Rough Notes - 10/01/13
By Michael J. Moody, MBA, ARM
It's been almost a year since Superstorm Sandy made landfall in the area between New Jersey and New York. As it turned out, Sandy became the second costliest storm in U.S. history, responsible for 125 fatalities, and over $65 billion in damages.
According to the Insurance Information Institute, about 1.5 million claims resulted from Sandy, and more than half of them were filed in either New Jersey or New York. It has, for the most part, been a slow recovery; but life post-Sandy is taking shape throughout the affected areas.
Many insurance companies and their claims departments were put to the test and, with rare exception, provided acceptable service. However, one group of carriers, specialist carriers that cater to "high net worth" (HNW) clients, demonstrated broader coverage, a more personalized claims response, and a superior level of advice that differentiated them from the traditional insurance company.
Specialist carriers are those that concentrate on niche markets—high net worth home owners, for example, whose properties cost at least $1 million to rebuild. And some HNW specialists, like Privilege Underwriters Reciprocal Exchange (PURE), further refine their business model to underwrite superior risks—the most responsible owners of the finest built homes. (For more detailed information about PURE, see "All the right moves" in the March 2011 issue.)
According to Ross Buchmueller, president and chief executive officer of PURE, one of the things that most of his company's member/insureds share is their commitment to risk management. He notes that the insurer's sweet spot is in this HNW market where insureds can see the advantages of adopting a risk management approach that rewards them via lower premiums.
Buchmueller notes that storms like Sandy remind everyone that "you can't be too prepared for these sorts of events." In PURE's case he says, "We held up very well. We have great back-up plans in place to support us in the event of a catastrophe, and Sandy certainly challenged every bit of our redundancy."
He indicates that "one of the big lessons for HNW consumers was the value of being with a specialist company that's designed to meet their needs, not just from a coverage standpoint, but also from a service standpoint. You can find evidence of this in the state insurance department where they track complaints. Complaints against specialist companies are remarkably low.
"We began to look at why that is," says Buchmueller, "and it was really quite interesting. This event challenged policy wording probably to a greater extent than any event I can think of. Let's suppose a tree falls on your house. A standard insurer will pay to have it removed. But if it falls in your yard and doesn't damage your home, the standard insurer doesn't provide coverage for it."
Specialist insurers tend to have a broader policy to help clean up trees, he notes, even if they didn't damage property, and some, like PURE, have contracts with arborists so their policyholders are among the first served. He says this is just one example where a broader approach to a loss can help the insured.
Recently, there's been a lot of discussion about hurricane deductibles. "Because Sandy was an extra-tropical event, there was some deliberation around which deductibles should apply," Buchmueller points out. In the case of PURE, if the loss was significant, they paid the full amount. "If the loss was greater than $50,000; then the deductible is waived."
An increasing number of homeowners policies include policy conditions that allow insurers to withhold a portion of the settlement to ensure that insureds complete the work first, Buchmueller explains. "Specialist policies tend not to have that condition so you're able to fund the cash faster to make sure the repair gets done in a timely manner."
Specialist insurers also differentiate themselves with their approach to flood coverage, he points out. Most homeowners policies exclude flood, making it necessary for the insured to participate in the federal flood insurance program. But frequently the limits under the federal program are inadequate. "Almost all of the specialists will include an option where you can buy 'difference in conditions' coverage that will wrap around the federal flood coverage. This provides the home owner with proper replacement cost or some coverage for contents in their basement that might not be covered by the traditional homeowners policy. We don't try to replace the federal flood policy," Buchmueller states, "but rather, we provide sufficient supplemental limits and a more seamless claim experience for the policyholder."
Another differentiator for PURE is its proactive communication with policyholders both pre- and post-storm. "In the days before Sandy hit, we sent our members an e-mail that directed them to a storm center on our Web site. It provided them with instructions on how to report a claim, shared a list of tips and last-minute precautions they could still take, and allowed them to track the storm using the same resources we use. More than 40% of our membership accessed our storm center," he reports.
As a follow-up to the e-mail, Buchmueller continues, PURE's claims team made hundreds of calls to policyholders in the path of the storm to see if they could be of any assistance. Following Sandy, they contacted members who had not reported claims to check on their well-being and see if they needed an adjuster to check on their home.
As for PURE's agency force, Buchmueller says, "We work with a select group of highly trained agents and brokers who serve as trusted advisors for their clients. Those great agents and brokers had ensured that their clients had flood insurance in place." That is one of the major differences between traditional carriers and the HNW carriers and the agents and brokers who represent them. "They make sure that customers are given the absolute best advice and that they access the right kind of companies to make sure they all had the right coverage."
And, Buchmueller says, "As much as we'd all love to take all of the credit, it's comforting to work with those agents and brokers who you know will really look after the needs and interests of policyholders." In terms of situations where agents do exceptional work and carriers provide tangible advantages Buchmueller believes that "we have a really good case study for that in Sandy."
Currently, PURE operates in 43 states, but Buchmueller notes that they are continuing to grow into other states as well. He notes that their agency system is made up of fewer than 500 independent agents and brokers nationwide. "That's been one of our keys," he says. "Had we decided to appoint twice as many agents, we would have grown faster. But by maintaining the discipline to work with fewer and develop deeper relationships, that makes our success more sustainable." Further, he says that a by-product of that is that they have fewer concerns about members' satisfaction. "We are very confident that our members are being served well by this select group of agents. Whatever means we use to gauge member satisfaction—net promoter scores or surveys after claims—we understand that having this smaller, select group of independent agents is a key ingredient to our long-term success."
Understandably, Buchmueller points out, the better coverage, service, and advice offered by HNW carriers come at a cost. However, he says, research has shown that PURE's rates are often equal to and in some instances lower than those of traditional carriers. "We pay attention to getting values right. It takes a high level of expertise and experience to get home values correct, especially for historic homes and those with unique fixtures and finishings. Our appraisal service documents that, in the event of a loss, it would cost substantially more to rebuild. So our values tend to be a bit higher and our rates may be closer, thus making the overall premium higher."
Superstorm Sandy was a test for many insurers. Some came out increasing their brand, while others did not fair quite as well. For specialist insurers like PURE, Sandy was an opportunity to quickly showcase the better coverage, responsive claim service and superior advice they provide to HNW families. All of the preplanning that PURE did was simply part of its winning formula. At the end of the day, their brand was enhanced due in large part to the care and dedication of its agents and brokers, as well as PURE's internal staff. And as with most cultures, the philosophy emanates from the "tone at the top."