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Selling Luxury Insurance to The One Percent

March 8, 2016 - 03/09/16
By Steve Butler

Ross Buchmueller has a disarming habit that catches me off guard. When I ask him a question, like “Who’s your favorite artist?” he answers (René Magritte) and then turns the question on me in a friendly way. And I think to myself, “Who’s doing the interview here?” But it also gives me a clue to understanding the personality of the man who founded and runs a business that’s growing at lightning speed. In the new gilded age, Buchmueller insures the gold, essentially making his money by comforting the wealthy, issuing insurance policies for expensive houses, cars, artwork, jewelry, wine — you name it. And he says empathy is key.

Let’s face it. Most of us hate, or maybe just tolerate, our insurance companies. After all, they make money by collecting it from us and not giving it back unless they absolutely must. Buchmueller is out to convince the 1 percent, or maybe the 10 percent, that he’s a nice guy, that his company, PURE (Privilege Underwriters Reciprocal Exchange), really cares about them. Indeed, a core company value he drums into employees is: “Value empathy over everything else.”

Still, who’d have imagined that among the big, established players in the insurance industry, like Chubb, ACE, AIG or Fireman’s, there’d be room for empathy? And room for an upstart that since its launch in 2006 would be able to grow by more than 40 percent every year, to pull in over $500 million in revenue last year, starting with million-dollar-plus homes on the Hurricane Coast? His explanation: “The inefficiencies in the market are extraordinary.” That sounds more like it. All told, he has 400 employees and offices scattered across the country and has only started to tap the huge California market.

What worries him is what he saw when he worked for Chubb in the U.K.: attacks on the rich born out of anger over the lack of opportunity.

While no company in any industry can grow by 40 percent indefinitely, Buchmueller figures he’s got years of rapid growth ahead, since at this point he’s captured only 2.5 percent of a $20 billion market for luxury insurance. I caught up with him in the conference area of PURE’s headquarters, in downtown White Plains, N.Y. Behind me in the brightly lit space was a Salvador Dalí print, to the right a large print by the Chinese artist Ji Zhou depicting a white mountain in a sea of blue. (The artwork, which Buchmueller says is not extremely valuable, is meant to remind employees why they are there.)

The teddy-bear-like figure in a casual blue V-neck sweater and khakis paces up to a whiteboard to sketch out the company’s “reciprocal” structure. “It’s as close to perfect as possible,” he says, in aligning the interests of the employees, investors and the insured, known as “members.” Insurance companies traded on the stock exchange, he says, are motivated to earn maximum profits, and he cites AIG’s recent decision to cut $1.6 billion in costs and return $25 billion to shareholders in response to pressure from activist shareholder Carl Icahn. (An AIG spokesperson says it continues to invest in its growing insurance business for high-net-worth individuals.) Mutual insurance companies, on the other hand, typically lack capital flexibility or ways to motivate employees beyond salary. In PURE’s reciprocal structure, members insure one another, contribute capital and hire a related for-profit company to manage the business.

Between screening members, a reduced cost of capital as a result of member contributions and a high degree of specialization in the luxury market, Buchmueller says PURE can offer lower premiums and better service at the same time. A full 96 percent of members stayed on last year. This die-hard fan of sports teams from Boston cut his teeth in the insurance business at Chubb, right out of college. “It’s the only thing I’ve ever done, the only thing I’ve ever known,” says the dad of two teens. In 2000, the legendary former AIG chairman and CEO Hank Greenberg plucked Buchmueller from Chubb and asked him to start a luxury insurance business there. Buchmueller found Greenberg to be a highly inspirational figure, who among other things, taught him about the importance of execution. “He gave wind in your sails every day,” he says. Buchmueller says he’d likely be at AIG today had not Greenberg left in 2005.

Buchmueller says he’s highly aware that his business is thriving in part on the rising inequality of American society. What worries him is what he saw when he worked for Chubb in the U.K.: attacks on the rich born out of anger over the lack of opportunity. He’s seen angry property attacks on some PURE members, but nothing yet that amounts to a trend.

Meanwhile, his management goal is to avoid the sclerosis that infects companies as they grow, as early practice becomes an obstacle to change and adaptation, in part by hiring the right people. He values creativity over experience and likes to test applicants in ways that challenge convention, like asking them to calculate the area of a circle without using pi. He tests applicants for emotional intelligence. “The competitive advantage that we identified as starting from scratch was bigger than we thought,” he says. And, of course, there’s all that empathy.

People: Ross Buchmueller
Products: High Value Homeowners Insurance