A Premium on Service : UniCare Builds a Strong Business Underwriting Workers Compensation Insurance

Hum a tune and Ralph Leatherby will start singing. He has sung at weddings for family and friends, and he puts his baritone voice on display at his annual Christmas party.

And now Leatherby, 63, can sing the praises of his 9-year-old company, UniCare Financial, a small but growing and very profitable underwriter of workers compensation insurance.

UniCare stock began trading on the American Stock Exchange last week as part of an effort to increase the Irvine company’s visibility--and also the price of its shares.

A high profile could come in handy if Leatherby and his managers follow up on their idea to arrange a secondary stock offering, perhaps later this year. The company will open an office in San Francisco soon and wants to raise more capital so it can expand a little faster.

Growth at UniCare, which raised $9.3 million in its initial public offering two years ago, has hardly been sluggish.

In 1986, its revenues increased 50% and its net income more than doubled. Last year, its revenues increased 33% and net income climbed 52%.

So far this year, the company has done even better. In the first six months, revenues grew 6% to $26.7 million and net income rose 32% to $2.9 million.

UniCare could have grown faster--it turned away $100 million in business last year--but it believed the risks would have been too great.

The firm specializes in one market--large workers compensation accounts. Its 110 customers, who pay an average annual premium of $450,000, include Anaheim Memorial Hospital, Four Seasons Hotels, Lusk Homes, Good Earth restaurants and Ganahl Lumber.

Workers compensation insurance, a $6-billion industry in California, might seem to be a business assured of automatic profits because the state sets the premium rates customers must pay.

But Leatherby, who has been in the business for 35 years, says it’s not that simple.

Without providing good service and keeping a lid on the potential for losses, he said, a workers compensation firm can be out of business fast.

Under state insurance laws, workers hurt on the job are entitled to compensation for their injuries. The largest companies are allowed to self-insure, but others must buy coverage either from a private carrier or through a state workers compensation fund.

Premiums vary from industry to industry, depending on the type of work. A small roofing company, for instance, may pay much more than a large bank because the risk of falling off a roof is greater than the risk of falling off a chair.

Insurance carriers try to work with their customers to identify potential job hazards and to minimize the risk of injury from those hazards. Fewer injuries mean fewer insurance claims and bigger profits for carriers, at least until premiums are reduced to reflect the frequency of injuries.

And workers compensation insurers don’t take the heat for premium increases. Rates are set by the state. The only things a good carrier can do for its customers, Leatherby said, are to provide better service and better safety controls.

Friends and customers credit Leatherby and his personable approach with building UniCare, which he started with $2.5 million of his own money, into a strong company.

Last month, Leatherby was recognized as Orange County Entrepreneur of the Year at a presentation sponsored by the national accounting firm of Arthur Young & Co. and two business publications, Venture magazine and Orange County BusinessFirst.

“Ralph is very good with people,” said longtime friend George Argyros, president of Arnel Development Co. and a shareholder in UniCare. “As an individual, he’s a very caring person.”

As a businessman, Leatherby “really understands his customer and really understands the insurance business,” Argyros said. “Even before he started UniCare, he always had your best interests at heart. That’s a wonderful attribute in anybody in the sales business.”

There is little Leatherby enjoys more than meeting people and making a sales pitch, said Elwood T. Banning, president of UniCare’s operating unit, UniCare Insurance Co.

“Ralph is the kind of guy who wants to be loved by everybody,” said Banning, who first met Leatherby in 1962. “I’ve never seen him fire anybody. That would be the hardest thing in the world for him to do. He hates confrontation.”

Leatherby is a “stickler for service” and has built his reputation and his firm on the idea of making his word his bond, Banning said.

That attention to the customer apparently is working.

The company has retained more than 90% of its customers on an annual basis, contrasted with an industry rate of about 30%, said Russell E. Leatherby, UniCare secretary and general counsel and likely successor to his father.

“We’ve been with them nine years--since they started--and that’s the longest we’ve ever been with any comp carrier,” said Peter W. Bromley, safety director for Ben F. Smith Inc., an El Monte construction company. In high-premium industries such as construction, companies tend to change their workers compensation carriers every few years, he said.

Few Complaints

He and other customers have few complaints about UniCare. They praise the company for its constant attention to safety checks and its efforts to reduce unsafe working conditions.

“They help us come up with different things to do and provide us with information about how other hospitals are doing things,” said Sharon McKay, director of human resources at Anaheim Memorial. “And they’re on top of claims processing. I feel like I’ve got something important with them.”

Workers compensation firms are supposed to visit work sites and write up reports on potential safety hazards, but few handle those chores as well as UniCare, said McKay and Bromley.

The company also has set up an advisory board that includes some of its customers, something other insurance carriers do not do, said William P. Helm, president of Riverside Steel Construction in Santa Fe Springs.

The advisory board meets quarterly to discuss UniCare’s performance, the premium rates the state is expected to set for the year and the condition of the insurance industry, he said.

It all boils down to access.

“I can go talk to Ralph, and I think the principals of other companies can talk to him too,” Helm said.

For Leatherby, the insurance business is appealing mainly because he is able to meet and work with so many people.

Singing Is Avocation

Since childhood, he said, he has been an outgoing, sociable person. He learned to sing the tunes that his sisters and aunts played on the piano. Singing became an avocation, along with reading biographies and history.

“Singing relieves a lot of stress,” he said. “I have a lot of fun with it. People who don’t know I can sing always ask me where I got my training.”

The reading, though, is a more sober pursuit. He concentrates on World Wars I and II. As a corporal in the infantry, he fought in the Battle of the Bulge in 1944 and, 20 years later, began making trips to Belgium and Germany to see the sites where he dug foxholes and where he was trapped in a house for a week.

“There are things I’d like to forget,” he said. “It took me six or seven years to get it out of my head. Going through war is a horrible shock.”

He said his visits to the sites and cemeteries are an attempt to understand what happened.

Built Gas Station

After the war, the native Iowan got his first taste of business when he built a gasoline station. Three months after he finished, he said, he sold it at a “handsome profit” and was off to football practice and business school at Iowa Wesleyan College.

At school, he quickly put what he was learning into practice. With borrowed money, he bought a restaurant near the campus in 1948 and used the profits to help his older brother through college.

After he graduated two years later, he began learning the ropes of the insurance business as he worked in an uncle’s real estate office in Los Angeles and took graduate courses in finance at USC.

In 1953 he opened Leatherby Insurance Service. Soon after, however, his wife died of polio, leaving him with a 2 1/2-year-old son and a 13-month-old daughter.

He remarried three years later. He moved his company in 1960 to Fullerton and began building what would be the largest insurance agency in Orange County. He sold his firm in 1970 to the Richmond Corp., a Virginia conglomerate.

Firm Became Subsidiary

Leatherby became Richmond’s largest individual shareholder. He continued to operate his firm, Leatherby Insurance Co., as a Richmond subsidiary.

Four years later, with 14 branch offices and 500 employees, Leatherby Insurance broke into the nation’s top 100 publicly held property and casualty companies.

He retired in 1975 at 50. But he was not through with business.

“What he always wanted to do was to start a little jewel of a company, to do it right,” said Russell Leatherby. “He kept his finger on the pulse of the industry and saw that service was deteriorating badly. And he saw a need for providing good service particularly to the larger employer.”

He founded UniCare Insurance in 1979 with the idea of limiting the company’s business to workers compensation insurance and to selling policies only to larger accounts.

Besides, the elder Leatherby said, retirement did not suit him.

“I really didn’t enjoy not working with people,” Leatherby said. “I missed that a great deal.”