It has been two years since a jury ordered Nationwide Insurance Co. to pay more than $100 million in a fair-housing lawsuit that alleged the company had discriminated against black homeowners in Richmond, Va. The insurer has since increased its presence in the city, opening a sales-and-service office downtown and two nearby satellite offices.
The ruling in favor of Housing Opportunities Made Equal Inc. (HOME), a fair-housing organization in central Virginia, was overturned by the Virginia Supreme Court in January, but the court agreed in March to rehear the case. In April, Nationwide agreed to settle the dispute by paying $175 million to HOME.
Despite being on the losing end of the lawsuit, Nationwide has been able to increase its market share in several big cities after fast-tracking its plans to open urban offices. More than making its presence known, Nationwide has been making a profit, although company officials would not reveal how much.
Galen Stover, associate vice president, urban markets operations, said the company is just starting to look at some of the numbers by urban area, so there isn't a lot of data to talk about. "But the early trends we see is that it's no different from our other business," Stover said. "It's not our practice that we would have a market that is not profitable. So, yes, the urban markets have been profitable to us."
He said Nationwide, Columbus, Ohio, offers the same products and does the same direct marketing in urban areas around the country as it does in all its markets. "Our retention figures in our urban sales and service centers are very close to the national average and the averages for that particular state," Stover said.
Nationwide's investment is paying off "big time," said Jim Lucas, Nationwide's Virginia state officer. "Richmond has provided good, strong results." Jon Bullock, manager of the 2-year-old urban sales-and-service center on Broad Street in Richmond, said the urban offices have sold more than 2,000 homeowners policies in two years.
Even before the lawsuit, Nationwide had invested millions of dollars for housing development in U.S. cities. The company said it has invested more than $32 million since 1994, and it has increased its investments in recent years.
The money is distributed through partnerships Nationwide has formed with community-development organizations like the Local Initiative Support Corp. and the Neighborhood Reinvestment Corp.
Nationwide calls it its "Urban Initiative" and it includes money for rehabilitating homes and for first-time home buyers, and funding for housing counseling, where homeowners are taught the value of keeping a property in good condition. Some funds go toward increasing neighborhood safety.
"We really do want the dollars to be used. We want evidence of our commitment," said Lorraine Brock, vice president, urban markets development, for Nationwide. "When someone comes along and wants to know what we've done in a partnership, we want to be able to tour them around and show them. Not just from our perspective, but for what it does in a community. We don't want people to say, 'Nationwide said they were going to contribute the money, but it never trickled down or never got there.' This is money that's out on the street and is working."
These initiatives have paid off. Nationwide has been able to increase its market share by increasing the size of the market. If Nationwide helps someone obtain a home, the new homeowner may be more likely to buy a homeowners policy from the insurer.
Nationwide has had a "strong allegiance" with the Atlanta-based Neighborhood Reinvestment Corp. since 1994, said Todd Pittman, national insurance task force director and national insurance manager for NRC. The group is a federally chartered nonprofit that receives some funding from the U.S. Congress for the purpose of revitalizing urban communities.
Money to Rebuild
Nationwide has provided $3.3 million in grants to NRC for mortgages, closing costs, down-payment assistance and home rehabilitation since 1997, Pittman said. Since 1994, the company also has provided loans to rehabilitate houses in about a dozen cities.
NRC recently began a national loss-prevention and home-safety program in six cities-Richmond; Staten Island, N.Y; Charleston, S.C.; Chicago; Denver; and St. Louis. "The idea is to address target neighborhoods on a block-by-block basis," Pittman said.
In Chicago, for example, there have been more than 300 home-safety evaluations and 65 loans for home-safety repairs, which are paid for through a home-safety loan pool funded by insurance companies.
"We approached a number of companies, and Nationwide was one of the first to step up to the plate and provide us with a $510,000 grant over the next three years to help this project and move it forward," Pittman said, adding that Nationwide's grant was the largest received from any insurance company.
Nationwide formed a partnership with Local Initiative Support Corp., New York, in 1997, originally working in Richmond, Philadelphia, Cleveland and Toledo, Ohio. The 20-year-old organization focuses on revitalizing distressed neighborhoods in cities and rural areas by working through more than 2,000 nonprofit community-development organizations, said Mindy Leiterman, senior program director. To date, Nationwide has given $3.3 million to the organization, which has used the funds to help low-income families buy homes.
About $875,000 has gone to Cleveland for down-payment and closing-cost assistance and "soft" second mortgages, which are not meant to be repaid unless the family sells the home shortly after purchase. Leiterman said 171 families had purchased homes through the program, and the number is expected to reach 250 by the end of the year.
Habitat for Humanity also has benefited from the redevelopment efforts of insurers. Nationwide has invested about $2 million in more than 40 U.S. cities, including Richmond, Brock said. The insurer also encourages its employees to participate in the work.
Habitat for Humanity, based in Americus, Ga., is a nonprofit organization formed in 1983 to build low-cost housing in partnership with low-income families.
Nationwide's money has attracted more money, Leiterman said. "The projects in which Nationwide was involved attracted $4 million in additional funds from public, private and family sources."
Toledo has received about $600,000 from Nationwide, resulting in $4 million in development. Philadelphia has received about $1.2 million so far, benefiting about 100 families. And in Richmond, Nationwide has invested about $750,000, which attracted an additional $3.4 million from other sources to help 45 families buy homes with down-payment or second-mortgage assistance, Leiterman said.
"We are seeing spin-off effects in Richmond," Leiterman said. "Adjacent homeowners and landlords are fixing up their properties. We work with [community-development corporations] on getting other things done that are part of the amenities that healthy neighborhoods have, such as child-care centers, commercial projects and, hopefully, a supermarket."
One person alone can't do this, Brock said. "I don't have $32 million. That's Nationwide's money doing this," she said, adding that the Urban Initiative couldn't happen without support from the top.
Brock said Nationwide was writing homeowners policies in predominantly ethnic areas before its Urban Initiative. "We didn't write our first urban customer with the litigation, nor did we write our first urban customer when I showed up," said Brock, who joined Nationwide four years ago. Brock, who is responsible for developing Nationwide's national urban-market strategy, said the initiative is just an enhancement of what the insurer was already doing.
Stover is responsible for carrying out this strategy nationally, making sure Nationwide's sales and service centers are up and running and doing what's needed. "We have been in urban markets historically," Stover said. "Before our litigation, we have, in many cities, significant market penetration. The public may not perceive that, but we have that penetration."
Lawsuits Quicken the Pace
Lawsuits against Nationwide in Richmond and other cities motivated the insurer to speed up its plans to increase the number of offices in the cities, Stover said. "We did it a little more quickly than we originally planned," he said.
Nationwide originally planned to open about 16 centers over a period of four or five years, Stover said. "After we started doing this, we saw the success of our centers and saw what they were bringing back to the company very quickly." The company committed to opening 30 urban centers in two years. "We are in the process of getting those last 10 or so open by the end of the year. We're working very diligently to do that," Stover said.
Increasing the number of offices in urban areas boosted Nationwide's market share in Richmond and other big cities, he said. It also showed the company that it needed even more offices than the ones already opened and planned.
"Build it, and they will come," Stover said. "And they did come, and we realized very quickly if we build satellite offices, even more people will come."
Establishing a presence is another major part of the insurer's Urban Initiative. "We recognize in order to grow market share in any market, we have to have presence," said Lucas, Nationwide's Virginia state officer. "We have to service all customers in all markets. If we don't do that, we won't be around."
The urban sales and service center is 2 years old, but Nationwide's presence in Richmond goes back further, Lucas said. What's really changed is the increased community involvement, he said.
Bullock works with civic organizations such as Neighborhood Housing Services of Richmond, the National Association for the Advancement of Colored People, the Urban League and Richmond's housing-revitalization program, "Neighborhoods in Bloom."
Education Leads to Sales
Bullock is as much an educator as a sales manager. While he has overseen an increase in sales to the city's urban homeowners, it hasn't been through traditional sales methods. He conducts educational seminars on insurance, covering "basics and simple things" people need to know about insurance, like deductibles, rates and the amount of insurance they need.
Bullock, who has been with Nationwide for 12 years, said he hears from people who want insurance but say they can't get it. So he visits their homes to show them what they need to do to make their residence insurable. There is a thirst for insurance knowledge among urban residents in Richmond, Bullock said, and his educational efforts have been well received.
"They're volunteering their Saturdays to come in and listen to someone speak about insurance when they could be doing other things," Bullock said. "The receptivity level is higher because they're seeking the information and feel they've come to the right place to get it, and it's important that we make sure they get it."
These relationships translate into sales of homeowners policies, Bullock said, and when it's truly a comfortable relationship, it can lead to sales of other products, such as life insurance or financial services.
Market share is a key sales figure for insurers, and it's a key part of defending against redlining lawsuits. Redlining is the practice of avoiding doing business in minority neighborhoods.
Citigroup Is Sued
HOME, the Richmond housing group that sued Nationwide, in June filed a similar lawsuit against Citigroup, alleging discrimination against African-American and Latino neighborhoods in providing homeowners insurance.
The suit, filed in federal court in Washington, D.C., charges Citigroup and its insurer, Travelers Property Casualty Insurance Co., with maintaining underwriting standards and policies that restrict, limit or deny homeowners insurance in these neighborhoods in the United States.
Plaintiffs also include the National Fair Housing Alliance and the Equal Rights Center, both of Washington, D.C., and nonprofit fair-housing groups in Washington, New Orleans, Milwaukee and Toledo, Ohio.
Among the allegations against Travelers in the lawsuit: it charged higher rates; offered inferior coverages; discouraged applications; and imposed different terms and conditions of coverage. The groups charge that Travelers uses homeowners' credit ratings to determine eligibility for insurance coverage, which discriminates against residents of low-income neighborhoods.
Travelers spokesman Keith Anderson said the insurer was "vigorously fighting this unwarranted lawsuit." According to Travelers' market-share statistics, the insurer has a combined homeowners insurance market share of 12.95% in neighborhoods where the majority of residents are minorities, Anderson said, larger than the market share in the states where these cities are located, and about three times the company's national market share of 4.23%.
The insurer also has active programs to recruit, train and support independent agents in urban areas, ultimately making insurance products more available.
Travelers also partners with community-based housing organizations, and is "very active" in the National Insurance Task Force, a coalition formed by the insurance industry and the Neighborhood Reinvestment Corp. to support residents of low-and moderate-income neighborhoods.
The National African American Insurance Association also receives Travelers support for the organization's mission to enhance the careers of African American insurance agents. Similarly, the Independent Insurance Agent of America's Multicultural Forum works toward supporting the careers of minority independent agents with co-sponsorship from Travelers.
Seminars to educate homeowners about fire and safety, and discounts for those who complete the seminar, are part of Travelers' efforts to make insurance affordable for urban customers.
A Fair Access Committee, made up of senior managers, ensures that employees and independent agents undergo "state-of-the-art" training to make sure anyone who wants a Travelers policy has fair access to insurance.
Allstate in the Cities
It's been "a long time since there were any credible issues" with regard to Allstate and redlining, said Ron McNeil, a senior vice president who has been with the insurer for about 24 years.
He said comparing market share in urban markets with market share for the rest of that state is a test of a company's commitment to the urban marketplace that is looked at by those concerned with fair housing at the U.S. Justice Department. For example, Allstate has a market share of about 8% in Philadelphia and about 7.9% for the rest of Pennsylvania, McNeil said.
In the other top 10 urban markets--Chicago, Los Angeles, Cleveland, New York, Detroit, Houston, Dallas, Miami and Atlanta--"You'll see that kind of parity. So we have no problem or issue," McNeil said.
We're very comfortable with doing business in cities," McNeil said. "We started with Sears, which had its stores m major cities. We grew up connected to Sears. We've been in cities all our life."
Allstate also works toward neighborhood preservation, partnering with the nonprofit Neighborhood Housing Services and the Local Initiative Support Corp. "We've never lost a dime with NHS," McNeil said. "We haven't had a default in the last three years."
Allstate targeted three neighborhoods in Philadelphia and established partnerships with local organizations to make these neighborhoods safer and more viable, he said.
Market share in those three neighborhoods went from 8% to 33% in about 14 months during the mid-1990s, McNeil said. "The reason the share went that high is because when you partner with a group, you leverage scale. They push your products at all their events, and word-of-mouth goes up tremendously."
"Yes, we spend money to set up these partnerships, but we don't spend as much as we would on advertising," he said. "We had so much success in Philadelphia, we took it to 26 other cities around the country."
Allstate's ethnic-marketing team in recent years has expanded its focus from the Spanish-speaking market to include the African-American and Asian-American markets. "It would take decades to replicate the workforce diversity we have built over the decades," said Ray Celaya, an assistant vice president at Allstate who heads the company's ethnic-marketing team.
Celaya said one of the key lessons learned from the company's initiatives in Spanish-speaking communities is that the need for insurance is the same, but what attracts each culture differs.
For example, when asked what they perceive to be the "American dream," 51% of Spanish-speaking households said a college education for their children, and 24% said owning a home.
"When you understand that, you can position your products to fulfill that aspiration," Celaya said. "So we sell insurance to protect their educational aspirations, which makes sense to them. In other cultures, maybe the extended family takes that role, rather than insurance."
Presenting insurance products and services in the context of a particular culture is critical to growing market share in ethnic urban communities. "It's ludicrous to try to penetrate the Spanish marketplace without materials in Spanish or people on the phone who speak Spanish," McNeil said.
Insurance associations and groups of insurers also have made concerted efforts to reach urban customers through economic development and neighborhood revitalization.
The Alliance of American Insurers, an association representing 326 property and casualty insurers, has joined the Urban Insurance Partners Institute, a Chicago-based organization dedicated to developing relationships between urban communities and insurance companies.
The institute, formerly known as the Urban Insurance Partners Foundation, will receive funding from the alliance, said alliance President Rodger S. Lawson. Many small companies do not have the resources to establish a foothold in the urban market, and the institute will allow companies to learn about the market and become involved without a huge outlay of resources, he said.
The institute also educates urban residents about insurance, spokesman Charlie Schmidt said.
Eight of California's leading insurance companies formed a for-profit investment-management company that makes community redevelopment profitable for insurers. IMPACT Community Capital, San Francisco, was formed in 1998.
IMPACT has launched what it calls a first-of-its-kind pooled investment in affordable housing for communities throughout California. The company expects the project to be a major community investment initiative.
Nationwide recently has committed to become the ninth insurer-member of IMPACT, joining Allstate, Farmers Insurance Group, Pacific Life Insurance Co., PMI Mortgage Insurance Co., Safeco Insurance, State Farm Insurance Group, Teachers Insurance & Annuity Association and 21st Century Insurance Co.
Robert H. McNaghten, vice president for real-estate investments at Nationwide's Ohio headquarters, said the insurer was confident that the investment strategies that IMPACT offers its member insurance companies will become a major source of affordable-housing dollars in California as well as a source of sound investments for insurers.
Nationwide's commitment to join IMPACT follows the completion of the organization's first investment transaction. IMPACT members purchased the mortgages of 12 multifamily rental properties, comprising 1,456 units, from the California Community Reinvestment Corp., a nonprofit lending consortium funded by 45 member banks and thrifts throughout California.
By purchasing the mortgages, IMPACT's members provided $40.5 million that will be recycled into additional mortgage loans to provide housing for low- and moderate-income families.
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|Date:||Oct 1, 2000|
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