Embracing Community PEMCO and the Pacific Northwest Spirit. Shrey Aggarwal David Brablec Henry Kopesky Chloe Naguib

Transcription

1 Embracing Community PEMCO and the Pacific Northwest Spirit Shrey Aggarwal David Brablec Henry Kopesky Chloe Naguib 1

2 2 Objective To develop a CSR strategy for PEMCO that fits with its current image

3 Agenda Company Image & Current Strategies Recommendation Embrace Implementation & Risks Impact to the Northwest Community 3

4 How the Pacific Northwest community perceives us Pacific Northwestern company with Washington roots Third in market share in a fragmented industry Products insure preferred-risk customers against property loss High dedication to customer service 4

5 Our image reflects our dedication to the community We re a lot like the Pacific Northwest: different, practical, nurturing, refreshing 5

6 Our image reflects our dedication to the community Our values - responsibility, courage, and integrity - reflect the community 6

7 Our image reflects our dedication to the community We participate and invest in the Pacific Northwest community 7

8 Our current CSR only engages employees and nonprofits Employee Volunteers 1. Volunteer for 8 paid hours 2. Lead monthly charity drives 3. Serve on nonprofit boards Charitable Donations 1. 5% of surplus increase donated to Pacific Northwest nonprofits 8

9 Our current CSR only engages employees and nonprofits Public Safety PEMCO Employees Nonprofits Potential Policyholders Community Environment Policyholders Health Youth Education 9

10 Our current CSR only engages employees and nonprofits Public Safety PEMCO Employees Nonprofits Potential Policyholders Community Environment Policyholders Health Youth Education 10

11 Goal PEMCO needs to align its CSR approach with its image by fully engaging the Pacific Northwest community in a meaningful way 11

12 Our recommendation - Embrace Embrace our duty to the Pacific Northwest Embrace responsible investing Embrace causes our community loves 12

13 Our recommendation - Embrace Embrace our duty to the Pacific Northwest responsible investing causes our community loves 13

14 Partner with local philanthropic organizations & & Emphasis on education displayed in our founding and past CSR efforts Opportunities for volunteers to engage in hands-on service Organized infrastructure for a large number of volunteers 1 1. Appendix Potential Partner Matrix 14

15 Excite customer participation through discounts Serve the partner organization of your choice Your hours will be logged by the organization and sent to PEMCO For every 5 hours served, earn 1% off your yearly premium (up to 6% off) 1 1. Appendix Premium Discount Rate 15

16 Post service opportunities on our website 16

17 Impact the community in a meaningful way 67,100 customers connected to new nonprofits million volunteer hours served per year 2 Visibility for the nonprofit organization 1. Appendix Connected Customers 2. Appendix Volunteer Hours 17

18 Support our service programs with minimal cost ~ $6 million maximum in policyholder premium discounts per year 1 35 to 54 year olds are most likely to volunteer 2 People ages 35 to 54 have the lowest motor vehicle deaths 3 Policyholders earning premium discounts are the least likely to file claims mitigated risk 1. Appendix Premium Discounts 2. Bureau of Labor Statistics 3. Washington State Department of Health 18

19 Grow and strengthen our customer base Attract 87% of consumers will recommend a brand due to a positive experience 1 Appeal Entice price-sensitive insurance customers with 6% discount for event participation Retain 60% of consumers will pay more for a brand that also provides positive experiences 1 1. WARC 19

20 Our recommendation - Embrace our duty to the Pacific Northwest Embrace responsible investing causes our community loves 20

21 What do we do with our money? Investments (76%) 1 Cost of Business (24%) 1 Money is allocated in different asset classes (stocks, bonds, alternative investments) Aim to capture returns to maintain low insurance premiums General costs of the firm (SGA, overhead, losses, etc.) PEMCO sets aside 5% of premiums as immediate funds to cover claims 1: State of Washington Office of the Insurance Commissioner Financial Examination of PEMCO Mutual Insurance Company 21

22 Socially Responsible Investing (SRI) is growing in popularity Investing in companies and governments that reflect the values of importance to the investor 1 $6.6 Trillion $551 Billion towards climate change 1 in 6 dollars invested in SRI 76% increase since Institutions 480 institutional investors 308 money managers 850 community investments 1: USSIF, Report on US Sustainable, Responsible and Impact Investing Trends 22

23 Our investments are transferrable to SRI Types of SRI % of SRI in Asset Classes 1 Negative Screens & Positive Screens 45% 40% Pooled Investments Mutual Funds/ETFs Impact Investing 10% 5 Separate Accounts Alternative Investments 1: USSIF, Report on US Sustainable, Responsible and Impact Investing Trends 23

24 Our investment mix is bond-heavy relative to competition Market Share: Auto Private Passenger 1 Invested Asset Mix by Company 2 State Farm 34% Farmers 66% State Farm % Farmers - 8.7% PEMCO 78% PEMCO - 7.4% Other Bonds Stocks Cash Other 1. State of Washington Office of Insurance Commissioner 2. National Association of Insurance Commissioners Consumer Information Source 24

25 We will redirect our investments toward SRI 1 Enable policyholders to specify their SRI values 2 Divest from bonds through Tax Loss Harvesting 3 Within 5 years, 1/6 of premiums will be invested toward SRI 25

26 Enable new and existing policyholders to participate in SRI New Policyholders Existing Policyholders During Online Purchase With Agent / Broker Over the Phone On the Online Portal 26

27 New policyholders will select preferred SRI causes online 27

28 Select funds align with policyholder preferences Environmental Sustainability Sustainable Core Opportunities Fund Alternative Energy Fund Global Energy Solutions Fund A Emerging Markets Emerging Markets Fund Emerging Market Equity Fund C Social Core Equity Portfolio Selected SRI funds average a 5.9% return, significantly higher than PEMCO s current 2.1% return 1 1. Appendix SRI Financial Model 28

29 SRI yields big returns in the community Pioneer SRI in the insurance industry Involve policyholders in causes they care about Open opportunities for local impact investing Boost in social equity in the Northwest community 29

30 Net Income (million $) SRI improves our bottom line 5.9% Past and Projected Income SRI Strategy $11m SRI avg. return 5 16 invested in SRI per premium $ Year 2.1% -15 existing return *Calculations based on historical precedent and trends. See appendix for financial model. 30

31 Embrace our duty to the Pacific Northwest responsible investing Embrace causes our community loves 31

32 Policyholders will vote for a charitable contribution recipient 5% of the annual increase in surplus is donated to Washington nonprofits Vote: Consumers tell us the causes they care about the most Give: Allocate the 5% of surplus to the most popular causes Excite: Tell them about our other CSR efforts when they vote 32

33 We reach our consumers through two primary channels Community Events Our Website 33

34 Engage our community and boost other CSR efforts Community Impact Local causes gain funding Increases civic engagement Organizations become more visible Increase policyholder knowledge of other CSR efforts Effect on other CSR Efforts Boost participation in service and SRI programs Further positive impacts on the community 34

35 Increase visibility and customer loyalty Community members involved with the nonprofits hear about us Policyholders feel valued and develop greater loyalty to our company Meet potential new customers by getting them to vote at events 35

36 Implementation timeline 2013 Current Worked with local charities to set up community events Develop partnerships for volunteer hours, corporate giving Due Diligence SRI funds and continue policyholder input Approach 1/6th of investments allocated in SRI Realize investment results from SRI, corporate giving 36

37 What risks do we incur with Embrace? Embracing our duty to the Pacific Northwest Embracing responsible investing Embracing causes our community loves Increased costs from volunteer discounts Lack of public interest in Embrace Greater volatility stemming from emerging markets Illiquidity due to commitment periods Community interest diverges from the causes we are interested in 37

38 How do we mitigate these risks? Embracing our duty to the Pacific Northwest Embracing responsible investing Embracing causes our community loves Increased costs from volunteer discounts Lack of public interest in Embrace Greater volatility stemming from emerging markets Illiquidity due to commitment periods Community interest diverges from the causes we are interested in Offset from SRI returns Low-risk demographic most likely to volunteer 38

39 How do we mitigate these risks? Embracing our duty to the Pacific Northwest Embracing responsible investing Embracing causes our community loves Increased costs from volunteer discounts Lack of public interest in Embrace Greater volatility stemming from emerging markets Illiquidity due to commitment periods Community interest diverges from the causes we are interested in Offset from SRI returns Low-risk demographic most likely to volunteer Greater portfolio diversification Avoid commitment periods 39

40 How do we mitigate these risks? Embracing our duty to the Pacific Northwest Embracing responsible investing Embracing causes our community loves Increased costs from volunteer discounts Lack of public interest in Embrace Greater volatility stemming from emerging markets Illiquidity due to commitment periods Community interest diverges from the causes we are interested in Offset from SRI returns Low-risk demographic most likely to volunteer Greater portfolio diversification Avoid commitment periods Our interests align with consumers as a PNW company 40

41 Recap Embracing our duty to the Pacific Northwest Embracing responsible investing Embracing causes our community loves 1.9m volunteer hours per year 1/6 th of premiums invested in SRI 5% of surplus increase donated

42 APPENDIX Directory 1 Title 17 Community Impact 33 Reaching customers 49 Volunteer Hours 2 Objective 18 Cost of Volunteering Initiative 34 Community Impact 50 Premium Discounts 3 Agenda 19 Financial Impact 35 Financial Impact 51 Accident Rates 4 PEMCO Background 20 Embrace Overview 36 Implementation 52 PEMCO Market Share I 5 Our Image 21 Investing Premiums 37 - Risks 53 PEMCO Market Share II 6 Our Image 22 Popularity of SRI 38 Risk Mitigation 54 PEMCO Market Share III 7 Our Image 23 Ability to Transfer to SRI 39 Risk Mitigation 55 Ownership Structure 8 Current CSR efforts 24 Our Investment Mix 40 Risk Mitigation 56 Balance Sheet 9 Current CSR causes 25 Investment Redirection 41 Recap 57 Income Statement 10 Current CSR engagement 26 Enabling SRI participation 42 Appendix Directory 58 Financial Summary Trends 11 Goal 27 SRI on our Website 43 SWOT Analysis 59 5 yr Surplus Reconciliation 12 Recommendation Overview 28 SRI Portfolio Selection 44 Industry Analysis 60 Historical Precedent 13 Embrace Overview 29 Community Impact 45 Market Share 61 Average Rate of Return 14 Partnerships 30 Financial Impact 46 Partner Decision Matrix 62 Working Model 15 Premium Discount Incentive 31 Embrace Overview 47 Premium Discount Rate 16 Volunteer listings on Website 32 Voting process 48 Connected Customers

43 APPENDIX SWOT Analysis Strengths Strong brand image Clear target market High customer satisfaction Opportunities Changing age demographic in the region Weaknesses Poor financial performance Employee-motivated CSR programs Threats Competition from larger, national firms

44 APPENDIX Insurance Industry Analysis HIGH Threat of Competitors: Undifferentiated products mean company s compete on maintaining lower costs, efficiency and good customer service. Harder to identify a niche market in the industry. Large firms commonly entice human capital away from smaller firms and control most of the market. LOW Threat of Substitutes: Few products serve the same function as insurance. LOW Threat of Consumers: Large number of consumers and high switching costs create low consumer power. LOW Threat of New Entrants: High barriers to entry for new players. The only companies that could overcome those barriers are other companies that provide other financial services. LOW Threat of Suppliers: No threat for firms in finding suppliers of capital.

45 APPENDIX Market Share Ranking of Insurance companies by Market Share: 1. Farmer s Insurance of Washington 4.53% 2. State Farm s Auto Insurer 6% 3. PEMCO 3.8% PEMCO often ranks among the top three in the state for market share Seattle Business Magazine Source:

46 Appendix: potential partner matrix Educationa l emphasis Sufficient infrastructu re Service opportuniti es

47 APPENDIX Discounts on Premiums for Events Current Discounts Offered: Home and car (10%) Multi-car (20%) Safe driver (5 to 10%) Alternative commuting (5%) Good credit Safety/security Good student Distant student Defensive driver New Customer Takeaways: Multi-product discounts range from 10-15%, singular product discounts are mostly 5% 6% max total discount 1% per 5 hours 30 hours max

48 APPENDIX Customers Connected to Nonprofits % policyholders x participation = customers 32.9% of Washington residents volunteer Source:

49 APPENDIX Volunteer Hours % policyholders x participation x 28.2 hrs = 1.9+ million Volunteer hours 32.9% of Washington residents volunteer. Volunteers average 28.2 hours of service per person per year. Source:

50 APPENDIX Total premium discounts 333 million 32.9% in premiums x participation x 28.2 hrs x 1% per = 5 hours ~ 6m max in premium discounts 32.9% of Washington residents volunteer. Volunteers average 28.2 hours of service per person per year. Source: Source:

51 APPENDIX Accident rates The graph indicates that people ages have the lowest motor vehicle deaths for both genders. Source:

52 APPENDIX PEMCO Market Share (1 of 3)

53 APPENDIX PEMCO Market Share (2 of 3)

54 APPENDIX PEMCO Market Share (3 of 3)

55 APPENDIX PEMCO Financials Ownership Structure Source: State of Washington Office of the Insurance Commissioner Financial Examination of PEMCO Mutual Insurance Company

56 APPENDIX PEMCO Financials Balance Sheet Source: State of Washington Office of the Insurance Commissioner Financial Examination of PEMCO Mutual Insurance Company

57 APPENDIX PEMCO Financials Income Statement Source: State of Washington Office of the Insurance Commissioner Financial Examination of PEMCO Mutual Insurance Company

58 APPENDIX PEMCO Financials Financial Summary Trends Source: State of Washington Office of the Insurance Commissioner Financial Examination of PEMCO Mutual Insurance Company

59 APPENDIX PEMCO Financials 5 Yr Surplus Reconciliation Source: State of Washington Office of the Insurance Commissioner Financial Examination of PEMCO Mutual Insurance Company

60 APPENDIX SRI Financials Historical Precedent & Trends

61 APPENDIX SRI Financials Average Rate of Return

62 APPENDIX SRI Financials Working Model