Samuel P. Black, Jr., and John Paul Rossi. Entrepreneurship and Innovation in Automobile Insurance: Sam P. Black, Jr., and the Rise of Erie Insurance, 1923-1961. New York: Routledge, 2001. xv + 358 pp. ISBN 0-8153-2915-6, $70.00.
Because of the narrowness of the authors' focus and their methodological approach, Entrepreneurship and Innovation in Automobile Insurance may disappoint those hoping to gain significant insight into entrepreneurship and the history of the automobile insurance industry. Samuel P. Black's first-person account of his career with Erie Insurance comprises most of the text, but John Paul Rossi uses the opening section to argue for the significance of Black's career. After reviewing varying interpretations of entrepreneurism, Rossi sides with Joseph Schumpeter and equates the term with innovation. He argues that Black exemplified entrepreneurism because he developed innovative products and approaches and established an innovative culture at Erie Insurance. [End Page 164]
To help further contextualize Black's business autobiography, Rossi introduces each phase of Black's narrative with an overview of how trends in the economy, automobile production and ownership, road construction, and government regulation affected automobile insurers during the span of Black's work at Erie Insurance. As Black's personal narrative unfolds decade by decade, key themes emerge. From its inception, automobile insurance was an information-intensive business, shaped largely by such externalities as automobile ownership, usage, and regulation. The achievement and maintenance of low operating costs, high customer satisfaction levels, and a culture of innovation generated the growth, profitability, and competitive advantage experienced by such small state and regional auto insurers as Erie. Yet such companies' long-term viability also required expanding their geographical coverage and lines of insurance.
Black began his career as an auto claims adjuster in 1921 with Pennsylvania Indemnity Exchange of Philadelphia. In 1927 he became claims manager for the new auto insurer, Erie Insurance. Realizing that corporate and personal success required minimizing claims costs and maximizing customer satisfaction, he instituted such innovations as 24-hour claims service and photographing accident scenes.
During the Depression Erie Insurance survived and grew as a result of Black's continuing innovations. Because its founders had organized Erie as a reciprocal insurance company, the company was legally exempt from having to establish separate organizations and policies for its property and liability insurance lines. Black (by then a vice-president) recognized this comparative advantage and developed policies that included both types of insurance. He also made low-cost optional forms of coverage, such as glass breakage, standard policy features. To instill the importance of cost control, customer satisfaction, and innovation in claims and sales personnel, he devised new one-on-one training methods.
At the end of World War II underwriting became Black's sole focus. New laws and the rapid increase in auto ownership led him to establish Erie's first underwriting department and to formalize all of the company's various policies, rate schedules, and rules. He created unique mechanisms for recruiting, screening, training, and motivating underwriting personnel and devised cost-effective, easily used systems for processing and assessing insurance applications and renewals.
The 1950s proved frustrating for Black. Like other auto insurers, Erie faced rising claims costs and stiff competition from such emerging industry giants as Nationwide, State Farm, and Allstate. Black failed to convince his longtime associate and company president, [End Page 165] Oliver Crawford, that Erie could counter these threats by expanding its sales territory beyond Pennsylvania and by selling life insurance. The firm finally heeded his advice nearly a decade later, but Black had retired in 1961 and opened his own insurance firm, Black and Associates.
Although enlightening, Black's first-person account is also troubling. Neither he nor Rossi provide any substantive evidence for his claims, particularly those related to innovation. Black recounts events that occurred forty to eighty years ago. Are his recollections accurate and complete? Without substantiation, one is unsure. The fact that he provides no details regarding his innovations in personnel training and management and in recordkeeping only adds to the uncertainty. Like entrepreneurism, innovation has multiple definitions; one might equate the insurance policies that Black developed with repackaging or product enhancement rather than with innovation. These structural weaknesses all undermine the achievement of the authors' first objective for their work—providing credible insight into innovation and entrepreneurism.
By focusing so heavily on Erie Insurance, the authors also limit achievement of their second objective: to provide a history of the automobile insurance business. Rossi's commentary provides only cursory insight into the environmental factors that affected auto insurers. Structural changes within the industry receive little mention, and neither Rossi nor Black devotes much discussion to Erie's competitors. The authors provide little information about the structure, strategies, and activities of the large multiline, national, and regional companies that came to dominate the automobile insurance industry.
Thus, although Rossi and Black set ambitious goals for their work, their heavy reliance on an unsubstantiated first-person account and their narrow focus hinder them from fully achieving their objectives.
Christiane Diehl Taylor
Eastern Kentucky University