INTERVIEW—Taking Risks

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Martin D. Feinstein


Title:

Chairman, Chief Executive, President


Company:

Farmers Group Inc.


Born:

1948, Cleveland


Education:

B.S., Cal State Los Angeles


Career Turning Point:

Being appointed chief marketing officer in 1988 and serving on a committee in 1992 that helped chart Farmers’ future course


Hobby:

Reading


Most Admired Person:

His father, who worked at a variety of blue-collar jobs to support his family while instilling a strong sense of right and wrong


Personal:

Married to wife Naomi for 32 years; two grown daughters, including one who works at Farmers in human resources


As banks and insurance companies battle for customers, Martin Feinstein, chairman of Farmers Group breaks with tradition to help his firm grow in the financial services market

Farmers Group Inc., the venerable L.A.-based insurance giant, is undergoing a revolution, and Martin D. Feinstein is firmly in charge.

Feinstein joined Farmers fresh out of college in 1969 as a liability claims representative; four years ago he was named chairman and chief executive. Along the way he moved nine times and served the company in numerous capacities, but is now back in Los Angeles.

Farmers has undergone its own odyssey during that period, transforming from a sleepy insurer to a key cog in a worldwide insurance conglomerate. That started with it being acquired in 1989 by U.K-based B.A.T. Industries, a holding company. B.A.T.’s financial services group then merged with Zurich Group, forming Zurich Financial Services Group, based in Switzerland.

Farmers, Zurich Financial’s largest single subsidiary, is the third-largest U.S. home and auto insurer, doing business in 41 states and insuring more than 10 million households. It also provides business and life insurance. In California, it insures 1.6 million dwellings, more than any other company. Even so, Zurich Financial has even bigger plans for Farmers. Its goal is to double the number of products it sells to existing policyholders and to triple its customer base.

In an interview last week at Farmers headquarters in the Park Mile district of L.A., Feinstein talked about the challenges Farmers faces in a global market where demands for growth are constant and banks and insurance companies are poaching each other’s business.


Question:

You say Farmers is in the midst of a “revolution.” What do you mean?

Answer: I think we are trying to figure out where the consumer is going. Our job at the end of the day is to provide a product that has to be bought. And there have been lots of legislative changes in terms of banks getting into our business. We believe our job is to in one sentence help people solve their worries and achieve their dreams. So how do we surround that customer with products and services they can use?

Q: One way, evidently, is to form alliances like the one with Bank of America. How does that fit into your strategy?

A: In our relationship with customers, we have to have a degree of product density and stickiness. Banking products tend to be sticky because of the transactional nature. That’s good for building stronger relationships with our customers. The other part of it is we need to reach out into the community and find more customers. And they have 27 million people with the Bank of America.

Q: Can you give me an example of how the alliance works?

A: We made an agreement that we would try five different things. For example, Bank of America issues 700,000 new mortgages each year. As loans are actually approved and accepted by the consumer, we then push out to the customer and say, “You’ve just accepted this new loan from Bank of America. We would be more than happy to make your life simple for you and put insurance on it, so when you close escrow it’s a smooth transition.”

Q: The entire banking and insurance industry in involved in cross-marketing now. Where does Farmers stand in all of this?

A: Nobody in the banking and insurance business has broken the code of how you do cross-marketing and earn the customers’ loyalty. We certainly focus on face-to-face advice, vs. just selling products. You can go after it different ways, and many of our great competitors push out products based on low cost, buying direct. We (on the other hand) realize that people live in a very complex world, where quality of life is more important. If we can provide advice and help them do risk management, we add value.

Q: But isn’t it tough to “revolutionize” a company especially in the stodgy insurance industry that was founded in 1928 and has very strong traditions?

A: Absolutely. The issue is that people have to be ready for change. They have to want it. The insurance industry needs to evolve. The only way to do that is to push it forward. If we can’t change to meet what the customers want, somebody else will fill that void. So it’s been difficult, and there are always mistakes you make along the way. But if you don’t realize that change is absolutely necessary, you will get left behind.

Q: Wasn’t it difficult for you, as the ultimate insider, to lead change at this company?

A: My personality is that I like change. That has been my career. So as a result, I am perfectly suited to push the organization forward. People know that I have been with the company (for a long time). I am doing it for all the right reasons. People coming in from the outside may be doing it for other reasons, so therefore, I can move the company faster.

Q: This may be off-topic, but why are there pictures of cheese all over your office?

A: I got this book “Who Moved My Cheese?” as a gift. It sat on my desk for three months, so I took it home and put it on the coffee table. One night my wife was sitting on the couch and picked it up. She said, “Darn, this is just about our daughter.” She explained how it related to my daughter taking the path of least resistance, and that sometimes you shouldn’t take that path. So I read the book and thought, “Boy, this is exactly what we are trying to get our agents to think of.”

Q: Is it true you ordered 10,000 copies and distributed them to agents and district managers, along with a personal note?

A: Yes. We are trying to broaden them out from selling auto and home insurance to investment products. You have to look for new cheese. You have to look for new opportunities.

Q: Can you comment on the lawsuit your company is facing from 2,400 current and former claims adjusters who charge they were not paid for overtime?

A: I can’t comment (directly) on it. But our major competitors all have the same suit. It’s not just us. It’s the world around us, and it’s not even (limited to) the insurance industry. Technology has done a lot for us, but one of the things it has done is it has made it a 24/7-type (work environment). There are a lot of things that need to get done.

Q: Speaking of “getting things done,” does Zurich Financial let you operate Farmers independently?

A: I sit on the group operating board in Zurich, and what we try to do is develop common global strategies. Our job locally then, at Farmers, is to find out where we fit within those strategies, but there is value being created because we get the best practices from around the world.

Q: But aren’t your expansion plans being dictated by Zurich?

A: You can’t triple the size of your company or double the relationship with customers by doing things linear. How can you think more broadly? For example, that was one of the drivers for us to develop strategic alliances with Bank of America.

Q: That seems like a lot of responsibility on top of your job at Farmers.

A: Somebody moved my cheese.

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