In July 1996, Rockwood Programs, Inc. was a startup insurance company with its president the only employee. But from its opening day, Rockwood looked bigger than it really was, thanks to its outsourcing arrangement with Laurdan Associates, Inc. Rockwood’s president, Glenn Clark, had worked with Laurdan previously and knew it was the ideal partner to get his new business off the ground quickly.
Clark explains that, prior to Rockwood, he was selling an insurance product called “employment practices liability” (EPL), whereby companies can be insured for wrongful termination, sexual harassment and discrimination. These acts were considered to be uninsurable before 1992 because they were things people did on purpose. But the laws changed, and Clark set about creating awareness that there was an insurance product available for these exposures. Even as he sought ways to promote EPL, he was also trying to reduce the risk of writing a company that would turn out to have bad employment practices.
One day he found ELLA (short for Employment Labor Law Audit), a product written by Ron Adler, the president of Laurdan. ELLA is an HR auditing process and tool that employers can use to identify the strengths and weaknesses of their employment and human resources management practices. Clark asked Adler to rework ELLA into a miniaudit series on the major EPL exposures, which Clark began to advertise nationwide. He targeted insurance agents, proposing that they buy it and then audit their own agencies for exposure, which would give them knowledge to then go out and sell the product.
A Closer Relationship
The outsourcing agreement for Laurdan’s services regarding this product, as well as related services, began in January 1977. “When I started Rockwood,” says Clark, “I took that same concept of the written mini audits and made it into a self audit of a business. We put it on diskette and called it ELLA-lite.” He says that Laurdan worked carefully with him on what needed to be done for the custom version, while “synthesizing massive amounts of legislation into a digestible format. We now have this software down to 60 minutes, and the ELLA-lite scoring mechanism can be done in 15 minutes.”
Now, every time Rockwood issues an insurance policy for employment-related practices, the Ella-lite software accompanies the policy. The insured then goes through the audit and sends Rockwood the written reports that come out of the software. “That helps me do risk management with them for the rest of the year,” he says. “It also sends a message to insurance carriers, recognizing that heightened awareness is important if a lawsuit is filed by an employee because, having gone through the audit, demonstrates a degree of care. When they ask, ‘did you follow due process; was it a discriminatory act; what defenses do you have,’ the insured’s first line of defense is this audit.” This is so important that a Rockwood insured that doesn’t do the audit, will find its policy not renewed the following year.
As the business grew and demand for more services increased, the relationship with Laurdan expanded. Laurdan, an HR management/consulting firm, now performs value-added HR consulting services for Rockwood’s larger insureds. Laurdan returns the referrals and has put Rockwood in contact with associations that have tried to build risk- management programs for their HR functions.
Together, they have also created a new product, which debuted in Fall of 2000. The “HR Hotline” advises clients on questions that come up before a claim is made. Basically, it serves as free advice for an employer who, for example, might want to terminate an employee but first wants advice on what the law says about the situation. It is ideal for businesses that don’t have a full-time HR department function.
They touch base at least twice a quarter and are in regular communication by email. Their original two-year contract is now renewed annually. “We recognize that the products and the needs are going to change all the time. If we don’t invest time in that, we might end up where the product is not functional for us,” explains Clark.
Their partnership works well and is a true win-win-win. For Laurdan, it leads to more work and more product sales. For Rockwood’s insureds, ELLA is in hundreds and thousands of companies that otherwise would not have had access to this valuable information. For Rockwood, it has led to a “risk that performs better than the norm. Right now I enjoy, as Managing General Agent, the lowest loss ratio in this line of business,” says Clark. “I have booked over $22 million for my carrier, and my incurred and paid loss ratios are in the 30’s — which is an incredible performance over a four-year period of time.” On the front end, that is due to his evaluation of risk before writing an account but, on the back end, it’s due to ELLA and an outsourcing arrangement.
Lessons from the Outsourcing Center:
- Outsourcing for products and services is an ideal solution for a start-up company wanting to appear bigger than it really is.
- Even where the outsourced process is a product that has been successfully launched, the buyer and supplier still need to work together on an ongoing basis to ensure that the product remains functional for customers when their needs change.