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The keys to becoming a successful specialty insurer include differentiating one's product, finding an unfulfilled market and developing expertise in that area, an insurance executive says.

Walter A. Rhulen, chairman and president of Frontier Insurance Group, discussed how the Rock Hill, N.Y.-based company developed its role as a specialty insurer during the national insurance symposium leadership conference sponsored last month by San Francisco-based Russell Miller Inc.

Today, Frontier offers 132 separate programs. Its origins as an insurer began as an insurance agency.

Mr. Rhulen said he had been "born on the other side of the tracks" as the son of an insurance agent who had successfully developed liability and property programs for resort hotels, the major business in the small resort town of Monticello, N.Y., where he grew up.

When Mr. Rhulen joined the Rhulen Agency in 1954, he decided to look for another specialty in which to grow the business and settled on summer camps. The agency later expanded into animal mortality coverage for pet owners as well.

One of the keys to developing as a successful specialist, said Mr. Rhulen, is to differentiate one's product. For instance, an insurer can charge more than average but offer more services, such as loss control and risk management.

It also is important to find an unfulfilled market, she said, and to have expertise in that market. For instance, the Rhulen Agency published a bulletin four times a year called "Camp Tips" that offered advice on topics ranging from ridding camps of vermin to screening job applicants for potential sex offenses.

By the time the agency was sold in 1989, the program had expanded from an original group of 12 camps to more than 4,000 nationwide that generated more than $60 million in premiums, Mr. Rhulen said.

Gaining association endorsements was another key strategy. For instance, in its animal mortality business, Rhulen gained the endorsement of associations such as the American Painted Horse Assn., while its camp business had the American Camping Assn.'s endorsement.

Another key element in the company's success has been its ability to expand into areas "similar or related" to the original concept.

For instance, when specialty camps became popular, Rhulen began to offer programs for gymnastics camps, which led to clubs for gymnastics and other Olympic sports. Karate programs led to tai chi, music, arts and coverages for event venues, said Mr. Rhulen. "You wind up dramatically expanding the scope of your specialty," he said.

A company also can "be successful in a line if you're nimble," said Mr. Rhulen. When the aerobics craze hit in the early 1980s, the agency was quick to offer programs for aerobic dance studios, which had good loss experience.

He noted also that in the process of doing business in the animal husbandry line, the company began offering related lines as well, including: liability for thoroughbred owners; fire loss coverage for horses at every track in the country; accidental death and dismemberment coverage for harness drivers; and coverages for whales at the San Diego Zoo; and "lions and tigers and bears, and even exotic birds."

But, the company did stumble when it decided to get into the pet insurance business, he said. It got involved in this line based on its experienced claims staff, which was used to dealing with veterinarians; a comparable program's success in England; and a population of 48 million dogs and 39 million cats, with the participation of only 0.1% needed to make the program profitable.

"Unfortunately, we were wrong on all counts," said Mr. Rhulen. It turned out that the policy involved a different kind of claimant from what the company was used to and veterinarians who were difficult to deal with. And the fact that this line was successful in the past "does not mean anything about your future business."

After three years, the program had just 1,000 policies with a 130% loss ratio and a 300% combined ratio. "It was quite a lesson," he said.

Among the criteria the insurer uses today to select programs are relatively little competition and a sufficient number of potential policyholders, said Mr. Rhulen. He added that the insurer has an open door and welcomes proposals.

Insurers that are trapped by volume requirements and an inflexible distribution system see becoming niche players as a solution to their growth problems, he said. Unfortunately, however, many unprofitable programs are now available because the insurers are not well organized.

The smaller, experienced niche player has an advantage, said Mr. Rhulen. Apart from American International Group Inc., which has a niche-oriented culture to start with, he said he does not believe major insurers will make a successful transition to becoming niche players.