Best's Review - Property-Casualty Insurance Edition
July, 1998
SECTION: No. 3, Vol. 99; Pg. 91; ISSN: 0161-7745
IAC-ACC-NO: 20915214
LENGTH: 1399 words
HEADLINE: Jack of All Trades.
BYLINE: Miller, Theresa
BODY:
Texan Marc A. Sparks wants to build an auto-insurance empire by owning and
operating all parts of the chain-from issuing the policies to fixing the dents.
Forget full-service for auto insurance. U.S. Fidelity [folding Corp. Chairman
and Chief Executive Marc A. Sparks has a more ambitious plan in mind-to own just
about all of the auto insurance pipeline including auto collision repair
centers. He hopes to capitalize on the high-margin nonstandard auto insurance
market and grow into a billion-dollar company.
Everybody's talking about consolidation. We're just acting on it." Sparks
said. "We feel like it's time for this industry to consolidate. Actually, we're
late."
Since last fall, the insurance holding company has been buying up retail auto
insurance agencies throughout Texas. By late April it had acquired 40, with
plans to control 100 by mid-year. The company finances its purchases by putting
25% down, with a two-year note convertible to stock when the company goes
public, according to a company report.
The company, U.S. Fidelity Corp.. has also been buying auto collision centers
and operating them as a nonprofit part of the business. Sparks' goal: to own a
body shop in every major city in which U.S. Fidelity sells auto insurance. So
far, the company owns three body shops in Houston and the Dallas-Fort Worth
area. The Dallas-based company also has begun buying claims- appraisal
companies.
Linking with auto shops is nothing new-Allstate and other insurers have
already gone as far as establishing formal contracts with body shops on behalf
of policyholders. But Sparks could be the first to buy body shops outright,
along with claims companies. Sparks believes owning the collision centers gives
his company control over the cost and quality of repairs, and cuts the company's
overall loss ratio.
'The body shops are nonprofit organizations," Sparks said. "They are
challenged with the task: Don't make money, just break even."
U.S. Fidelity's claims companies also appraise vehicle damage, just to make
sure the body shops are offering fair prices. The goal of the system is to save
the company 25%-35% in repair claims costs and to reduce the company's
loss-ratio by as much as 8%. "Loss-ratio is a 24-hour-a-day conscience issue
with us," Sparks said.
The company currently has a combined ratio that runs from the low- to
mid-80s, and a loss ratio that wavers between the mid- to high-50s, the company
said.
Building a Pipeline
Sparks and company want to control all links in the chain. The company,
through its affiliate, Unistar Financial Services, bought its own publishing and
advertising company earlier this year. The company expects to cut 15%-30% of its
printing costs, saving about $ 1 million in expenses.
Company captive and noncaptive agencies include an agency in Jacksonville,
Fla. with five locations purchased in February. U.S. Fidelity whose subsidiaries
wrote about $ 65 million in premiums last year, is building a base in Texas,
with eventual plans to expand to Florida and California.
The company is keying on the nonstandard market-higher-risk drivers and
unusual vehicles-because Sparks believes that's where the industry will grow
most rapidly In its marketing, the company cites an Ernst & Young study that
reports premium volume for nonstandard auto increased by more than 60% from 1990
to 1994.
Texas' nonstandard market may be ripe for marketing efforts because that
state recently scaled back its assigned-risk system and enacted regulations more
favorable to non-standard writers.
But Sparks has company in competing for Texas' expanding nonstandard market.
"There is more of an opportunity for companies to step into the nonstandard
market," said Ray Becker, assistant vice president, property and casualty at the
Alliance of American Insurers. "I think this is a manifestation of that. There's
a lot of competition and more activity. There's money to make if you do it the
right way"
Sparks, said Becker, "May have hit upon a different way to skin the cat."
As part of its quest to control the entire spectrum of service, the company
has also added Great Southern General Agency Inc. and First Choice Underwriters
Inc., both wholesale managing general agencies, and Eagle Premium Finance Co.
and Eagle Claims Corp.
Sparks said the company is on target to write $ 100 million in premiums in
Texas this year, up from $ 60 million last year. The company's goal is to retain
more than 50% of gross written premiums. Of the company's captive agencies, 40
arc scattered throughout Texas, which Sparks says is one of the fastest growing
nonstandard markets in the country.
To truly understand Sparks, take a little bit of Mary Kay Cosmetics and throw
in a dash of Blockbuster Video's sprawling growth. Then, if you add a healthy
portion of Wal-mart and savvy in selling insurance, you'll have a good picture
of how this company works.
Culture Creation
Sparks cultivates a nonstandard approach to business. His company doesn't
have employees. Instead, staffers are labeled associates, who will be allowed to
buy into the company when it is listed on the Nasdaq Market System and the
Toronto Stock Exchange this year. Sparks said the stock will be initially given
exclusively to employees: he has no current plans for an initial public
offering.
Sparks and about 50 associates work from a just-completed 30,000-square-foot
complex in Dallas. Headquarters boasts a teleconference center, an exercise
center. a software training center. A particular point of pride is its new
150-seat, stadium-style theater used for training and sales meetings. Other
employees work from captive retail agencies, body shops or in auto claims
appraisal companies.
"We're almost the Mary Kay of the auto insurance industry." Sparks said.
To build distribution, U.S. Fidelity buys books of business at retail auto
insurance agencies, which in turn have exclusive rights to sell products
developed by U.S. Fidelity companies. Agencies continue to be run independently
and the former owners and founders often remain in charge. "We'd never take
away their entrepreneurial spirit. We don't even have keys to their doors,"
Sparks said. 'Were basically their rich uncle."
To recruit potential purchases, U.S. Fidelity often runs advertisements in
Texas-based trade publications that trumpet: Acquisitions? Are you looking for
an aggressive partner to expand your business?" As a result, agencies court U.S.
Fidelity, Sparks reports. The deals "are coming at us faster than we can gel
them closed he said. That's a blessing. Early' this year, the company was
acquiring agencies at a rate of about one a week.
The company's risk has been assumed by a team of reinsurers assembled by Aon
Re Worldwide, which includes Kemper Reinsurance Co., odyssey Reinsurance Corp..
Underwriters Reinsurance Co., Everest Reinsurance Co., and Clarendon National
Insurance Co. The group of reinsurers authorized the company's subsidiary. First
Choice Underwriters, to begin writing auto insurance policies on Feb. 1 By
April. the company rolled out its third product, with backing from the
reinsurers.
Products are similar to existing policies already in the marketplace. but
with some twists designed to make them consumer-friendly, Sparks said. For
instance, Great Southern offers customers 11 monthly payments-most competitors
offer 10-and requires a I 10 downpayment--the norm is 15%. The company is also
preparing to launch several new products.
In the office, Sparks emphasizes a disciplined, reward-based work culture For
instance, those who work in the company's 24-hour claims service must process
each claim before ending each day. Desks have no drawers, claims can't be filed
out of sight-and out of mind. "We don't believe in not getting to any claim
quickly." Sparks said.
-'Our philosophy is to have one person in each department standing around
with nothing to do," Sparks said. If claims associates are caught up with their
work, they go home, even if they haven't completed a full day. If not, they work
until all of the claims have been cleared. '-It's been done, or they don't go
home," he said.
Sparks' challenge is to maintain his high-control system while building an
ever-larger company. So far, the system is working, he says. "1 wake up every
day and wonder how we're so fortunate," Sparks said.
LANGUAGE: ENGLISH
IAC-CREATE-DATE: July 17, 1998
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