At a time when property-casualty insurance has grown scarce and costly in such areas as public-liability and malpractice coverage, agents and brokers at the Crump Cos. have a modest ace in the hole: their own profitable insurance company with the ample surplus needed to provide additional insurance.
To Crump's chief executive, Sidney A. Stewart, the company insurance and financial-services brokerage has succeeded precisely because it has acted contrary to the rest of the industry over the past few years.
Thus, by cutting back on its insurance operations when most insurers were scrambling for new business, and by quietly but quickly expanding its brokerage business when others sought to consolidate, Crump has transformed itself in four years from a regional brokerage based in the unlikely financial center of Memphis, Tenn., into the nation's ninth-largest insurance brokerage, doing business across the dynamic Sun Belt states from coast to coast.
"As part of our strategy belief that, in due course, the market would turn," Stewart told a business journal, "we took advantage of what we did during that period. Now it's a matter of pulling together the things we did."
Barely four years ago, Crump's operations were concentrated around West Tennessee. Then, in 1981, the company sold a 25% stake to Reliance Insurance Co., immediately gaining an important window on the West with fully functioning agencies in Arizona, California, Oregon and Washington. Many smaller acquisitions followed. Today, Crump operates 66 offices in 24 states.
As a consequence, revenue from insurance commissions and fees has grown to $70 million last year from $28 million in 1980; net income increased to $4.95 million from $2.9 million during the same period. Shareholders' equity more than doubled, to $35.5 million from $16.7 million, and last month the company declared a 2-for-1 stock split.
"The momentum continues," Crump President James M. Power told the Los Angeles Society of Financial Analysts last week. "We're a balanced company . . . not trying to be everything to everybody."
Crump specializes in mid-sized accounts, he said, finding them more manageable than "jumbo" accounts. "I'd hate to have to put together coverage for Union Carbide after Bhopal," he said, referring to the disastrous discharge of poisonous chemicals at a Union Carbide plant in India that killed more than 2,000 and injured more than 200,000.
The Memphis company's growth record contrasts with that of an insurance industry that has sustained a record 23 consecutive quarters of losses. Since late 1979, the industry generally has paid out more in claims and expenses than it collected in premiums--climbing to $128 in losses for every $100 in insurance income collected last year.
However, Crump's Southern American Insurance Co. subsidiary declined to join in the rate-slashing quest for new business. "When the market was soft, we just quit writing (new business)," Power said.
As a result, the most recent reading at Southern American showed it paying out just $99.40 in claims and expenses for every $100 in premium income. In its worst year, 1982, the pay-out was a still-enviable $102.90, compared to $112 for the industry.
Although income from investing premiums could scarcely cover loss ratios of the magnitude recorded by the industry, Southern American watched its surplus swell to $15 million. This now gives it the much-sought-after capacity to write new business when premiums are at last rebounding and often skyrocketing.
Even so, the industry continues to labor under a capacity problem--too much demand chasing too little available coverage.
"During the soft market, our job was to find the best (insurance) price possible," Gordon E. Noble, executive vice president and director of Crump's Western region, said in an interview. "Today, our problem is to make sure we've got the coverage for our clients. Period. The huge rate increases we're not proud of."
Nonetheless, the swollen premiums do help brokers who place the insurance, since their commissions typically are 15% of the premium. "We ride the percentages up," Noble said.
In seeking coverage, Crump has embarked on an innovative program analogous to the preferred-provider organizations proliferating in the health-care industry. While PPOs offer providers a steady stream of patients from employers in exchange for discounted medical rates, Crump seeks to join forces with insurers willing to set aside capacity for its customers in exchange for a steady flow of business.
Crump executives share industry concern for the future of property-casualty insurance in the face of continuing massive damage awards and claims for losses based on what they consider overly liberal interpretations of liability.
"The real problem that's facing the insurance industry," Power said, "is the reduction in surplus due to our tort and 'socio-legal' system in which tens of millions of claims are being paid out for coverage for which no premium was ever paid." As an example, he cited massive asbestos claims going back more than a generation before asbestos fibers were generally recognized as the potentially lethal element they are.
"Premiums were never paid against asbestosis," he said.