Chris Watson is president and chief executive officer of Gulf Insurance Group.
From successful standard carrier to innovative, focused specialty insurer: That's the path being taken by Gulf Insurance Group, which dates back 60 years and which now is offering both depth and breadth of expertise in some carefully selected specialty markets. How and why did Gulf decide to make this transition? To find the answers, we'll talk with Gulf's president and chief executive officer, Chris Watson, as well as with senior executives who have responsibility for the insurer's major specialty divisions. To learn where the company is going, first we'll discover something about where it's been.
Founded in 1940, Washington Fire & Marine Insurance Company in 1968 changed its name to Gulf Insurance Company. From 1976 to 1986, the insurer was owned by Control Data Corporation through its subsidiary Commercial Credit Company. In 1987, many of Gulf's current staff, including president and CEO Watson, joined the company and began to transform it into a specialty lines group providing directors and officers liability, errors and omissions/professional liability, entertainment and sports coverage, fidelity, surety, and many other specialty risk products and programs. That same year, Primerica Corporation was acquired by Commercial Credit, which then changed its name to Primerica Corporation.
In 1993 Primerica acquired Travelers Corporation and changed the Primerica name to Travelers Group. Two years later, Travelers Property & Casualty Company purchased Aetna Property & Casualty, and in 1997 the specialty lines division of Travelers Property & Casualty was merged into Gulf Insurance Group, creating a $1 billion specialty lines facility. To the Gulf portfolio, this transaction added property, hard-to-place casualty, health care, transportation, additional professional liability coverages and programs, and increases in umbrella and excess liability capabilities. Also in 1997, Gulf established a subsidiary in London: Gulf Insurance Company UK, Limited. Finally, in 1998, Travelers merged with Citicorp to create Citigroup, the largest financial institution in the world.
To a considerable extent, as you can see, the story of Gulf is also the story of the insurance industry's intense drive toward consolidation over the last several years. Despite the dizzying pace of acquisitions and mergers involving its parent, however, Gulf continued to honor its mission by carving out a distinct identity in the challenging specialty lines marketplace. The insurer maintains independent ratings of A+ (Superior) from A.M. Best and AA from Standard & Poor's, as well as being listed by Ward's Financial as one if its 50 Best Practices companies. Focusing on other than mainstream insurance needs, the Gulf Insurance Group has achieved wide recognition as "The Travelers Specialty Solution."
Fast and flexible
Within the vast Citigroup empire, Gulf operates as an autonomous organization. Through its U.S. and UK subsidiaries, the insurer offers both admitted and nonadmitted capabilities, allowing it to launch new products and programs quickly and to provide tailor-made coverage when required. Gulf recognizes that strong agency/brokerage relationships are essential in the absence of a complex and expensive branch network; to that end, producers work directly with the insurer's decision makers.
Gulf offers a broad and diversified portfolio of products and programs in its carefully defined specialty markets. Most of its products are distributed on a direct basis through retail independent producers. In other cases, program administrators provide underwriting, service, and policy issuance for producers on Gulf's behalf. For a few specialized programs, the insurer looks to a designated wholesale distribution system.
"We pride ourselves on being an open brokerage company," says president and CEO Watson, who joined Gulf in 1987 when it was beginning its specialty lines initiative. "Any agent can gain access to our facilities; no contract is required." A retail independent agent, he explains, can work either directly with the insurer or through its designated program administrators. About 60% of Gulf's business is written on a direct basis, with the remaining 40% being program business.
"We pride ourselves on being an open brokerage company," says Gulf CEO Chris Watson. "Any agent can gain access to our facilities. No contract is required."
Diverse portfolio
Among the specialty products Gulf offers, Watson says, about 40% is financial services coverages like D&O and professional liability; the insurer also offers bankers blanket bonds for financial institutions and mutual funds. "Sports and entertainment is another very strong class for us," he observes, noting that Gulf insures such high-profile clients as the Dallas Cowboys and Carnegie Hall. "We're also a major player in trucking and transportation, and another market-leading product line is umbrella business." (See the sidebar on the facing page for a complete listing of Gulf's "Menu of Specialties.")
Cindy Broschart, senior vice president, heads up Gulf's entertainment/sports division based in Dallas.
A key to success in these and other specialty lines, Watson emphasizes, is underwriting expertise. "Our underwriters work directly with our agents to produce business that meets our standards," he explains. "Our philosophy is to hire the best underwriters and give them the tools they need to do their job." So far as both agents and insureds are concerned, he continues, "Service is our benchmark. We're a firm believer in delivering a superior package of product, underwriting, claims, and service. We want to be sure our insureds and our agents have everything they need; we don't just take their premium check and say, 'See you next year.' " Is this approach successful for Gulf? "Very much so," Watson responds. "We get high praise for our service and our turnaround time."
For an up-close look at some of Gulf's key specialty operations, let's turn now to the senior executives in charge of the insurer's largest specialty divisions: entertainment/sports, trucking and transportation, and management liability.
ENTERTAINMENT/SPORTS
Heading up Gulf's entertainment/sports division is Senior Vice President Cindy Broschart. Based in Dallas--Gulf's former home office--Broschart joined the insurer in 1977, right after college. She worked her way up through the ranks and now directs a staff of 34 employees in her division's three regional offices, in Dallas, New York, and Los Angeles. Total premium volume for her division is about $60 million. "Each regional office has a regional manager, two or three underwriters, and a support staff," Broschart explains. "The offices are very self-sufficient; they can handle probably 90% of the business that comes into them."
Like Watson, Broschart believes that hiring top underwriters and giving them authority and autonomy is a key to success in her volatile specialty. "Clients in the entertainment field need quick turnaround--insurance is often the last thing they think of. We hire people who know what to do and give them the authority to do it."
Let's take a quick tour of the sub-specialties within Broschart's entertainment/sports division:
* Film: movies, TV, videos, commercials, lighting, sound, stage, equipment rental, caterers, supporting subcontractors
* Music: performers, concerts, transportation, ancillary support
* Performing arts: live performances: ballets, symphonies, operas, Broadway shows
* Venues: stadiums, arenas, convention centers
* Special events: travel and security for trade shows, conventions, traveling exhibits. "We do almost anything from a one-day art festival to the traveling Bill of Rights tour; we've insured political conventions and even Clinton's inaugural," Broschart says.
* Sports: professional baseball and football, minor league hockey
* National sports governing bodies: skiing, swimming, diving, and other associations that work with the Olympic Committees
For each class of business her division writes, Broschart says, Gulf provides the spectrum of coverages: workers compensation, general liability, property, inland marine, commercial auto, and umbrella.
Although Gulf's entertainment/sports division insures a lot of household names and famous faces, the insurer isn't devoted exclusively to big-ticket clients, Broschart emphasizes. "We take a lot of pride in working with smaller risks--someday they may be Spielberg," she comments. "When it comes to startup risks, if they have adequate financial support, we'll take a look. Bigger isn't always better!"
Kevin Smith, executive vice president, heads up Gulf's transportation and trucking operation, based in Hartford.
How does Broschart view her division's relationships with agents and brokers? "We have very strong relationships, because we deal directly with agents. By the same token, it's comforting to agents that they're dealing directly with a carrier. Whether the issue is underwriting, claims, premium audits, or accounts receivable, the agent is talking one-on-one with a Gulf decision maker. Our regional offices have the expertise to make good decisions and the authority to make those decisions quickly."
Longevity and stability
In today's volatile market, standard insurers are eagerly entering specialty areas where just a few years ago they would have feared to tread. Hungry for premium dollars and fueled by unprecedented capacity, they're competing head to head with serious specialty lines players like Gulf. "Many standard carriers are dabbling in music, theatre, even films," Broschart says. "In these classes, losses can be severe, and you must have a knowledgeable claims staff." Of Gulf, she notes, "We've been a presence in the specialty market since 1973. We never left the market and then returned. We're very stable, and we've experienced no fast growth spurts. Our strategy is to grow slowly, taking the time we need to understand a class of business and underwrite it meticulously."
Jess Pryor is responsible for Gulf's management liability division, based in New York City.
Noting that Gulf has served many insureds for 10 or 15 years or more, Broschart adds, "Our business is based on relationships. We strive to create, cultivate, and build relationships with our agents and our insureds. In this market, price isn't king; relationships are."
TRANSPORTATION/TRUCKING
Based in Hartford, Connecticut, Gulf's transportation and trucking operation accounts for some
$65 million in premium. The division is organized by product line and is headed by Executive Vice President Kevin Smith, a Travelers veteran since 1983. "Our core market is long-haul truckers with fleets of fewer than 25 trucks," he explains. "We also have a large fleet trucking program; it's written through an excellent MGA, who came to us with a big book of business and a lot of expertise." For smaller fleets, Gulf's core coverages are truck liability, property damage and cargo. The insurer also has created several additional programs for this market segment over the last few years: public auto, stand-alone auto, and workers compensation and general liability for truckers in selected states. Asked how he'd describe Gulf's position in the overall transportation/trucking market, Smith says he'd place the insurer squarely in the middle.
Gulf's small fleet business, Smith explains, is underwritten and distributed primarily through trucking general agents. "We do a lot of main street-type business, with owner-operators of one or two trucks. A big issue is the high turnover of drivers, making sure drivers are qualified, and implementing appropriate risk management techniques. It's a big challenge."
Gulf's small fleet coverages are written on a guaranteed cost basis, Smith says, adding, "We cover the hauling of most commodities except hazardous materials." Although Gulf will insure local trucking operations, he says, "We prefer to write long-haul operations. It's a question of local traffic versus highway miles."
Transportation and trucking general agents serve as Gulf's branch offices for this line of business; there are 10 such offices around the country. "These GAs have risk selection responsibility, subject to our guidelines," Smith explains. "We're very confident in their ability; they all have years of transportation underwriting experience."
In for the long haul
Like entertainment and sports, transportation and trucking is a high-capacity, intensely competitive class of business in today's market, Smith observes. "It's very attractive to standard carriers--until something goes wrong," he says. "Then they leave." At Gulf, "We're in this for the long haul; we're not in and out," Smith declares. "Our goal isn't to be the biggest, but to consistently produce profitable business. We do that by underwriting conservatively and holding the line on pricing."
MANAGEMENT LIABILITY
Heading up Gulf's management liability division is Jess Pryor, who's based in New York City and is responsible for directors and officers liability (on nonprofits, private concerns, and public companies); fiduciary liability (for example, pension trust liability on single-
and multi-employer plans); general partners liability (D&O for limited partnerships); and the rapidly growing area of employment practices liability, or EPLI. The division accounts for premium volume of approximately $100 million. "We're a market leader in E&O and D&O for mutual funds, investment advisers, and larger banks and financial institutions," Pryor observes.
The management liability division, Pryor says, is organized in a "client-specific" manner. "We have four groups: nonprofit and middle market accounts, larger commercial accounts, financial institutions, and merger and acquisition products. Within each group, we're divided regionally so our underwriters can develop rapport with our agents and brokers.
"Our underwriting appetite is very broad," Pryor says. "We offer D&O/management liability for anyone from a Fortune 500 company to a local charity. In effect, we offer one-stop shopping for agents and brokers." The vast majority of Gulf's management liability business is written direct through retail agents, and two employment practices liability programs handled by administrators also are open to agents: one for small employers and another for small banks.
"In the last year we've been developing products targeted at mergers and acquisitions," he says. "An example is representations and warranties coverage. The selling party makes certain representations about the business, and we provide catastrophic coverage for the buyer if it turns out the representations aren't true. If the transaction is worth $50 million, the deductible
will be in the range of $2 million to $3 million, and we can offer limits up to $30 million."
Best sales tool
"Our claims department is our best sales tool," Pryor asserts. "We make a point of introducing agents and brokers to our claims staff. Our underwriters and claims people work very closely together." Pryor's division doesn't wait for producers to bring it business: "We provide leads. We call an agent or broker and ask if he or she is interested in pursuing a certain prospect. We provide sales assistance on the front end, in addition to underwriting and claims service."
Over the years, Pryor says, his division has developed excellent relationships with agents and brokers. "I think there are three reasons: first, our quick service on quotes, policy issuance, and claims; second, our diverse risk appetite; and third, flexibility that allows us to respond to 'out of the box' underwriting situations."
In the overall market for management liability, Pryor says, "I see a tremendous amount of capacity and competition." However, he adds, "I've seen some signs of pricing beginning to stabilize. I think the industry is seeing a shortening of the time between when a claim is made and when payment is made. It used to be five years; now it's one year or less--the tail is becoming shorter. Also, reinsurers have begun to experience an uptick in claims. Smaller companies are starting to have issues with reinsurers. The market's not hardening, but there are signs of less competition."
Where does Gulf stand amid all this market turmoil? "From Day One, we've always said that in management liability, we must be consistent. In 11 years, we've nonrenewed only three accounts. Rates are lower today, but we're comfortable with our book, and we're definitely here for the long term."
From standard property/casualty insurer to the specialty division of one of the world's leading financial conglomerates ... that's a huge transition, and one perhaps not every insurer could make smoothly or confidently. For the Gulf Insurance Group, the key to success has proved to be a firm resolve to stick to the basics: identifying target markets, developing the expertise to serve those markets well, and making a commitment to remain a stable force through the inevitable twists and turns of capacity, competition, and pricing. *
* Directors & officers liability
* Fidelity insurance
* Professional liability
* Umbrella & excess
* Property
* Crime insurance
* Transportation risks
* Bank D&O
* Entertainment & sports
* General liability
* Errors & omissions
* Surety
* Financial institution risks
* Public company D&O
* Health care liability
* Public entity risks
* Miscellaneous professional liability
* Employment practices liability
* Mutual fund D&O
* Bankers blanket bond
* Lawyers professional liability
* Real estate E&O
* Investment advisers E&O
* Not for profit D&O
* Architects & engineers professional liability
* Dental malpractice
* Private company D&O
* Lessors contingent liability
* Travel insurance
* General partnership liability
* Mutual fund E&O
* Environmental consultants, engineers, and contractors professional liability
* Accountants professional liability
* Tax opinion insurance
* Fiduciary liability
* Millennium event cancellation
©COPYRIGHT: The Rough Notes Magazine, 1999