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Reaching out, building up In underserved markets, educated homeowners can be profitable risks By Elisabeth Boone, CPCU
For too many years to count, conventional wisdom said there was no way to profitably underwrite homes in lower-income and minority neighborhoods. Long after the term “redlining” was dropped from common parlance, most insurers still weren’t eager to take on risks that seemed a sure bet to generate both frequency and severity of losses. As a result, many residents in underserved markets who want to become home owners have been frustrated by their lack of access to affordable—or any—insurance coverage. With no means of protecting what would be their most valuable asset, these consumers face a stark choice: Buy a house and hope nothing bad happens to it, or put aside the dream of home ownership. Over time, some enlightened carriers began to view unserved and underserved markets in a new light: Instead of declining to insure homes in these areas because they don’t meet conventional underwriting standards, why not develop a model that addresses the unique characteristics and needs of these markets? That, in essence, is the mission of NeighborWorks® Insurance Alliance (NIA), a nationwide partnership among insurers, consumers, and community development professionals. NIA seeks to make insurance available and affordable by raising insurers’ awareness of cultural subtleties and by educating consumers to help them become responsible—and insurable-home owners. NeighborWorks Insurance Alliance traces its origins back to 1978, when an act of Congress created the Neighborhood Reinvestment Corporation (NRC). Subsequently NRC founded the NeighborWorks Network, which is composed of more than 235 community-based nonprofit organizations that are working to revitalize some 2,553 communities through resident-led affordable housing and community development activities. Today Neighborhood Reinvestment Corporation is called NeighborWorks America. Partners in progress Serving as director of NeighborWorks Insurance Alliance is Todd Pittman, who was involved in establishing the organization in 1994. After several years of underwriting experience with Prudential Property & Casualty in New Jersey, he says, “Under the direction of NeighborWorks Network, I assumed the responsibility of convening a task force of insurance companies and community development organizations to explore partnership opportunities that addressed the affordability and availability issues that were prevalent in NeighborWorks communities.” In 1994, Pittman observes, “there was a heightened threat of federal regulation of the insurance industry, so the moment really seemed right for the network to engage our insurance partners in discussions to explore various ways that we could enhance services to lower-income neighborhoods. From those initial discussions,” he continues, “a national partnership was formed to address insurance issues of mutual concern to the NeighborWorks Network and the insurance industry. That partnership became known as the National Insurance Task Force, or NITF.” NITF, Pittman says, “identified several activities to undertake in its first year, and all of the activities were based on an agreed mission statement: To develop partnerships between the insurance industry and community-based organizations to better market the products and services of both for the benefit of the customers and communities they serve.” “Initially we focused on three areas, and we formed subcommittees to find ways of addressing each topic,” Pittman says. “The first issue was accessibility: how consumers could find information, locate agents’ offices, and learn about the various products available to serve them. The second area of concern was education: helping consumers better understand their insurance options and the content of their policies, and helping insurers better understand how to serve customers in neighborhoods that had been underserved. The third area was research to help community-based organizations and insurance professionals gain information on which to base future cooperative efforts.” The insurance company founders of NITF, Pittman says, “such as Allstate, St. Paul Travelers, Safeco, and State Farm, made it clear that they wanted substantial results from their efforts and not just a public relations endeavor.” In 2004, NITF changed its name to NeighborWorks Insurance Alliance (NIA) to reflect the organization’s expansion to a nationwide initiative. Today NIA boasts an impressive roster of leading carriers, both independent agency companies and direct writers and exclusive agency insurers. Nine of the country’s 10 leading writers of homeowners insurance are NIA members. (For a complete list, see the sidebar above.) NIA’s membership also includes insurance trade associations, insurance regulators, educational institutions, NeighborWorks America, and the members of the national NeighborWorks Network. Since NITF (now NIA) was formed more than 11 years ago, Pittman observes, “The insurance industry has found that the NeighborWorks system is the most effective vehicle to help companies fulfill their mission to better serve low- to moderate-income communities, and insurers have become cognizant of the importance and value of a partnership with such a system. Today NIA is no longer a task force but a permanent part of the NeighborWorks infrastructure, and we’re the vehicle to tell the NeighborWorks story to the insurance industry.” Achieving buy-in Given the past reluctance of many insurers to take on risks in low-income and minority neighborhoods, how does NIA achieve the buy-in it needs from the insurance industry to fulfill its mission? “Insurance companies that support NIA and the efforts of NeighborWorks organizations across the country do so, I believe, because it makes good business sense,” Pittman responds. “The time and money they invest in NeighborWorks yield better educated consumers, enhanced relationships between agents and the community, and ultimately more insurable communities.” At the same time, Pittman points out, “Our community-based organizations realize that our insurers are for-profit businesses and that they need to be involved in efforts that make good business sense for them.” In the 11 years since NIA was established, he remarks, “We’ve gone beyond philanthropic relationships to a model that is based on a true business partnership. The more insurers become involved in the network, the more opportunities they see in these markets.” For example, a home owner may be, or become, a local business owner who requires various forms of commercial insurance and perhaps employee benefits. Beyond check writing NIA’s insurance partners, Pittman emphasizes, “do more than just write checks. They are involved at all levels of both corporate and field staff, to actively engage in implementing strategies that will help improve the safety of our communities all across the country.” Among recent insurer efforts to help educate consumers, Pittman cites the contributions of three NIA members, St. Paul Travelers, Safeco, and State Farm, each of which helped fund the creation of financial literacy programs. Pointing to an emerging trend, he observes, “I’m starting to see investments from insurers into our network going to activities that support NeighborWorks. Those resources have traditionally come from the banking industry. Now insurers all across the country are stepping up to support activities that go beyond basic insurance education.” Today, Pittman says, “I believe we’re regarded as an alliance that really adds value to the NeighborWorks Network and our insurance members by providing both with useful input, tools, and resources, as well as program development and marketing assistance in the NeighborWorks system, with the ultimate goal of improving the insurability of our low- to moderate-income communities.” NIA’s insurer members, Pittman notes, have access to all of the resources of the nationwide NeighborWorks Network, including the NeighborWorks training institutes. Established in 1988, the institutes “offer training, certification, networking opportunities, and other resources for people who are seeking to revitalize their communities. Community development professionals, nonprofit organizations, policymakers, insurers, public officials, lenders, developers, community organizers—even residents—rely on NeighborWorks training institutes to share progressive ideas and models for success,” Pittman declares. Through the institutes, he says, insurers offer training in the areas of home maintenance and safety, general insurance knowledge, and natural disaster safety. A recent institute held in Washington, D.C., was attended by more than 1,700 individuals from community development organizations and the private sector, Pittman says. Over the years of its existence, NeighborWorks Insurance Alliance has created a number of initiatives to provide programs and services to residents in many areas. A Loss Mitigation Program was developed by NIA’s Risk Management Program. It is designed to take loss mitigation best practices to the community level. Among the program’s components are insurance and home safety education; home safety inspections; home safety improvements and repairs; community safety efforts; and data on the program’s impact and outreach. A Risk Mitigation Program was developed by NIA and other NeighborWorks Network partners to improve safety, provide insurance education, and preserve individual, commercial, and community assets. The goal is to enhance the economic standing of low-income families and communities by integrating home ownership, resident leadership, and multifamily housing initiatives. NIA’s Loss Prevention Partnerships Program has educated thousands of individuals in home safety, conducted home safety evaluations, made some 600 loans and grants, and created a national home loan safety fund that has granted or lent more than $2.5 million for home safety. This past summer, The NeighborWorks Multifamily Initiative created Neighborhood Risk Management Corporation (NRMC) to help member organizations of the NeighborWorks Multifamily Initiative gain better access to property and liability insurance at affordable rates and to establish a comprehensive risk management program. NRMC provides coverage of $500,000 property and $750,000 liability, with excess limits available from the traditional insurance market. One member’s story Serving as director of urban and multicultural markets for St. Paul Travelers is Don Davis, a 20-year veteran of the insurance business who throughout his career has been involved in personal lines. Davis’s background encompasses underwriting, pricing, and product development with Travelers and the former Aetna. “Since 1995 I have been responsible for increasing the company’s position in urban and multicultural markets,” Davis says. “This involves doing everything from working with community-based organizations and housing associations to working with agents who have access to consumers in our target areas, particularly in urban communities, and with agents who have an affinity with various minority customers.” Davis also is involved in efforts to develop more independent agents in underserved markets. “We seek out agents who are doing business in urban communities in order to increase our ability to distribute our product there,” he says. “We try to create stronger independent agents who can meet the demands of a large carrier like St. Paul Travelers.” At St. Paul Travelers, Davis says, “We have Fair Access to Insurance Initiatives that are set up to address concerns regarding the availability and affordability of insurance, led by homeowners insurance. We focus on bringing our products to consumers in urban communities and working with organizations like NeighborWorks America to help position customers so they can get these products at an affordable price.” A vital part of this effort, Davis notes, is “giving urban consumers access to highly professional agents who have great relationships with their companies.” Equally important, Davis says, “We work with consumers so they become involved in loss mitigation, lowering their cost of insurance, and making educated insurance decisions. A lot of what we do in these areas is with NeighborWorks Insurance Alliance and various affiliates of NeighborWorks America.” Educated consumers … informed choices … safety-conscious home owners ... communities returning to economic health … insurers that want to write profitable business and now can: It sounds like a formula for success in the lower-income and minority communities that are striving to revitalize themselves. When insurers see how they can benefit from becoming involved in unserved and underserved markets, they become true partners in the effort to improve the economic health of those markets, NIA director Todd Pittman observes. “Insurers clearly view their role in NIA as advisers, as business partners, and, most important, they view themselves as key elements in achieving NeighborWorks America’s goal to strengthen communities and transform lives.” *
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