Crusader Cuts Back Inner-City Coverage : Woodland Hills: Since the riots, the small insurance carrier has asked the state to authorize a 25% rate increase for the South-Central area.

In the months since the Los Angeles riots dealt it $21 million in claims, Crusader Insurance Co., a tiny Woodland Hills-based firm that is one of the biggest insurers of mom-and-pop businesses in central Los Angeles, has stopped writing new insurance covering riot losses and cut 85% of its agents there.

And Crusader says it may have to cancel critical riot coverage for all 1,500 of its inner-city customers, many of which are in South-Central and are minority-owned businesses, unless California’s insurance commissioner, John Garamendi, allows Crusader to raise its rates by an average 25%.

“I feel awful about this,” said Erwin Cheldin, 61, Crusader’s president, who founded the company in 1985 and has won community praise for insuring businesses in areas that many believe are underserved. But without a rate increase, he said, Crusader can’t afford to do business in the inner city anymore.

Crusader’s plan would raise rates only for inner-city customers. Its 6,500 other policyholders in the state, including about 1,500 in the San Fernando Valley, won’t be affected.

Consumer groups contend that’s unfair. “It’s absurd to single out an area for an increase just because that’s where the riots happened the last time,” said Judith Bell, director of the Consumers Union in San Francisco.

But territorial rating isn’t unusual for the insurance industry. And Crusader is not the only insurer to pull back in riot-torn areas since last spring.

Western International of Huntington Beach, which insured hundreds of inner-city shops, was liquidated last summer after it was hit with $22 million in riot claims. And at least one other popular inner-city property insurer, AIM Insurance Co. of Anaheim, said it had stopped writing new policies in the area in the wake of the riots.

To date, Crusader is the only company to apply for higher rates because of the riots. But analysts consider Crusader’s case a litmus test, believing that other insurers will seek price hikes if Garamendi gives Crusader the nod.

Garamendi said he was still reviewing Crusader’s application, which was filed in October.

Crusader’s case has also increased concern among inner-city business owners and leaders, who have long complained about the lack of affordable, quality insurance in their neighborhoods. Because Crusader was seen as one of a few aggressive marketers in the inner city, and sold insurance liberally there, many fear its withdrawal will make it even harder for mom-and-pop operations to find adequate insurance.

“It’s going to be a very, very devastating effect,” said George Bivins, who has been selling insurance in the inner city for 23 years and is chairman of the Black Business Assn.’s insurance committee.

Sea-Keun Kim, who with her husband owns Satellite Market in Compton, has been a Crusader policyholder since 1985. The Kims pay $1,800 a year to insure their mini-market, which they bought in 1979 shortly after emigrating from South Korea. Because their store was at the heart of the riot zone, under Crusader’s price-hike plan, their annual premium could go up by as much as 50%.

“It will be a big burden,” she said, noting that insurance is one of her largest expenses. “We make enough just to eat and live.”

Still, Kim said she would rather pay a higher premium than go without riot coverage. During the riots, her market suffered more than $50,000 worth of damages from looting. Were it not for her insurance policy, much of their life’s savings would have vanished. Insurance is also important to business owners like Kim because it enables them to lease equipment, buy large shipments on consignment and obtain credit and referrals.

Crusader is the largest unit of Unico American Corp., a holding company in Woodland Hills that also provides rental-car and health insurance. Because of riot claims, Crusader lost $7.1 million on premium revenue of $16 million for the nine months that ended Sept. 30. In the same period, Unico posted a $6.4 million loss on revenue of $20.4 million. Erwin Cheldin is Unico’s chairman.

Cary Cheldin, Erwin’s son and Crusader’s executive vice president, who has also sold policies in South-Central, says he doesn’t like the idea of raising rates for just those in the inner city. But his policyholders elsewhere don’t face such big riot exposure, he says, and Crusader would become uncompetitive throughout the state if it raised rates uniformly, because big insurers can absorb such losses without raising rates. Currently, Crusader’s policyholders in the inner-city pay an average annual premium of $2,100--roughly the same as anywhere else in the state.

“We had figured we’d pay out $5 million every 30 years for a riot,” said Cheldin, 36. “But now we have to be prepared to pay out $21 million every 10 years,” a time-frame he said is the standard being used today by the reinsurance industry, which sells secondary policies to help insurance firms cover themselves against catastrophes.

Few in the industry expect Garamendi to approve Crusader’s request, although he may allow a smaller increase than 25%. But many other insurance firms based outside the state that offer insurance in the inner city are unregulated companies, and they don’t need Garamendi’s permission to raise rates. Merchants and agents say some of these firms have already raised rates.

At the moment, dozens of firms still write business insurance in the inner city. And many, including Farmers Insurance Group of Los Angeles, which may have the biggest presence in the South-Central area with 3,000 commercial customers, says it has no plans to raise rates. But even so, agents say few companies offer comprehensive property and liability insurance to as many kinds of businesses as Crusader once did.

Javier Rodriguez, an independent insurance broker in South Gate, says few firms will sell insurance to businesses that sell liquor. California Fair Plan--a state-run insurance that agents sell as a last resort--does provide property coverage, but not liability. And many carriers won’t take new businesses, while others won’t cover older buildings--such as those with fuse boxes rather than circuit breakers. Critics contend that these are often excuses to avoid policies in poor communities viewed as risky--something commonly called redlining.

The insurance industry denies those charges, asserting that the riots showed insurance is widely available in the inner city because scores of companies reported losses totaling more than $775 million. “There are plenty of players in the market and options,” said Jeff Beyer, vice president of Farmers Group, which lost about $50 million from the riots, more than any other property-casualty insurer.

Yet in a survey of riot victims last fall, the state insurance department found that more than half of the victims did not have insurance. Of the uninsured group, 45% said they could not afford to buy insurance, while another 21% said insurance was unavailable.

Charles Johnson, who has operated Skip’s Liquor in South-Central since 1974, says it has always been hard for him to find affordable and reliable insurance. A few months ago, he switched from a New Jersey insurance company to an obscure British West Indies insurer, which he admits is a gamble, because it quoted him a lower price of about $1,500 a year.

Without liability insurance, Johnson said, neither California Lotto nor the money-order system he uses would allow him to operate. “I would like a better policy but this is the only thing I can afford,” he said, noting that he nets about $2,500 a month for his family of four from his business.

The Cheldins are careful not to criticize the way other insurance companies operate. But the elder Cheldin said that during his 35 years as an independent agent in Los Angeles, insurance companies “didn’t allow me to have free access in all areas, particularly places populated by minorities. They were considered not the preferred type of business.

“I found this intolerable,” he said, noting that “my folks were poor immigrants from Russia.”

Crusader’s claims records show that it offered property and liability packages to liquor stores, cleaners, clothing shops and most other small businesses regardless of age, income or location.

And until recently, Crusader let any certified agent sell its policies, enabling it to have more representatives in central Los Angeles than such giants as State Farm. By 1990, Crusader had hundreds of policyholders in South-Central alone, where there are about 8,400 businesses, according to 1990’s census.

Following this strategy, Crusader remained profitable from 1985 until the riots. In 1991, it earned $3.3 million on total premium revenue of $19 million. But last spring’s riots swamped Crusader with 375 claims. It was able to cut its $21 million in claim losses by $5 million in tax write-offs and another $5 million through reinsurance.

The riots also brought Crusader some unwanted criticisms. Although Crusader says it has paid virtually all of its claims, at least 29 of its policyholders hurt by the riots filed complaints with the insurance department, mostly alleging delays. That was the second-highest number after Western International, which didn’t have funds to pay claims.

Cary Cheldin said delays were the result of efforts to provide a fair amount to victims--a claim that victims’ representatives generally agreed with. Recently, Crusader bought $5 million of additional catastrophe reinsurance. But Crusader was charged $500,000 in annual premium for that policy--more than double the premium quoted before the riots, said Jack Graham, a reinsurance broker in San Francisco.

Hoping not to raise rates, Cary Cheldin said he has spent much of his time since the riots drafting a proposal that would create a state riot reinsurance program, thus mitigating the need for companies like Crusader to raise premiums to cover against future riots. Cheldin is seeking a legislative sponsor for his proposal.

But he says it’s doubtful the insurance industry will back it, because the plan would require every insurer in the state to pay a surcharge if another riot occurs.