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A new vision: as agents and carriers recognize the underserved insurance needs of African-American and urban markets, competition for these groups is heating up.

Key Points

* Insurers of-ten must overcome negative perceptions that the African-American community may have of the insurance industry.

* To underwrite successfully in urban markets, insurers should use different datamining techniques to more accurately reflect the risks of those markets.

* Effective marketing techniques include education programs, hiring locally and supporting community projects and celebrations.

Insurers haven't always done a good job reaching African Americans, but many are seeking to change that as they begin to view urban areas and African Americans as potential sources of profit.

With 88% of blacks living in urban areas in 2002, according to the U.S. Census Bureau, it's impossible to speak of reaching African Americans without talking about how insurance is sold in cities. Lorraine Brock, vice president of urban market development at Nationwide, said there's a great deal of potential in the African-American marketplace, and that potential grows every year.

She said 60% of African Americans who are 36 or older own their own homes. Also, the growth in the number of African-American business owners has been strong.

"The challenge we face is that of competing with other insurers who are out after this particular segment," Brock said. "African Americans tend to be brand loyal. We believe we have a strong, positive brand and so a lot of our outreach efforts have been to strengthen our brand. As an insurance company, we are in the business of protecting the assets of consumers, and African Americans have cars, have homes, have businesses. They have families they need to protect. We want to build positive relationships with consumers, and our agents and claims staff are key to making that happen. We want to offer quality service that's reliable and fair."

The Gap

Property/casualty insurers have been accused of "red lining," or refusing to issue insurance based solely on where applicants live. Life insurers have also been accused of overcharging African Americans for certain kinds of life insurance. Both practices are illegal today, but that wasn't always the case.

Still, insurance can be harder to find and pricey in urban areas.

In Philadelphia, the U.S. city with the fourth-largest population of African Americans and where one in five residents lives below the poverty line, low-income working families pay higher prices for most everyday goods and services compared with other households. The annual cost to insure the exact same car and driver in the city is $400 more in a neighborhood where the median income is $30,000 than in a neighborhood where the median income is more than $70,000, according to a Brookings Institution report.

Donald Lewis, an urban/emerging insurance market specialist and founder of the Insurance Cooperative, a producer development network based in Philadelphia, recalls a task force that met in the city six or seven years ago. About 15 carriers came, and 40 to 45 agencies. From the meeting, only two appointments were made with carriers, and they were for products that wouldn't be sold in urban markets.

"It was an exercise in futility," Lewis said. "I wrote a book, Everything to Win, Nothing to Lose; Urban Insurance Solutions, and realized that agents would buy two copies and use them for bookends. What we needed was training and consulting to get the message out."

The message that Lewis wanted to get out was that the key to getting insurance products that are affordable and available in urban markets is education--education of consumers, agents and insurance carriers.

"Minorities have not had access to insurance. It hasn't been a focal point to financially educate people at certain economic levels. Not all African Americans are at lower economic levels, but financial literacy, or illiteracy, crosses all economic levels," Lewis noted.

Carriers needed education, too.

"The biggest thing is to convince the carrier to not enter urban markets as a loss-leader, but to approach it as an underserved, unmined emerging market profit center," Lewis said."Carriers have the impression that the [state] commissioner's office is going to make them operate at a loss. I haven't found it's the state's intention to drive carriers out of business."

What carriers have to do, Lewis said, is approach the market differently than a suburban market.

"You can't force a suburban underwriting model down the throat of an urban, diversified market. It doesn't work," Lewis said. He credits the Urban Insurance Partners Institute, a nonprofit organization founded to improve the urban insurance marketplace, with working to create an underwriting tool that uses additional datamining techniques to more accurately reflect the risks of an urban market.

For instance, if renters pay their rent on time, they should be viewed the same as homeowners who pay their mortgage on time, Lewis said.

However, insurers tend to view homeowners as a more reliable risk than renters.

Suzanne Reade, president of the Urban Insurance Partners Institute, suggested one way insurers might be able to better gauge a consumer's fiscal responsibility is by tracking how consumers pay their utility bills. "You have to go beyond census track and credit and banking info," Reade said. She noted many people in urban areas don't have credit cards.

"You might have a thin credit file, because you don't have credit cards ... which is ironic, because everyone is saying cut them up," Lewis said." Yet without a credit card, you are not viewed as being credit worthy."

Another common complaint the UIPI hears from carriers is that rates aren't adequate for the risk in an urban market, Reade said.

"But often, the agents haven't evaluated the risks appropriately, and the risk isn't in the right rate tier. The company may not have adequate information to get the price right," Reade said, emphasizing that urban agents may need more training to serve this population better.

"From our perspective, the urban marketplace is more challenging. There may be some very affluent areas, as well as middle class, and the lower income strata. It needs to be understood better, because there are good risks within the lower income strata that are insurable and want insurance," Reade said.

She said it was important, too, for insurers to understand the different risks of an urban environment. For instance, buildings in urban areas may be older, and could face more repair and maintenance issues. "You might have wood frame homes in Chicago or flat roofs in Philadelphia. A company has got to get into the local area and understand the risks," Reade said.

Plus, slicing and dicing a community by ZIP codes may not be an effective way of measuring risks, Lewis said. For instance, he said 10 years ago, Philadelphia tore down a housing project, and put up single family residences for lower income people. It was in the heart of an area known for crime, vandalism and theft. But eight years later, the community looked the same as it did when it was fresh and new. It had become a safer environment, because the people who lived there looked after each other, and their property.

"By hiring local people for maintenance and security jobs, they created a motivated tenant," Lewis said. "We're doing the same thing here, but we need a lot more support. At the end of the day, it's the middle class you have to grow in the urban market. If the underserved are being penalized, you won't grow them. It behooves everyone to become a part of this process."

Closing the Gap

Reade of the UIPI said more and more insurers ate becoming interested in this market." They see the profit potential," Reade said.

Companies such as Axa, Nationwide and American Family are reaching out to prominent national, regional and local African-American organizations.

One of the greatest challenges insurers face is overcoming negative perceptions that the African-American community may harbor toward the insurance industry, some said.

"There's still market distrust--some negative perceptions of our industry in this marketplace, probably more so than in the immigrant markets," said Gwen Jones, emerging-market development director at American Family Insurance Group in Wisconsin, and chairwoman of the UIPI board of directors." We've excluded this market in the past. The industry appeared to behave as if the African-American market didn't exist as a viable market. We have to figure out a way to overcome that gap."

Jones was hired by American Family after the company was the center of a 1995 federal lawsuit for discrimination and red lining.

American Family, which was founded in 1927 as a mutual company to insure farmers' automobiles, has worked to expand its reach into the African-American and other multicultural markets. "Ten years ago, American Family went to the city. We still have some farmers, but there are fewer and fewer rural opportunities. We know the market has changed over the years, and we have to stay on top of that change. If not, we'll be sitting here with no policyholders, and that's not our goal."

One of the things the company did was provide diversity training to its field representatives and office staff. "We realized not all African Americans are the same and the market isn't monolithic. There's socioeconomic and cultural difference in the market segment. Everyone needs diversity training to understand and appreciate differences, but not only do we need to understand and appreciate differences, we need to know how to work with and work across cultural differences."

American Family also worked to establish a presence in African-American communities by offering education programs, hiring locally, and supporting community projects and celebrations.

"In the African-American community, there seems to be a greater need for the company to establish a relationship with the community. Many companies have made it their business to go into the African-American community, but at 5 p.m., they lock their door and leave. We want to be a part of the community we are serving," Jones said.

The company also supports community redevelopment projects. "A sound neighborhood is a better place to sell insurance," Jones said. "We know we are building our future in that community. We hire and staff ourselves with agents from the community. We aren't just taking their money, and not giving back."

And the company also supports local events. "Martin Luther King's birthday is important to this community, and it's important to American Family. Black History Month is important, and it's important to American Family. We want to be there," Jones said. "It's not all about selling a product, it's about building relationships. If we do the job right, then a policyholder will refer us to their friends and family. Even if people may not be at a point in their life where they can buy products, at some point, they will be, and when they do, we'd like to be the carrier of choice."

Jaime Wright, divisional vice president of Axa Advisors' New York branch, said the company has hired a chief diversity officer to help reach out to diverse markets, including African Americans. The company has also developed relationships with the Black Enterprise, National Urban League and the NAACP in an effort to recruit new African-American agents.

"Generally speaking, this is not the type of career that minorities, and specifically, African Americans, would go into," Wright said. "Not that African Americans can only sell to African Americans, but there's a comfort level for people who have certain commonalities."

Also, companies said it's important that their staffs reflect the diversity of the general population.

"We want to make sure our field force is diverse, the same way we focus on making our headquarters diverse," said Mitzi Jackson, supervisor of multicultural recruitment and development for Aflac.

Aflac offers a mentoring program to new agents designed to help retain minority agents. "Once they get here, we want to make sure they are being coached and mentored and trained, because we want them to stay," Jackson said.

The company also offers a diversity development grant to regional sales offices, which allows them to fund resources in emerging markets, whether it's Hispanic consumers in Houston or African Americans in Los Angeles." This year, we have recruited 200 new minority agents to work with us, and they've produced $1.5 million in new annualized premium," Jackson said.

Brock, of Nationwide, which also has focused on supporting national and local African-American organizations and events, said she didn't think the company faced resentment or distrust from the community.

"When the community sees you in the community, placing your offices there, and hiring people from the local markets, I think this fosters understanding and community and trust. At a time of loss, people look to insurance companies to make them whole again, and that's our goal, to be there for them at the time of loss," Brock said.

Wright of Axa also said the industry's history of unfair practices hasn't come up very often.

"We really haven't had to defend it. What you do is you try to be very honest with individuals and do the right thing. [The history] is part of the American fabric that we can't ignore, but we are in 2006 and we have to move forward," Wright said.

Part of moving forward may be giving insurers time to learn how to write profitable business in urban areas, said Jones of American Family.

"It's like entering a new geographic state. It will take time to see profits," Jones said." After 10 years, we are seeing profits. The one thing I'd like to see in these emerging markets, what I really hope, is that the insurance industry remains patient. [Urban markets] are a tremendous growth opportunity, and any insurance company that hasn't taken a look and figured out why this is a positive investment of money and time ... is going to lose."

SPREADING THE WORD: The key to selling affordable insurance products to urban markets is educating consumers, agents and insurance carriers, said Donald Lewis, an urban/emerging insurance market specialist and founder of the Insurance Cooperative in Philadelphia.

African-American Market By the Numbers

39.2 Million

Estimated black population in the United States as of July 1,2004


Percentage of blacks in the total U.S. population

61.4 Million

Projected black population in the United States as of July 1,2050


Projected percentage of blacks in the total U.S. population as of July 1, 2050

5 States

With the highest black populations, all more than 2 million, are New York, Florida, Texas, California and Georgia

$92.7 Billion

Receipts for black-owned businesses in 2002, up 30% from 1997

1.2 Million

Number of black-owned businesses in 2002, up by 45% from 1997


Median income of black households in 2004


Poverty rate in 2004 for those reporting black as their only race


Percentage of black householders who own their own home


Percentage of blacks who lacked health insurance in 2004


Percentage of blacks age 16 and older who work in management, professional and related occupations

Source: U.S. Census Bureau, American FactFinder

North Carolina Mutual finds Its Niche

When North Carolina Mutual Life Insurance Co. was founded in 1899, life insurance wasn't available to African Americans, said James H. Speed Jr., the company's president and chief executive officer.

"Seven individuals started North Carolina Mutual. Something needed to be done," Speed said.

Since then, the company has grown to become the largest African-American owned insurance company by assets. It continues to focus on insuring African Americans--but is finding tougher competition in the marketplace.

"As major companies started writing business, African Americans have more choices. Not that we're not as good as some of them, but there's more competition today," Speed said.

The company once focused on selling small life-insurance policies of under $15,000 through agents who collected the premiums at clients' homes. Over the past several years, management has shifted the focus from collecting premiums door-to-door to bank draft and mail pay, and is expanding into the group life market.

The company has been challenged by the dispersion of African-American communities. "After we went through integration, African Americans could live wherever they could afford. We no longer could go to one place to serve a community," Speed said.

North Carolina Mutual's captive agents were historically pillars in those communities. "But today, a lot of your middle-to-upper income African Americans are not in traditional African-American communities. You can't go to a traditional African-American community and reach that clientele," Speed said.

The company has reached out to organizations it calls "Centers of Influence," such as African-American churches and affinity groups. While the company serves all races, it's primary focus is still the African-American community, Speed said.

"It's a tremendous opportunity. There's 34 or 35 million people, a large number of which are underserved," Speed said. "We believe being an African-American insurance company gives us an advantage, but only if we can do a couple of things first: We have to give competitive prices and provide outstanding service. We think we've been able to do that."

North Carolina Mutual Life Insurance Co.

Headquarters: Durham, N.C.

Founded: 1899

President: James H. Speed Jr.

2004 Assets: $161.5 million

2004 Net Premiums Written: $67.9 million

Source: A.M. Best Co.

Learn more

American Family Life Assurance Company of Columbus

(A member of Aflac group)

A.M. Best Company # 06051 Distribution: Independent contractors

American Family Life Insurance Group

A.M. Best Company # 00124

Distribution: Exclusive agents

Axa Financial

A.M. Best Company # 06341 (Axa Equitable Life Insurance Co.)

Distribution: General agents/brokers

Nationwide Life Group

A.M. Best Company #06812 (Nationwide Life Insurance Co.)

Distribution: independent broker/dealers, financial firms, financial planners, NLICA agents and Nationwide's property/casualty agents.

North Carolina Mutual Life Insurance Co.

A.M. Best Company # 06835

Distribution: Captive agents

For ratings and other financial strength information about these companies, visit
The Problem: Paying More

Lower-income working families in Philadelphia pay higher home
insurance and auto insurance rates than higher-income households.

Homeowners' Premiums *

Neighborhood Income

$0-14,000 $434
15,000-24,000 $452
25,000-34,000 $456
35,000-44,000 $414
45,000-54,000 $397
55,000-64,000 $376
65,000-74,000 $374
75,000-84,000 $369
85,000-94,000 $339
95,000-104,000 $365
105,000+ $375

Notes: Quotes are for premiums in 164 ZIP
codes in the Philadelphia area from Allstate,
one of the least expensive home insurers in the
state according to the Pennsylvania Department
of Insurance.

* Six Month Median Premium for a $45,000

Auto Insurance Premiums *

Neighborhood Income

$0-14,000 $543
15,000-24,000 $562
25,000-34,000 $526
35,000-44,000 $462
45,000-54,000 $371
55,000-64,000 $380
65,000-74,000 $355
75,000-84,000 $357
85,000-94,000 $342
95,000-104,000 $375
105,000+ $354

Notes: Quotes are an average quoted by
Progressive and Allstate for all ZIP codes in
Philadelphia and the surrounding suburban

* Six Month Median Premium for a 35-year-old driver
with a clean record driving a 2002 Ford Taurus SE

Source: The Brookings Institution report "The Price Is Wrong"
COPYRIGHT 2006 A.M. Best Company, Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 2006, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

Article Details
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Title Annotation:Agent/Broker
Author:Green, Meg
Publication:Best's Review
Geographic Code:1USA
Date:Feb 1, 2006
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