"Is there any ethnic group that does not want top service?...I don't think so...The challenge in our zeal to go for the new is not to disparage and leave out the old."
"Is there any ethnic group that does not want top service?By Phil Zinkewicz
In writing personal auto and homeowners insurance, the insurance industry has often been accused of redlining, a charge which the industry has hotly denied at every opportunity. What consumer activists have perceived as racially-motivated avoidance of inner city and ghetto areas, insurers have insisted is based on sound underwriting judgment. Losses in inner-city areas have been consistently higher than those of suburban areas.
Nevertheless, consumer activists and some trade journal editorialists have periodically warned the insurance industry that minority markets are ones to be reckoned with--that the industry has a responsibility to develop innovative ways to provide much-needed products and services for those markets, and that the industry should recognize its own self-interest in courting those markets rather than just ignoring them.
Today, there are indications that the industry is beginning to heed those warnings. Plagued by over-competition in traditional markets, dwindling marketshare and regulatory pressures, insurers are now beginning to investigate the potential that exists in emerging minority markets. Agents' associations, most notably the Independent Insurance Agents of America (IIAA) and the National Association of Professional Insurance Agents (PIA), have been particularly active in encouraging insurers to develop special programs to address minority communities.
For example, at the 1994 PIA Company Conference, the following findings were reached: minority populations will be the fastest growing segment of American society, requiring the insurance industry to rethink its marketing and underwriting strategies; minorities and women are closing the income gap between them and white males; slower unit and value growth is anticipated for the insurance industry. In its 1995 conference, these findings were reached: the composition of the insurance industry does not reflect that of American society generally; within the industry, very little is understood about emerging minority populations in America; because insurers and agents are economically dependent on each other, they must plan together for the future.
The most recent 1996 conference brought even more interesting observations from attendants. In discussing groups of people who are not new consumers in themselves but may represent new opportunities for the insurance industry, keynote speaker Robert Willis, a lawyer who previously worked in the insurance industry and served as commissioner of insurance for the District of Columbia, posed the overriding question: Does the insurance industry have the ability to take itself to the next level of profitability in the pursuit of these markets?
Underwriting changes needed to accept diversity of urban risks
Willis said that urban customers are not "new," that they have been rediscovered. But, he said, there is a newness in looking at them contextually, in challenging past decisions about where profitability lies. The industry must ask whether previous bad results in urban areas were due to a failure to understand the products and distribution systems appropriate to that market, or to conscious avoidance of that market, he said.
"Is the industry willing to make the effort necessary to meet the opportunities now available in the market," he asked. "Is it willing to take the necessary risks? Is it willing to revise an underwriting system based on a frame house on a lightly traveled road in Middle America to encompass the diversity of good risks that exist in urban areas? Is it willing to review once again its underwriting and distributions systems to maximize effective responses to opportunity? Is it willing to give agents a greater role in field underwriting?"
Moreover, said Willis, companies must develop new insurance products specific to urban areas, and agents and companies must be willing to work together to rethink their traditional arrangements and explore new methods of agent compensation that might more accurately reflect the ways they share in profits and losses.
Also at the conference, Laurie Bilik, associate professor at the College of Insurance, outlined the diversity context, explaining how managing diversity affects everyone in a company and the need for internal processes to support effective responses to growth opportunity presented by burgeoning minority populations and the increasing role of women in the marketplace in general.
At the same time, she pointed out, no matter how diverse the markets to be served, some aspects of selling would remain constant:
"Is there any ethnic group that does not want top service? On the phone? Face to face? I don't think so. Is there any group that speaks one language or another that doesn't care if the products you have meet their needs? I don't think so. Is there any group that wants to be insulted because you send out a field person who doesn't speak their language? Is there anybody who won't be impressed if...you have someone who can deal with them on whatever their comfort level is? We would all like that. The challenge in our zeal to go for the new is not to disparage and leave out the old," she said.
Speakers also discussed the potential in minority markets. The African-American market, according to Jerald Tillman, a Nationwide agent who is president of the Ohio Association of Black Professionals, consists of 31 million Americans, about 12% of the total population, with estimated annual consumer expenditures of $278 billion, about the same as for the whole of Canada. In the '80s, he said, the population grew 30% faster than the population as a whole, the number of African-Americans who graduated from college virtually doubled, the number of black-owned businesses more than doubled, and a larger proportion of the population moved into higher-paying jobs.
Fast growing Hispanic market
is highly concentrated
Julio Jiminez, an independent insurance agent, said that the Hispanic market is the fastest-growing population group in the country. By the year 2025, he said, the United States will have a larger Hispanic population than Spain, second only to Mexico. The market is very concentrated, he noted: 90% live in 20 areas, 64% in 10 of those. The total buying power of the group today is $228 billion.
Daphne Kwok, executive director of the Organization of Chinese Americans, said the Asian-Pacific market is much more fragmented. There are more than 25 subgroups, some huge like the Filipinos and Chinese, and some much smaller, like the Samoans or the Hmong. More than 60% of the market consists of recent immigrants. Members of the group are more likely to live in metropolitan areas than non-Hispanics, and 60% reside in the West. Their economic status varies greatly, with a poverty rate that is 14% higher than for non-Hispanic whites but with pockets of very well educated and highly successful groups.
Said Kwok: "The market presents huge challenges: In the Chinese community alone there are more than 100 dialects, and there are huge cultural differences among the various communities. However, it is possible to make some generalizations: The whole concept of insurance is very foreign to the Asian community, so much education is still required. Asian families are not accustomed to talking about personal and financial histories, or about life and death, especially for those who have survived wars and political oppression where relatives have died. Reaching and educating the different groups can best be done through the Asian-language presses and adult English-as-a-Second-Language courses."
Nevertheless, work has begun within the insurance industry in terms of studying and experimenting in minority markets. The IIAA, working with companies on this issue, has reported that in a significant number of states there has been progress.
For example, in New Jersey, "mentoring" programs have started with Aetna (now Travelers) and several minority agencies. Established Aetna agencies serve as mentors to the minority agencies, acting as a conduit for the minority agencies to place business with Aetna. The state association has formed an active urban/minority committee, seeking legislative reform to improve the auto market.
In Chicago: the Inner-City Underwriting (ICU) Agency has been created, using a central processing facility through which business is sent to participating companies. ICU currently works with 30 minority-owned agencies, all of whom are too small to obtain direct appointments with standard-market companies. Each agency is individually owned, but by working with ICU they take advantage of their combined numbers to gain access to standard-market companies. Participating companies are Kemper, Chubb, Aetna, The Hartford and Economy-St. Paul, according to IIAA.
In California, the Insurance Brokers and Agents of the West Urban Opportunities Working Group has implemented a program and the Insurance Department is involved. The program will follow an "Atlanta" model in its initial phase. A directory has been published profiling brokers and agents serving California's inner cities and ethnically diverse communities. Forty-nine agencies have been profiled to date.
In Boston, former IIAA committee member Bernard West created Urban Underwriters, similar to the effort in Chicago. As in Chicago, the agency screens the producers, gives them training and serves as a conduit to the companies. Forty-five minority agents are involved with five insurance companies--Aetna, Arbella Mutual, Quincy Mutual, Hanover and Holyoke Mutual.
It seems, then, that the insurance industry is beginning to recognize the importance of emerging minority markets. If insurers can tap these markets, benefits will accrue to the companies themselves, to producers and, most certainly, to markets which have heretofore been ignored.
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