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Homegrown insurance.

Why is Indiana home to so many insurance companies?

Indiana is a great place to be located, especially if you're in the insurance business. Industry giants like American United Life in Indianapolis and Lincoln National Corp. in Fort Wayne call the Hoosier state home. Golden Rule Insurance, the nation's largest writer of individual major-medical insurance, is headquartered in Indianapolis. The Associated Group, the Indianapolis-based parent company of the Indiana Blue Cross/Blue Shield plan, occupies one of the fastest-growing niches in the insurance business nationwide.

All told, some 180 life, health and property/casualty insurance--known in the business as P&C--companies have home addresses in Indiana. They range from giants like Lincoln National to smaller specialty insurance companies like Forethought--a Batesville subsidiary of Hillenbrand Industries that offers pre-planned burial insurance through funeral directors--and Brotherhood Mutual, a Fort Wayne firm that got its start back in 1917 as a mutual aid society for members of the Mennonite Church in Indiana.

In many ways, Indiana's attraction to insurance companies is out of all proportion to the state's size. The 54 life insurance companies domiciled in Indiana are only two less than the 56 companies headquartered in California, a state several times larger in area and population. Indiana's 126 P&C companies outnumber the 96 P&C companies headquartered in Florida, and are double the 63 P&C companies headquartered in New Jersey.

Industry observers point to a number of factors, both historical and current, that contribute to the Hoosier state's reputation as a good place to do business, especially for the insurance business. The state's agrarian background has fostered a citizenry with common sense, and that in turn has led to a pro-business attitude. Insurance company executives give the state's insurance commission high marks for fairness, and they point out that the state legislature can usually be counted upon to pass reasonable legislation. Finally, Indiana's court system has a reputation for impartial judgments that the judiciary in other states don't always live up to.

"Indiana is balanced," says Paul Steiner, president and chairman of Brotherhood Mutual Insurance Co. in Fort Wayne. "That doesn't mean it's perfect, but there is a balance between regulation and the judicial court system. And the legislature here sees the need to be balanced."

Steiner cites a 1991 regulatory survey of the property-casualty industry by Conning and Co. to back up his contention. The survey ranked the 50 state insurance departments and reported that Indiana's insurance department gave companies under its jurisdiction a high level of freedom to manage their own affairs. The state's department was ranked third for personal lines and fifth for commercial lines.

Other states with a similar Midwestern background--Iowa and Illinois--also ranked high, while California, Texas and Louisiana came in at the bottom of the list.

Just because it's given high marks doesn't mean insurance regulation in Indiana is a pushover. "Indiana's regulatory climate is definitely in the top 10, the top 15," says Gene Grabowski, an analyst with the American Council of Life Insurance in Washington, D.C. "But it's not an easy place to do business. The insurance department is firm but fair."

H. Pellon "Pete" Hudson, president and CEO of Monroe Guaranty in Carmel, has assessed insurance regulation from both sides of the fence. Owner of a general agency in Kouts, he became commissioner of insurance under Gov. Otis Bowen in 1975. In 1984, he was named president of Monroe Guaranty, a commercial P&C insurer started in 1974.

"The regulators are sufficiently practiced in the industry to know when they're being BS'ed," he points out. "They also know you've got to keep the companies profitable and make sure the public gets a fair deal."

Hudson thinks that regulation in Indiana is "more even-handed than in some states." That's because the commission in Indiana is more interested in setting good policy than in making headlines, he adds.

What is it about Indiana that's so fair? One example a number of those in the P&C business cite is the state's high-risk auto insurance pool, which provides coverage for those drivers that insurers otherwise wouldn't want to touch. Other states have such pools, but Indiana's is said to be run in a much more equitable manner.

Larry Prible, CEO of Indianapolis Life Insurance Co., points to a historical reason that may have contributed to the large number of insurers based here. "The legislative climate was very, very favorable to the foundation of insurance companies," he says. "Substantially less capital and surplus were required to start up a company here than in other states, though that has changed now."

Another historical factor involving the industry and the state regulatory commission goes back to the Great Depression. Ann Doran, who works in the government affairs office of Lincoln National and lobbies for the Indiana Association of Life Insurance Companies, notes that "a broad spectrum of companies were in trouble" during the Great Depression in the 1930s.

Doran says that the state of Indiana worked with companies at the time and put into place regulations that helped the insurance industry work through its difficulties. At the time, she says, Michigan took a much stronger position and forced many companies into insolvency.

Steve Rahn, second vice president and director of state relations for Lincoln National Life Insurance in Fort Wayne, agrees with Doran's assessment. "It's to the state's advantage to have a strong industry," Rahn says, particularly with respect to employment and tax revenue.

Rahn explains that insurance companies in all 50 states are governed by guaranty association laws designed to provide policyholder protection in case a company becomes insolvent. Funding comes from an assessment made on all insurance companies doing business in the state. Indiana's laws are generally considered fair, and Rahn notes that it is in the industry's best interests to have strict regulation, since the cost of insolvencies passes through directly to healthy insurance companies.

A good regulatory body "puts pressure on poor performers," says Stan Newman, president of Indiana Insurance Co. The 27-year veteran of the Indianapolis P&C insurance firm forsook an early interest in journalism and writing for insurance. He points out that keeping companies solvent in conditions of frequently explosive financial change is "the toughest job the regulators have."

Indiana Insurance has a charter dating to 1851, and the company today is a subsidiary of a major Dutch insurance group. Newman says that Indiana Insurance operates mainly in the Midwest, what he calls a "Garden of Eden" compared to other regions of the country.

"The legislative climate here is equally as good," Newman says. "It gets tougher all the time legislatively, but overall, the legislature is very fair. There has to be a balance. The state of Indiana has not panicked and gone overboard in any one direction."

That symbiosis between legislative and regulatory activity is critical, industry observers say. Clyde Turbeville, executive vice president and CEO of United Farm Bureau Mutual Insurance Co. and United Farm Bureau Family Life Insurance Co. since 1991, thinks "Indiana is certainly one of the top three environments for insurance." Turbeville, a South Carolinian who came to Indianapolis after running Farm Bureau's reinsurance subsidiary in Chicago, attributes the state's healthy attitude to regulation, legislation, the court system, Midwestern values and competition.

"The legislation tends toward the reasonable," he says. "There's no major punitive legislation and no real anti-insurance company legislation. It's not perfect, but it's very good."

Margaret Iwan, vice president of underwriting at Universal Fire and Casualty in Munster, says that legislation "makes it very easy to do business. You don't get constant conflict. They allow a company to make a profit. And the legislature works with the insurance carriers. They look at the needs of both the consumer and the insurance company."

Former commissioner of insurance Hudson compliments legislators who "don't see the point in causing folks to jump through hoops." The Indiana General Assembly, he says, is able to "balance a cross-section of society. They've not been prone to be precipitous. Other state legislatures zing through legislation without taking time to reflect on the impact."

The third leg of the regulatory equation is the judicial system. Litigation is a byproduct of the insurance business, and industry executives can tell horror stories about abuses of the court system--one executive calls it "the legal system run amok." Indiana's court system, however, is held in generally high esteem by the industry.

Indiana Insurance's Newman explains that in some major metropolitan areas out east, nearly half of the automobile accidents involve legal action before settlement. In Indiana, the figure is less than one in four.

"The judiciary is still sound in this state," he says. "The number of lawsuits is reasonable. It's a predictable situation."

Then there are the intangibles. Hoosiers have a reputation for common sense, decency and a sense of fair play, all traits which make it easy to do business, insurance or otherwise.

Ed Wallis, senior vice president and associate general counsel of Lafayette Life Insurance, calls Indiana "the heartland of the United States. It's an area where people's attitudes about the importance of family and the importance of financial responsibility are paramount."

That Hoosier pragmatism contributes to a Midwestern value system that fosters a feeling of fairness, what Farm Bureau's Turbeville calls "a responsible attitude related to the rural, agricultural nature of the state."

Greg Bonnell, vice president for underwriting at Baldwin and Lyons, a 60-year-old Indianapolis P&C insurer, says that Indiana's central location is still a plus. He explains that Baldwin and Lyons subsidiaries distribute their products nationally, and that "ours is a people business. There's a lot of face-to-face client relations. We're blessed in that the transportation network is so good."

Finally, there's a great deal of truth to the adage that, in Indiana, you get a day's work for a day's pay. This is true in the insurance industry as in most others. "We see the work ethic and the low cost of living making it a great place to locate a business," says Indianapolis Life's Prible.

"We've taken pride in the quality of our work force," says Lincoln National's Rahn. "We've got a good school system, especially in higher education. There's a good actuarial school at Ball State."

Insurance is demanding work, requiring attention to details. When the state's insurance companies began to notice a fall-off in skills among entry-level workers, they resolved to improve and strengthen the state's primary and secondary education system.

Lincoln National has provided both funding and legislative lobbying support for improving schools, and Golden Rule has been in the forefront of the movement to make choice of schools available to low-income Hoosiers.

It's all just another facet of the compact that has been formed between Indiana and its homegrown insurance companies.

Who Would Insure This Sport?

Mike Mullen spent a lot of time in Minneapolis in the past year, taking in the World Series last October, the Super Bowl in January, and the NCAA Final Four in April.

Mullen, president and CEO of K&K Insurance Group Inc., wasn't slumming or playing hooky, even though he admits being thrilled to get a chance to see some of the premier sporting events in America. K&K, you see, insures the Hubert H. Humphrey Metrodome in Minneapolis, the huge domed stadium that played host to this past year's final games in major league baseball, professional football and college basketball.

K&K, a part of Lincoln National Corp. in Fort Wayne, occupies one of the more intriguing market niches in the American property and casualty insurance business. In essence, K&K insures the business of sports, everything from church-league softball to NBA basketball to bungee jumping.

"The fastest-growing industry in the United States is sports and leisure," Mullen says, adding that the company saw an entrepreneurial opportunity and moved in.

Founded in 1952 to place insurance coverages for automobile racing, the agency was acquired in 1984 by industry giant Lincoln National. Over the years, it moved steadily into professional, amateur and leisure sports industries.

Not that it's forgotten its roots in auto racing. Mullen says that K&K does a little more than $20 million premiums business in motor sports. "We're still the largest motor sports underwriter/broker in the nation," he says.

K&K only provides coverage to certain segments of the Indianapolis 500, since the Indianapolis Motor Speedway and the Hulman family are in large part self-insured. But the Fort Wayne company does provide personal accident coverage and does manage to insure most of the teams that run at the 500 and on the Indy Car circuit.

Mullen notes that K&K is strongly represented in professional sports. "We cover virtually every aspect of the NBA and its teams," he says. The National Football League comes next in terms of coverage, while K&K also "insures a lot of major league and minor league baseball."

K&K's coverage is what Mullen calls "soup to nuts." The company writes liability coverage for sports stadiums, insuring the facilities themselves in case a spectator is injured. Teams are insured for liability, say in case a baseball player strikes out, tosses his bat into the crowd and strikes a spectator. Players themselves are insured for personal accident liability and disability. Mullen brings up the case of football linemen who have been paralyzed on the gridiron.

But professional sports aren't the only venue in which K&K writes coverage. Much of sports and leisure-time activity is participatory, and K&K has a policy of not letting any grass grow under its feet.

Take bungee jumping, for example. The hot new fad of jumping off a platform high above the ground with an elastic cord affixed to your ankle is something that most insurance companies would probably find too risky. Not K&K.

"We got into it by referral from a number of brokers who have done business with us," Mullen says. "So far, we've had very good experience with that."

Mullen admits that the company's coverage of bungee-jumping has "raised eyebrows," but he notes that the company designed the coverage from the ground up, and he claims that even though the sport can be dangerous--some fatalities and near fatalities in Michigan and Ontario were reported in July--Mullen points out that K&K has had "very few incidents." The actual underwriting is done through Lincoln National Specialties, a sister company in the Lincoln National family.

Today, K&K insures more than 100,000 events and organizations across North America. It has affiliate companies in Overland Park, Kan.; High Point, N.C.; and Toronto, Ontario. And the list of attractions continues to grow.

Mullen says the company is currently designing new programs for air shows, riverboat gambling, dart and billiards centers, community centers and YMCAs, and equine programs for breeders of Arabians and quarterhorses. Says Mullen: "It's just amazing the list of things we get into."
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Title Annotation:includes related article; many insurance companies in the US find their home in Indiana
Author:Beck, Bill
Publication:Indiana Business Magazine
Article Type:Industry Overview
Date:Sep 1, 1992
Previous Article:Indiana's entrepreneurs of the year.
Next Article:Doing deals again.

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