`There's No Bad Risk, Just A Bad Price'

Bad driving records. Poor credit risks. Spotty job histories. That is a good description of the customer base of Integon Corp., a Winston-Salem (N.C.) automobile insurer that specializes in, and makes big profits from, risks that other insurers shun. Its secret? High premiums. "There's no bad risk, just a bad price," says Senior Vice-President Art Lyon. Integon will write about $350 million in auto policies this year, up about 18% from last year. Integon also relies on a highly automated processing operation, which helps keep its overhead and claims costs well below $1.06 per $1 of premium, the industry average, excluding investment income.

Integon is among a handful of carriers that have learned how to survive and prosper in one of the nation's most treacherous insurance markets. Over the past few years, soaring repair costs and medical expenses have led to sharp premium hikes that, in turn, have sparked public outrage--and a state-regulator crackdown. Many states are disallowing rate increases, and California is attempting to force insurers to roll back their rates. Profit margins are so thin for such major auto insurers as Aetna Life & Casualty and Allstate Insurance Cos. that they have cut back their operations in some states and withdrawn from others. Allstate, for instance, is trying to get out of New Jersey.

Filling the void in the $80 billion market are savvy, cost-conscious niche players that, like Integon, target riskier market segments, such as sports-car aficionados and urban dwellers unloved by huge insurers. The few large insurers doing well in this market are the so-called "direct sellers" such as GEICO Corp., which use mail marketing instead of a costly agent force.

FREEING AGENTS. Companies still in the business are being helped this year by an unexpected upturn in profitability (chart). Indeed, 1992 could wind up being one of the best. The reason is the recession, which has made people drive less, holding down the accident rate and reducing the cost of replacement parts.

Among the other niche carriers that are doing well is Robert Plan Corp., a Lynbrook (N.Y.) insurer whose $700 million of auto business is concentrated in urban neighborhoods that mainline companies shy away from. "People don't want to write policies where I am," says President Robert M. Wallach. His unorthodox business methods include using undercover stings to combat insurance fraud. Wallach is eyeing a grab for Allstate's New Jersey business.

The direct marketers have prospered from the suffering of the old-line companies. While Aetna has been losing market share, GEICO has been gaining customers through direct mail. Not only does the insurer do without a large agent contingent, it also handles customer queries via an 800 number. "We are finding with this economy, people are shopping carefully," says GEICO President Edward H. Utley. "They're more used to buying over the phone."

Even companies still dependent on agents are picking up some tricks from the direct sellers. ITT Hartford Insurance Group has an agent network, but it is using direct mail to solicit auto business from members of the American Association of Retired Persons. The $600 million-a-year business "is producing our target, which is a 15% return," says Hartford Senior Vice-President David M. Klein. The company has instituted a new program for its regular agents in which it takes over the after-sales service and renewals while cutting back a third of the agent's commission. "We want to free the agent from this service work," says Klein.

Amid all the turmoil, industry leader State Farm Mutual Automobile Insurance Co., which sells through agents, has held up rather well, boasting a 15% return last year. Company managers credit its success to, among other things, its superior risk analysis for new prospects and careful pricing.

But State Farm is an anomaly. For most of the major players, auto insurance is a tough line of work. As William L. Yankus, vice-president at industry analysts Conning & Co., puts it: "This is one business where it just doesn't pay to be the biggest."

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