Revenue losses were the new normal in 2009, when some of the most recognizable companies in the Capital Region posted double-figure decreases, yet two family-owned life insurance companies had one of their best years.
Still, Starmount Life Insurance Company and Guaranty Group are prepared for another tough year, as continued economic gloom coupled with uncertainty from health-care reform pervades their markets.
“Most of our competitors are these huge, monolithic companies,” Starmount President Erich Sternberg says. “We offer the same competitive pricing that our competitors do, but we do it with a family touch, and with a faster turnaround.”
Starmount experienced an 11.9% revenue increase, from $53.3 million in 2008 to $59.7 million in 2009. Guaranty, meanwhile, had an 11% increase, from $105.1 million in 2008 to $116.7 million in 2009.
The majority of business done at Guaranty Group, an 84-year-old company, is life insurance; less than 15% of its revenue comes from radio broadcasting.
Guaranty owns five radio stations, including classic-rock WDGL-FM [98.1], new-country WYPY-FM [100.7], new-rock KNXX-FM [104.9] and country-legends WTGE-FM [107.3]. The company’s life insurance business had so much revenue that it more than compensated for a 20% drop in radio advertising.
Guaranty President John Lancaster says companies like his benefited from the stock market collapse last year because people were afraid to invest their money. Bank interest rates fell to about 1%, which was far less enticing than life insurance annuities that offered 3% returns.
“People were scared to get back in the markets,” he says. “People who lost money in the stock market were looking for a safe place for money.”
Guaranty, which has 30,000 policyholders in more than 30 states, has enjoyed double-digit growth, but the company has tightened its belt in order to prepare for potential setbacks.
Lancaster predicts that 2010 will be the first year in recent history that revenues decrease about 15%. He says people expect rates to increase and are hesitant to make a 4- to 10-year commitment to life insurance companies until the economy improves.
“Overall, life insurance and annuity companies benefited from 2009, but our policyholders lost,” Lancaster says. “Our rates are still very low, and we hope they don’t stay that low. This year, they’ve gotten so low we probably won’t have as much in 2010 as we did in 2009. Rates are so low that people are just saying, ‘Why not hide it in the mattress or in the backyard?’”
Starmount was launched 28 years ago by Hans Sternberg, the former Goudchaux’s owner who sold term life insurance to loyal credit-card customers. The company now offers ancillary group insurance through AlwaysCare Benefits for dental and vision coverage, but not regular medical. Employee benefits now account for about 80% of the business.
Starmount—the English translation of the German name Sternberg—has bucked recent economic trends. In May, Starmount moved into a 24,000-square-foot headquarters on Goodwood Boulevard, almost double the size of its previous building. Meanwhile, the company’s workforce grew from 160 employees to 173, and it recently launched two new plans offering additional coverage for extraneous expenses related to serious illness or injury.
In a down economy, Sternberg says, many businesses that offer health insurance choose to drop ancillary coverage. But, he adds, Starmount has maintained a loyal clientele that offers volunteer coverage to employees.
“We consider ourselves very fortunate this year,” says Erich Sternberg, adding that the company is on track to maintain its double-digit growth into next year. “But we also believe that we make our own luck.”
Health-care reform could have a twofold effect on companies like Starmount and Guaranty in the coming years. Like all small-business employers, they await changes associated with offering coverage to their own employees. Additionally, insurance providers could be sorely affected by other aspects of the contentious plan.
Sternberg says it’s been difficult to gain new clients amid uncertainty over what might happen in the near future.
“People are unnerved by the economy, and they’re unnerved by legislation,” he says. “Even if you make a really compelling economic case for them, lots of people will sit tight because they don’t know if making a change will be worthwhile.”
A provision in the reform bill that offers federally funded long-term care also could create some competition for life insurance companies like Guaranty, which offer community living assistance.
“That means consumers will have more exposure to it, so at first we may sell more,” Lancaster says. “But in the long term, you can’t compete with the government, and we’re going to have to distinguish ourselves.”
The companies plan to increase their out-of-state efforts and develop new product lines to incur growth.
“When I first started in this industry, there were 2,400 life insurance companies,” Hans Sternberg says. “But today, there’s less than 1,400 life insurance companies. The erosion of it speaks to the competitiveness of the industry and proves that you have to stay nimble.”
