Name: Richard L. Allen
Position: Chairman, President and Chief Executive Officer, The Providence Mutual Fire Insurance Company
Background: Allen joined The Providence in 1988, having previously served as senior vice president of Peerless Insurance Company of Keene, New Hampshire, from 1984 to 1988. He began his insurance career in 1960 with Allied Mutual Insurance Company of Des Moines, Iowa. Allen serves on the governing committee of the Rhode Island Joint Reinsurance Association and is a director of the Rhode Island Insurers Insolvency Fund. He also serves as a director of the National Association of Mutual Insurance Companies. Active in community affairs, he was involved in the 1998 corporate campaign to benefit the Women’s Center of Rhode Island, Inc.
Education: Drake University, Des Moines, Iowa, 1958
Age: 63
Family: Married; three grown children, three grandchildren
Residence: East Greenwich
RICHARD ALLEN: ‘as a mutual insurance company, we have to be customer focused. Our customers are our owners.’
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The Providence Mutual Fire Insurance Company was chartered by the Rhode Island General Assembly to insure homes and businesses on October 27, 1800. It was established by concerned citizens of Providence to protect its members against the “ravages of fire.” Its founders and early policyholders included Judge David Howell, Moses Brown and Samuel Slater. The company played a significant role in the country’s Industrial Revolution, writing an insurance policy for Slater Mill in 1801.
PBN: Two hundred years. What is the secret to that kind of longevity?
ALLEN: As with any business, you have to fill a need. In doing that you have to provide a product or service that is perceived as having value, relative to how they may fill that need otherwise. You hear a lot about being customer focused. As a mutual insurance company, we have to be customer focused. Our customers are our owners.
Has the marketplace changed over the years?
The economics of the business have changed over the years. The need to protect against fire and other perils that endanger our policyholders’ assets – those things haven’t really changed that much.
Are there certain kinds of insurance in which you now specialize?
We write more homeowner’s insurance than anything else. I would say 70 to 75 percent of our business is homeowner’s. Most of that is probably single family, private residences.
Is this throughout the country?
It’s New England, New York and New Jersey. We have agents in all of those states, though we don’t have that much penetration in Vermont.
Are you comfortable with that as far as a geographic reach?
Not really. In fact, we have a growth strategy that involves geographic expansion to other states, as a good opportunity for that arises. The business is very competitive. We think our attraction is our financial strength. It all goes back to value.
How are insurance claims different than they may have been 20 years ago?
There is more litigation. The claims that would be caused by a natural catastrophe or weather phenomenathose are acts of God type things. But on the liability side there is more of a tendency now for people to contact a lawyer and try and find some fault – to look for a deep pocket. Twenty years ago if you had a slip and fall – somebody walking down the sidewalk in front of your house – they might have gone to their own health insurer and gotten their injuries taken care of. At the worst, they might have presented a claim and we would look at their medical and whether they missed some time from work. Now, in a fairly significant percentage of those cases, the first thing they do is call their lawyer. That’s not to say that we are going to pay more – or they are going to get more. In fact, after they have paid their lawyer, they may not be as well off as if they had settled with us. The lawyers advertising on television have a lot to do with it. In Rhode Island we see it on a daily basis. The insurance indus
try does not do a good job of fighting back. We just don’t spend a lot of time trying to combat negative advertising from lawyers.
We see a lot of companies that have moved out of Rhode Island over the years. What has kept you here?
Well, we have a limited geographic area and we are well served here to serve that area. We started here. And we really haven’t had any reason to leave. We think it is important for people to know that we have been here for 200 years. That says a lot about how we have served our customers.
The General Assembly has taken steps in recent years to improve the business climate for financial service institutions – and as a result was able to lure Fidelity Investments. Are there specific legislative needs to be addressed within your industry?
Over the last several years there has been an effort on tort reform in some states. But a lot of what has been done has been overturned as unconstitutional. We’re not looking for a lot in that regard. One of the things that is really big in the Northeast and particularly in the types of policies that we write is lead paint exposure. Lead is obviously a harmful agent, particularly for young children and pregnant women. It can cause a lot of damage. By the same token, we don’t like the effort to make the insurance industry the agent to clean up the thing after the injury has been caused. We think there ought to be some real effort to get the lead out before the children our poisoned. That pre-loss activity, it is a recognized need. That should be something that depends on insurance, which is intended to cover fortuitous events – accidental exposure to things, and so on. We think landlords ought to be responsible for getting the lead out, rather than saying; ‘Here is a child who has been poisoned; now because of some mandate, the insurance industry has to pay for that.’
In the wake of Tufts and Harvard Pilgrim pulling out of Rhode Island, Gov. Lincoln Almond has talked of expanding the role – and power – of the state Department of Business Regulation. What has your experience been with DBR in terms if insurance and do you think that agency has the kind of clout it needs?
Our experience with DBR has been good. They do a tri-annual audit of our operations here. We have always gotten a clean bill of health. Our company is very strong financially. We have never had a problem with the DBR. They have some good people down there and they have always had a reasonable attitude toward having a good balance between protecting the consumer – which is their primary responsibility – and how they expect the industry to respond to their regulations.
Rhode Island has endured a credit union crisis and is in the midst of health care crisis – what can the insurance industry learn from these experiences?
When I look at the health care situation — I guess like everybody else — I’m at a loss to get my arms around it. It has moved so fast and it is so bigI’m sure there is plenty of blame to go around. But I’m not sure where you start. If there is any lesson in that for us, I think it would be for us to make sure that we pay attention to our knitting. That we don’t get so obsessed with growth and market share. That we don’t contract to do things that don’t make sense – and we can’t do. We just need to know our business very well.
The health care industry has been devastated by federal cuts in Medicaid reimbursement. Is your industry immune to the kind of federal cuts that could potentially be a major setback?
I don’t know that we are immune to anything like that. It seems like some of those things have a way of coming in the back door. But I would say we are less directly impacted, as the health care industry may be.
The banking industry must comply with the federal Community Reinvestment Act. It was salvaged last year after contentious debate in a congressional subcommittee. There has been talk of similar legislation for the insurance industry. Where do you stand on the issue?
There has been a lot of talk about it and we feel that the property and casualty companies such as us need to be good members of society and have a social conscience. But by the same token, we don’t put ourselves in the same category as the banks. We don’t think the situation is the same. We’re not loaning money. We are here to serve our policyholders – to be here if they have a loss. We agreed to indemnify them. To start taking our policyholders’ money and determine that we are going to invest in a particular area or for this particular cause, really seems to be a diversion from the intent with which they paid their premiums in the first place. They contribute their premiums to a company like ours becausethey are joining a pool where the losses of a few members of that pool will be reimbursed by the many. The idea is you buy an insurance policy from a company that runs a pool and the purpose of that pool is to pay the uncertain large losses of a few from a fund, which is made up of premiums that constitute a small certain loss. This is a way of handling risk. You substitute the potentially large, uncertain loss, for a small certain loss – the premium you pay for a policy. That loss is one that you can absorb and handle.
And that’s the one the policyholder accepts?
That’s the one the policyholder gladly accepts, because no one wants a catastrophic loss. We pool together to share those catastrophic losses among a broader base.
There has been a growth of late of on-line quote services – what impact, if any, have they had on your business?
The school is still out as to where that is going to end up. We know a certain amount of business is going to be sold over the Internet. But we’re in the business of selling security to people. Over the years – and I don’t want to take a shot at our lawyer friends – because of a lot of litigation, contracts have become rather complex to the average person on the street. I don’t know that people are really going to feel that they are getting that piece of mind when they buy something over the Internet. It depends on how companies do it. For the most part, people are going to want their security assured. They want the peace of mind that they have the right coverage for the exposures they have. They are going to want to be dealing face to face with a professional.
How has a Midwestern guy gotten used to Rhode Island?
It was not a difficult transition at all. We love Rhode Island. The climate here and its proximity to a lot of neat things make it an ideal location.
What do you make in general of the state’s business climate?
I think the economic climate in Rhode Island is very good. Even though Rhode Island – in this booming economy – is probably trailing Massachusetts and Connecticut and maybe New Hampshire. There are some states that are very difficult to work in – this is not one of them. We’re very happy here.
