Snap-on Inc.'s in-house insurance agency is more than a vehicle through which the tool and equipment manufacturer can sell franchised dealers coverage and earn a commission.

To Daniel H. Kugler, director of corporate risk management for Snap-on, the agency also has been instrumental in establishing risk management's credibility among dealers, who generate a substantial portion of company revenues.

By calling a toll-free number to the Wisconsin-licensed agency, Snap-on SecureCorp Inc., dealers can purchase any of numerous business insurance, benefits and personal lines coverages that Snap-on risk management has lined up. The agency also verifies that dealers are complying with the company's franchise insurance requirements, which Mr. Kugler helped develop.

While dealers are required by their Snap-on franchise contracts to purchase some specified coverages, they are not obligated to purchase the coverage that Snap-on risk management has arranged to meet their needs. But, Mr. Kugler said, if they go elsewhere for insurance, franchise dealers miss out on Snap-on's claim-handling expertise.

Snap-on began offering insurance to its non-employee sales reps in 1985 under then-Director of Risk Management and Employee Benefits Dick Edwards. At the time Snap-on introduced the coverages, the sales reps were independent contractors. Snap-on switched to a franchise dealer system in 1991.

Initially under the program arranged by Snap-on, the independent contractors could buy inventory, van, general liability, health and disability insurance coverage.

When Snap-on switched to the franchise dealer system 1991, Mr. Kugler added accidental death and disability, vision, family assistance and life benefits. Personal lines coverages were added in 2000.

While Snap-on risk management oversaw the dealer insurance program, an outside broker was responsible for administering it. By 1997, though, Mr. Kugler determined that arrangement was hampering the program's success.

At the numerous dealer trade shows that Mr. Kugler attends-in part to promote the insurance program-he was spending more time than he wanted fending off complaints from dealers already in the program. Their major gripe was inadequate customer service.

"I was always looking over my shoulder," he said. "We lacked credibility out there. We needed to get it under one roof to provide first-rate services to dealers."

Meanwhile that year, Mr. Kugler set up an in-house insurance agency with the notion of using it to deliver a credit insurance product to dealers. Mr. Kugler said that he borrowed the agency idea from the risk manager at Roundy's Inc., a Pewaukee, Wis.-based wholesaler grocer. Roundy's has an in-house agency that sells a range of property/casualty and benefits coverages to its independent grocers.

Although Snap-on risk management still is developing the credit risk coverage, Mr. Kugler and his staff realized the agency had other possibilities. Snap-on began using the agency to place the inventory coverage that is available under the dealer program.

The agency, which earns commissions on that coverage, is able to sell it because of the way it is underwritten.

Lumbermen's Mutual Casualty Co., a subsidiary of Kemper Insurance Cos., writes the inventory coverage on an ocean marine form. That form gives the Snap-on agency regulatory freedom in most states to place the coverage itself.

Eight states require that resident agents place the insurance coverage. In those states-Arkansas, Arizona, Indiana, Iowa, Massachusetts, Ohio, Tennessee and Texas-Aon Risk Services Inc. places the risk for dealers.

Snap-on's Bermuda-based, for-profit captive insurer, Snap-on SecureCorp. Insurance Co. Ltd., began fully reinsuring the inventory coverage in 1997.

Shortly afterward, the Snap-on agency also began placing the life insurance that is available through the dealer insurance program.

In 1998, Mr. Kugler brought the entire dealer insurance program in house.

With his own and the entire risk management department's insurance expertise, Mr. Kugler "wanted to bring service to the dealers," he explained.

Although Snap-on's agency places only the inventory coverage and life insurance for dealers, the agency still serves as a single point of contact for dealers. Dealers can purchase any combination of the property/casualty, benefits and personal lines coverages that Snap-on makes available by calling a single toll free number.

Most of the other coverages are handled by a team of Marsh USA Inc. employees who work full time on an outsourced basis at the Snap-on risk management office.

The Chicago office of New York-based broker Bertholon/Rowland Corp. places health insurance under the dealer program. While Bertholon/Rowland does not outsource any staff to Snap-on's risk management department, dealers still can reach the broker through the same toll-free number they would call to purchase other coverage available under the dealer insurance program.

Snap-on risk management also services dealers by handling their inventory and general liability claims. Mike Schmidlkofer, corporate claims manager, and Sarah Bridleman, risk management coordinator, shoulder that responsibility.

Running an in-house agency where dealers can turn for all of their insurance needs has greatly aided Snap-on risk management in building a good relationship with dealers, according to Mr. Kugler.

While that was the right move at the right time for Snap-on risk management, it was not an easy undertaking, he said. Referring to the varying state requirements for broker and adjuster licenses, he said: "You've got to stay on top of it."

Mr. Kugler noted that Snap-on's risk management department retains an outside attorney annually to audit the agency's regulatory compliance.