Palm Beach Daily News - 06/10/07
By Stephanie Murphy
A niche insurer writing new property insurance policies in Florida would appear to be swimming against the tide of companies fleeing a state mired in the hurricane losses of recent seasons.
But the founder of Privilege Underwriters Reciprocal Exchange is confident of his innovation, called PURE Risk Management. And Palm Beachers are among the 1,000 policyholders who like what they hear about the brainstorm of Ross Buchmueller.
Calling itself the first property casualty insurance firm dedicated exclusively to high-net-worth clients, PURE's target customer owns high-end houses, cars, jewelry and art. The company started writing policies earlier this year on properties valued at $1 million and up.
"We're a very selective company. We only insure large, well-built homes, and we have a sufficient amount of capital" to cover losses, Buchmueller said.
"As we start hurricane season, we do so with more than $50 million (in absolute capital), which is pretty good."
There is also "relative capital" from a surplus, based on the amount and type of risk.
Members pay a one-time surplus contribution equal to 50 percent of the first-year premium for homeowner's coverage and 20 percent of the first-year premium for autos, jewelry, art and personal excess liability coverage.
At the end of each year, the company will deduct losses and expenses from the collected premiums and put the balance into either dividends or credits to the subscriber's savings account.
"PURE is unique, because it will be owned" by members, Buchmueller said.
He's buying reinsurance from major international players to cover 75 percent of potential losses.
Coverage tailored to the affluent customer also comes at significantly lower costs, Buchmueller said.
Windstorm deductibles range from 2 percent to 25 percent of the home's rebuilding cost.
Jewelry insurance premiums are half the cost of the competition.
Auto insurance is especially competitive for households with more cars than drivers.
The average premium is about $10,000, compared to $17,000. He based the average on a sample size of "several hundred."
Old model, new twist
The company is based in Plantation, with underwriters in White Plains, N.Y. (www.pureinsurance.com).
Buchmueller founded AIG Private Client Group in 1999 and was its president until last year. He previously spent 12 years with the Chubb Group and was senior vice president of Chubb Insurance Co. of Europe.
That background makes customers willing to hear about the new product, said Charlie Kilvert of Claude D. Reese Insurance in Palm Beach.
"This is the best thing I've seen in the insurance industry," and it came from "the lead dog at AIG. He's very conservative," Kilvert said. "I know the guys at PURE and I know the reinsurers."
Kilvert, a veteran from Marsh McLennon in New York, said the industry needed a new idea.
"This is fresh thinking, an old model with a new twist," he said. "We have to be open to flexible possibilities and options. It makes the insurance oligopoly consider alternatives and sharpen their pencils."
Clients have responded, Kilvert said.
"It's like a snowball going down a hill: more and more calls as people have heard about it," he said.
Part time Palm Beach resident David Ulrich bought a PURE homeowner policy two weeks ago, he said. His agent is Scott Lasswell of the Ray Celedinas Group, one of 50 agencies that PURE selected statewide.
"PURE offered a type of policy that was comprehensive. It included wind and property insurance," said Ulrich, a 30-year veteran of the insurance business. "I'm familiar with the business model. Other companies do charge through the reserves, which affects your rates. This is set up to assess you a fee, but they have reserves for losses. It's a more outfront fee."
"We're highly selective regarding who we let in the club. You have to be a good risk," said Martin Hartley, chief operating officer of PURE, who spoke recently at The Colony.
Palm Beach customers, especially, are finding the jewelry coverage a bargain, Hartley said.
"We bring some sanity to the pricing," he said, citing a client who had been paying $20,000 to insure jewelry and was thrilled to cut that to $7,000. "Jewelry coverage costs as much as a house (policy)."
Buchmueller agreed, referring to a client with $1 million worth of watches.
Jewelry "is an extremely overpriced class of business," Buchmueller said. "The cost of jewelry insurance (with PURE) is less than half."
Being able to survive storm damage is the crux of the challenge, both for insurance firms and property owners, said Robert Hartwig, president and chief economist for the Insurance Information Institute in New York.
"I applaud anyone working to find innovative ways to provide some coverage in Florida. There are some inherent difficulties operating there. ... At any time, if a storm comes through and does $100 billion in damage, you have to have a business model that survives," Hartwig said.
Other firms offering policies are also highly selective, he said.
"The difference is, Privilege is organized as a reciprocal ... similar to a mutual insurance company. Kind of like, 'we're all in this together.' It's likely to be a very, very small player," compared to Citizens and State Farm, he said.
If the company succeeds, it will be because it has enough reinsurance in place, Hartwig said.
"And spreading their risk, so they are not too concentrated in any one part of the state," he added.
Collier County is the firm's largest market so far, followed by Palm Beach County, Buchmueller said.
"We're delighted with the distribution," Buchmueller said. "Business is east, west, inland and coastal. We have no significant aggregation in any one ZIP code or county."
PURE has "no profit motive, if it's owned by members," Hartwig said. "But that's not the biggest issue in Florida. It's being able to survive. Some smaller companies have gone under in the past. We'll have to see."