Erie Indemnity Company
Erie Indemnity Company
Sales: $530.37 million (1999)
Stock Exchanges: NASDAQ
Ticker Symbol: ERIE
NAIC: 524126 Direct Property and Casualty Insurance Carriers
Erie Indemnity Company is the attorney-in-fact and manager of the Erie Insurance Exchange, which in turn pools resources from Erie Insurance Company, Erie Insurance Company of New York, Flagship City Insurance Company, Erie Insurance Property and Casualty Company, and Erie Family Life Insurance Company. As manager of these companies, Erie Indemnity charges management fees, of about 25 percent, to each partner and subsidiary. With over 2.8 million policies in force, Erie has nearly 1,500 independent insurance agencies in nine states—Pennsylvania, New York, Maryland, West Virginia, Virginia, Indiana, Illinois, Tennessee, and North Carolina—and the District of Columbia. The company’s main product is personal automobile insurance policies, but it also sells commercial automobile, homeowners, multi-peril, and workers compensation coverage policies. Erie is the 12th largest automobile insurer in the United States and the 25th largest property and casualty insurer. Celebrating its 75th anniversary in 2000, Erie maintains a strong presence in the Erie, Pennsylvania, community in which it was founded. In 1986, for example, the company initiated a program wherein it donates Thanksgiving dinners to needy families in the area. The company has also branched out beyond its Pennsylvania roots into the eastern and midwestern states and plans to establish a presence in Wisconsin.
Building a Legacy: 1925-95
Erie Indemnity Company, commonly called “The Erie” by its employees, began as an idea scratched in pencil on a ten-cent tablet. In 1925 Henry Orth (H.O.) Hirt and O.G. Crawford, two Pennsylvanian entrepreneurs, founded the company. Quoted in an article for PR Newswire, Hirt recalled that he never anticipated building a future in insurance. “There aren’t too many kids that say, ‘I want to be an insurance man,’ like they say I want to be a policeman’ or a fireman or an electrician or dentist, engineer or anything of that sort,” he related, adding “As many of you have, I got into this business by pure chance.”
The insurance industry was extremely competitive at the time, and Erie faced challenging market conditions from the onset, particularly as the country neared the Great Depression years. The company prided itself on outstanding customer service, however, which it felt set it apart from competitors. Even in these early days, Erie began providing 24-hour service for policy holders, with one claims manager, in 1927, reportedly having a telephone installed in his rooms at the YMCA just for that purpose.
Crawford retired in 1933 and Erie came under the full control of Hirt, who was well-respected by both employees and customers. Stephen A. Milne, the fifth president and CEO of Erie, would later attribute much of the company’s success to Hirt. “I knew and worked with founder H.O. Hirt and I understand what he wanted to accomplish with this business. As he wrote to agents in the original Agents’ Handbook, ‘The Erie is committed and dedicated to giving Erie policy holders as near perfect protection, as near perfect service, as is humanly possible, and doing so at the lowest possible cost’,” Milne said in an article for PR Newswire.
Hirt was reportedly involved in every aspect of the company from the early days. He would keep agents abreast of important news with the “Erie App-a-Week Bulletin,” a weekly publication begun in 1931 that gave employees marketing tips and industry news. According to PR Newswire Hirt would “pepper the publication with tongue-in-cheek drawings of himself spouting words of wisdom to agents.” The bulletin would continue as a tradition at Erie into the 1990s, modernized in format and content but still arriving on employee desks every Monday.
Hirt believed that the secret of his success was his stubbornness. “I recommend the virtue of stubbornness to my friends,” he said. “The easiest thing in the world to do is to fail, but if you stubbornly refuse to fail, you won’t fail, and if you live long enough, you will have succeeded in some degree.” He also fostered an attitude that would become the company’s motto when he replied to questions regarding the company’s ability to face competition with the words “You don’t understand. We are the competition.”
Hirt’s son, F. William Hirt, joined his father’s business, working his way up the corporate ladder to become an executive with subsidiaries Erie Family Life and Erie Insurance. In 1965, he was elected to the board of directors of Erie Indemnity. The founder’s daughter, Susan Hirt Hagan, founded her own consulting firm in Erie, Pennsylvania, and was elected to Erie Indemnity’s board of directors in 1980. Hirt passed away in 1982, at the age of 95, after working 37 years at Erie, but his legacy within the company lived on.
Erie Indemnity worked hard to make sure its employees were well trained and happy in their jobs. Many maintained that the company treated employees like family—as of the year 2000 the company had never laid off a single person—and Erie boasted a low employee turnover. Moreover, employees were offered tuition incentives and flexible schedules. Everyone at the company—including the CEO—was on a first-name basis, and it also made it a practice to promote from within the company.
New Leadership in 1996
In 1996 Stephen A. Milne was named president and CEO of Erie Indemnity Corporation. The 47-year-old Milne had worked for the company since 1973 and had thus worked with founder Hirt, taking very seriously his mentor’s commitment to insurance as a service industry.
Erie sited Hurricane Floyd—a devastating hurricane that ravaged the East Coast in 1999—as an example of its commitment to customer service. “Erie Insurance literally stunned people with its level of service,” said Erie agent David Purinai in the company’s 1999 annual report. “Hurricane Floyd struck on a Thursday and nearly all Policyholders who were affected by the storm met with Erie claims representatives by Saturday night. As an Agent, it was gratifying to see the company and its Employees follow up with their promise of service. They showed a tremendous amount of dedication, compassion, and expertise.” Hurricane Floyd caused $25 million in damage to Erie Insurance policyholder property.
During this time, the company strove to develop and incorporate better technology to enhance its exceptional customer service. With nearly 1,500 agencies in six states and the District of Columbia, the company depended on technology for good communication. In 1991 it developed a Data Sharing system that allowed agents to submit new applications and policy changes directly to the main office. In 1999 the company introduced a new version of Data Sharing, called DSpro. The new system was Window-based and offered additional tools to assist agents in performing their jobs. Moreover, the company provided its claim adjusters with up-to-date technology, including digital cameras and high-speed computers and modems, to help them perform their jobs efficiently.
In 1998 Erie introduced a private Intranet Web site for its agents. Via the Web site, agents have access to industry and company news and trends, sales, and market tools. Agents could also print up-to-date forms via the Web site, which allowed them to access forms from their homes and other off-site locations.
The company also launched a Web site for its customers. Its Web site contained an agent locator and personalized Web pages for more than 1,200 Erie agencies. The Web site also included excerpts from the Policyholder’s magazine In Sync, an Insurance library that provided patrons with links to many helpful insurance Web sites, and tips on home and automobile safety such as “What to Do if Your Windshield Cracks.” One of the site’s most popular features was Erie’s “Safe Car Guide,” which included a list of vehicles that had passed tough safety standards. The company had begun producing its “Safe Car Guide” in 1996 to help customers decide what kind of car to purchase. In 2000 the Safe Car Guide listed cars in different categories that had passed eight tough safety standards.
Our founder, H. O. Hirt, said it in four words: We are the competition. The key to our stability and growth is the continued development of competitively priced, quality insurance products that are delivered by an exceptional net-work of independent Agents. In addition to our superior products and service, we ‘ve powered our vessel by aggressively recruiting Agents and providing them with valuable marketing tools. Because of our efforts, we ‘re staying in front of our competitors and have earned high praise from top industry analysts. Fast and efficient claims response is a hallmark of our operation. Our customers know that if they have a loss, they will be working personally with someone who is knowledgeable, confident and committed to giving superior service. It’s one of our chief competitive advantages. In fact, since our founding, we have proclaimed that The Erie is Above All In Service. It’s not a slogan—it’s our standard.
Since its inception, Erie continuously competed with thou-sands of property/casualty insurers for market share. At the end of the century more competitors emerged from direct writers who sold insurance over the phone, over the Internet, and through the mail. Banks also began selling insurance. All of these competitors formed what Erie management described as “crowded seas in an aggressive battle for market share.” The private automobile insurance market—Erie’s main market—was especially competitive. Nevertheless, Erie continued to prosper. It reduced rates in Virginia, West Virginia, Indiana, Ohio, Maryland, and Pennsylvania, in an effort to retain customers and attract new ones. It offered a “Superior Customer” discount of up to 15 percent, and in 1999 the company reported that it filed with nine jurisdictions to lower rates for married drivers between the ages of 45 and 69. The married driver rate decrease reportedly cost the company approximately $25 million.
1999 and Beyond
On the brink of a new millennium most analysts viewed Erie Indemnity as sound and secure even with its ever-emerging competitors. Despite rate decreases, Erie’s net income increased 6.4 percent to $143.1 million in 1999, up from $134.6 million in 1998. Earnings per share were $1.95 in 1999 compared to $1.81 in 1998. Erie planned to expand in 2000 and hoped to begin writing policies in Wisconsin. The company considered its many agents a key to its future success. In the late 1990s, Erie continued to add new agents to its team—it had over 6000 agents by the end of 1999 and had increased its total number of agents by 375 in three years. In 1999 Ward Financial Group included the Erie Insurance Group in its list of the top 50 property/casualty insurers for overall industry, safety, consistency, and performance. Weiss Rating Inc. gave the Erie Ex-change its A (Excellent) Rating, and Erie was among the top 4.7 percent of the more than 2200 property/casualty insurers to earn such a rating from Weiss. In 1999 the company reported that Erie was one of only two companies commended by the New York State Insurance Department for having no consumer complaints filed against it regarding personal automobile insurance. During the same year, Erie was recognized by Fortune magazine as being one of the top 100 Best Companies to Work for in America.
Erie Insurance Company; Erie Insurance Exchange; Erie Insurance Company of New York; Erie Insurance Property & Casualty Company; Flagship City Insurance Company; Erie Family Life Insurance Company (21.63%).
Alfa Corporation; EMC Insurance Group, Inc., United Fire & Casualty Corporation.
- H.O. Hirt and O.G. Crawford found the Erie Indemnity Company.
- Crawford retires, and Hirt takes control of the company.
- Hirt passes away at 95 after 37 years of service.
- Erie develops its Data Sharing system.
- Stephen A. Milne is named president and CEO.
- Erie pays out $25 million to victims of Hurricane Floyd.
“Erie Insurance Celebrates 75 years of Service,” PR Newswire, April 20, 2000.
“Erie Insurance Named A Consumer Friendly Company in New York State.” company press release, December 22, 1999.
“Erie Insurance Reports Losses From Hurricane Floyd,” company press release, September 28, 1999.
“Erie Insurance Seeks to Reduce Rates for Married Drivers,” company press release, April 22, 1999.
“Erie Insurance to Expand,” Best’s Review—Life-Health Insurance Edition, May 1999, p. 89.
“Financial World Ranks Erie Insurance Exchange Number Two,” company press release, August 12, 1996.
“Meet Steve Milne, our President and Chief Executive Officer,” company press release, February 13, 1996.
—Tracey Vasil Biscontini