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Insurer Goes After Property-Rich Niche

May 26, 2007

Orlando Sentinel - 06/27/07 By Anika Myers Palm

Although some larger private insurers are finding ways to reduce their exposure to risk in Florida, Ross Buchmueller thinks there's room for a property and casualty insurance startup in the nation's most hurricane-prone state.

He has started Privilege Underwriters Reciprocal Exchange, a property insurer that covers homes with values of more than $1 million.

"The idea was that there is a lack of competition and alignment in Florida," Buchmueller said.

Some insurance companies -- reeling from the costs of paying for damage from the hurricanes of 2004 and 2005 and claiming that state regulations prevent them from charging premiums commensurate with the risk the companies take in issuing policies to Florida homes -- have limited the number of policies they have in the state or have left entirely.

Doing business with the rich would seem to be the best job in the financial-services industry, but Buchmueller said the 100 or so policies Plantation-based PURE writes each week are actually filling a void.

Although financial planners, banks and wealth consultants clamor to service the accounts of the wealthy, "there's not many people who want to insure wealthy families' properties," he said.

That's mostly, he said, because many of Florida's very wealthy live along the state's storm-vulnerable coasts. Even Florida's 2004 and 2005 hurricanes didn't scare him away. He said the homes in his target market -- large, well-built houses on the coasts -- mostly survived the storms with few scratches.

But where others saw too much risk, Buchmueller, formerly president of AIG Private Client Group, saw an opportunity to write policies to cover the homes, art and jewelry of the clientele he had come to know so well.

"I was beginning to think that the agents in Florida didn't really care," said Nancy Greene, who owns a home in Merritt Island.

Frustrated with the cost of her coverage from another insurer, she read a flier she received from PURE and decided to call.

What she heard from one of the 55 agents in the state who have placed business with the startup company -- that she would save thousands on her homeowners coverage -- was enough to make her choose PURE.

"I'm not one to insurance hop," she said, but "anything was better than what we had."

PURE's attractiveness to clients such as Greene could grow next year, when state-backed Citizens Property Insurance is scheduled to end its coverage of $1 million-plus properties.

In parts of the insurance industry, there's a bit of surprise that PURE and the other seven new property insurers that have entered Florida since Jan. 1 are eagerly stepping into the state's property-insurance fray.

"The ones that are coming into Florida have a very high tolerance for risk," said Julie Pulliam, a spokeswoman for the American Insurance Association, a trade group of large insurers. "Definitely a lot of our companies are pulling out."

Buchmueller expects to expand his insurance for high-end homes in 2008 to a handful of other states, possibly in the Northeast.

Like the company's other policyholders, Greene didn't just buy a policy from PURE. She's also a member. PURE members pay a surplus contribution of 10 percent of their homeowners premium every year for five years. At the end of each year, if any profit remains after the company has paid its losses and expenses, that money is returned to the members as credits or dividends to subscribers' savings accounts. The accounts belong to the members but can be used by PURE as surplus.

"It gives us a constantly growing low-cost source of capital," said Buchmueller, citing a successful similar program at USAA Worldwide Insurance as inspiration. PURE has $50 million in surplus capital now, he said.

The membership method isn't one he had to work hard to sell to his target market.

"We're also dealing with a fairly sophisticated buyer who is perhaps more sensitive to the financial strength of an insurance company," he said. "We felt they would appreciate our efforts."

Anika Myers Palm can be reached at [email protected] or 407-420-5022.

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