsened 2.2% to 107.9% from 105.6% in 1998. This has in 2000 and will continue in 2001 to harden personal lines P&C premiums. The impact of this rate increase is expected to have the greatest adverse affect upon our renewal book of business. Responding to these changes in market conditions, we intend to broker renewals on behalf of our customers. The intent is to “do the shopping” for the insured and move the customer to a new carrier if necessary to keep the account.
Strategic Competitive Advantage The ability to provide consumers with the right choices for insurance will be the primary driver of our success in 2001. Providing choice on a national basis places us in a category with few competitors. Competing mostly against direct-to-consumer insurance companies supported by a single product offer, our choice model enables a higher level of penetration into a group of prospects with diverse risk profiles increasing the revenue potential for a distribution partner(sponsor). Sponsored marketing also demands that an extremely high priority is placed upon service. Service tends to be one of the most important facets of any sponsored, third party program. The sponsor does not want to be in jeopardy of losing their primary business relationship with a customer because of poor service provided by a 3rd party. While the ability to provide choice gets “our foot in the door” with a potential distribution partner, it is the service that keeps the relationship together. Price, as a competitive advantage, is not as critical under the current sponsored marketing programs compared with pure broad market programs. Remembering that the current sponsored marketing model ties an insurance offer with an event (i.e. buying a home), convenience and ease of doing business play an important role in the sales process. Customers are also encouraged to place homeowners premiums into their mortgage escrow account as a retention tool. This tends to lessen the perceived impact of rate increases upon renewal. More important than price, are the pre-existing personal relationships our prospects have with “main street” insurance agents. These relationships are more difficult to break as our current business model discourages the development of personal, face-to-face interaction with consumers.
Distribution Strategy Sponsored marketing initiatives to date have targeted businesses within the real estate, mortgage and banking industries. Specific distribution partners include: Cendant Mortgage; Cendant Mobility; Century 21 Real Estate Group; Coldwell Banker Real Estate Group; ERA Real Estate Group; MtgPro; Moversguide.com; and, Move.com. The distribution strategy that supports these relationships utilizes a branded (private labeled) or co-branded approach with the distribution partner. Distribution channels deployed to drive sales primarily include telemarketing campaigns supported by collateral material either mailed or distributed at point of sale. As increasing numbers of businesses within the financial services and real estate industry move to the internet as the preferred transactional medium, our ability to support sales and servicing via the web becomes more critical. In 2001, a key focus for the business will be the enhancement of our e-commerce applications direct to the consumer - including but not limited to transactional capabilities. These enhancements will not only increase our effectiveness as a comprehensive personal lines insurance program provider for a given distribution partner, the profitability on policies written via the internet will increase as well.
Program or Product Growth Opportunities Baird & Warner
Baird & Warner is one of the largest, privately owned real estate brokerages in the mid-west. Operating predominantly in the greater Chicagoland area, traditional distribution channels will be deployed to successfully penetrate this market – including direct mail, telemarketing and internet support. Projected Revenue Projected Royalty to Client Projected Direct Expense NewCo The mission of NewCo is to be a comprehensive marketing, fulfillment, and information resource to homeowners. The company will focus on delivery of high quality, competitive products, tools, and services specifically oriented toward life-planning events surrounding personal home property ownership and needs, including: insurance, financing, maintenance, enhancement, protection and sale. Specific to homeowners insurance, existing channels of distribution will be utilized, with a heavier emphasis upon the internet as the lead sales channel. (Revenue and expense assumptions have yet to be defined) $82,000 year 1 $15,000 $100,000
Acquisitions There are no specific acquisitions being considered at this time.
Non-Financial Objectives Four key non-financial objectives: 1. Integrated Internet Platform - The internet will play a very important role in the evolving Aon personal lines strategy. Creating transactional capabilities on the web is only part of the overall internet objective. Integrating the web interface with our agency management platform and call center creates a more efficient workflow by eliminating several processing redundancies. It will also increase the level of service and sales support provided via the web. 2. Consolidation of the Homeowners Select business and Auto Insurance Specialists - the intergration of these two entities will be foundation for the entire Aon personal lines strategy. 3. Refinement of Carrier Panel – The continual review of our carrier panel will shift to focus on regional markets as opposed to national carriers. Moving to regional carriers will require the support of the larger Aon personal lines initiative to manage the growing number of carrier relationships. Also important will be gaining market appointments in Texas and Florida – two currently restricted states. 4. Cendant - A joint venture partner on our largest piece of business, Cendant‟s support of the J.V. to date has been unacceptable. A challenge in 2001 will be to increase and leverage Cendant‟s resource to drive much greater revenue into the J.V.
Workflow Efficiencies Comments would be redundant to what is provided by AIS.
Interdependency Growth Opportunities Aon Real Estate Group (AREG) We have been working with AREG and Chubb to develop a renters insurance program for the tenants of large property management companies and R.E.I.T.„s. AREG is in contact with several R.E.I.T.‟s and large property managers interested in this type of program. AREG will be responsible for managing the relationship between Aon and their network of REIT‟s. ASG will act as the administrator of the program and would work directly with the tenants and CHUBB. Projected Premium Projected Revenue Aon Real Estate Services (ARES) ARES is a joint initiative between Aon Risk Services, Aon Warranty Group, and Aon Services Group. The mission of ARES is to establish an integrated approach to the real estate brokerage market. ARES will provide account executive support, senior client management and, most importantly, prospect data with the intent to increase personal lines P&C product penetration in this market. Projected Premium Projected Revenue $871,000 $131,000 $525,000 $262,500
Proposed Staffing Additions Staffing additions contemplated in 2001 are sales and service personnel expected to incrementally increase in proportion with increases in new business production. Training and education specific to these staffing additions includes P&C license training and the support of on-going continuing education requirements.
Corporate Needs Redundant to what is contemplated by AIS. Carrier Relationships N/A