Two unprofitable lines of business were hurting the company’s profits, and a 13-year cycle of cutthroat pricing and increased competition in the industry wasn’t helping matters. Meadowbrook had lost its A-minus rating from A.M. Best Co. being graded down three notches to a B rating along with significant capital and shareholder confidence.
Cubbin’s charge was not an easy one.
“The management team was cognizant of the fact that most financial institutions that have their A.M. Best rating downgraded as much as we did have a strong possibility of not being able to pull out of that downward spiral,” Cubbin says.
Meadowbrook had outdated controls and technology, a fragmented management structure and the organization lacked discipline. Cubbin, previously president and COO of Meadowbrook, put together a three-part plan to restore profitability and build a disciplined environment to make it all work.
Reshaping the company
Before Cubbin could redesign Meadowbrook’s management structure and before he could begin to think about raising capital or rescuing the company’s bruised A.M. Best rating, he had to get to the root of the problem and eliminate unprofitable lines of business.
“We had to exit those businesses that were deviations and get back to our core competencies,” he says.
Under Cubbin’s leadership, Meadowbrook bowed out of the surety bond and aggregate stop loss segments. Next on the agenda was to reshape the management structure. At the time, three presidents were running Meadowbrook’s businesses, which was confusing for employees.
“Adopting a more traditional management structure was a small part of our strategy but an important one,” Cubbin says.
He appointed a head of insurance operations to oversee Meadowbrook’s system of branch offices, at the same time delegating more responsibilities to branch managers. Branch managers are now responsible for proposing and assessing new insurance programs rather than relying on the corporate office to make all connections. This makes branch managers more accountable for a program’s success or failure, and encourages them to get out in the field and build closer relationships with clients.
As Cubbin redistributed accountability, he recruited personnel to carry Meadowbrook to the next level of profitability. Referrals and recruiting agencies introduced some new employees to Meadowbrook. Others came from traditional environments looking for a challenge.
“I looked for great people to fill management spots from other insurance operations that were downsizing,” Cubbin says.
Cubbin eliminated redundancies in the work force, reducing Meadowbrook’s staff from 749 employees in 1999 to 662 today. Automated processes and operational efficiencies lifted the demand for personnel in many administrative roles.
“We needed the infrastructure to support the level of business we were writing, but since that time, with efficiencies and technology investments, we have reduced the number of people we needed from five years ago,” Cubbin says. “We now have more of a concentration of knowledge-based decision-making roles as opposed to administrative functions.”
Changes in an organization almost always result in turnover.
“Some people were comfortable in the old structure, and they had to either get comfortable in the new one or look for a new culture that would fit their needs,” Cubbin says.
Most employees chose the former, embracing Meadowbrook’s move toward a traditional, more controlled environment. But Cubbin says that adjusting to the new management structure a pyramid rather than a plateau wasn’t easy.
“We hung in there and fought hard and communicated,” he says.
Specifically, Cubbin arranged regular conference calls with underwriting and claims staffs, and a more focused corporate communications department ensures that messages disseminated on the company’s intranet and to stockholders are consistent and accurate. Most of all, this team updates employees on Meadowbrook’s progress, sharing with them the same numbers he does with investors and the board.
“If everyone wasn’t pulling in the same direction, we weren’t going to be successful,” says Cubbin. “You can’t have everyone jumping ship you could have mass exodus of your intellectual capital.”
Cubbin also tries to connect with employees personally.
“I maintain a fairly rigorous travel schedule,” he says. “I make sure I’m at every office at least once a year, talking to employees, giving them a chance to ask questions. I see our partners and clients, and they know if they have a question, they can pick up the phone.”
Skeptical buy-in gradually evolved into trust, which developed into company pride as Meadowbrook worked through its strategy. The result is what Cubbin calls a more disciplined culture.
“When we did return to profit, the team had bonded,” he says.
Part of Cubbin’s turnaround plan was to bring claims and underwriting managers in-house to ensure better service.
“We were allowing outside parties to be involved in risk selection of some of our insurance programs, and we had outsourced our claims (services),” he says.
Outside contractors now hold less interest in the outcome.
“If you delegate the work to select which policyholders you will bring into a program to an agent, their motivation is to produce commission income,” Cubbin says.
Hiring an underwriting team and appointing a manager is a safer, more controlled way to do business. Same goes for claims.
“They can work hard, but they are not your people and they don’t treat every dollar like their own,” Cubbin says.
Because Meadowbrook’s outsourced claims representatives worked on different computer systems that weren’t connected to the company’s mainframe, Meadowbrook received information months late and could not react immediately to policyholders’ claims.
Cubbin wanted to tighten the gaps so time lapses and technology wouldn’t affect Meadowbrook’s ability to respond. And in a business that sells products based on estimates and chooses customers based on risk, establishing controls is critical.
“You have to process claims in a timely fashion,” he says. “That is the promise you make to policyholders. To live up to that, you have to make sure your claims department is actively managing claims in an appropriate way.”
This means monitoring changes in claims results, reporting progress to policyholders and estimating how much losses will cost the company. Technology was instrumental for improving claims efficiency at Meadowbrook. Now, rather than processing claims by hand and over the telephone, an automated system removes some human error from the process.
On the workers’ compensation side of the business, a new Internet-based rate, quote and issue system allows agents to feed underwriting data into the Meadowbrook computer system.
“They enter in the application, and the system is designed so if there is an error or the form is not completed, the application kicks back to the agent to correct it,” Cubbin says.
Sounds simple, but this feature saves Meadowbrook waiting time and removes back-and-forth faxes and phone calls from the application process.
“If an application fits, it is rated, quoted and the agent is given permission over the Internet to issue that policy,” Cubbin says, helping to ensure a risk-free, error-free interaction between the agent and the company.
“We’ve created a more efficient environment, which reduces the number of administrative expenses you have and allows the professionals on staff to spend more time using their brains as opposed to fixing errors in data,” he says.
Rebuilding the balance sheet
Meadowbrook needed to dramatically improve its balance sheet by raising capital to fund growth and boost that A.M. Best rating from the B back up to an A-minus by paying down debt.
Capital was vital to lift the debt burden and was also needed to increase equity to support growth.
Cubbin, who was still COO when this process started, and the executive team approached a number of investment houses, asking them to help analyze strategic alternatives. Feedback ranged from selling the company to selling parts of it.
On Sept. 10, 2001, Meadowbrook mailed out a proposal to 50 investors. The next day, few paid attention to the mail.
“It was a tragic day for our country and the industry,” Cubbin says.
The company got no response, and management decided to go a different route.
By January, 2002, Meadowbrook had partnered with an investment banking firm to raise money publicly.
“We worked with that firm and talked to a number of institutional investors about how we turned the company around, how we were restructuring for the future,” Cubbin says. “We showed them the actions we took so this wouldn’t happen again the past is behind us.”
It worked. In June 2002, Meadowbrook recapitalized, paid down $20 million in bank debt and contributed $37.5 million to strengthen its insurance operations.
Meadowbrook’s rating has improved to B++, considered very good, but Cubbin says the team is working diligently to achieve A-minus status again, which is considered excellent.
“That is an important benchmark for us,” Cubbin says.
The company’s A.M. Best rating isn’t the only thing that has improved. Meadowbrook was ranked No. 19 on Business Insurance magazine’s 2005 list of the 100 largest brokers of U.S. business. The company has posted a 15 percent compounded annual growth rate, pushing revenue from $198 million in 2002 to $304 million last year, and its stock price has rebounded into the $8 range.
Today, thanks to Cubbin’s turnaround efforts, Meadowbrook is stronger, more efficient and almost back to its best.
“There is a great deal of satisfaction and commitment to not return to the old days, where there was a lack of discipline,” Cubbin says. “People embrace that culture of control because they see that it is much more fun and exciting to be in a growing, profitable business than to be in one that is struggling.”
Cubbin shares this from an office in Meadowbrook’s brand new facility in Southfield, a visible landmark off the interstate. The building is symbolic of the company’s new beginning.
“It’s a punctuation mark on the turnaround,” Cubbin says.
How to reach: Meadowbrook Insurance, (800) 482-2726 or www.meadowbrook.com