CEO of The Providence Mutual
Insurance Company.
Name: Sandra G. Parrillo
Position: President and CEO of The Providence Mutual Fire Insurance
Company
Background: Parrillo started at the company 26 years ago as an intern.
She has held the positions of underwriter, manager, vice president, senior vice
president of underwriting and marketing, before being named president and CEO
in October 2002.
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Education: Bachelor’s degrees in math and business from Rhode Island
College, and an MBA from the University of Rhode Island.
Age: 46
Residence: North Smithfield
The 203-year-old Providence Mutual Insurance Company provides personal,
auto and commercial insurance products throughout New England, New York and
New Jersey. The company has approximately 360 independent agents and 63,000
policyholders. Last week, the company completed a merger with The Grange Mutual
Insurance Company, Rochester, N.H., picking up 12,600 policyholders throughout
northern New England.
PBN: Tell us about the Grange deal. Why does this make sense for your company?
PARRILLO: We are a mutual company as is the Grange. The Grange was
in some serious financial difficulty in 1994, after a severe winter, so we affiliated
with the Grange, which basically meant we gave them financial backing. We also
assumed management control over that company. Over the years, we have tried
to tweak that company, which was a much smaller company. It was a good acquisition
for us, because it gave us that geographic spread of risk. When you are an insurance
company you don’t want everything concentrated in one area; you want it spread
around. Two years ago, we looked at the environment, looked at the products
the Grange had and we looked at the technology they had. We determined that
they had neither the technology nor the products to be a good, effective competitor
in this industry. We soon determined that by merging the companies together
we would be able to provide those products, services and technology that would
make it a strong competitor in northern New England. We found that this merger
turned out to be a win-win-win situation for everyone involved. The policyholders
of the Grange became policyholders of The Providence, a much stronger company
financially. The agents of the Grange now have access to technology products
that they didn’t have. And it was an advantage to the company because there
were certain efficiency advantages.
Did the merger mean new products to the overall company?
The Grange was bringing in predominately personal lines. We brought in personal
auto, which we just started, and we brought in better commercial products geared
toward smaller companies. From the standpoint of policyholders of The Providence,
because of this geographic spread … the impact of a single catastrophic event
is less. That is one of the reasons we first affiliated to the Grange.
Does the company plan on expanding?
We don’t have significant penetration in our existing territories, so we feel that instead of trying to grow beyond our existing areas we can concentrate from within. We can look at revitalizing some of the products we have now. Also, once you go beyond the states you are currently licensed in, it becomes expensive.
Why did you decide to go into the personal auto product?
We did a study of the opportunities and determined that we could be an effective competitor in Rhode Island. It would also give our policyholders the opportunity to have all of their insurance products consolidated with one secure company.
Weather is a major determining factor of how your business does in a given
year. What did this long, cold winter mean to your company?
It was not a good winter. Mother Nature was not kind to us. As compared to last year, we had significant snowfall. Whenever there is cold weather, there is always freezing, burst pipes, major fires caused by people using solid fuel burning devices…. Within the industry we have been plagued by larger fires this year.
How do you recover or prepare for bad winters and natural disasters?
Historically, our first quarter results are the worst quarter. But, throughout the year the weather gets milder, we can make up for the bad first quarter. However, if we have a hurricane – the biggest catastrophic expose – that can skew results in either second or third quarter. We put in place, and I would say most insurance companies have, re-insurance programs in place. Essentially, we will model what our catastrophic expose is. We will take all of our data and put it through a computer model, which will help us predict what could happen, depending upon the speed of the hurricane, the category of the hurricane.… We can evaluate what our expose would be, what our probable or possible maximum loss will be. When we determine that, we then purchase re-insurance to help us lay off some of the risk.
What is the single biggest obstacle facing the industry?
These are very tumultuous times in all aspects of the industry. It’s an extremely
challenging environment. For example, the total combined surplus of the industry
in 2002 is estimated to be around $285 billion, the lowest level since 1997.
Last year there was again a 25-percent jump in insurance company insolvency.
The financial environment is having a significant impact on companies. Companies
throughout the 1990s had the opportunity to invest their premiums for very attractive
returns. Those returns are not there anymore. Consequently, companies are not
as competitive for business. Companies are pulling back. There are losses plaguing
the industry that were not anticipated in contracts, like mold. Mold is creeping
into every state. Mold has always been here, but now all of a sudden it’s a
problem. People are now looking to the insurers to take care of it. This was
never anticipated and never priced for in the products.
What about the issue of tort reform in your industry?
Tort reform is badly needed within our legal system. Jury awards of multi-million dollars just can’t continue and expect the industry to be healthy. I think a lot of the reform has to come on a federal level. We are talking about many of the class-action lawsuits. We are talking about venue shopping within those class-actions, where you have a class of plaintiffs looking at a particular state as the best state to bring a class-action suit. There is a need for tort reform on a federal basis.
What has the impact been of terrorism on the industry?
Granted there is a federal backstop, but if you look at the actual mechanics
of the backstop, it will help, but it is not a bailout of the industry. It will
help commercial carriers, but personal line carries have no relief. Consequently,
if there is a terrorist act that affects our policyholders, there is no relief
from the federal government. It is a significant exposure that we did not anticipate.
As home prices skyrocket, do you find homeowners are making needed adjustments
to their policies?
Homes have gone up considerably. It’s not just a market value issue either,
but construction costs have increased significantly. As the prices have gone
up, I caution everyone to look at their policy and make sure you are properly
insured. If you have owned a home for 10 years and put perhaps $150,000 on that
home when you purchased it, it is likely just the cost of construction to rebuild
that home has increased dramatically.
You hear a lot about the impact of the Internet on just about every product.
How has this technology affected your business?
The Internet from a pricing and selling standpoint has had really no impact on us. The Internet a few years ago was touted as having the potential to put all the independent agents out of business and people were just going to shop on the Internet. However, the insurance product is something you need to understand … it takes a lot of research and understanding to make sure you are getting what you need. We don’t see the Internet as a significant competitor to our distribution system.
Fraud is a major concern for your industry. Can you tell me about its impact?
It is very challenging to the insurers. I recently read an article that stated that one-quarter of adults (surveyed) thought it was OK to commit insurance fraud. When you think about insurance fraud, most people will point to the people who go out there and stage accidents, but insurance fraud is also padding your claim, covering up your deductible, it’s saying that you had something that you didn’t when your house is broken into. It is such a disturbing statistic. According to the Insurance Services Office, the estimated cost of insurance fraud to the U.S. property casualty insurance industry is $24 billion, or 10 percent of total claim payments. That just doesn’t hurt the insurance industry … it hurts policyholders because you are paying an amount of a premium to cover this. People need to understand this.
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