How to turn hard-to-place risk into high-reward business
Every agent has them: the accounts or pieces of accounts they simply cannot place. Like a complicated medical condition an experienced internist can identify but not cure, placing a seemingly unplaceable risk often requires the help of an insurance specialist — in this case, a wholesale broker.
Take high net worth clients. The marketplace for high-value properties is limited, since not all insurers have the capacity, the expertise, or the desire to write multi-million dollar homes with valuable personal collections and to provide high-liability limits. It is very much a niche that involves customized coverages for a complex portfolio of assets, says Heather Kelly, personal insurance brokerage and underwriting manager at the Burns & Wilcox San Francisco office. These clients demand a high level of service in crafting a policy and handling claims. Not every agent has the markets to satisfy those requirements.
Enter the broker. Responsibility for finding coverage for high profile clients usually falls to large national retail agents who have strong relationships with wealth managers and tend to specialize in that business. These agents have relationships with standard markets that will write high profile clients. But what happens when a client’s reputation or claim history is beyond even their appetite?
Notoriety works against some celebrities. For example, a celeb who owns expensive cars and has a driving under the influence (DUI) arrest on their record may have trouble finding automobile coverage. Likewise, celebs who have a reputation for lashing out against paparazzi often find it difficult to secure Comprehensive Personal Liability Coverage (CPL), Personal Injury Protection and an Umbrella. Even less flamboyant personalities are perceived as easy targets for lawsuits, so they frequently require help from an Excess & Surplus (E&S) broker, especially those in the Burns & Wilcox California offices, says Kelly.
In addition, Kelly explains, homes with brush-fire potential “have become more difficult and even more expensive to insure recently due to changes in carrier appetites in California, even without major wildfire catastrophes in the past few seasons. Any home with less than 200 feet of brush clearance in a high-brush zone based on catastrophe modeling is a challenge.”
Take the case of a well-known international artist who owns a nice home in a high-brush area where wildfires have been a problem in the past. Though the home’s value is modest, the threat of brushfire makes it an extremely tough risk to place. When Kelly’s domestic E&S markets and Lloyd’s in-house MGA contract facilities could not accommodate the exposure, Kelly received a quote from the Lloyd’s open market that was too high to sell. Finally, she pushed the agent for more information, called in a favor from a colleague at a domestic E&S carrier, and got the risk placed. “Many brokers and agents don’t have a lot of experience handling these difficult risks and don’t realize the importance of certain details, so we help them along with what questions to ask of whom,” Kelly explains.
In this case, the agent went back to his client to find out more about the specific mitigation measures taken to protect the home from wildfires, in the process learning there was a caretaker on site. The agent also checked with the fire department for accurate response time. That additional information was enough to sell the risk to the carrier.
Still, even with demonstrable mitigation, wildfire risk is less welcome in London than before. Lynne Hooker, director at Miller Insurance Services Ltd., a Lloyd’s broker, calls brush-exposed risks in California “the most significant change of appetite,” explaining that Lloyd’s underwriters have seen plenty of instances demonstrating that homes in close proximity to brush are still quite susceptible to substantial damage from sparks and nearby fires. “Thus,” she says, “rates are not credited for fire protective methods as significantly as in the past, even for policyholders who have invested in the full array of mitigation measures.”
Operating in a nonstandard marketplace gives wholesale brokers and retail agents an edge in securing values that more closely match what is being insured, especially with secondary homes, says Kasey Vaughn, Branch Manager at the Burns & Wilcox Morehead City, N.C. office.
Usually a standard homeowners policy written by an admitted carrier will automatically provide coverages as a percentage of the dwelling value. For example, the policy might be written with 50 percent of the home’s value for contents, 20 percent for other structures, and 30 percent for loss of use, adding this protection regardless of whether it is needed. By contrast, “our non admitted markets establish the actual values and develop the rates off that,” says Vaughn. There may be little of value kept in a vacation home, nor another structure on the property, and the owner isn’t likely to need lossof-use coverage for a second home. In such a case, she says, “lowering the coverages to what is actually needed tends to be less expensive.”
Expertise and relationships also go a long way in the nonstandard marketplace, Vaughn says. “An agent came to us with a property on a barrier island in South Carolina that he was unable to place because the property had shown itself prone to erosion during Hurricane Hugo. While most insurers had no interest in writing it, I knew one market that would be more receptive, especially since many aspects of the property and its management are similar to another account we’d successfully placed with them.”
Similarly, a large national agent was able to place most of an account, but could not find a market for certain expensive property in the United Kingdom. “The U.K. broker I deal with has a high-net-worth division and was easily able to write the dwelling and automobile to complete the account,” Vaughn says. Executing these kinds of transactions quickly is especially important because the retail agent has already spent time trying to place the risk and needs to provide his client with good, seamless service.
The real estate market downturn continues to create Vacant Home Coverage challenges for property owners, brokers, and agents, says Matthew Brady, personal insurance manager at the Burns & Wilcox Dallas/ Ft. Worth office, noting that the vacancy market has increased 15–20 percent over the last 18 months.
With home loans more difficult to find, some property owners are renovating to remain in their homes, or to prepare them to sell later. This has opened opportunities to write course of construction and builder’s risk policies. Course-of-construction coverage must take into account the exposure to contractors and workers, while also protecting property and materials that may change value on a daily basis as work progresses. Standard markets usually avoid this type of exposure, says Brady.
Not along ago, an agent brought Brady’s office a complicated risk involving a client who bought a modest home in a Texas metropolitan neighborhood. After purchase, the existing tenant was to remain for a month, after which the home would be vacant for two months while it was renovated in advance of the new owners moving in. Ordinarily in such a case, the agent would need to secure a dwelling policy for the initial exposure, then a course of construction policy for an additional 60 days, and finally homeowners insurance after the family moved in. That would entail rewriting a policy twice in four months, an inconvenience for client, agent and carrier alike.
Working within the E&S market, though, one of his producers was able to analyze and secure a one-year policy, using two endorsements to provide seamless protection throughout each stage of risk exposure, Brady recounts.
While the domestic E&S market handles a lot of its own business, strong relationships with Lloyd’s overseas markets is a cornerstone to a broker’s success. Burns & Wilcox has maintained a successful 20-year partnership with Miller Insurance Services Ltd., including a 15-year personal insurance relationship.
Personal insurance placements include both high-value homeowners and more regular E&S homeowners risks with both coastal and, to a lesser extent, brushfire exposures in California, says Hooker. “In addition, our Lloyd’s underwriters are usually able to find creative suggestions/solutions for most distressed risks.
“It has been a great help to Miller when trying to best represent Burns & Wilcox in the Lloyd’s marketplace, to have very solid counterparts at management level within Burns & Wilcox who truly understand and accept the traits of the different syndicates and their underwriting staffs when seeking to disseminate a number of very different carrier perspectives out into the wider Burns & Wilcox network,” Hooker explains.
Burns & Wilcox, in turn, is intent on serving the distinct needs of that network, says Bill Gatewood, the company’s director of personal insurance. “Our aim is to make sure we have a broad product portfolio so brokers and agents don’t need to carry multiple wholesale relations in personal insurance. In the last 12 months, we have added some significant niche markets to our personal insurance repertoire. We now have even more placement power for hard-to-place specialty watercraft, farm and ranch dwellings, high-net-worth coastal properties with high wind or catastrophe exposures, and even properties with large earthquake and fire risks.”