Talking to Management, Part 4: Prices and Products

Do you have any complementary products in the works that open up new markets for you?

Much of the time, growth happens through a willingness to explore offering products and services that are one step removed from existing offerings. This could be a new marketing channel, offering the product internationally, extending the brand, offering services that complement the product, etc. Often a move like this precedes growth in profitability; it means that executives are looking for low-risk ways to expand the franchise.

Going back to my favorite insurance company, Assurant(AIZ), it's constantly looking for new ways to create new products and services that lever off an existing core competency. For example, it's No. 1 by a large margin in force-placed homeowner's insurance.

When a homeowner with a mortgage doesn't make a payment on his or her homeowner's insurance, the mortgage company is at risk if a disaster happens. After a grace period of two to three months expires, the mortgage company buys a homeowner's policy from Assurant or another carrier and bills the homeowner at their next mortgage payment. The development of force-placed homeowner's insurance led to new product lines in force-placed auto insurance and renter's insurance.

The first business developed as a result of relationships with mortgage lenders that wanted their interests protected if property insurance slipped out of force (not a good sign for the creditworthiness of the loan). The same applies to auto lenders. It also applies to large multifamily unit management companies, which want the integrity of their apartments protected. Those who live in apartments are much more likely today to damage the units than in prior decades, and increasingly landlords require it.

Key Points:

• Get an idea of whether price increases are likely in the next year.
• The reasoning behind the choice is telling.
• Key in on growth prospects by asking about new, complementary product lines.

Editor's note: We're pleased to present David Merkel's five-part series on questions to ask the management of a public company. Click here for Part 5, questions about the changing business environment and mergers and acquisitions, and tips on using them effectively.

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