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Small Insurer Focused on Big Picture

February 19, 2010

Tampa Tribune - 03/20/10
By Jim Beamguard

The hurricane threat to Florida's coastal homes is a problem the market can solve without government subsidy or taxpayer risk, Ross Buchmueller says.

His company, PURE Risk Management, started doing business in Florida in 2007 and insures homes worth $1 million or more. It is among many small, new companies selling policies in the state's troubled market.

At a time of widespread speculation that some new companies won't be able to pay all claims if a major storm hits, PURE has earned an excellent rating for financial strength - A-minus - by rating agency A.M. Best Co.

In a recent telephone interview, Buchmueller shares his view of Florida's insurance challenges.

Your company is reported to be in sound financial condition. Is that true of all the new, state-approved insurers selling policies in Florida?

It starts with a very modest operating leverage. We write less than 50 cents of premium for every dollar of surplus capital we have. A lot of companies write $100 million with $10 million (in reserve).

In most of the states, 90 percent of the carriers have a Best rating in the A category. In Florida, less than 20 percent have an A-minus or better. So there's an 80 percent chance you're insured with a company with a rating less than that.

Some insurers say rates are too low to cover the hurricane risk in Florida. Gov. Charlie Crist and others say insurers are charging far too much. Who is correct? Hurricane models are certainly flawed. If we insurers become too obsessed with the false precision of these models, we can easily lose sight of the big picture.

Even the most basic state models, the premiums charged don't cover the costs. You absolutely need a premium that will cover the costs of hurricane losses, plus fires and other losses, plus administrative costs.

To attract large companies, there must be some reasonable reward for covering the volatility. You're demanding companies put up all this capital in case something extreme happens.

If you can't charge enough money, these companies simply don't put up the capital. So they don't have the money to pay the claims. It's easy to see, with all the volatility in Florida, why the margin of error needs to be higher.

Is Citizens (the state-backed insurer) a good deal for homeowners and taxpayers?

Ultimately, time will tell. There are a lot of smart people trying desperately to propose solutions, to attract more private capital so Citizens can be a true market of last resort. Obviously, it is bigger than is ideal.

Is there a limit to how much risk you are willing to assume in Florida?

Our company is owned by policyholders. We have nearly 6,000 members across the U.S. About 3,000 are in Florida.

The homes we insure are all over $1 million. We put some restrictions on total number in any one area, and we are actively seeking members in the Tampa area.

We'll continue to diversify, adding new members across Florida. Our concern is not writing too much in the same place.

We are insuring responsible families with high value, the finest-built homes.

How do your rates compare?

We have saved members on average $3,000 per home.

A law was passed in 2006 that said Citizens was no longer going to write policies for million-dollar homes. But it is still writing them.

We would appreciate it if they didn't. Rates have been rolled back for Citizens. They are more of a competitor than we anticipated.

The major difference is in the way we handle claims. No one is going to confuse our service level with Citizens.

Small insurer focused on big picture