Joseph Morris explains how this insurance company continues to stay competitive after 255 years by taking on risks others avoid.

While most property and casualty insurance providers would consider low-value, urban homes too great a risk, the Philadelphia Contributionship isn’t afraid to raise its hand. In fact, the company has been successfully writing urban insurance for 255 years.

The Philadelphia Contributionship for the Insurance of Houses From Loss by Fire was formed by Benjamin Franklin and fellow volunteer fire fighters in 1752. At the time, Philadelphia was a bustling city with a population of more than 2,300, but as the city grew, so did the incidence of house fires, as open fire places were widely used for cooking and heating. Franklin, who also assisted in forming Philadelphia’s first fire brigade in 1736, once advised a friend, “You may be forced, as I was, to leap out of windows and hazard your neck to avoid being over-roasted.”

Today, the Philadelphia Contributionship is the oldest insurance company in the country with nearly $200 million in capital and $120 million in premiums thanks to its willingness to take on urban risks that others avoid. “Finding a niche is a prudent strategy in the property and casualty insurance industry,” said president and CEO Joseph Morris, explaining that many view insurance as a commodity. “One policy looks like another, and you end up competing on price. With 60 employees, competing on price against some of the large, nationwide insurance carriers would be difficult. We have the expertise in underwriting and claims to take on urban business.”

Joseph Morris

“We are one of a handful of companies that still sell perpetual policies,” said Morris. For a perpetual policy, the company receives a deposit from the customer that is fully refundable if and when the policy is cancelled. Perpetual policies, Morris explained, although common in the mid-1700s, are rare today.

“We have about 6,000 policies in force. A perpetual policy is more for someone who understands the time value of money and pre- and post-tax issues because it is more of an investment decision than an insurance decision.” As a mutual insurance company owned by its perpetual policy holders, the Philadelphia Contributionship’s experiences fewer losses on the perpetual policy side than the typical home insurer would. However, most of the profit earned on such policies are returned to the policy holders in the form of dividends. “If you look at our results for 2006, almost all profitability comes from our term-insurance operations.”

Recovering revenues
2006 was a record year for the Philadelphia Contributionship. Although premiums have been relatively flat year over year, revenues from investments contributed to a strong top line, while the bottom line grew as a result of a year of mild weather. Vector Security Holdings, Inc., also owned by The Philadelphia Contributionship, grew substantially, as well. According to Morris, The Philadelphia Contributionship invested in Vector Security’s predecessor company, a residential and commercial security company, in 1982 as a way to diversify its income and later acquired 100% of it.

These record earnings come only two years after a substantial dip. Morris explained that in the late 1990s, the company, which originally did business only in Pennsylvania, expanded into New Jersey. By 2004, it finally started to see a return on investment, but it wasn’t enough to counteract the losses on its assumed reinsurance business that was written as a component of the perpetual insurance business.

“As a company offering perpetual insurance, we also participated in certain reinsurance transactions,” said Morris, explaining that a reinsurer covers other insurance companies. “We incurred significant losses related to that business in 2004 and learned the hard way that we should continue to focus on individual customers.”

Competitive advantage
The Philadelphia Contributionship’s products are distributed via 250 independent agents, who generally target urban risks in addition to suburban and rural properties. Morris explained that the company’s goal is to be the carrier of choice for these agents. “If we have the technology and processes in place to make each transaction as efficient as possible, we believe these agents will naturally place all of their high-risk urban business with us.”

Although 100% of new business is written over the Web, and the company receives positive feedback from agents on its easy-to-use portal, Morris recognizes that staying one step ahead is crucial in a competitive industry. “Although I’m proud of what this company has built, we need to take a step back, revisit the platform on which we offer our products, and make some significant investments to ensure we continue to have a technology advantage,” said Morris, who came to The Philadelphia Contributionship 10 months ago after serving as president and CEO of the Penn-America Group.

Agents are also attracted to The Philadelphia Contributionship’s financial stability and A+ rating from AM Best. According to Morris, only 8% of insurance carriers in the country have achieved an A+ rating or higher. “It speaks volumes about our performance.”

Morris noted that personal relationships play a key role in the company’s success. “Our agents can get me on the phone at any time, and they know our underwriters and other employees well because we are a local business. Agents like to know who the risk- takers are. All of these elements give us a competitive advantage over companies much larger than we are.”