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Investing in Cities.

American Skyline Insurance Co. believes it has the formula for making a profit--and a difference--in the urban market.

From the start, American Skyline Insurance Co. was created to provide insurance products for the underserved urban market. This group of experienced insurance professionals set up shop in Baltimore and brought new hope to city residents, many of whom have been forced to pay higher-than-average rates for auto and homeowners policies, just for the sin of living within the city limits. American Skyline promised better, more tailored coverages and a dedicated focus on the city.

Many of those who make up American Skyline's core group of executives have roots in Baltimore and other urban areas. Several worked for USF&G, which was based in Baltimore before it was acquired by St. Paul Cos. They empathize with those in urban areas.

But make no mistake, said President and Chief Executive Officer Earnest Hines, American Skyline is not a social program. "We want to go wherever the money's green," Hines said. "We want to serve you and you and you and you," he added, pointing randomly around a conference room in the company's downtown Baltimore office.

American Skyline, which announced its arrival in December 2000, officially opened for business in late August and began selling policies right away. Its first sale was a standard auto policy for two cars. In addition to auto and homeowners coverage, the company offers business owners, condominium owners and renters insurance. It was approved in September to sell insurance in Washington, D.C., and plans to expand to other cities in the future.

By targeting the urban market, American Skyline is going where few dare to tread. But it's not going alone, and it's not riding on blind faith. The core group who make up most of die executives at the company are longtime insurance professionals who believe in cities, believe they can make a difference in Baltimore and other urban areas and believe they can make money selling insurance to city residents. They have made believers out of others, too.

St. Paul Cos. has been American Skyline's chief financial backer, providing $10 million over three years. St. Paul views the investment as a way to support an underserved market, said Tom Bradley, chief financial officer of the St. Paul, Minn.-based insurer. Bradley is one of three St. Paul executives on American Skyline's nine-member board of directors. He said the $10 million is not a loan but a "pure investment," and St. Paul retains no ownership rights, takes on no underwriting risk and provides no reinsurance. "The only business is what we choose to write through commercial insurance exchange," Bradley said.

A Solid Business Model

St. Paul believes the new company will be successful, in part, because many of American Skyline's leaders are former employees of St. Paul and USF&G. But St. Paul also believes American Skyline has a business model that will work in cities. Hines first created the model for American Skyline while working at USF&G. The model addresses many of the unique characteristics of the urban market:

* Focuses on American cities that are underserved, with fragmented product delivery and where most companies have less than 0.5% market share.

* Targets cities undergoing urban renewal.

* Does business in cities in which excess and surplus insurance comprises 20% to 40% of the market share for personal lines.

* Uses credit scoring for underwriting and pricing policies.

* Partners with local agents and technology vendors.

"This is a company whose strategy is the only way to make money in the urban market--starting from scratch, from an underwriting perspective, on a clean piece of paper," said Marita Zuraitis, executive vice president of U.S. insurance operations for St. Paul and a member of American Skyline's board.

Cracking the Urban Market

The urban market has been a challenge for insurers for years. Many have opted to leave cities alone rather than risk losing money there. Some insurers have been accused of redlining, the practice of avoiding doing business in minority neighborhoods. When insurers do write coverage for city dwellers, the rates are usually higher than those in the suburbs, partly because auto accident rates are higher in the cities and city homes generally are older and more in need of repair.

Maryland Insurance Commissioner Steven B. Larsen said he had found no direct evidence of redlining in Baltimore, but "there are certainly some companies that don't write as much business in the city as they do elsewhere in the state."

"Baltimore is no different than almost any major urban area in the country," Larsen said. "It experiences both availability and affordability problems." In the mid-1990s, Larsen worked at USF&G with Hines and Ernie Hamilton, chief operating officer for American Skyline. He said Hines has been committed to availability issues for years.

Insurers are always looking for new markets for their products, and although cities present certain challenges, some carriers are looking to the urban areas to boost sales. The Urban insurance Partners institute was formed in 1996 by a group of insurers to promote the availability of property/casualty insurance in urban areas. The nonprofit organization, based in Chicago, aims to educate urban consumers about insurance and educate insurance companies about the urban marketplace.

Marketing in the Cities

Suzanne Reade, president of the institute, said the biggest challenge for insurers trying to break into the urban market is gaining residents' trust. "In the urban marketplace, it requires a different marketing mindset--more groundwork to develop trust for the company, agents and the brand name," Reade said.

American Skyline knows this well. That's why the company has advertised all over Baltimore, and Hines has spoken at local business functions and has been interviewed by local newspapers and radio stations. The company also recently completed two marketing campaigns--one was a gasoline giveaway to drivers with registered vehicles and current insurance. "There aren't too many people in Baltimore that don't know about American Skyline," Hines said.

Nationwide Mutual Insurance Co. also knows about the challenges of writing insurance in cities. The Columbus, Ohio-based insurer has 40 offices in more than 25 cities, including Baltimore. Nationwide was prompted to focus more resources on urban areas after it settled a fair-housing lawsuit, which alleged that the company discriminated against black homeowners in Richmond, Va. In March 2000, Nationwide agreed to pay $17.5 million to Housing Opportunities Made Equal inc., a fair-housing organization in central Virginia. HOME alleged that Nationwide had excluded minorities from coverage by creating a list of ZIP codes for agents that favored affluent, white neighborhoods. Nationwide admitted no wrongdoing.

Galen Stover, associate vice president, urban markets operations, for Nationwide, said the company faces two big challenges in the urban markets: finding office space in the cities and marketing its products. "A lot of people in these markets have only bought nonstandard products," Stover said. Despite the challenges, Nationwide wants to be in the cities--and not just because of the lawsuit settlement. "There's good business. It's a market we'd be overlooking if we didn't go for it," Stover said.

Lower Rates

Craig Singleton used to work in Baltimore as an exclusive agent for one of the country's top personal lines insurers, but he signed on with American Skyline because many of his clients complained about not being able to get good rates on their policies. "Historically, some of the bigger companies weren't pricing for the city," he said. "There are folks that have good records in the city, but couldn't get good rates." Of the first four American Skyline policies Singleton sold, two were for past clients who got rates 20% to 30% lower than their previous policies.

American Skyline can offer lower rates because it does not lump all city residents into one underwriting category. It looks at pockets of the city where claims are lower. It looks at individual driving records and credit reports to determine whether policyholders are likely to have a high number of claims.

American Skyline also plans to write business only in cities with signs of urban renewal. Baltimore is such a city. A new football stadium for the NFL champion Ravens, a retro-modern baseball park for the Orioles and an attractive Inner Harbor district with an aquarium all make Baltimore a popular destination for tourists and businesses.

American Skyline has become just another part of the city's revitalization. City officials were thrilled that the company was moving into an unoccupied downtown building. American Skyline occupies four floors of a 19-story downtown building that used to be home to Maryland National Bank. Visitors step into the cavernous ground-floor lobby with its ornate ceiling and tall, thick columns that support the mezzanine level. On the lower level is a large walk-in bank vault that serves as a boardroom. The executive offices are on the second floor. Outside the CEO's office window is a view of an empty lot across the street where a high-rise was demolished to make way for a new hotel.

"We bank locally. We work locally. We want to be local in the community," Hines said. "We see the positive upside to cities. We see the Renaissance, rather than the rubble."

Many Baltimore residents, particularly black residents, are rooting for American Skyline to succeed. Although the company does not promote itself as a "minority-owned" business, Hines said he is proud of the distinction. "People will tell you, 'I never thought this would ever happen.'"

Still, American Skyline is a for-profit company, Hines said, and the company will be forced to reject applicants who don't meet the company's underwriting criteria.

"We have to manage expectations," said Betty Hines, vice president, human resources and corporate relations. "We're not coming in on a white horse."

White horse or not, many people are counting on American Skyline to succeed. "A lot of people put a lot at risk to make this thing work," Earnest Hines said. "This is important to the city."

American Skyline's Legacy Is No Legacy System

American Skyline Insurance Co. has some catching up to do in Baltimore. Technology will put it in the fast lane.

Older insurance carriers have years of experience in the city, an established clientele and networks of agents. They also have computer legacy systems that don't always communicate well with programs run by independent agents and brokers, resulting in delays and mounds of paper files.

That's where American Skyline has an edge.

Because American Skyline is starting from scratch, it can use the latest technology to file applications, process claims, accept payments and link with agents. "We have a clean I sheet of paper to start with," said Michael Edwards, vice president, information technology.

While much of the rest of the insurance industry struggles to find ways to electronically improve efficiency and reduce paperwork, American Skyline has it all figured out. That, in the long run, may be its ultimate legacy.

Years ago, when agents signed with a carrier, they used to ask, "What's my commission?" said American Skyline President and Chief Executive Officer Earnest Hines. Now, he said, "Agents are asking, 'What kind of technology are you bringing?'"

For American Skyline, the answer can be found inside the five dark blue Chrysler PT Cruisers the company uses for mobile claims and inspections. Each of the five distinctive vehicles, emblazoned with the American Skyline logo, contains a laptop computer, a digital camera, a printer, a fax modem and a wireless phone. They are fully equipped mobile claims offices.

Eliminating Paper

"We didn't want to send paper claims back and forth," Hines said. "The less paper we use, the more efficient we become."

Following Progressive Corp.'s example, the PT Cruisers will allow American Skyline to arrive at the scene of an accident soon after they get the call. Getting there first will help expedite claims and reduce fraud, especially the practice of staged accidents, which are more common in urban areas.

"This technology allows us to look big and think big," Hines said. "We want to be gigantic in a relatively short. time frame."
COPYRIGHT 2001 A.M. Best Company, Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
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Title Annotation:American Skyline Insurance Co. aims to serve the urban market
Comment:Investing in Cities.(American Skyline Insurance Co. aims to serve the urban market)
Author:Hilgen, David
Publication:Best's Review
Article Type:Company Profile
Geographic Code:1USA
Date:Oct 1, 2001
Previous Article:Making a Case.
Next Article:The Meter Is Running.

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