PURE redefines the insurer-policyholder connection
Overall, the insurance industry has enjoyed a good relationship with the public for the past 300-plus years. Many commercial activities would have been curtailed had it not been for insurers being willing to assume some of the risk.
This relationship, however, has not always been a match made in heaven. In 1881, six New York- based dry goods merchants expressed discontent with insurers’ broad-brush approach to pricing. These merchants, despite their buildings being of superior construction and well maintained, were charged premiums that did not reflect their risk of loss. Ever since, like-minded individuals have been banding together to self-insure and ultimately lower the cost of their protection.
“We saw great power in combining the benefits of a specialist insurer with the structural advantages of the reciprocal.”
President and Chief Executive Officer
PURE Group of Insurance Companies
In 2006 Ross Buchmueller, Martin Hartley, and Jeff Paraschac decided to start a new kind of insurance company: one designed exclusively to provide coverage for responsible high-net-worth families. As Buchmueller puts it: “We set out to tackle head on some of the fundamental issues that existed in the industry.
“It was important to make certain that the interests of all parties be represented,” he says. Alignment of interests became a guiding principle for the trio as they sketched out the company known today as PURE, so it was important to find a model that enabled this alignment.
A key issue the men addressed was the role of capital in an insurer. “We found that insurance companies run for the benefit of otherwise disinterested shareholders inevitably underserved their policyholders,” Buchmueller notes. He and his colleagues aimed to combine their high-net-worth experience with an old-fashioned sense of mutuality.
“We had expertise in this space and had several good ideas; however, we had not decided on a structure for the vehicle,” Buchmueller explains. After exploring several alternatives, the trio decided to build a consumer-friendly reciprocal insurer in the mode of such well-known and well-respected entities as Erie, Farmers, and USAA. Buchmueller notes: “We saw great power in combining the benefits of a specialist insurer with the structural advantages of the reciprocal.” It also helped that PURE was the only insurer focused solely on the high-net-worth market, as its competitors were typically commercial insurers with a smaller portion of personal lines.
Like mutual insurers, reciprocals are owned by policyholders. Operational management is typically provided by an independently owned entity known as an attorney-in-fact. This entity provides operational support by administering policies, collecting premiums, and settling claims.
With PURE, members pay surplus contributions (in addition to their annual premiums) in each of the first five years of membership. These funds provide a steady flow of capital to PURE to support its financial strength and create favorable cost of capital, contributing to the company’s highly competitive rates. “The membership is made up of like-minded people who care about being responsible and take great care of their property, which helps reduce the cost of insurance even more,” Buchmueller says.
“It’s this shared vision, along with the capital advantages, that makes the reciprocal so successful and so cost effective. In fact,” Buchmueller says, “our approach is predicated on this concept of superior risks that are excellently maintained.” In this way, he points out, policyholders can save significant amounts of premium through superior loss prevention.
This approach allows for controlled growth, which began with a few home owners in Florida. Growth continued with underwriting of superior risks in South Carolina the following year. At the time of this writing, Buchmueller says, “PURE has in excess of 68,000 policyholders in 49 states plus the District of Columbia.” He adds: “It’s not just about planting flags; we have meaningful business in just about every state.” A key factor in the long-term success of PURE is its well-diversified book of business.
A critical element of PURE’s success is its distribution system: a network of independent brokers that have expertise in the high-net-worth market. Realizing that not all brokers will meet PURE’s requirements, Ross says, PURE established PURE Connect to provide a viable market for producers who may have only a small number of high-net-worth clients. In total, PURE has relationships with more than 750 brokers nationwide.
“We realize that it can be a challenge to ensure that our brokers are explaining PURE accurately,” Buchmueller observes. He notes that PURE employs a variety of methods to assist producers in this area. In addition to online training, PURE maintains a staff of 40 professionals located across the country to develop relationships with the broker community. Although, in the early days brokers may have asked more questions about the capital structure than about the company’s approach, PURE tries to keep it simple. “Brokers can easily explain that we are offering coverage that is often broader, service that is more personalized and prices that are lower—backed by an A- (Excellent) insurer. We don’t need to complicate things by having brokers trying to explain our advantage in the cost of capital.”
Beyond the capital structure of the insurer, Buchmueller points out the importance of culture and execution at PURE. He notes that PURE succeeds by enabling more than 500 professionals to enjoy their work, to operate with a sense of purpose, and to be accountable for their performance. “Nearly 20 years ago I started AIG Private Client Group and remember those days fondly. PURE is so very different from the AIG of the late 1990s, but I certainly learned about the importance of execution.” Its culture and reciprocal structure have allowed PURE to accomplish its overarching goal of “alignment of interests.”
Michael J. Moody, MBA, ARM, is the retired managing director of Strategic Risk Financing, Inc. (SuRF), a firm that was established to provide consulting services to captive and other alternative risk transfer mechanisms. As a regular columnist, he continues to actively promote the benefits of the ART market by providing current, objective information about the market, the structures being used, and the players involved.