With InsuranceNoodle.com, former CNA executive Richard Madock is attempting to develop a more efficient way to serve small-business owners.In late 1999, Richard Madock was ensconced within the reputable corporate environment of Chicago-based CNA Insurance Cos., serving as president of the carrier's small-business division.
CNA's powerful brand equity, combined with the growing needs of small-business owners, have enabled the commercial insurer to aggressively expand its small-business program. CNA executives, including Madock, further enhanced the buoyancy of the program when it began to identify the Web as a viable selling channel. The small-business program, which generates more than $1.2 billion in annual premiums, appeared to be hitting on all cylinders, but Madock was looking for something bigger.
Risk-taking tendencies
"Traditional insurance companies such as CNA generally do not provide the service, support or understanding necessary to help small-business owners succeed," Madock emphasizes. "Business owners often do not have the right amount of coverage, or they pay too much for their current policy."
Despite all the advantages of working for a global insurance carrier, Madock and long-time colleague Robert Rudy left their senior-level positions with CNA in 1999 to develop a Web-based agency focusing on the insurance needs of small-business owners.
After conceiving the prototype, Madock and Rudy secured more than $1 million in seed funding and recruited a staff of eight seasoned insurance executives to implement their plan. Combined, the executive team has accumulated 150 years of insurance experience.
Conservative Approach
Through the fledgling Insurance-Noodle.com, small-business owners can select comprehensive, customized insurance from such carriers as St. Paul Cos., CNA-Surety, AIG Global, Zurich U.S. and The Hartford Financial Services Group.
They can do this with assistance from licensed insurance advisors, who are staffed at a customer contact center in downtown Chicago (see "No Small Plans For Small Businesses Online," February).
After landing the initial round of financing and launching the service last July, InsuranceNoodle.com by late summer received an additional $10 million cash infusion from venture capitalists.
"The thing that appealed to venture capital firms was that we started this thing on a shoestring budget and adopted a conservative spending approach. We approached carriers about joining the program but never solicited capital from them," says Madock, whose business has increased its revenue premiums each month since going live. Since it's a privately held company, InsuranceNoodle.com wouldn't provide revenue figures.
IT challenges
As InsuranceNoodle.com builds its Web model, Madock feels abundantly confident that his decision to leave CNA in favor of an unknown quantity was a prudent-and not ill-advised-move.
Despite the risks that an online venture presents, colleagues say that Madock has always sought professional challenges.
"Rick's pretty clear-headed and focused; he doesn't get distracted by insignificant matters and does his due diligence on all ventures he's considering," Rudy notes. "This has been an underlying attribute that's allowed him to succeed."
A 17-year industry veteran with skills directed toward insurance operations, Madock spent 10 years at New York-based Alleghany Corp. While there, Madock held several senior management roles within Allegany's $350-million Chicago Title & Trust division. Largely responsible for financial services strategies and post-merger and acquisition work, Madock began to develop a penchant for information technology and its role within an organization.
In 1993, Madock left to form his own Los Angeles-based consulting firm, named G.E.N. Inc. "Our firm performed Web-based consulting services for real-estate companies, such as Century 21," Madock says.
While at G.E.N., Madock continued to cultivate his IT skills. In 1997, he was approached by CNA, which was eager to strengthen its own IT infrastructure.
"The long-range goal was to convert CNA's IT strategies from a consultative approach to become part of the internal fabric of the company, where units would take ownership of IT," he explains.
After about a year, Madock was named president of CNA's small-business unit, overseeing several diverse small-business clusters: auto and home products, agency marketing, life, risk management and global operations.
Over a two-year period, CNA hiked its IT investments about 20% each year and formed strategic alliances with automation solutions providers to construct a centralized data repository.
As CNA began to implement these IT initiatives, Madock recognized a chink in the company's approach to small-business marketing that wouldn't soon change-the company's ability to fully meet small-business needs remained incomplete. Madock realized that the best way to rectify the problem was "to build our own branded distribution channel on the Internet," he says.
Model efficiency
Last year, when InsuranceNoodle was preparing to launch its business by generating support from potential investors, the trick was convincing them that InsuranceNoodle.com possessed the staying power and vitality that so many other Web models lacked.
"There was a lot of clutter with all the dot-coms in this industry that were seeking venture capital," Madock explains. "However, that clutter actually served to assist us because it allowed investors to benchmark the strengths of our business against many of the others."
Madock, Rudy and current CEO Donald Urbanciz had all honed their executive skills with traditional insurance companies. To provide additional IT support, Madock hired a chief technology officer, Bruce Weiner, to build the company's technology infrastructure. In large part, the effort consisted of formulating an electronic quoting engine and consolidating data from all its carrier partners into a central repository. Building the links between that repository and the Web front end was the next task.
"Bruce has vast experience with IT through his affiliations with several Fortune 500 companies," Madock says. "He came on board, built our technology department to 12 full-time people, and when the work was completed, he moved on."
The online small-business sector is marked by fragmentation, Madock says, but rather than looking at this as a high hurdle, he visualizes it as an opportunity.
"Nobody in this space has 1% of the market," he explains. "Our goal is to secure 20% of the market or greater over the next 18 months to two years."
Madock believes InsuranceNoodle.com will have a fighting chance to grow and sustain its business. This hinges on several strategies.
Originally launched as a consumer-direct Web model where a business owner could only shop for coverage either through InsuranceNoodle.com or through an affiliated online marketplace, InsuranceNoodle.com in October launched a program to bring independent agents into the mix. Currently, 20 U.S.-based agents have aligned with the program, but as many as 120 more have entertained thoughts of coming on board, Madock says.
Bringing independent agents into the program appeared to be a long shot since agents typically regard writing small-business insurance as costly and time-consuming. But Madock believes agents will embrace the programs because of the company's agent-friendly commission structure.
InsuranceNoodle.com implements a sliding-scale commission ladder based on a producing agent's degree of involvement within a particular sale. An agent, for example, may fetch 70% of a commission in the first year, but from the second year and beyond, InsuranceNoodle may reap a greater share of the commission based on the renewals and coverage upgrades.
Lacking specialization
If there is one criticism of the InsuranceNoodle.com model, it's that the company may "lack specialization" within the small-business segment, states one industry observer. Specialization would be defined by creating a niche within the segment, such as marketing to companies in a particular type of business that have no more than, say, 10 employees. Specialization will be an imperative strategy for online insurance providers looking to defend and grow their market share, observers predict.
But Madock and his partners are satisfied with the model they have built. The company is already looking ahead to new-generation expansion strategies. Madock hints that it may eventually branch out to offer a host of financial services to small-business customers. "We think we can meet a whole lot more needs across the breadth of the business's enterprise. We want to be recognized as innovators."
