Car Insurance

Several years ago, at a particularly stressful moment during a floundering family vacation, I spotted a filling station in Aberdeen, Wash., that seemed to be advertising refreshing caffe lattes and cappuccinos. Fancy beverages were already popular back home in New York, but they were purveyed exclusively in upscale coffee chains and restaurants. In Aberdeen, exquisite beverages were actually being sold in filling stations.

I remember thinking at the time that a “Lube-n-Latte” was one of those charming West Coast innovations that would never take root back east because East Coast natives could never get their heads around the idea of buying exotic coffees the same place they bought windshield wiper fluid.
I could not have been more wrong. Today, upscale coffee is available everywhere: filling stations, bookstores, laundromats, movie theaters, football stadiums, department stores. A $9 billion industry, coffee is now being sold at retail outlets that have nothing to do with the coffee business. And companies like Starbucks have successfully branched out into other businesses, such as selling their own line of music CDs.
What intrigues me about this cross-marketing innovation is why it hasn’t spread to even more enterprises. For example, why don’t struggling, imperiled or dying industries start selling coffee as a way of boosting sales? Take the American car industry. Steadily losing ground to the Japanese, criticized for its lack of innovation, and under fire from environmentalists, U.S. car makers have been having a hard time making a buck. The solution: Chai lattes. Unlike cars, coffee is a high-profit item that never needs to be recalled, so the trick of it is to lure customers into the showrooms by offering attractive rebates on less popular car models, and then selling them tons of coffee. Though car manufacturers will undoubtedly take a beating on the auto sales, they will more than recoup their losses by selling truckloads of Trans-Granulated Abyssinian Nectar.

What other businesses could benefit from introducing coffee to their product mix? Airlines, for sure, particularly since the friendly skies have long been renowned for their unfriendly coffee. Linoleum installers, without a doubt, could attract more walk-in trade. And how about unloading some of that excess fiber optic capacity that got built up in the late ’90s by packaging fiber optic infrastructure with some Kenyan Blue Mountain Shade-Grown Decaffeinated? With a Ray Charles CD thrown in just to sweeten the deal?
The possibilities in the cross-marketing universe are endless. Shopping for life insurance? How about a latte? In the market for a new server? How about a cappuccino? I see you’re looking over our deluxe coffins and urns. Care for a double espresso while you’re at it?

Obviously, there is only so much coffee that any one society can consume; eventually, we will reach saturation. By the time upscale coffee is being offered to scuba divers, astronauts and inmates of federal penitentiaries, the mania may have finally run its course. But why should upscale coffee be the only product sold by companies that are not in the coffee business? For example, couldn’t walk-in discount broker-age houses start selling haberdashery designed for unusually tall men? You’ve already got the client in front of you; you can see that he’s tall. Why not have the tailor take his measurements while you’re doing the paperwork? And couldn’t mutual funds start selling stationery or party favors? And why can’t cereal makers sell closed-end bond funds at the same time?

Purists who object to the “cappucinization” of American society may protest that we will one day reach a point where literally no commercial transaction can be conducted without a cup of coffee. Oral surgeons will package coffee with root canals; private investigators will purvey venti lattes to bail-bond skippers; Amtrak will ditch transportation and turn its aging train stations into Java Huts. This is a legitimate worry. But decades ago, America switched from being a manufacturing economy to being an information and service economy, and I can think of no good reason why 50 percent of the work force should not one day be gainfully employed in the coffee-brewing sector.

Agustin “Tino” Herran’s father and elder cousin gave him a tough act to follow. After all, how do you top building the nation’s largest Hispanic-owned supermarket chain from scratch?

Simple. You take over as president of the chain, Miami-based Sedano’s Management Inc. and, on the side, build your own multi-million dollar enterprises.
Sedano’s is on the path to book approximately $400 million in revenue this year, according to Tino Herran, whose other company, General Real Estate Corp., is a $400 million firm specializing in condominium conversions. He launched the Miami-based real estate development firm in 1994 with business partner and cousin Emiliano Herran and longtime business associate James Dorsy.
“My father obviously trusts the second generation,” Tino Herran says.

Entrepreneurship is practically a requirement in the Herran clan. Armando Guerra Sr. bought the first Sedano’s store in east Hialeah in 1962 after arriving from Cuba. Manuel Herran, Tino’s father, was a savvy 28-year-old cutlery salesman before he joined Guerra to expand Sedano’s. Cousin Armando Guerra Jr., recently launched Nueva Tierra LLC, a Coral Gables-based land acquisition company.

No doubt, the 36-year old Tino grew up privileged. The Miami native and scion of a wealthy family, was groomed by his father and Guerra Sr. to become a shrewd entrepreneur. Tino graduated with a bachelor’s degree in marketing and finance from Florida International University in 1992 and quickly set about leveraging his family fortune and connections.
“Tino’s a workaholic. He is relentless,” says Angel Medina, Regions Bank’s president of Miami-Dade operations, who has known Tino Herran since 1999 and in May nominated him for induction into the FIU business school’s Entrepreneurship Hall of Fame. “It’s not about advantages, but rather being able to take those opportunities and make things happen. When you look at Tino and his background, he’s really made a name for himself.”

At age 21, Herran launched his first real estate company, Arca Developments Inc. In 1992, he formed Tire Group International Inc., a wholesaler in Miami that today exports more than 20 brands of tires to 70 different countries and generates nearly $40 million in annual sales.

But Herran’s business career did not really take off until he launched General Real Estate. The company has invested in various projects, including high-rise condominiums in Miami, shopping centers in southwest Miami-Dade’s Kendall area, and about a dozen upscale single-family homes just south of Surfside near Miami Beach. The mansions, which are in the planning stages, are expected to cost between $3 million and $12 million. Herran, General Real Estate’s president, says the firm earned about $257 million in revenue in 2004 and should generate about $400 million this year.

In late 2002, Tino joined his father, Guerra Jr., Miami developer Sergio Pino and several others to form Miami-based US Century Bank, one of South Florida’s more successful new bank launches. Regions Bank’s Medina credits US Century’s directors, which include Tino, as a major reason why, in less than three years, it has grown into a $500 million financial institution. Each director, Medina says, has “tentacles throughout the community” and keeps the bank’s interests in mind while operating their own businesses.

“Tino is a true entrepreneur in that he finds opportunities in many areas and not just in a single trade,” Medina says. “He’s able to accomplish things in many diverse areas of business.”
Tino got his first taste of business at age 14 working as a bagger and stock boy in the Hialeah Sedano’s store. Dozens more stores, including Sedano’s brand pharmacies, opened throughout Miami-Dade and Broward counties during the late 1980s and 1990s and Tino eventually became a manager to help with the company’s expansion.

Today, Sedano’s has approximately 40 supermarkets and pharmacies combined–an expansion funded by Sedano’s profits instead of bank loans, Herran says.

“We’re not crazy out there opening up 20 stores a year,” he says. “We don’t like to have a lot of debt in the company. That flows into the [consumer] pricing, so that’s important.”

Herran’s father remains chairman of the family-owned supermarket chain but has scaled back his involvement with the business. “My main objective with Sedano’s is to grow it,” Tino says. “On a daily basis, I’m looking for new locations for us, negotiating new locations for us.” Though Herran is president, his cousin, Jose Herran, runs the day-to-day operations as vice president of Sedano’s.

Tino’s General Real Estate gives him a competitive edge, he says, because he can spot a promising Sedano’s site while looking for other kinds of property. Sedano’s executives study complicated charts and US Census figures to track Hispanic population trends in the region, all to figure out where to put the next store and what products to sell there. For example, Herran says the Sedano’s Doral store sells many products native to Venezuela to cater to the area’s heavy Venezuelan population. The chain’s Homestead store, its largest at 63,000 square feet, is heavy on Mexican products because of the large Mexican community in that area.

As workers’ compensation insurance rates soar in step with medical and health-care costs, many small to moderately sized restaurant companies are self-insuring rather than paying the market’s exorbitant premium hikes.

Once the exclusive preserve of billion-dollar companies with multimillion-dollar payrolls, self-insurance increasingly is becoming an option for substantially reducing — if not eliminating — the high premium costs of workers’ comp for scores of companies.

Whether it’s a growing national chain like Papa John’s International with tens of thousands of workers, a more regionally concentrated brand like Englewood, Colo.-based Red Robin or an upscale operator like fine-dining chef-entrepreneur Jean George Vongerichten in Manhattan, a diverse array of operators are saving money by becoming self-insured.
Experts say the trend comes at a time when the cost of policies for workers’ compensation — required by law in most states to be renewed annually — have been skyrocketing for the past year and a half.

Even for operators with low claims experience and successful employee safety and training programs, double-digit percentage hikes in premium rates, sometimes as high as 50 percent, are not unheard of, according to brokers.

Although the Sept. 11, 2001, terrorist attacks — which generated from $2 billion to $3 billion in workers’ comp death-claim benefits — are one reason premiums are climbing, of greater consequence are the insurance companies’ vanishing investment incomes generated by the low premium dollars collected in the mid-1990s.
In addition, steadily ballooning medical and health-care costs, which were rising long before 9/11, have forced insurers to jack up rates to restore their reserve funds and counter a bearish stock market.

“Insurance companies have got to pay and honor their claims,” says Carolyn Gorman, a spokeswoman for the Insurance Information Institute. “But as much as people may have a hard time believing it, insurance companies live in the same economic marketplace as all of us.

“When the stock market is doing well, they use their premium dollars to invest and use the capital accumulation from those investments to pay claims,” she continues. “When the stock market does poorly and investments do poorly, they have to increase rates to bring in capital. That is the business cycle we find ourselves in currently.”

The III is an independent, Washington, D.C.-based research firm that provides statistical reports and analyses on insurance trends for government and private industry.

Gorman also notes that although there are those who like to discount the impact of 9/11 as some short-term aberration on insurance costs, insurers will be paying claims related to the attacks “for decades to come.”

Tom Thompson, vice president of risk management for Papa John’s and an active member of the National Restaurant Association’s Safety, Security and Risk Management Group, says being self-insured gives a company more control over its destiny.

“In order for us as an employer to be able to mitigate but not insulate ourselves from insurance costs, we entered what is coming to be called the ‘alternative-insurance marketplace’ with workers’ compensation,” Thompson explains. “In essence, we’re self-insured. It’s like going from the backseat of the car to the driver’s seat.

“What it means,” he continues, “is we are responsible for covering a far larger piece of the exposure internally. But on the other hand, the amount of fixed premium costs has gone down substantially, and whatever we do internally to create a measurable loss-control program improves our cost structure even more.”

Broadly speaking, the way self-insurance works at Papa John’s and other companies, brokers and risk managers explain, is that the business owner takes on all the duties of an insurance company up to a certain point and the insurer becomes akin to a reinsurer.

Although self-insurance is practiced in varying permutations across the country, the general principle goes like this: The operator absorbs the financial exposure and pays out claims on hospital-recorded employee accidents and injuries up to a certain maximum annual figure or aggregate.

Like a deductible on medical- or car-insurance policies that consumers pay before their insurers pay off the balance of the claim, the higher the annual aggregate amount of loss, or exposure, companies are willing to assume, the lower their insurance costs.

In some configurations self-insurance is “extra insurance operators buy above a certain amount of deductible.

In yet other permutations a percentage of the average medical cost related to a specific injury is paid until a grand total is breached that ushers in an insurer.

Operators and brokers say self-insurance yields its best results when companies succeed in driving down their claims experience during the year before signing up. That usually is accomplished through safety programs, better training and linking a percentage of the restaurant manager’s annual bonus to the unit’s claims history.