National Lloyds Thrives Writing Low-Valued Dwellings

By | September 22, 2003

The experience of specialty homeowners carrier National Lloyds Insurance Co. illustrates that the fable of the tortoise and the hare is as true today as when Aesop told it to the village children who gathered ’round to hear it ages ago.

While other insurers raced ahead like the hare to offer the broadest form coverage possible to homeowners during the prolonged soft market, the Waco, Texas-based National Lloyds stuck to a game plan as solid as the tortoise’s shell: a strong focus on the particular type of risk it knows very well—low-valued dwellings—careful underwriting, narrower coverages, solid claims service and a stringent home inspection regime.

When the race turned and the Texas market restricted due to mold and other factors, National Lloyds was one tortoise poised to benefit.

The company’s premium volume in Texas—which accounts for 85 percent of its overall revenues—jumped 87 percent in 2002, from $28 million to $52.6 million. National Lloyds’ solid approach to writing an underserved market has paid off well, according to Mary Russell, one of the company’s agents and personal lines manager for Fort Worth-based Higginbotham & Associates.

“They wrote a ton of business in the last two years when this marketplace went crazy,” she said, “but they still wrote their basic product at the premium and didn’t have complaints from customers.”

By focusing on what it does well, Russell said, National Lloyds has kept rates stable while providing catastrophic coverage to homeowners most other carriers passed on.

The company instituted its first rate increase in several years in January 2003, upping rates by an average of eight percent. However, as part of its efforts to enact regulatory reforms required by recent legislative actions, the Texas Department of Insurance ordered National Lloyds to reduce its rates by 19 percent. According to CEO Clifton Robinson, in public hearings before the department, the company’s lawyers argued that it should be exempt from the law because of its role as an insurer of the underserved low-valued dwelling market. Department officials were not convinced.

After several private meetings with Commissioner José Montemayor both before and after the hearing, the company agreed to cut its rates by eight percent, returning them to their pre-2003 level. The rate cut applies to all policies effective Sept. 7, 2003, and after, on all new or renewed policies.

“It was a compromise in the grand spirit of compromise,” Robinson said. The move shouldn’t harm the company too much, as Robinson noted its rate increases have “always been very few and very small.” He said the company reevaluates its rates every five to seven years.

Rate stability is only one aspect of National Lloyds’ steady-as-she-goes mentality, which also has nurtured a remarkably consistent and solid approach to underwriting and managing growth.

“Our philosophy has never been to chase market share,” said Robinson, who acquired the company in 1964 and is now in his mid-60s. “We underwrite to make a profit in this business, serve the policyholders and the agents of this state. We grow during the hard markets and whenever Texas has bad catastrophes and go backwards after the market softens up.”

Another element of National Lloyds’ approach that differentiates the company from its competitors is that it insures a home for its actual cash value, not replacement cost, thus removing the moral hazard involved with carrying low-valued dwelling risks.

“There are no limits on how low we will go,” Robinson said. “We would like to insure every $1,000 risk in America. That takes the moral risk out of it, because the insured has more to lose. That has been the secret of our success.”

Robinson, whose sons Gordon and Charles are key executives at National Lloyds, is convinced he’s found a formula that’s worked and plans to stick with it.

“The business has changed, but we do not credit score,” he said. “We are not concerned about location, or a deteriorating neighborhood. We’re not concerned about the overall condition of the risk including the roof being in average to poor condition …

“We do a lot of our own inspections. We inspect every risk we insure and we re-inspect them frequently because of risk deterioration. They deteriorate and can do so very rapidly. We’ve just figured out how to make money where everybody else hasn’t been able to. We’ve got a $50 minimum premium where most companies have a $1,000 minimum premium.”

Russell said National Lloyds has a client base grateful for its service. “There aren’t all these other companies wanting to write this business,” she pointed out. “That consumer does not have a letter in the mail every week from a credit card company, does not have a solicitation from State Farm or Allstate every week. So that consumer gets their product, buys it, and they don’t shop for their insurance every year. The retention on the book of business is very good. Nobody’s targeting it.”

National Lloyds’ approach hasn’t changed much in the last three decades, according to Brad Pence, general manager of Bryan, Texas-based Anco Insurance, which has produced $1.7 million in premium volume for the company in 2003.

“They still don’t want to go much over $200,000 [in home value]. That’s always been their mainstay,” Pence said. “Of course with market inflation what used to be a $40,000 dwelling is now $70,000 and they’ve had to move that way. But they want to see pride in ownership and that little flower pot on the front porch. They would write a house with holes in the walls if that was the person’s home, and there’s a place for that. They’ve been very successful. They don’t have the broad coverages a lot of these others have but they have what’s needed in case of a catastrophe.”

The company is licensed in 19 states and also owns Texas-based, Arizona-operated American Summit Insurance Co., which it acquired in January 2001 and is “beginning to look like National Lloyds,” according to Robinson. The two companies will combine for an estimated premium volume of $150 million in 2003.

Not immune to missteps
“I think we know more about insuring low-valued dwellings than anybody in the country,” Robinson said. “But I will tell you that there have been times in the past 39 years that I have attempted to deviate into other lines of insurance—automobile, boat, livestock—all of which have been disastrous. We learned that we can’t insure anything wheels on it, or that floats on water, or that eats grass. We have redefined more than one time our focus. I told the executives of this company that if I ever deviate again to throw a net around me and haul me off to the funny farm.”

In 2000, Robinson sold the company to West Des Moines, Iowa-based GuideOne Insurance. After a year, which he calls the most miserable of his life, Robinson promptly bought the company back from GuideOne.

“They made me an offer I couldn’t refuse both ways,” he said.

Higginbotham’s Russell said she noticed the difference in National Lloyds management under GuideOne from day one. “Immediately they were trying to expand and be everything to everybody,” she said. “This would give them a big launching pad. We can do it from A to Z for the customer was their attitude; they tried to change it. When you go and change a National Lloyds from a business you do handshake business with to a home office in another state, it’s just not the same. They didn’t know who the president of Higginbotham was or who we were. We were just another number.”

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