Don’t rush the courtship

Partnerships with community organizations may help reduce risk, boost business

If understanding and pricing risk are the essence of insurance, then mitigating risk is the essence of insurers’ and their agency partners’ profit. New research shows how partnerships between insurance organizations and community organizations can help customers to make homes and businesses safer–reducing risk and improving the appeal of markets.

The research focuses on the Loss Prevention Partnership (LPP), a program of the NeighborWorks Insurance Alliance. The LPP program created partnerships between insurers, NeighborWorks organizations (a network of 240 community-based nonprofits), city agencies, and other groups in five cities across the United States. The partnerships were designed to educate homeowners about home safety and to define best practices to reduce risk in other sites across the network. In three years, the partnerships: Educated more than 6,000 individuals in home safety seminars; Conducted more than 1,300 home safety evaluations (home inspections); And made at least 600 loans and grants of more than $2.5 million for home safety.

The NeighborWorks commissioned the Institute for Metropolitan Affairs at Roosevelt University to conduct an evaluation of the LPP. The evaluation compared the exposure and loss experience of major insurance companies in LPP target areas with surrounding cities and states. All of the LPP partnerships were able to make their neighborhoods more attractive markets for insurers and safer for residents. For example, in one partnership market, the loss ratio for the homeowners who participated in the program was found to be less than 20 percent. This is a dramatic reduction from the average national loss ratio of 67 percent in 2004 (as reported by the Insurance Information Institute).

“The LPP program was a win-win,” said Clayton Adams, vice president of community alliances at State Farm. “It helped to educate community members about insurers, and it helped educate insurers about community members.”

So how did the LPP help to create partnerships that worked? The research identified five steps to building a successful partnership:

In truth, the company was coming under extraordinary pressure from activists because of practices that appeared to discriminate by race and ethnicity. What it really wanted from a partnership was a way to address critics, improve its own performance, and generate good PR. When the managers told the nonprofit what was really motivating their interest, the organization was quick to sign on.

If partners aren’t clear about their motives they will, at best, compromise the partnership’s success. At worst, they may pursue work that generates a “lose-lose” outcome for the business and the community. Being clear about your motives can spark the bright ideas that fuel successful partnerships and drive the partnership’s joint vision.

“The LPP was an exciting challenge for all of us,” said Ed Charlebois, vice president Personal Lines Property at Travelers. “We had the chance to take action that could make a meaningful difference in the lives of thousands of community residents–and make inner city markets more attractive for insurers as well.”

In developing partnerships for the LPP, NeighborWorks looked closely at all aspects of nonprofit capacity. Several potential partners were turned down because they lacked the technical capacity to administer an intensive loss mitigation program.

Similarly, you should look at your own strengths and weaknesses realistically. Can you commit real resources to a partnership? Do you have the willingness to stay with a partnership through difficult times? What expertise, skills, and competencies can you offer?

The LPP’s insurers tapped into their partners’ specialized strengths. They also provided funding, know-how, volunteers and information to offset any weaknesses. Many of the companies also reported learning useful and important approaches from their partners.

As Traveler’s Charlebois noted, “We learned from working together. For example, our underwriting guidelines stated that homes should show ‘pride of ownership.’ By working with community groups, we came to understand that houses that stood out with ‘pride of ownership’ might be targeted for a burglary and that the terms might be offensive to some people in the community. We also came to see that leaving these terms out of the underwriting guidelines didn’t harm us at all. By learning from the community, we improved our guidelines in ways that helped us and helped the community, too.”

Research shows that leaders of community groups and company managers often have deep-seated and unstated differences in how they view the world, manage time, and make decisions. These differences can make it difficult to work together efficiently unless they are brought into the open and managed. “Once we have identified a potential partner, we spend time getting to know the people, their business culture and letting them get to know ours,” said Don Davis, director, Urban and Emerging Markets, Travelers. “Only when we feel like we have an understanding and trusting relationship do we actually start to strategically plan our joint activities. It takes more time up front, but it pays off in the long run by making the partnership more effective, more efficient, and more sustainable.”

John Weiser is an expert on using business strategies to achieve both business and social goals. He has consulted widely with companies, foundations and nonprofits on this subject and is the author of “Untapped: Creating Value in Underserved Markets,” www.untappedbook.com. He is also a partner for the Branford, Conn.-based Brody*Weiser* Burns, which he founded 20 years ago.