While Response Rates Are Important, Branding Is Essential
Katz is president and chief operating officer of Response Insurance Co., one of a younger breed of auto insurance companies that uses sophisticated direct marketing methods instead of a network of agents to sell policies. The company, based in White Plains, NY, was co-founded in 1996 by Peter J. Wood, the founder of Direct Line, a British auto insurance company that captured 13 percent of the U.K. market in its first 10 years of operation.
As Direct Line established an identity with the image of a red telephone on wheels, Response Insurance also features a red telephone in its commercials that urge viewers to call the vanity number, 1-888-RED-PHONE. Traditional direct response TV marketers tend to use a different toll-free number in each commercial to track media buys on various stations and dayparts.
All of Response Insurance's marketing messages carry the same phone number, which Katz recognizes is an impediment to tracking media on a cost per lead or cost per order benchmark, but he is more concerned about making the establishing the number as a brand. After all, in a world where businesses are becoming virtual enterprises and storefronts are not made of brick and mortar, but of Web pages and toll-free numbers, raising the awareness of the vanity number is equivalent to growing the business.
"It's ongoing debate within the company about using different 800 numbers, and it may actually happen," Katz says. "Right now, we want to take as many opportunities as possible to promote the brand, our 'light and friendly' attitude and the value proposition of what we offer."
Projecting a "light and friendly" attitude is essential to Response Insurance, especially as it takes on entrenched competitors that feel threatened by the growth of direct response marketers of insurance, which are expected to have 17.2 percent of the auto insurance market by next year, according to Conning & Co., an insurance industry analyst.
State Farm, which has an estimated 21 percent of the $110 billion-plus auto insurance market, is not taking the assault on its business laying down, though. The company has commercials airing now that include Connie Francis' singing "Who's Sorry, Now?" and also depict a car owner stranded on a desert island without the personal help of an insurance agent. A voice-over in the spots decries direct marketers of auto insurance for being impersonal and unresponsive in an emergency.
Katz is aware of State Farm's commercials, but he does not consider them a direct attack on his company.
"People will buy the way they like to buy," he says. "Some will continue to want to buy from an agent, but there's quite a big market for both kinds of companies. Our goal is to keep to our own vision and stay light and friendly."
From Burgers to Insurance
The importance of maintaining a "light and friendly" attitude is rooted in Katz's experience as a manager at McDonald's Corp. after college. He graduated in 1981 from the State University of New York - Oneonta with a bachelor's degree in economics and a dual major in literature. The next three years out of college he worked as a night manager at a McDonald's franchise and moved his way up to store manager. While he eventually felt limited in his chances for further advancement, his experience at the fast-food chain continues to impact the way he manages Response Insurance.
"McDonald's style of management is very people-oriented," Katz says. "A lot of people look at them in terms of technology and science of inventory control, but really, it's all about people and how important it is to have good people that give a customer a real positive experience - the experience of going into a McDonald's."
His next job as a field representative for Equifax Corp.'s office in Albany, NY, brought him closer to the insurance industry. His responsibilities included investigating insurance claims and gathering facts for insurance companies, not all of which have in-house investigative capabilities. Although Equifax's core business is in credit reporting, it also has mailing list services and other kinds of information to support direct marketers.
He eventually moved into sales and worked his way up through the company to the position of senior national account executive. He handled several of Equifax's largest clients, including Primerica (now Citigroup), New York Life, Metropolitan Life and Prudential Insurance. While working at Equifax, he earned a master's in business administration from St. John's University in Queens, New York.
He left Equifax in 1993 to join its rival Trans Union Corp., the data company in Chicago, which was preparing to launch its own insurance division. Katz spearheaded the launch of the division, which used sophisticated modeling and credit information for underwriting and marketing property and casualty insurance. He also was the founder of Source USA, a direct marketing insurance agency.
He says the experience of starting up a new line of business at Trans Union also has translated into his current mission of growing Response Insurance.
"During a startup, things are hard, but they also can be a lot of fun," Katz says. "It's important to convey to both employees and to customers their importance to the company."
One of his clients at Trans Union turned out to be his next employer. Response Insurance's co-founders Peter J. Wood and James M. Stone, the founder and chairman of The Plymouth Rock Co., which operates several regional insurance companies in the Northeast. Wood and Stone had started Response Insurance in 1996 with the $215 million backing of Morgan Stanley Capital Partners, the private equity division of Morgan Stanley Dean Witter & Co., New York.
Katz joined Direct Response in April and is now implementing the company's plan to grow beyond its home state of New York throughout the country. It opened an office in Suisun City, CA, and plans to begin selling insurance in California, the country's largest insurance market, this spring. The company will expand from its current number of 127 full- and part-time employees to 175 employees with the opening of a call center in California. The company's call centers rely on sales representatives, some of whom are licensed brokers that can write auto insurance policies over the phone.
Last year, it wrote more than 7,000 insurance policies and boasted $10 million in premium income, a number Katz hopes to quadruple this year. The market leaders in the direct response selling of insurance are USAA in San Antonio, TX, with about 3 percent of the market, and Geico Corp., a unit of Berkshire Hathaway, with about 2 percent.
"We have an integrated marketing approach and we consider television to be an essential part of the strategy," Katz says. "Not everybody is direct-mail responsive, and many feel more comfortable if they see a company on television."
While the company is less concerned with the cost per lead rates generated through television, the results of its entire mix of marketing methodologies are clearly impacted by television.
"We test one mix against another," he said. "When we use TV, it always improves other media. When we use TV with mail, our mail always does better."
The company's TV commercials were produced by Gibb, Kelley & Partners in New York, while its direct mail is handled by DiMark Corp. The company plans to launch a publicity initiative later this year that focuses on driver safety.
Although the marketing of auto insurance may seem a far cry from his early days of managing a McDonald's, Katz remembers the lessons from his days at the fast-food chain.
"You can talk about technology and statistical modeling, but it still comes down to caring about the customer," he says, "but really, it's still all about people who are well-trained and who care about the customer." n