A Publication of WTVP

Jonathan Michael is president and chief executive officer of RLI Corp. and subsidiaries. RLI is a specialty insurer headquartered in Peoria, and in July was nominated for the Council of Better Business Bureaus Annual Torch Award for Marketplace Ethics. A New York Stock Exchange Company, RLI’s writings are approaching $500 million. One of the leading writers of California Difference in Conditions, RLI has embraced modeling technologies for many years and has been a user of Risk Management Solutions technologies almost since its inception.

Since joining RLI in 1982, Michael has held various positions, including president and chief operating officer, chief financial officer and executive vice president. A certified public accountant, Michael was associated with Coopers & Lybrand in Columbus, Ohio, prior to joining RLI.

He is a regular attendee of National Association of Professional Surplus Lines Offices and National Association of Independent Insurers Annual Meetings, and is active in committee work in both groups.

In addition to being a member of the RLI Corp. board of directors, Michael is also on the board of Maui Jim, Inc., a sunglass manufacturer and ophthalmic goods and services distributor.

He has been involved in various community activities and is currently a trustee of Eureka College, and chairman of the Illinois Central College Educational Foundation.

He graduated from Ohio Dominican College in Columbus, Ohio.

Michael is married, resides in Peoria, and has three children.

Tell us about your background, schools attended, family, etc.

I’m originally from Columbus, Ohio, where I grew up with eight brothers and sisters in a typical Irish Catholic home. I have a degree in economics and business administration from Ohio Dominican College, a small liberal arts institution near Columbus.

Sharon and I have three children. Amber has begun her career in California after college at The University of Iowa. Andy attends Ohio State, and Alex lives here in Peoria and attends ICC.

Briefly detail your career path at RLI.

I began my career in the mid 1970s as a CPA, auditing in several different industries with Coopers & Lybrand. I audited and consulted at several different insurance companies, liked it, and decided to make insurance a career.

I came to RLI to work in the financial area in 1982, and have had increasing levels of responsibility ever since. My positions have included controller;vice president of finance; chief financial officer; and executive vice president, where I was responsible for running the company’s insurance operations for several years.

I became chief operating officer in 1994 and from there it was a natural progression for me to become president and chief executive officer of RLI Corp. in January of this year.

How/when was RLI started? Briefly describe its history and its growth. To what do you attribute that growth?

Our history dates to 1959 when our founder and chairman, Jerry Stephens, was working in his father’s Peoria insurance agency, H.O. Stephens and Son. As a wearer of contact lenses—very delicate and expensive items at the time—he realized the cost to replace a lost or damaged lens was prohibitive to many people.

Stephens developed and promoted a new product to insure these lenses and, in 1961, founded Replacement Lens, Inc. to process the business. We were one of the first insurers of contact lenses; in time, we emerged as the largest insurer of that product in the world. When we went public in 1969, we changed our company name to RLI Corp., and then renamed our insurance subsidiary RLI Insurance Company in 1973. We now have four principal insurance subsidiaries operating throughout the U.S.

Our growth has been steady and strong. For example, in 1970, we had gross sales of $3 million. That grew to $30 million by 1980, $181 million by 1990, and $470 million last year. We should eclipse the $500 million mark this year.

This growth is a direct result of our decision in 1976 to expand beyond contact lens insurance into the property and casualty insurance industry and, more importantly, the business model we now follow. Entering the P&C industry opened several revenue markets to us that we have developed very successfully. And our business model, which emphasizes profitable business over sheer market volume, has let us sustain our success for many years.

What was the founding vision for RLI? How has that vision matured since then? How do you expect it to change over the next five to 10 years?

Bottom line, RLI’s philosophy is to provide innovative products and services that serve our customers’ fundamental needs. Everyone needs insurance, for more reasons than they probably want to imagine.

Insurance is a very basic need in our society, and if a company can provide it in a way that is tangibly better than another company, then they’ve done something remarkable. And that customer is going to stick with them. That’s the kind of company we try to be.

Just think about the contact lens story. It took perseverance and a creative mind to bring that product to fruition. We try to bring that entrepreneurial attitude to life in all of our product lines. Sometimes that means delivering a level of service that can’t be obtained anywhere else. Or our creativity may take the form of putting a product on the Internet so a producer can tell immediately if his customer is accepted for coverage and issue the policy right away, lowering transaction costs significantly.

In the markets we serve, we strive to be the recognized leader in terms of expertise and service. For most of our products we’ve achieved that level—we’ve basically followed the same principles throughout our history. We expect to keep at it for a long time to come.

Our vision over the next 10 years is that we will become recognized as the top specialty insurer in the United States.

RLI will most certainly have some different products than today, but at the core, our values will remain imbedded. We’ll be a profitable underwriting company—a company that believes it is only as strong as its people. RLI will continue to be the innovator in the industry.

What type of services does RLI offer?

RLI offers specialty insurance products that standard insurance markets, or companies, will not write except when industry conditions are most favorable. As a specialty company, we excel even when the marketplace is difficult.

Our portfolio of 30-plus products range from a $250 premium personal umbrella policy to a $2 million premium commercial trucking policy, which typically requires a great deal of underwriting and claims talent to handle.

Our property coverages include commercial fire and Difference in Conditions (DIC) insurance, which includes earthquake. We have been writing DIC business in California longer than any other insurance company, and are the major market in that arena.

Casualty products include primary and excess liability insurance, as well as directors and officers liability.

RLI also operates a significant surety operation, which writes miscellaneous bonds, as well as bonds for small contractors and for the oil and gas industries.

While we have some business dealings internationally, our overwhelming focus is throughout the United States.

You serve on the board of Maui Jim, Inc. Explain the connection between RLI and Maui Jim.

The segment that administered our contact lens insurance business evolved to include computer systems to automate eye doctor’s offices, service agreement plans, and other related programs.

In 1995 we acquired, through merger, a wholesale optical goods distributor of contact lenses, prescription spectacles, frames and sunglasses to form RLI Vision Corp. In November 1996 we merged RLI Vision with Hester Enterprises, Inc., which owned the Maui Jim sunglass line. The resulting organization began operating as Maui Jim, Inc., and RLI has maintained a significant minority ownership position ever since.

How many employees did you have (full/part time) at the beginning? Today?

Since RLI is a ground-up type of operation, at the beginning we had just one employee. As Jerry grew the business, he added people as needed. Pretty soon it really took off. So we had one employee in 1961. Twenty years later, we had 185. As of year-end 2000, we had 519. We’ve gone from one office here in Peoria to 18 offices in 16 cities nationwide.

What sets RLI apart from others in your industry?

We hire the most talented people in the industry. To be successful in this business, it is imperative that smart, energetic people write the business and handle claims.

We believe it’s better to leave a position open rather than filling it with the wrong person. This unwavering commitment to hiring the best—giving them the tools to do their jobs and treating them well—is our most significant competitive advantage. As a result, our customers like doing business with RLI.

Complex specialty products require expertise. Our brokers (customers) know when they talk to an RLI underwriter, they’re talking to an expert who can handle the transaction and make decisions quickly and effectively.

Our tag line is "Fundamentally Innovative" and we practice it daily, bringing solutions to complex problems. We find ways of delivering products and services quicker and more effectively.

For example, several years ago we installed a process to deliver policies to our customers within 15 days of it being written. At that time, and for several companies still, the norm was 60 to 90 days. While many felt that effort may not have been the most important piece in the insurance transaction, it underscored the importance we placed on service, and helped solidify our reputation in the minds of our customers.

But you’ll find it everywhere. RLI has suggestion and recognition programs that encourage every one of our people to contribute any idea they think might save, or make, the company money or improve customer service. They are recognized in front of the entire company for their contributions, and that means a lot to them. We’ve taken several excellent ideas from these programs and put them to work throughout the company.

What trends in your industry have forced change in your business? How did it change? Was it for the better or for the worse? Why?

Historically, the insurance industry has been predictably cyclical. We’d have three or four years of a soft market in which several companies were willing to write lots of policies and prices were lower. That was followed by a few years of a hard market, or less capacity to write business and, therefore, higher prices.

Well, that cycle has changed dramatically. The latest soft cycle lasted at least 13 years, and didn’t begin to change until 2000. Throughout the 1990s more and more capital was infused into the industry. Product alternatives to insurance are becoming more and more prevalent today. That is why it is vital to be an innovator.

The current firming cycle is welcome relief, and who knows, it may last more responsible underwriters will be reluctant to begin lowering prices too quickly.

Another significant change has been the way insurance is sold. In the past, retail agents and wholesale brokers dominated the distribution of insurance.

Today, because of mergers and technology, the distinction between wholesaler and retailer is blurred. Also, other financial service companies provide alternatives to insurance that compete for business. In addition, direct markets, telemarketers, and Internet startups all vie for the insurance dollar. So the distribution landscape is changing and we have to be aware of it and change accordingly.

Change, like competition, is good. The buying public has many more alternatives from which to select today.

Transaction costs are driven lower by technology. Only those companies willing to change will thrive (and maybe even survive).

What, if any, misperceptions does the community hold regarding your company here in Peoria?

I would say it is probably that we still write contact lens insurance, and that RLI still stands for Replacement Lens Insurance.

Neither the product nor the company exists any longer. Insurance for contact lenses became unnecessary as disposable lenses became popular. We’ve been operating as RLI Corp. since entering the property and casualty industry in the late 1970s.

Our business is nationwide. We really do very little business locally. We could be headquartered anywhere. Peoria makes sense because it is a great community for families. The work ethic here is outstanding, and cost of living is lower.

How have you marketed your products or services in the past? What, if any, changes have you seen in those efforts recently?

The insurance industry—both personal lines and commercial lines—is a relationship business. People are most likely to do business with those they know and trust. It’s a natural thing to do, especially when people are protecting their financial assets.

Because of this tendency, our marketing efforts have primarily been done on a personal level. Our underwriters have cultivated longstanding relationships with producers who know the types of risks we’re willing to cover. At industry conventions, we meet face-to-face with potential producers, or take meetings with larger customers to discuss new product information.

Advances in technology make it easier to tell our story as well as do business with more producers.

What once took days to distribute can take seconds today. Certain producers have the ability to conduct business with us from wherever they can connect to the Internet. The potential is virtually unlimited.

For all the technological changes we’ve witnessed, insurance still comes down to trust. People need to know a reliable company is standing behind their financial concerns, and that’s where personal relationships come into play.

How does your company recruit and retain employees?

Recruiting talented people is an ongoing battle that only gets tougher when you seek people with specialized knowledge. For example, when we need to get an underwriting executive, we’ll probably need to look outside Peoria.

We use executive recruiters who search nationwide for successful candidates who may be happy in their current position, but are also open to new opportunities. The "RLI Story," with its entrepreneurial slant, is very appealing.

When we bring them to town, we roll out the red carpet. We stress the quality of life here, and make sure they see many of the positives to living in the Peoria area. After the tour, they may know more about Peoria than their own hometown.

Our salaries and benefits are also strong motivators. We usually pay in the upper 25th percentile in our industry. An additional 40 cents of every dollar earned goes toward benefits, which include tuition reimbursement and profit sharing plans.

The key benefit everyone finds most important is our Employee Stock Ownership Plan.

We contribute an additional 15 percent of associates’ salaries in an investment in RLI stock. The associates contribute nothing. Over the years, our ESOP has made millionaires of several retiring people.

What changes do you plan to make in the future?

Only those that are most likely to produce profitable results. Our strategy for the past number of years has been to underwrite for profit and hire the best talent in the industry.

We believe in the three streams of income our business model functions under, and focus on providing customer solutions on the operating side, which means bringing talent to the table and allowing that talent to make decisions. It’s a winning formula that doesn’t need to change drastically.

What do you hope to accomplish in the next five to 10 years at RLI?

For several years, Jerry Stephens has been touting an enticing goal: to become a $1 billion company. If this year tracks according to our expectations, we’ll be more than halfway there.

But the trick will be to target that goal while still maintaining our profitable history.

If we can accomplish that, our shareholders will be among the happiest shareholders on the NYSE.

You are an active volunteer in the community, serving as president of the ICC Foundation Board and as a trustee of Eureka College. What is your philosophy of volunteerism and how does RLI support its employees who are active volunteers?

I personally believe everyone should give back to their community, regardless of how they choose to do it.

Giving of yourself without demand for compensation is a part of growing up, becoming a whole person, and is something everyone—especially children—should experience.
RLI encourages associate involvement at many levels.

We are a matching gift company; meaning associate contributions to charitable organizations are matched by the company according to established guidelines. Many of our associates take part in countless acts of volunteerism throughout the community that take place without mention or fanfare every day.

What is your proudest professional accomplishment?

Without a doubt, it was to succeed Jerry Stephens at the helm of RLI. This company is such a tremendous accomplishment that words cannot describe the honor I place on holding this position.

Jerry’s vision for a company that not only serves its customers, but also looks after its own people, has created a tremendous amount of wealth for its associates. I consider it almost a sacred trust to maintain our history of success, so that another generation of RLI associates and customers can benefit from an all-American, homegrown success story. IBI