In response to the Liability crisis of the mid-1980s, during which capacity halved and premiums doubled, a pair of insurance companies formed to create new coverage solutions—and they ultimately grew into two of the largest insurance players in the world: Ace and XL.

Taking its inspiration from the business models forged by these two pioneering companies a quarter-century ago, Energi Inc. commenced operations in 2006 with ambitious plans to address the full spectrum of insurance, reinsurance and risk-management needs of one of the toughest classes of business there is: energy companies.

Similar to its icons, Peabody, Mass.-based managing general agent Energi is part insurance-product innovator, part underwriter, part reinsurer, part risk-management consultant and part claims manager.

Given all the services the company provides, Energi already is a “virtual insurer,” says Brian K. McCarthy, the company's founder, president and CEO.

And just as Ace and XL matured from group captives into insurance-company powerhouses, Energi, too, could eventually evolve to have its own paper on which to write risk, McCarthy says.

“We have a long-term plan to be able to evolve into an insurance company,” McCarthy says, including raising or leveraging enough capital to maintain an A.M. Best 'A-minus' rating. When that day arrives, McCarthy plans to keep his company zeroed in on the Energy sector.

And the young company whose name perfectly encapsulates its line-of-business focus has quickly become a major force in the energy space, with 124 employees handling $100 million in premium generated by 700 clients. Over the past four years, revenues have multiplied to an estimated $38 million in 2012—up nearly six-fold from $6.8 million in 2009.

BORN FROM FRUSTRATION

Energi was born, McCarthy explains, out of a clear and pressing need. Energy-company policyholders were frustrated on a number of fronts: by insurers unwilling to underwrite certain sectors of the Energy industry; by insurers flitting in and out of the Energy sector; by wildly fluctuating premiums and availability; by well-run companies being penalized for the poor loss performance of others; and by insurers not providing meaningful risk-management services and aggressive claims management.

Energi's aim from its origin has been to ease all those pain points for specific segments of the energy industry.

Energi offers numerous insurance programs tailored to different energy industry sectors: distributors of home-heating oil and other fuels; gasoline haulers; energy contractors such as power-line contractors; utilities; refractors; oil-field-services contractors; agricultural cooperatives that supply fertilizer, feed and fuel; gas and electric utilities; renewable-energy companies; and energy-exploration and production companies.

Most of the programs provide General Liability and Automobile Liability coverage; many include Workers' Compensation cover and some include Property coverage. Energi's fuel-dealer program covers all of those risks as well as D&O liability, and both its fuel and renewable-energy programs include Boiler & Machinery and Equipment Breakdown coverage.

Its popular Energy Construction Program targets a range of contractors, including those working on utilities, oil fields, wind- and solar-energy production plants and geothermal well drilling. Coverages in this program: GL, Property, Commercial Auto and Workers' Comp.

The company divides its operations mainly between two subsidiaries: insurance-program administrator Energi Insurance Services Inc. (EIS)—an insurance agency licensed nationwide—and an industrial-risk reinsurer, Energi Re LLC.

Its reinsurance component—more on that later— accounts for slightly more than half of the company's revenues; EIS generates a little less than half of overall revenues though the program-administration fees it earns.

LOWER RATES VIA BETTER RISK MANAGEMENT

The quality that sets the company apart from other underwriters in the Energy space, according to policyholders, carrier executives, brokers and company officials themselves, is its focus on safety and loss prevention as its primary means of keeping rates low.

Energi has developed risk-management programs that it can customize for each of its policyholders. And Energi's insureds must fully embrace these safety measures to become a client. Why? Because only doing business with companies that commit to following best practices limits the perils in its risk pool—a critical component of its strategy for keeping prices down for all Energi clients.

Indeed, that loss-control commitment must be evident before EIS formally binds a client's coverage, notes Justin Russo, the company's senior vice president of safety and loss prevention. As part of the company's proprietary Safety PLUS program, EIS initially conducts a compliance audit over the phone to ensure the client is “up to speed on best practices” and to assess the one or two areas where it might need assistance, Russo says.

If any red flags pop up during the phone audit, EIS sends a safety or loss-control specialist to the prospective client's workplace to conduct a compliance audit. Then EIS assists the client in developing a program to address any shortcomings, Russo says.

“We don't do it for them,” he stresses. “If we do it all for them, they won't fully implement the program.” Also, it's important for the client to demonstrate an internal commitment to the type of risk-management culture Energi demands.

“The Energy industry has substantial catastrophic risk exposure,” McCarthy explains. “That's what you have to underwrite out. The only way you can do that is by having very good and dedicated underwriting professionals. But in addition to that, you really have to have boots on the ground, loss-prevention and safety professionals [making site visits]—a lot of insurance companies haven't made adequate investment in that.”

Losses in the Energy sector, he continues, often come down to human error—and Energi's primary focus is on eliminating those incidents. “People make mistakes, and when they make mistakes, it's going to cause losses. Our organization prides itself on understanding these industry sectors, making sure that we can provide [our clients] meaningful loss-prevention and help them reinforce best practices.”

With the potential for major losses at stake, the difference between success and failure could hinge on a single catastrophe: “All you have to do is make one mistake, insure one company [that suffers a catastrophic loss], and you'll have a policy-limits claim,” McCarthy adds.

SAFETY FIRST—AND SECOND AND THIRD

Some of the safety materials with which EIS can help a client include sample driver-qualification files to better screen potential employees; pre-trip truck-inspection guidelines; strict policies on cell-phone use while driving; and guidelines on pre-construction site investigations.

Clients also have on-demand access to Energi Live, a Web-based tool designed to supplement existing safety-training programs and reinforce best practices. Through the site clients can access industry-specific training information, safety videos and risk-management documents.

Additionally, clients can connect with EIS through Energi Live for real-time and often-interactive safety-training sessions and webinars on, for example, Department of Transportation compliance, Occupational Safety and Health Administration compliance and defensive driving.

Clients say they see the benefit of this intense commitment to safety.

“Energi works to lower premiums, not raise them, by helping us [and other insureds] manage risk even better,” says policyholder Daniel Abrams, executive chairman of Diesel Direct, a Stoughton, Mass.-based mobile refueler of commercial vehicles and industrial equipment. “That [philosophy] was very attractive to me.”

Diesel Direct's insurance costs have declined steadily over the four years it has purchased coverage from Energi, despite some claims due to low-speed truck rollovers caused by poorly maintained roads, Abrams says.

Abrams adds that his company (which is also an investor in Energi; see sidebar on page 6 of this section) relies heavily on Safety PLUS and Energi Live to support its risk-management efforts. For example, the EIS materials illustrate how to reduce accidents when backing up vehicles. That's a maneuver Diesel Direct drivers often have to perform at night, the time when the refueler's customers typically need service.

INNOVATING WARRANTY SOLUTIONS FOR BETTER BALANCE SHEETS

Energi has developed products designed not only to cover policyholders' Property and Casualty risks, but it also offers programs that insure the warranties alternative-energy companies provide on their own products and services.

The Warranty program garnering the greatest interest right now from buyers is one that backstops the savings guaranteed by contractors who perform energy-equipment retrofits on buildings, says Kevin Kaminski, Energi's senior vice president of alternative-energy solutions.

The coverage is designed to help small contractors—those with $5 million to $100 million of annual revenue—better compete with much larger companies that have the balance-sheet strength to easily carry anticipated warranty liabilities and survive a few major warranty losses.

“No one else is doing the equivalent of this energy-savings warranty,” notes 37-year industry-veteran Nick Blaine, a senior vice president at Wells Fargo Insurance Services in St. Louis, one of the brokerages that works with Energi.

Another one of Energi's custom coverages insures the electric-power-generation warranty that solar-installation contractors provide clients.

These popular Warranty products are designed to do more than protect a manufacturer's balance sheet, Kaminski says. They also should assure a manufacturer's customer that a warranty, which typically covers material defects for 20 to 25 years, is worth more than the paper it is written on. For example, Kaminski notes, some customers are skittish about purchasing a warrantied product from a manufacturer that has been in business just a few years. This insurance helps to alleviate that concern.

Self-insured retentions (SIRs) for the Energy Savings and Energy Generation warranties typically amount to 5 to 10 percent of the full value of the annual savings or power production that was promised. The insurance then covers the shortfall in the value that the contractor warrantied.

The SIR for the Manufacturer's Warranty coverage is 5 to 10 percent of the cost to repair or replace the defective equipment. The insurance then covers the remaining cost.

McCarthy and Kaminski say that Warranty coverage can be an important factor in some policyholders' ability to generate sales. Kevin Foster, an Energi-appointed broker, agrees.

Foster, a commercial producer and account executive at People's United Insurance Agency in Hartford, Conn., credits Energi's Warranty coverage with cementing a deal in which energy company Dominion Resources Inc. is developing a fuel-cell facility in Bridgeport, Conn. The project is designed to convert natural gas into 14.9 megawatts of electricity: Dominion says that's enough to power 15,000 homes.

Dominion retained FuelCell Energy Inc. to build the facility. The town of Bridgeport wanted a letter of credit or a bond that would serve as a backstop for FuelCell's warranty in the event that FuelCell could not fulfill its obligations—but unlike Energi's long-lasting Warranty coverage, neither a bond nor a letter of credit provides the 10-year term that the city wanted, Foster explains.

Foster placed the Warranty coverage for FuelCell via Energi. “It was the tipping point of the project,” he says.

McCarthy foresees a booming demand for this Warranty coverage, as contractors respond to an expected surge in demand in both the public and private sectors to execute energy upgrades to buildings over the next few years.

Blaine of Wells Fargo agrees; he predicts that businesses this year will be less jittery about the economy and therefore more inclined to examine their long-term energy needs and how investing in retrofits could yield significant long-term payoffs. “I'm forecasting it will be a blowout year,” Blaine says.

McCarthy is doing what he can to promote more high-efficiency energy retrofits: Last fall, he participated with other members of the U.S. Department of Energy's Better Buildings Challenge in a CEO roundtable discussion led by President Obama and President Clinton at the White House.

ROOM TO GROW DISTRIBUTION, PARTNERSHIPS

While Energi's insurance programs are available nationwide, the company does not have an open-broker distribution system.

About 240 agents and brokers currently have access to Energi. Most of these producers are independent agents, although a few are national brokers, says Rick Metivier, Energi's senior vice president of distribution.

Energi has developed a limited, exclusive brokerage network because it prefers to be marketed by producers willing to learn about its products and services in depth and will “lead with Energi and close with Energi” during client meetings, Metivier says.

The distribution network will grow, however, and could expand to around 400 producers in 12 to 18 months, he adds.

Producers as well as clients should anticipate a different kind of relationship with Energi than they have with other insurers, says Blaine of Wells Fargo.

In an effort to strengthen client and broker relationships, “a lot of insurance companies want to take you to a ballgame—provide you some form of entertainment,” Blaine says. Energi's approach, in contrast, is all business. For example, it held a producer conference to which the invitees were able to bring clients and prospects. Sessions examined a variety of risk-management issues for policyholders.

“They're really thinking of partnering with their brokers and customers,” says Blaine. That is “really different from what I see in my other carrier relationships.”

THE REINSURANCE ANGLE

For all of Energi's success and innovation as an MGA, slightly more than half of its revenue comes from its reinsurance arm.

The Energi Re subsidiary, housed in a Delaware-domiciled captive, allows its parent to shoulder a significant portion of the risks that EIS underwrites through the numerous insurance programs it offers to the energy industry.

Although Energi Re does not have its own underwriting paper—yet—its energy clients have guaranteed-cost General Liability, Commercial Auto Liability and Workers' Compensation coverage written on the admitted paper of the captive's fronting insurer, HDI-Gerling America Insurance Co. The Chicago-based insurer, which is owned by insurance group Talanx AG of Hanover, Germany, is licensed in all 50 states and carries an “A” rating from A.M. Best Co.

HDI-Gerling retains some of the risk and reinsures the remainder on a quota-share basis to Hannover Re. Hannover Re then cedes a portion of its risk to Energi Re through another quota-share arrangement. This ensures Energi Re assumes no more than 50% of the underlying risk.

Much of the program business that does not run through Energi Re is underwritten by Hannover Re subsidiary Inter-Hannover.

Ralph Beutter, chief underwriting officer at Inter-Hannover, says he cannot predict when Energi will mature into the kind of organization that more closely resembles what Ace and XL have become. But he says he foresees “a lot of potential for Energi to grow its model further” and that Hannover Re is “looking at the opportunity to help them get to the next level.”

AGGRESSIVE CLAIMS MANAGEMENT

When a policyholder files a claim covered by Energi Re, EIS manages it aggressively, company officials say. To that end, Energi retains third-party administrator (TPA) York Risk Services Group Inc., which has committed a team of employees to Energi's offices.

Any claim exceeding $10,000 must be resolved by mutual agreement among Energi Re, HDI-Gerling and York, notes Robert Woods, Energi's senior vice president of claims management.

With Workers' Comp claims, an important factor in controlling costs is ensuring that from the outset an injured worker sees a physician pre-approved by the TPA. Policyholders can consult Energi's website for specialists in their respective areas.

EIS also focuses on its policyholders' ability to bring injured employees back to work as soon as possible. Injured workers often need to transition back to their jobs through light-duty work, and EIS requires policyholders to provide that opportunity to Workers' Comp claimants that would benefit from this approach.

Some small employers with labor-intensive businesses that do not have light-duty work available still can transition injured employees back to work through an alternative program that also results in a tax break for those companies.

In every packet of Workers' Comp material that policyholders receive, EIS explains that employers in all 50 states can direct injured employees who are ready to transition back to their jobs to perform light-duty work at a charitable organization. The employees still are paid by their employers, and those employers earn a tax break for donating their employees' time to charity.

Other types of claims are managed just as aggressively. EIS has 14 loss-prevention staff members, located throughout the country, who can be deployed to provide oversight at loss scenes, notes Russo, the company's safety and loss-prevention leader.

For example, two years ago a policyholder's fuel truck overturned on a California road, spilling about 1,800 gallons of diesel fuel in an area several hundred yards long and 4 feet wide. When the remediation contractor estimated the clean-up would cost as much as $500,000, EIS sent one of its loss-prevention specialists to the scene.

EIS ultimately negotiated the remediation cost down to $200,000. “The remediation manager said it was the first time he'd seen someone from an insurance company turn up [at a spill site] in 30 years,” Russo says.

EIS is looking into other measures to reduce claim costs as well, including developing a direct-repair network for heavy equipment. The network, which Energi hopes to have in place by year's end, would work similarly to the direct-repair networks that automobile insurers have established.

In exchange for providing a steady stream of business to a select group of heavy-equipment-repair specialists, Energi could realize a 10- to 20-percent savings in repair costs.

Special Reports /

Kinetic Energi

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