Insurance Companies Find Mettle Rests in the Family

The recession has meant tough times for the area’s family-owned insurance agents and brokers. Many have had to close, merge or be folded into larger companies. Not Crescenta Valley Insurance. Second-generation CEO Rick Dinger, 44, gets multiple calls every month from other area brokers who want to buy his $12 million book of business. He politely thanks them for their call and hangs up. Against all odds, his family-owned insurance agency has managed to remain independently owned and operated since the day his father began selling Farmers Insurance door-to-door in 1969. “I’m a bit of a control freak,” Dinger said. “I like to be master of my domain. My father is the same way.” Tough times have led to a wave of consolidation in the independent brokerage business. In their drive for scale and efficiency, large underwriters such as Hartford and Chubb have been looking to do business with fewer and increasingly larger agents. If agents can’t grow revenue, they are at risk of being dropped by these large carriers, which leaves independent agents with fewer lines of business and fewer products to sell. This has driven many small family-owned insurance agencies either out of business or into the arms of larger competitors. While Dinger has managed to remain “master of his domain,” other area family-owned brokerages have benefited from consolidation. L/B/W Insurance and Financial Services Inc., itself a conglomeration of three different family-owned businesses, has grown as smaller firms found it necessary to sell out. The Valencia company, owned by second-generation CEO Mitzi Like, recently acquired Fortman Insurance, almost doubling the company’s personal lines division. “Fortman had two to three of the same companies we had, but at one point they represented double the companies they do now,” Like said. “The smaller agencies are in jeopardy.” Crescenta’s growth strategy: Increased visibility But those that have been able to add business through either organic growth or acquisitions through these difficult years have done better. Dinger, who ironically owes his American citizenship and start in the insurance business to his grandfather’s car accident back in Panama, has grown Crescenta Valley Insurance by being the ultimate local businessman. He was president of two chambers of commerce — Montrose and Crescenta Valley. He serves on the board of the Crescenta Valley Fireworks Association. He is the television commentator for Montrose Christmas Parade and serves as announcer for the St. Francis High School varsity football games. And don’t bother calling him in the middle of a meeting. For this insurance man, kids come first. But this Valley businessman is not without a sense of humor. In one of a series of YouTube videos, Dinger pokes fun at the large insurance companies with huge call centers that don’t know their customers’ names or needs. Tossing a rubber lizard on his desk, he tells the camera: “We offer better service than the lizard… and unlike the lizard, we take an active interest in the local community.” The video has attracted some 11,000 views. The YouTube exposure, along with publicity from his use of other social media, has helped Crescenta keep business steady, with $12 million in premiums written in 2011, up from $11.5 million the previous year, Dinger said. Commission income totaled $2 million in 2010. Dinger said the changing nature of business and technology is what prompted his rise to CEO in 1999. “My father has keen business sense, and I’ve learned a lot from him but he hardly knew how to turn on the computer,” he said. “I’ve had to teach him how to get on the Internet.” Today, the elder Mr. Dinger, who emigrated from Panama in 1953 following his father’s car accident, still plays a key role as CFO, and his people skills still bring in business, Dinger said. But he has ceded full management responsibilities to his son. Small firms face challenges Like other small firms, Crescenta has had its share of challenges. When California Proposition 103 mandated a roll-back in auto insurance rates back in 1988, commission income fell 50 percent in one year. Today, it’s uncertainty over the broker’s role in the Patient Protection and Affordable Care Act that’s got Dinger worried. At issue is whether brokers can sell policies into the proposed health exchange, a centerpiece of the legislation which will facilitate the sale of policies to groups and individuals. It also proposes to set up how much of a broker’s commission counts toward what the industry calls the medical loss ratio, the proportion of every premium that the new law counts as administrative overhead. The Act, which goes into effect in 2014, requires that no more than 20 percent of every premium dollar be spent on such overhead, and broker’s fees are counted in that 20 percent. For group insurance, the ceiling is 15 percent. “After all the people pushing paperwork, that won’t leave much for the agents,” Dinger said. Indeed, more than two years before the legislation is due to take effect, small brokers are already being squeezed. According to Neil Crosby, vice president of public affairs for the California Association of Health Underwriters, commission rates of 20 percent in the individual market have already, in some cases, declined to 10 percent in the first year of a contract with rates declining to 5 percent in subsequent years. Commission rates in the small group market have declined to 5 percent from 7 percent. “This is a big issue for brokers and agents,” Crosby said. “We are already seeing the squeeze on commissions and we don’t expect that to reverse.” For Dinger, health insurance accounts for 8 percent of his book of business, so once again, he will need to find ways to make up for the declining commission rates by drumming up more business. The alternative, selling out, does not interest him. “I’d have trouble working for someone else,” he said. “One of the most important things to me is to remain independent.” L/B/W’s strategy: acquisitions, new lines Thirty miles south, in Valencia, Mitzi Like, is benefitting from those who can’t make it work alone. Her firm, L/B/W Insurance and Financial Services Inc., is the quintessential family business with 33 employees, six of them family. Like became CEO in 2003. Her father, Don Like, 79, remains active as chief financial officer while Like’s husband, Randy Moberg, is chief operating officer. Moberg, who stepped out of a corporate job running operations for Fortune 1,000 companies, including Gillette, joined the family business eight years ago. With his background in operations and logistics, Moberg has aimed to bring a more sophisticated brand of management to L/B/W, allowing the owners to do what they do best: sell insurance. Moberg said the move gave him more control and flexibility over his life. By the same token, running the business is a “24/7 job,” he said. “There’s no such thing as going home and taking a break.” The hard work is paying off. Since taking over from her father, Like has diversified the agency, adding new lines of business in growth sectors such as non-profits and entertainment. The firm has also expanded into cyber-security with Tech Secure, a division that insures small and medium sized businesses against hackers and breach of data. Today, L/B/W is fairly diversified, with 67 percent of premiums coming from commercial and personal lines, another 20 percent from employee benefits, including healthcare, 8 percent from financial services, which was her father’s original business in the San Fernando Valley, and an additional 5 percent from business consulting. That diversity has helped L/B/W grow commission income by 8 percent in 2009 and 10 percent in 2010 to roughly $3 million on $30 million in premiums. Additional business lines, including consulting, brought total revenues to $4.2 million. Like’s plan: to boost revenue by 12 percent to 18 percent in coming years, which would get L/B/W back to the growth rate of more headier days before 2007. “We’re looking to grow organically but also through acquisitions,” Like said. “That’s been our strategy and we plan to continue with that.”