CRUSADER TRUSTS ITS INDEPENDENT AGENCY ROOTS

Crusader Insurance grows by perseverance, urban commitments

By Brett Hanavan

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Erwin Cheldin (left), founder and chairman of the board of Crusader Insurance Company, is joined at the company's headquarters by Cary L. Cheldin, president.

In the late 1940s and early 1950s, the University of Southern California was gaining fame as an institute of higher learning. Established in the 1870s, USC's goal was the development of society as a whole through the cultivation and enrichment of the human mind and spirit. USC is still considered to be a pinnacle of higher education, helping to create aspiring young businessmen and women, screenwriters, athletes and upper ranking members of today's modern society.

That vision was a far-sighted vision of success. Erwin Cheldin had a parallel vision. In the early 1950s, Cheldin was finishing his undergraduate degree program at USC, competing athletically and developing his vision of both sports and society. Later, he became founder of Southern California's Crusader Insurance Company. He is currently chairman of the board and his son, Cary, holds the leadership torch as president of the organization.

While at USC, the elder Cheldin attended an insurance salesman's lecture on selling property/casualty insurance. It motivated him and made him think that he could sell insurance to his friends. After all, Los Angeles was to be the city of the motor vehicle. It had a developing freeway system and all of his friends had cars. The automobile would become synonymous with how Southern California moved around.

Cheldin, Sr., was athletic, playing not only football, but also was the team player coach and All American in volleyball for USC. His teammates also needed coverages described in that lecture. By 1956, when his Air Force commission was activated, Erwin had built a nice client base. When he left, his brother, Arnold Jack Cheldin, continued to serve Erwin's customers and helped the business progress. Together they formed a team that later led to the formation of Crusader Insurance Company.

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Based over the Santa Monica Mountains from downtown Los Angeles, and on Mulholland Drive in Woodland Hills, Crusader is part of the sprawling and densely populated San Fernando Valley.

Back then, Erwin started Cheldin Insurance Agency as a retail agency.

Today, Cary Cheldin remarks that it always bothered his father that the perception was that property/casualty insurers seemed to make life difficult for small, independent agents. Small business people, he believed, had the civic contacts and were the grassroots of the community.

"Back then, big carriers often looked down their noses at the small, independent agent," Cheldin says, citing his father's original assessment. "If you had a lack of volume, or based on your social standing, you didn't have much of a punch or track record, they might laugh at you for perceived lack of quality. The small independent just didn't have much clout."

Erwin Cheldin found this attitude frustrating. His vision was true. Small independents were to be the wave of the future. He inherently instilled that belief in his young son.

"He [Erwin Cheldin] dreamt of being able to start an insurance company and for it to focus on serving small agents and brokers in such a way as to make them feel as important as the regard the carrier held for its reinsurers. Our philosophy is that being there for agents and brokers is bigger than the whole and that providing high level service and products to agents and brokers is what it's all about."

As time went on, the 1960s were good to the Cheldins. Erwin and Jack's persistence and perseverance paid off, and their vision and eager attitudes helped them mold a general insurance agency. In 1963, they formed Bedford Insurance Services. The business was incorporated and established for the purpose of providing a market to underwrite and sell automobile insurance for rental car companies. It was basically a focused niche marketing agency.

Crusader.3 Cary Cheldin notes that a California Department of Insurance survey ranks Crusader as a leader in doing business in underserved areas of the state.

"Erwin established a relationship with budget rental car franchises in the 1960s and through the 1970s, and they sold commercial automobile coverage to many other car rental companies in California, such as 'Dollar' and 'Thrifty,'" Cheldin says. "We developed the expertise, and that knowledge and focus still exists to this day."

Today, 40+ years later, Bedford is an exclusive agency for the Northland Insurance Companies (non-affiliated) based in Minneapolis. Bedford focuses exclusively on this market even today. The Northland Daily Auto Rental Program writes short-term rental car and truck companies in 34 states and offers coverage to suit each individual client, from established businesses to new ventures. It provides coverage availability for both new and used vehicles for any size fleet.

The Cheldin focus and dedication paid off in the early 1970s when Erwin sold a substantial amount of insurance to liquor-store owners who were members of associations. Through that type of retail activity and development of expertise in liquor liability, he started another general agency, Unifax Insurance Systems, Inc., in 1972. Designed to be a general agency from the start, it built a large market share underwriting liquor liability, evaluated exposure proficiently, and built expertise in this discipline. Together, Bedford and Unifax contributed to the early structure of the Cheldin insurance empire. And, they actually contributed more income than the retail agency they were managing.

In the 1970s, retail agency operations came to a stop as the general agencies were pushing forward. Unifax continued to expand its share in the market, especially in California, finally expanding beyond liquor liability to several commercial package classes. It marketed package policies for restaurants, bars, taverns, gas stations, auto body and repair shops, and apartment buildings, offering a full line of products through the general agency. In 1969, the agencies became publicly owned when they became part of the Unico American Corporation. It was suddenly traded on the NASDAQ.

Crusader.4 Erwin Cheldin's insurance interests evolved from a retail insurance agency, to wholesale general agencies, to the formation of Crusader Insurance Company.

In 1981, Cheldin Insurance Agency, the retail arm, was sold off and the company faced the future with only wholesale entities. The brothers owned about 50% of the stock when it went public. They continued to do so up through the late 1980s. Erwin is still actively involved and remains a strong, interested investor in Unico. He now owns about 38% of the shares with the rest being publicly held.

Also in 1981, the Cheldins decided to form a carrier, Crusader Insurance Company, to underwrite its general agency business already in place. It became a wholly owned subsidiary of Unico American Corporation. Unico is a publicly owned insurance holding company. By focusing on a wide range of general products, targeting underwriting expertise on each, they would build a broad range of knowledge in all classes and serve the needs of independent agents. At that time, although the vision for Crusader was implemented and in place, it was placed on hold because the insurance market was soft and getting softer. The Cheldins elected not to commence operations on the already designed company until 1985 after the market had hardened up.

In 1987, Crusader, like many other commercial liability carriers facing the perils of construction defect liability, had to deal with these unusual types of settlements. About that time, it began writing artisan contractors, such as plumbers, plasterers, air-conditioning/heating contractors, tile installers, and various subcontractors. Cary Cheldin comments that through it all, many carriers have come to the market and ended up leaving, fading away with market cycles going up and down the proverbial roller coaster.

Crusader's reputation is built largely on dedication to independent agents without pinpointing areas or regions geographically for target business. It caters to independent brokers without regard to financial status, providing markets to inner city agents and brokers, largely in California. It prides itself on ignoring color, race, and financial status in its business dealings. "All we ask is that there is a financial commitment and the agents and insureds pay their bills," says Cheldin. "As a result we're treated with professional respect and courtesy. Some think we have a disproportionate number of policyholders in low income areas. Our attitude is that if everyone pays their bill, is honest and truthful, then we're in it for the long haul. We've never been accused of redlining."

Cheldin points out that about a year ago the California Department of Insurance published results on its Web site showing a survey of policy distribution (per zip code) of companies in what it considers "under-served communities" within the Golden State. In the survey, he says, Crusader is noted as a leader in this area with approximately 30% of its business in under-served areas.

"From a practical plan, we look at the concentration of our business to avoid over exposure to catastrophe," Cheldin says. "That lesson was driven home on March 29, 1992, when the Los Angeles riots occurred as a result of the verdict in favor of Los Angeles policemen who were on trial for the beating of Rodney King." At the time, Crusader had the largest loss per policyholder (per capita and losses sustained) of any company writing commercial business in Los Angeles during the ensuing five days of rioting. It lost half of its capital surplus from these claims. At the time, Cheldin said it was difficult to manage and maintain Crusader's A.M. Best rating which was "A-." In the years immediately following the riots, there was a high level of concern about whether carriers had the ability to sustain these kinds of hits to their books of business. Crusader pushed forward making a concerted effort to diversify itself geographically in the months and years that followed, targeting much of that growth and development outside California.

Through the years, the Cheldins and Crusader have obviously remembered where they came from--the roots that generated pride, professionalism and dedication to their businesses.

Cary Cheldin tells the story about being a young man, fresh out of college in 1980 with a biology degree and an MBA, and trying to break into insurance. Maybe it was inevitable that whatever the young Cheldin majored in, he'd always be destined to work with Dad in insurance. He did sales for about a year-and-a-half, before moving into the underwriting side of the business.

"I would go door-to-door, knocking my way along Ventura Boulevard in Los Angeles' urban sprawl. I didn't know anything about insurance other than what I'd inherently learned from my father," Cheldin said. "People had animosity and disdain toward insurance people and the concept of insurance and the industry. They'd say, 'We hate insurance,' and look at me as another pesky insurance salesman, and tell me to go away."

For Cheldin, based on his father's and his uncle's philosophy of doing business, along with their healthy positive attitudes, it struck him odd that people harbored this animosity. He felt his dad's company had good products and provided a valuable service to society.

"If someone had a better deal somewhere else, and I concluded that, I would tell them so," Cheldin says. "I had no intention of trying to steer someone the wrong way and would call on them again next year." It was always the younger Cheldin's objective to educate potential customers through actions, believing that the insurance-buying public needed (and still needs) to believe that insurance companies are good and trustworthy businesses. He set out to change the negative attitude some buyers had about the insurance business.

"The best thing I could do is try and change that prejudice by setting a good example and treating everyone with good intentions," says Cheldin. "In the insurance business, [you] can't get greedy. Rather, you turn the table and focus. Once we make the decision to enter a market, we stay there. We don't pull out and don't cancel policies because we didn't make money. It's not the customer's or the agent's fault."

We asked Cheldin about what some might consider a black mark on the property/casualty industry in California--the resignation of Commissioner Chuck Quackenbush amid allegations of impropriety. Will it be a setback to the public and customer relations of the insurance industry?

"I think the consensus is that it will set the industry back," Cheldin says. "But the image is already so low it just confirms what society already thinks. I think it reflects badly on politicians in general, but it's worth it to fight the battle. There are always a few bad apples. Recently on a train ride from Simi Valley on Los Angeles' far-west side to a NASCAR race in Ontario, California, about 40 miles east of downtown, I overheard people talking about it [the Quackenbush situation]. They seemed to really hate him. I was surprised people reacted so harshly. It is negative to the industry and to government trust. I don't think it changes anything, just reinforces it."

Crusader's inner-city commitment and targeted out-of-state growth has taken them into 12 states--nine admitted and three on a nonadmitted basis. Crusader is licensed to transact property and casualty insurance on an admitted basis in California, Nevada, Arizona, Montana, Washington, Oregon, Ohio, Colorado, and Idaho. It does nonadmitted business in Kentucky, Pennsylvania, and Texas.

In California, Crusader has about 200 product lines, and about 300 total if Unifax appointments are included. In other states, it hopes to have about 200 product lines on an admitted basis within the next 10 years. Cheldin says he is working on developing an auto body and repair shop program in Ohio that it can eventually roll out to the entire country.

"We've taken our same philosophies and classes of businesses to different states," Cheldin says. "Mostly, we've grown through liquor liability sales for bars and taverns with Crusader. Our total book-of-business sales are substantially down from where they were in 1997 due to the softness of the market. Then, they were at a high of $44 million. Unico was even higher than that."

Crusader's 1999 written premium compared at about $33 million for all of its states. Of that, California was $24 million or about 70% in California.

"It is difficult, in a soft market, to practice conservative underwriting philosophies when your competitors are selling at a loss," Cheldin says. "We've never had an underwriting loss with the exception of the riot year of 1992. Our objective is to preserve the market."

One way Crusader reinforces its commitment to providing good customer service to independent agents and brokers is by equipping the walls of its workplace with red strobe lights which signal the phone activity taking place between its customer service people and its agents and brokers. The lights come on when an agent or broker is waiting on an inbound phone line to speak to a customer service specialist or underwriter. Callers are never sent to voice mail unless they choose that option by first talking to someone.

"Our commitment is that callers always talk to a real person," says Cheldin. "We don't believe in electronic answering machines. Incoming calls are routed in a fashion that provides the highest possible level of service. We have a final overflow desk, where the caller has the option of leaving a message with an operator or with electronic voice mail. It is important to focus on turn-around time on applications, particularly when someone needs a quote or needs to talk."

The remainder of the current Crusader senior management team is Gay Corbett, marketing management; John DiNapoli, claims management; and Lester "Les" Aaron, finance and accounting management.

Crusader's Internet presence (www.crusaderinsurance.com) was released to the Web in January 2000. It is meant to be interactive, designed as an intentionally informational bulletin board for customers, reinsurers, policyholders, regulators, etc.

"Ultimately our objective is to make it useful for independent agents and brokers to complete applications and get quotes back so they won't be required to call and talk to underwriters," Cheldin says. "Currently, forms can be downloaded for Nevada producers. They can get appointment application kits; everything they need; the IRS form, W-9 form ... they get a questionnaire."

All in all, the persona and charisma behind Crusader Insurance Company remains with Erwin and Cary Cheldin. The company's personality is embodied by the two to this day. *