Unusual, Unfamiliar, Uncommon, and Unconventional

Niche Market Insurers Write Unique Risks

In 1948, the world-renowned jeweler De Beers began an advertising/marketing campaign that has endured 60 years – “A Diamond is Forever.”

But is a diamond “forever”?

How about legendary racehorse Seattle Slew? Or Betty Grable’s legs? More current, what about today’s television darling, Ugly Betty star America Ferrara’s precocious smile or Jay Leno’s classic car collection?

Unfortunately, nothing is forever, but nearly anything can be insured against loss.

Niche market insurance companies underwrite the unique or unusual risk perceived by many in the property/casualty industry as unattractive. Unattractive or not, it hasn’t stopped some from providing insurance to an uncommon, maybe even exotic, market.

In 1913, a group of jewelers banded together to create an insurance product that would safeguard their policyholders from fire loss. In a back room of a jewelry store, Jewelers Mutual Insurance Company located in Neenah, Wisconsin, was born. But today, it is not fire that concerns the jewelry industry. It is crime.

In 2006, robberies, burglaries, and thefts took a major toll on the jewelry business and those who appreciate ownership of fine diamonds and gems. Last year, nearly $106 million in gems were stolen in the United States, according to Jewelers’ Security Alliance, a not-for-profit trade association providing crime information and assistance to the jewelry industry and law enforcement since 1883.

But, it is not only U.S. crime Jewelers Mutual Insurance is concerned with – one of the toughest challenges is insuring policyholders who travel through international time zones.

“Our policyholders go to jewelry shows in places like Basel [Switzerland] and India. They buy goods there, whether it is rough gems or finished products, and they travel back with them, so the inland marine aspect of our policy is very much a true insurance that travels,” said Darin Kath, the company’s president and CEO. “We have to be there for them.”

Licensed in all 50 states and Canada, JMI is the only insurance firm that is exclusively dedicated to insuring jewelry. Today, 75 percent of its business comes from commercial lines, providing insurance products for anyone who touches jewelry – manufacturers, wholesalers, designers, appraisers, and retailers. The remaining 25 percent comes from individual business, which boasts 180,000 policies covering $2 billion worth of gems and precious metals. With 175 employees, the company’s bottom line reflects $100 million in revenue.

While most insurance companies hire generalists, JMI has underwriters who have gemologist training and are specialists in the jewelry business. “We have underwriters who are on the board of directors for Underwriters Laboratories, so they are very much experts on security. We also have people in our firm who specialize in education,” Kath said.

Kath has been with the company for 10 years, becoming its president/CEO last year. While he always held an interest in working with a niche company, Kath had no experience in the jewelry business to speak of except for his appreciation of the industry. “I was an insurance guy, not a jewelry professional,” he joked.

“We have to be a part of the industry. I just got back from the 24 Karat Club, of which I’m a member. I was there because we service the industry. I have to be there,” he said. “This is different from most insurance companies because the agents want to be on the frontline; they want to be the people in the foreground. Our agents realize that executives have to be visible at events like this.”

There is no doubt that the jewelry industry is always prime for loss, and Kath’s staff talks with their customers, making sure they are taking the appropriate steps to stop loss before it happens. “They do that by making sure the Rolex case isn’t right by the door,” Kath explained. “We work with our jewelers about how to layout their stores so the criminals don’t have an easy path to the most expensive jewelry. You want to put everything away at night that is valuable. But a lot of it is behavior, so we have spent a lot of money on education.”

In fact, JMI has produced DVDs and videos on loss prevention to train the industry on how to avoid being a target of crime and a victim of loss. “A retail store should never put five things out for a customer to look at. The ‘customer’ could grab and run.”

Exemplary recordkeeping is a must for anyone in the jewelry business. Jewelers must be able to substantiate what was purchased and what was taken. “The whole claims experience with our firm is much more about the fact that they must have documentation of every diamond that they bought, and they have to keep good inventory to the point of having a record for each diamond,” said Kath.

Yet, education is not just for the wholesaler and retailer. JMI also trains individual policyholders on the dos and don’ts of safeguarding their jewels. “We send them a newsletter, and we discuss with them things like having a safe, but not one light enough that you can pick up and show to your friends because the bad guys will pick it up and take it,” Kath said. “We tell our policyholders to make sure it is heavy; and, if it isn’t heavy, then make sure it is bolted to the wall.”

While JMI does agree on an amount for replacing the irreplaceable, the company’s policy is repair or replace. “Typically, we don’t do a cash out. It reduces the chance for fraud. If someone losses an item, we are going to replace it with an item of like quality,” he said. “But if it is something like an estate piece or an item that is sentimental in value, we will certainly put an agreed amount on that.”

Recently, JMI insured a diamond worth $2.2 million; yet, the company also provides coverage for couples who have recently become engaged. “Couples will go to the jeweler who refers the customer to us. Jewelers are a huge source for referral business for us,” Kath said. “In commercial lines, we insure people who are starting out as designers all the way up to people like Chanel. We absolutely have a broad appetite for risk.”

Ninety-four years ago, Jewelers Mutual was born with one purpose in mind, but sometimes entering into a niche market isn’t so obvious. In 1938, Midland Discount Corporation was founded to finance automobiles. During the next few years, the company evolved as the marketplace changed. During World War II, Midland transitioned to loaning money to housewives whose husbands were overseas, becoming Cincinnati’s largest consumer finance company.

With the returning GIs after the war, a huge need developed for affordable housing, leading to the boom in the mobile home industry in post-war America. Midland became one of the first companies to finance mobile homes. A few years later, the company entered the home-building industry, until finally, in 1965, Midland entered the insurance industry through its subsidiary American Modern Insurance Group. Today, American Modern provides insurance to consumers of manufactured homes and other “recreational casualty products,” such as boats, RVs, motorcycles, collector cars, and snowmobiles.

Based in Cincinnati, the company is rated A+ by A.M. Best, with nearly 1.2 million policies in force.

“We have grown dramatically over the last 20 years,” said Joe David, vice president of marketing for American Modern. “We have a responsible risk management program in place so that we really control our exposure in the coastal areas. We have great reinsurance with our partners. We are in a good position that we don’t have to be concerned when the hurricanes start blowing.”

American Modern’s move into a niche market was for the opportunity to play a significant role in the industry without having to deal with the commoditized standard homeowner and auto markets. “You see something that is underserved or unserved. You see less competition. You see an opportunity to develop an expertise that can’t easily be matched by others, and it gives you a competitive position to be competitively priced, but not driven by price,” David said.

According to David, after the war, standard line carriers didn’t want any piece of the “tin boxes that would burn up and blow away when anything happened.” But for American Modern, it was an opportunity to get involved, a move much more enticing since the company had specialized knowledge, involvement, and a connection with the industry.

Over time, however, manufactured homes were constructed better, and many standard line carriers began to see this particular housing market as a way to expand their writings and grow into some of these niche segments. It was during this time that American Modern began to migrate toward recreational toys.

“There is always that risk in any industry that as things change over time, what was once a niche market or considered outside the underwriting appetite of the standard line carriers changes,” David said. “All of them are feeling the same kind of pressure as everyone else – to continue to grow. This became a natural offshoot for many of them to target the preferred segment of the specialty market. American Modern’s involvement in niche markets was an opportunity that was there for us to be a major player.”

As a specialty provider, American Modern tries to make it as easy as possible on its agents to write business. Because the areas served are so diverse and specialized, the company hires and trains what it calls “specialty agents.”

In the collector car arena, the insurer has specialty agents primarily writing its products. “Those folks specialize in collector cars and become much more knowledgeable about the product. And they really do take an active interest and role in counseling and working with collectible car aficionados,” David explained. “Our policyholders are investing a lot of money in these vehicles, and they need the expertise to tell them this is what you really need and this is the value of it.”

Ask any company about its claims service, and no doubt, stellar adjectives begin to flow. For American Modern, claims training goes beyond the typical. In fact, the company has an entire building dedicated to training, where vehicles are deliberately damaged to give the claims staff the training to learn the repair process – a much-needed experience that solidifies their skills in working with policyholders when a claim is submitted. “They learn what it takes to fix these things. And they know what it’s like dealing with a contractor or auto body shop, and to know whether they are being fair to the customer,” David said.

Of course, solid risk management is key to success, and by controlling fixed costs and infrastructure, a company remains as competitive as possible, but the specialty arena is a little more challenging than the standard lines. “In some ways, you still have the types of services and functions of the standard lines companies, but you generally have a small market that you are dealing with and lower total premium volumes, so that you don’t have the same ability to spread your cost over a broader policy base,” David explained.

The company is licensed in all 50 states; however there are a few states where American Modern doesn’t offer all its products. A smart business is one that realizes that if it cannot generate enough business in a state, it might not be a fiscally sound decision to maintain certain products in that state. “Fortunately, we haven’t encountered that too often,” David said. “We are approaching $1 billion in annual premium, which is relatively small to most of the standard line carriers. But we have to maintain licensing in all states. There are no shortcuts for a niche marketer.”

Posted: Tuesday, October 16, 2007 12:00:00 AM. Modified: Tuesday, October 16, 2007 3:26:59 PM.

(317) 875-5250 - Indianapolis | (202) 628-1558 - Washington, D.C.

Contact NAMIC | Press | Advertise | Sponsor

We are 1,400 property/casualty insurance companies serving more than 135 million auto, home and business policyholders, with more than $196 billion in premiums accounting for 50 percent of the automobile/homeowners market and 31 percent of the business insurance market. We are the largest and most diverse property/casualty trade association in the country, with regional and local mutual insurance companies on main streets across America joining many of the country’s largest national insurers who also call NAMIC their home. More than 200,000 people are employed by NAMIC members.