Wilcox supported him, but Foster was reticent, no doubt disinclined to promote the precocious, if not pushy, twenty-one-year-old spoiled son of his former boss. Nevertheless, Howard was confident. He wrote Dottie that he was “on my way to putting across my ‘big deal.’” Before he left Omaha, National American had agreed to make him the company's general agent in California.
NEVER SIT DOWN
With the National American logo on his stationery, Ahmanson began traveling to San Francisco, San Diego, and other California cities to build his clientele. He went to New York and Massachusetts to establish business relationships with big East Coast insurance companies. His brightest prospects were the brokers who arranged mortgage loans on behalf of the life insurance companies. Howard liked working with these agents. They were the most sophisticated risk managers, so they minimized his own risks of insuring a property.31
Nevertheless, the first couple of years in business were challenging. He was spending his own capital, and the volume of business didn't keep pace with expenses. Agents for the old-line fire insurance companies in San Francisco characterized him as a maverick.32 Though he was able to get in the door with the big mortgage lenders, many were already locked into business relationships with other underwriters. As a newcomer to Los Angeles, he tried to recreate the social networks that his father had exploited in Omaha. He joined the Junior Division of the Los Angeles Chamber of Commerce and got himself nominated to the elite and sumptuous downtown Jonathan Club on South Figueroa.33 But business relationships took time to mature.
He developed a selling strategy. Visit ten potential customers a day. Make sure each is a decision maker, a vice president at least. “When you visit, stand up, never sit down, and never pass the time of day,” he later coached his salesmen. “Always leave them something they can use, and then get out.” Building a relationship was the key to Ahmanson's strategy. He said, “Never ‘point’ a new prospect.” In other words, never make a sales pitch “until you've called on him for at least a year.”34
Ahmanson proved remarkably competent at selling and controlling risk. He reported to National American that premiums earned by his California agency in the first six months of 1929 were double what they had been for the same period in 1928. More astonishing to his former mentors in Omaha, his loss ratio was barely 2 percent in 1928 and 3 percent in 1929, far below the industry average. These numbers suggested that the policies he wrote were far more profitable for the underwriter, as well as the insurance agency.35
Ahmanson also made mistakes. Realizing that his youth was a disadvantage in working with older, more experienced insurance agents, Howard hired a veteran California insurance man in the fall of 1927 to manage his network of agents. Fred Garrigue had worked in insurance in Chicago and then moved to San Francisco to be a fire insurance adjustor. After serving in the Royal Canadian Air Force in World War I, he returned to insurance.36 He worked for Ahmanson for only a short time, but four years later, after he and Howard had parted ways, Garrigue was arrested as the mastermind of a fire and earthquake insurance fraud ring engaged in attempted murder and grand theft.37 Fortunately, H. F. Ahmanson & Co. was not drawn into the conspiracy.
The close call with Garrigue underscored Ahmanson's frustration with his efforts to build his company via head-to-head competition in well-established insurance markets. Searching for greater competitive advantage, Howard focused on residential property insurance. This market was “chicken feed” to most insurance agents. Howard believed he could make it profitable if he kept his expenses low.
Howard also came up with an idea that he later said was “as simple as a safety pin, only no one had ever thought of it before.”38 When lenders foreclosed on a property in the late 1920s, the fire insurance became null and void because insurance companies feared empty houses would become targets for arson. The lenders, however, were still exposed to the risk of fire until they could find a new buyer. Ahmanson believed the insurance companies’ fears were unfounded. He reasoned that lenders, anxious to sell these foreclosed properties, would actually take good care of the buildings and that potential insurance losses would be minimal. He proposed to offer a new product—insurance on foreclosed properties.
To sell this new insurance policy, Ahmanson looked for a partner. Howard went to see Morgan Adams, the president of Mortgage Guarantee, which was the largest mortgage lender in Los Angeles. Curious about both the plan and the salesman's character, Adams said: “You seem like a bright young man. Who are you?"39
Howard explained that his father was president of National American Fire Insurance in Omaha. He may have left the impression that Will was still alive and in that position. Or he may have emphasized the substantial equity the family held in the business, his brother Hayden's role as an executive, or Howard's own experience in fire insurance dating back to the age of thirteen. In any case, Adams was impressed.
He asked Howard if he could find underwriting for his proposed venture. Howard boasted, “Of course.”40
Actually, he had no idea if the men who had taken control of National American would go along with this novel concept. Alternatively, he could approach one of the big East Coast insurance firms. Still concerned that his youth was a problem in face-to-face negotiations, he turned to the Northern Assurance Company of England. Conducting the deal by mail, he convinced the Brits and at least one other company to back him. The companies made him their general agent for Southern California and offered him the usual 15 percent commission on each premium, plus 25 percent of the company's profits on any policies he wrote.41 For Howard, this structure turned out to be lucrative. With a greater volume of business, his loss ratio rose to 8 percent, but this was still far below the industry average of 40 to 45 percent.42 Since he shared in the profits on policies written with low loss ratios, he was soon making good money for a twenty-three-year-old entrepreneur.
A year after his initial conversation with Morgan Adams, Howard was summoned back to Mortgage Guarantee. Aware of Howard's success and seeking to bring his business in house, Adams offered Howard a job and a salary of $10,000 a year ($135,000 in 2011 dollars), “which is a lot of money for someone your age.” Howard replied, “Go jump in the lake.” Offended by Ahmanson's impertinence, Adams canceled all of Mortgage Guarantee's policies with H.F. Ahmanson & Co. Undeterred, Howard borrowed $15,000 from a banker friend, made deals with four other mortgage lenders, and was soon back in business.43
Ahmanson continued to innovate in ways that threatened his more established competitors. Most fire insurance companies wrote policies for residential and commercial property. Commercial property had a higher risk, but it was also more competitive, so insurers subsidized discounts for businesses by charging excessive fees to home owners. Ahmanson focused exclusively on residential policies and cut his rates accordingly. Competitors complained that this was “unfair” competition, but they soon followed suit. One prominent Los Angeles insurance agent later quipped, “Residential premiums in this area have gone down by as much as 45 percent since that joker came over the ridge.”44
Howard recognized another unfilled niche in the insurance market in 1933 when a 6.4 magnitude earthquake slammed the Long Beach area, killing 115 people and causing forty million dollars’ worth of property damage. Many mortgage lenders were forced to take a loss when borrowers failed to pay back loans on properties without earthquake insurance. To meet this market need, Howard developed a special “single-interest” policy defined to cover only the lender if a mortgaged property was damaged by earthquake. Cleverly, Howard wrote the policy so that it required the lender to foreclose to activate the insurance. He reasoned that rising land values in the Los Angeles area guaranteed that much of the loss on the structure would be mitigated by the appreciated value of the land. Thus his insurance risk was minimal.45
Ahmanson refused to write commercial insurance.
