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Members-Only Exchange To Provide Coastal Insurance

Hartford Business Journal - 09/28/09
By Greg Bordonaro

Florida-based Privilege Underwriters Reciprocal Exchange (PURE), a member-owned mutual insurance company, has entered the Connecticut market, where it will offer comprehensive property and casualty insurance coverage to high-value homes in the state, including in coastal regions.

Members pay a surplus contribution of 10 percent of their high-value homeowners` premium and 4 percent of their premium for all other policies for each of the first five years of membership.

Ross Buchmueller, president and chief executive officer of PURE, said the mutual model gives the company a niche in the marketplace because it doesn't have to worry about "maximizing the health of shareholders."

"When traditional markets fail to recognize the underlying cost of risk, a model like this can be far more efficient," Buchmueller said. "Mutuals transfer risk as efficiently as possible for the benefit of policyholders."

Buchmueller said the company, which uses independent agents, will target its coverage to responsible owners of well-built, high-value homes in the state. They will also look at homes in the coastal regions of the state, a market that typically faces high costs and a lack of availability of insurance.

Coastal home insurance has been a hot topic in the insurance industry for years, with many insurance companies choosing to stop writing such policies because of the increased risk. For example, in 2006 the state Insurance Department released a report concluding that there "is an availability problem for homeowners insurance ... for homes located within 1,000 feet of the coast."

Buchmueller, who founded AIG Private Client Group and served as its president until 2006 when he and his partners established PURE, said there are several reasons his company is comfortable writing such policies in Connecticut. First, they are starting from scratch in the state and have no risks here, giving them the edge over competitors.

"We have no legacy problems, so we have the ability to do things other companies can't do," Buchmueller said. "Many of our competitors have been writing policies here for decades and they don't want to add any more exposure. We will be choosing the best folks and protecting our portfolio."

Additionally, PURE will only focus on writing coverage for well-built, high-value homes starting at $750,000 and up. Research indicates those types of coastal properties have a better chance of holding up in a storm, Buchmueller said.

Their biggest competition will include property and casualty insurers like Chubb and Travelers. Buchmueller said his company has a leg up on competitors because some of the unique flexibility they provide customers.

PURE, for example, offers customized coverage options without imposing mandatory hurricane deductibles, cost-effective flexibility not easily found in coastal markets, said Buchmueller, who noted that most insurance companies require coastal policyholders to assume a deductible equal to 2 to 5 percent of the value of their home.

Under PURE's coverage, Buchmueller said such deductibles will be optional. In addition, if policyholders choose to take a larger deductible they will be able to get a discount on their premium, a norm for most types of insurance coverage, but one not typically offered for coastal insurance.

PURE will also contribute up to $2,500 to help prevent recurring losses and control the long-term cost of risk. For example, if lightning causes an electrical surge and damages electrical appliances with a cost of $10,000 or more, PURE may cover the replacement of the appliances and contribute to the installation of a lightning-suppression system.

PURE also provides auto, jewelry, art, personal liability and watercraft coverage.

Since its launch in 2007, PURE`s members have reported average savings of more than $3,200 on their annual insurance costs, Buchmueller said.

Dave Coughlin of the Norwalk-based insurance agency Pierson & Smith, recently sold a PURE policy to a client in Darien who owned a $2.5 million home. Coughlin said his client was looking to make changes in their current policy from Middlesex Mutual and found that PURE was offering comparable coverage at a cheaper rate.


Members-Only Exchange to Provide Coastal Insurance