For Tony Morgan, a property underwriter specializing in earthquake coverage, the spark for his firm’s latest specialty-insurance program idea was nothing more than an interesting newspaper article that really had nothing to do with earthquakes—or even insurance.
Morgan, a senior vice president for Bliss & Glennon, a Redondo Beach, Calif.-based wholesale brokerage and managing general agent (MGA), recalls reading a few years ago a Wall Street Journal article about wine collectors—in particular, the marital squabbles that develop between husbands who collect rare vintages and wives who don’t understand why they can’t drink from the prized bottles.
The article stressed that these men spend so much money on their collections that when some marriages end in divorce (presumably not over the question of wine consumption), battles over ownership of the collection become a problem.
The need to protect such valuable property from other perils, such as fire and theft, wasn’t lost on Morgan.
“There must be an insurance angle here,” he remembers thinking. Online research into insurance offerings turned up very little—a positive development. “This is a niche nobody has explored yet,” he recalls saying to himself.
Eventually Morgan did come across a few insurers offering coverage to wine collectors, but only as part of a homeowners policy, “never on a standalone basis.” Morgan was convinced there was opportunity in the standalone niche, but he realized he didn’t have the background to know all the underwriting questions to ask. The Wall Street Journal provided help on that score, too, pointing him in the direction of Marc Lazar, a St. Louis-based appraiser of wine collections.
The two teamed up to develop online coverage available today through www.insureyourwine.com. Morgan explains that either the broker or collector can go to the website to obtain a policy covering traditional perils like fire, theft and vandalism, as well as special options like international transit coverage.
“A lot of collectors are shipping wines—buying it in Europe and sending it home,” Morgan says, explaining the popularity of the optional cover for damage or loss in transit. He says collectors storing wines in third-party warehouses, rather than their own in-house wine cellars, can also buy coverage under the program.
“We cover you for earthquake and flood—and also if you drop a bottle or if your high school kids invade your wine cellar while you are on vacation,” he says, noting that sublimits may apply in that case. Losses arising from the breakdown of a cooling system are also covered, he notes.
Premiums start at $250 for $30,000 of coverage, and the website allows collectors and brokers to bind coverage for values as high as $500,000. “They go online, fill out an application and get a premium. We double-check the information and then send a formal quote by e-mail,” Morgan says, explaining that Bliss & Glennon also specifically underwrites submissions for collections valued over $500,000.
Asked if there are any uninsurable risks, Morgan couldn’t think of any situation that would mean turning away a customer. The only problematic risk would be one located in a 100-year flood zone. “They’d have the coverage, but they wouldn’t have the coverage for flood,” he says.
Morgan says the program has 150 clients now—with only a few small losses. With the program recently getting more exposure, 50 customers were added in just the last two months, and he anticipates getting to 1,000 over time.
Morgan knew he had a winning concept, but carriers didn’t jump at the chance to write the coverage when he and Lazar first pitched it three years ago; the program is currently written in the London market.
Insurers “love programs, but tend to go to those already in place, where they can take them over,” Morgan says, explaining that the success rate is historically low for new programs. His wine one had the added obstacle of relatively small premiums working against carrier desires to add large volumes to their books.
“They want to be able to analyze the history,” he adds. “We had no history”—just a great idea and long-term vision.
GETTING PAST GO: DATA, EXPERIENCE KEY
Even MGAs with less novel ideas for turning collections of insureds into brand-new programs meet with carrier resistance, other market participants say.
“One of our big challenges was we didn’t have any data,” says Dennis Kane, president of Overland Park, Kan.-based SeaFire Insurance Services, an MGU launched in March with programs tailored to the insurance needs of auto dealers and repair shops. “It’s hard to go to a carrier and ask them for the underwriting pen without data,” Kane says.
So how does a great program idea get turned into a business reality?
Working to offset the no-data disadvantage is the combined expertise of Kane and two other principals, who collectively have 57 years of sales and underwriting experience in the business, he says, noting that the trio all hail from Zurich North America’s Universal Underwriters Group, which has a history in insuring automobile dealerships dating back to 1922.
Like Kane, Susan Rivera, president and CEO of V3 Insurance Partners, has staffed her Philadelphia-based MGA with veterans from the carrier side, also launching an auto- dealers program (for small used-car dealers in rural locations), as well as small-account programs for miscellaneous professional liability, California earthquake/difference-in-conditions (DIC) and workers’ compensation written over the Internet.
“The carriers would tell me right out, ‘We don’t like startups,’” says Rivera, recalling initial meetings over program ideas that had all been successfully done by carriers she worked with before. “That is their general feeling because it is taking a chance,” she says, going on to explain that V3 has gotten past objections since launching in 2008 by doing a lot of homework to validate the opportunities in submissions to potential carrier partners.
“Where we could, we pulled and analyzed competitor rate filings. We pulled [Insurance Services Office] data, so we could look at the loss experience” on the proposed portfolio.
“We spent hours evaluating industry workers’ comp data” for the Internet-comp program. “We put together the policy form. We had the underwriting guidelines. We had the applications all complete,” she says.
Rivera says the timing of her well-documented and passionately presented proposals—during a soft market—also worked to the MGA’s advantage. “If an insurance company really wants to get into the niche you’re talking about, they’re happy to have you take on the risk,” she says, referring to the risk of pouring money into people, technology and infrastructure. During a soft market, “they’re not investing” in any of those things, she says.
Simple economics, then, moves some carriers to take a chance. If the program doesn’t work, what have they lost? They only provided paper and did a little bit of work, opening the door for a quick exit if program goals aren’t achieved, she reasons.
THE PARTNERSHIP APPROACH
Kane says SeaFire has the advantage of support from Preferred Concepts, a privately held national program administrator set up in 1989, now backed by private-equity investment from Stone Point Capital. He reports that a conversation with Preferred Concepts’ principals Stuart Farber and Chris Treanor about “best practices for program administrators” turned into an offer to join the Preferred Concepts family, allowing SeaFire to leverage existing infrastructure.
“We didn’t have to go out and spend $1 million on IT investment. We didn’t have to hire a CFO. We could bolt onto their platform,” he says.
Farber and Treanor, with deep relationships in the industry, introduced SeaFire entrepreneurs to at least 10 potential carrier partners. Even without historical data to demonstrate profitability, they used their expertise to understand the unique risks of auto dealers—like open-lot exposure to weather-related claims—as a selling point to entice the carriers.
Another valuable talking point is the use of a limited-appointment distribution that stresses expertise as well. “We’re really looking for agents who have skill, brand and expertise and are willing to commit a significant amount of controlled business,” Kane says.
Carrier interest was high, and only two of 10 didn’t want to move forward with backing the management team. “The selection criteria for us then became time to market, systems, economics and channel conflicts,” he says, reporting that Chubb ultimately signed onto the deal as the primary carrier.
At V3, Rivera says the DIC program was the biggest struggle in terms of getting carrier support. “It always takes a longer time to get catastrophe capacity, especially as an MGA,” she says.
For all four niches she works with, she says she did some extra upfront work the summer before V3 actually started hiring to ensure ultimate carrier buy-in. “I probably visited 30-40 company executives to validate my niches before I actually built them,” she says.