Diversity Aids Insurers Through Slowing Economy

After unprecedented growth over eight decades in the commercial insurance sector, Tulsa-based Rich & Cartmill Inc. faces one of its toughest challenges.
It is a tricky balance for the company. Traditional industries like energy and manufacturing struggle, yet Rich & Cartmill benefits from an expanding health care sector and bond writing for all the road construction going on in the Tulsa market.
Tulsa Business Journal sat down with Rich & Cartmill executives at their offices at 2738 E. 51st St., Suite 400 to discuss the agency and the economy. In attendance were Rick Brattin, chief operating officer; Raymond Hale, vice president; Russ Keller, vice president; Richard Teubner, CPCU chairman emeritus; Richard Cantrell, associate CPCU, CICl; and David Morgan, associate. Cantrell, a former risk manager with Exxon and native Tulsan, and David Morgan, who in his career launched Toyota dealerships in Tulsa and Oklahoma City, recently joined the firm.
The Big Slowdown
Tulsa has weathered the economic storm for 12 months but appears to be suffering the effects of the slowdown.
“We are seeing the economy slowing in Tulsa,” said Brattin. “And Tulsa more than Oklahoma City. We’ll see a contractor that had 30 plumbers last year has 15 now. Their premiums are lower; their costs are lower. And that has an impact on us.”
Revenue trends through the first half of the year indicate Rich & Cartmill could end the year flat or worse, said Teubner.
“A typical year sees 10 percent to 15 percent revenue growth. This may be the first year in which we may not have the same revenue growth as normal, however it is way too early to tell at the half year mark,” Teubner said.
The privately held company declined to disclose any figures.
Unlike the Dow Jones Industrial Average, which many say predicts the economy six months ahead of time, the insurance industry lags behind the rest of the economy, Brattin said.
“Last year premiums were bigger, commissions were bigger,” he said. The regional insurance company, which serves clients in Oklahoma City and Tulsa, Missouri, Colorado and Kansas, has 45 insurance agents in the firm. The company remains much as it did when John R. Cartmill and Irwin D. Rich launched the firm in 1922.
Rich & Cartmill’s business is directly related to the availability of money, said Morgan.
“Our people are saying banks are not loaning,” he said.
Anything that keeps clients from growing worries them, Brattin said.
“Our business does goes up and down. We trail the economy,” he said.
The firm mirrors customers’ business, said President Vaughn Graham.
“As they fluctuate with the economy, so too will we, but our goal is always to help our customers manage both the good and the bad times as we have since 1922.”
Diverse Market
Rich & Cartmill is not alone. The insurance sector is feeling the pinch. The property/casualty insurance group has been like a cat with nine lives, enjoying a long profit streak. But cutbacks and belt tightening by clients have hammered the sector. Restructuring and insurance costs combined with falling revenues hurt insurance companies. Many struggle with lower stock prices and low interest rates.
Rich & Cartmill officials blame the tightness in the availability of money for the slowdown.
Since last July crude oil and natural gas prices have plummeted, although oil has rebounded some. Natural gas remains low, however. Natural gas prices generally increase as the economic outlook improves, but spot market prices are hovering near $3.50. Crude oil is in the in the mid-$60 range.
Using anecdotal evidence, Cantrell cited an exploration and production company that drilled three 10,000-foot wells in 2008, “but plan to do nothing this year because of the price of natural gas.”
But the insurance firm “does not keep all our eggs in one basket,” he said.
“Right now petroleum is not as big as it used to be. Drilling is down. Funds for production are down,” Teubner said. “But home health care and nursing homes are growing.”
Stimulus cash going to fund road construction in the Tulsa market is helpful. Contractors are widening I-44 at the Arkansas River for nearly $40 million and in the last half of July work started on the $75 million replacing of the Inner Dispersal Loop downtown.
“Contractors are active in the commercial construction as money pours into the market through stimulus funds,” Teubner said. “There are going to be more jobs in Tulsa and Oklahoma City because of the increase in construction.”
Brattin agreed.
“We are not a specialty company. Even when oil and gas is not booming, overall we continue to grow because different segments are doing well,” he said.
Teubner said Rich & Cartmill has not only survived but also thrived because “we never felt that our activities were limited to one industry.”
For the industries in Oklahoma, workers’ compensation insurance costs remain a hot topic among their clients.
“That is the thing we hear more than anything else,” Tuebner said.
Oklahoma has always had higher workers’ comp rates because of the risks associated with the drilling industry.
Research indicates that the rate of permanent partial disability payments in Oklahoma is nearly twice the regional average and the average lost-time claim frequency is 60 percent higher than the national average, according to the Oklahoma House of Representatives.
“We have more activity in the petroleum sector because we have, on average, a lot more high risk categories,” Tuebner said. The lowest rated workers’ comp state is Indiana, he said. “And they do not have a single oil drilling contractor.”
The Oklahoma House of Representatives is performing a study this summer on workers’ compensation reform proposals. State Rep. Dan Sullivan and state Rep. Mark McCullough, are two of several looking into the matter. Sullivan, a Tulsa Republican, chairs the Economic Development Committee and author of the lawsuit reform law passed this year.
The measure signed into law this past spring reforms the state’s civil justice system. Damages for pain and suffering are capped at $400,000. Court shopping of class-action lawsuits is restricted.
It could take four to five years before any real benefits could be seen, Teubner said.
Growth Seen
Rich & Cartmill’s Oklahoma City office, open 20 years, has developed its own presence.
The company remains as an icon for independent insurance. The firm’s growth in coverage and types of clientele reflects its reach throughout Oklahoma and its bordering states: Missouri, Kansas and Colorado. Trends in the insurance in the industry include consolidation, the growth of kinds of insurance offered and the way companies handle the administration of policies and claims.
“There is no change in the product,” Tuebner said. “The product is the same. The change is how it is administered.”
Computerization means agents have to process more, not less paperwork, he said.
“Companies require us to do more,” he said.
The growth is information technology has allowed companies to come up with more types of insurance, Brattin said.
“As times change, we have change also,” he said. Data storage and disaster recovery are two growth areas.
“This is new to us,” he said. “But you have to be able to understand any kind of information technology, any loss of data or proprietary information.”
Green technology has potential, as the company insures a Texas bio diesel plant, said Morgan.

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