By Dennis H. Pillsbury
Barry Moffett probably didn't mean to start his agency and then his insurance company in what were two of the worst insurance markets in recent history, but that's what happened.
In 1976 Barry started his agency, Specialty Insurance, in Wall Township, New Jersey, after he left a partnership that just wasn't working out. "I bought out my interest and realized that I still wanted to be in this business," Barry remembers. "So I had stationery printed up and went into business." However, there was one small problem--he was in the middle of a hard market and could not get a company appointment.
"I just started dealing with specialty brokerage companies. At that time, one of the main industries being handled by these specialty carriers was the food business. I had an interest in that field so I found an insurer that had a competitive restaurant program and started working the business."
Barry wanted to do something that would differentiate him from others in the business. He realized that if he could add risk management services that would help lower the rates for his restaurant clients, he would be able to develop strong business relationships. "I had a construction background that I was able to use. At the time, a lot of restaurants were getting hit with extra charges for ducts that weren't up to standard. I was able to bring in contractors who would correct the situation and get the rate down. It saved them quite a bit of money. I did the same thing with taverns, hotels, and bowling alleys, after finding a company that would handle that business."
This went on for a number of years during which Barry was able to build up a good book of business. In fact, Royal Insurance was so impressed it appointed Specialty Insurance an MGA for its restaurant program. "It was the longest running program in the state and I was very pleased to be able to offer a stable, long-standing market to my clients," Barry observes.
But for those of you who remember the mid-'80s, I don't need to tell you what was about to happen. What has been dubbed the "liability crisis" hit the commercial insurance market, characterized by market dislocations, double- and even triple-digit rate increases, and mid-term cancellations.
The Royal stuck with its restaurant program for family-style restaurants, but the program for taverns and other food service businesses disappeared. Barry saw a need and an opportunity. He incorporated Security Indemnity Insurance Co. in 1985, putting up $1 million of his own money to capitalize the company. New Jersey, however, insisted that the company have $3.25 million in capital. "I had to raise the additional capital. We also needed to set up the reinsurance programs. We finally got state approval and started doing business in March of 1987, writing taverns, fast food restaurants and pizzerias," Barry notes.
Taking care of business
Today, Security Indemnity has a B+ rating, a significant accomplishment for a company that has been in business just under 10 years and is writing what many consider to be difficult business. Barry explains that the company's combined ratios have been consistently under 100. "We also do not get involved in the fierce competition that characterizes certain parts of the restaurant market today." Security Indemnity is licensed in four states. About 85% of its business still is restaurant and taverns, although the company also handles small contractors and small shopping centers as well.
"All the business comes through brokers," Barry points out. "Our core is the brokers that we have dealt with over the years. Because of the good relationships we have with this group, we have been able to expand the Royal restaurant program into 22 states and now have started a tavern program with Royal in states where Security is not licensed."
Restaurant programs affected when market fluctuates
Barry writes about $10 million in premium a year with the Royal program and another $8.5 million with Security. While this is a significant amount, it really reflects a decline from earlier years when competition was not so fierce. "We used to do $20 million in New Jersey just with the Royal.
He explains that the restaurant market is extremely soft, almost dangerously so. "Everyone who handles restaurants knows that they are one of the first lines that companies desert when the market tightens." Barry adds that one company already has left the line after suffering a couple of years with loss ratios in the hundreds. "But another company bought the program and discounted it another 30%. That's just crazy. Some of these restaurants are paying premiums that are so low, they wouldn't even cover one minor slip and fall accident. We just can't and won't compete at those levels. Some companies are doing things that are far worse than what companies who went bankrupt in the mid-80s were doing. They're almost giving away liquor liability. And they don't have high interest rates to bolster the cash flow," he adds.
"We offer a secure program that has consistently provided coverage in this market. It's the longest running program in the country for restaurants." He continues that "our service is the best around. We turn out quotes in a very short amount of time. If it's a rush, we can quote on the same day. That's because all of our underwriters specialize in the food service business." Barry adds that claims are paid promptly. "We have our own adjusters who understand this business. If there's a cut and dry claim, we'll cut a check the same day." However, Security Indemnity also has developed a reputation for fighting frivolous liability claims. "We end up going to court with about 90% of the liability claims. We have our own investigators and attorneys who specialize in this area. This really has helped to cut down on the number of claims filed against restaurants insured by us. We have a reputation with plaintiff attorneys and they know we won't just throw some money at a claim to make it go away. If we do run into a claim with merit, we do pay and pay quickly, just like we do with first-party property claims."
The Security program also features a unique policy--an actual loss sustained policy. The building, contents and business interruption coverages all are included with no values assigned. The policy simply pays the full amount of the loss. "There's no coinsurance and no danger of underinsurance." Barry explains that premiums are worked out on the square footage of the restaurant and average gross profits for the industry. Up to $2 million in coverage is available. Royal will be using a similar policy in the near future.
The two programs have about 1,000 restaurants and 900 taverns. "We do have an edge in that we fight claims and have better experience because of this. As a result, we can and will match any reasonable competition."
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