Distinguished Programs Group has built its reputation writing umbrella liability for real estate purchasing groups (PGs). Company executives (seated left to right) are David Watkins, executive vice president; Andrew Potash, president; and Judith Sigel, executive vice president. Standing (left to right) are Kathleen Raimonde, senior vice president and Carla Vel, executive vice president.
For those with long memories, the (product) liability crisis of the mid-1970s was not a happy time, particularly for many small and mid-sized companies. Because of the hard market, insurance was difficult, if not impossible, to obtain. Without retracing the history and reasons for the problems, it eventually led to the creation by Congress of the Risk Retention Act of 1981, which was expanded significantly in 1986.
While the scenario has changed and there is no longer a liability crisis, the concept fostered by the Risk Retention Act is still alive and kicking. It is also the driving force behind the formation and current success of The Distinguished Programs Group.
"The 1986 Liability Risk Retention Act (LRRA) gave us our start," said Andrew W. Potash, president of Distinguished Programs. "It allowed companies unrelated by ownership but in the same or related businesses and with similar loss exposures to band together to buy liability insurance. The combined buying power of these groups resulted in higher liability limits, and significant savings as a result of the volume discounts they were able to obtain from insurance companies."
"From the client's point of view," added Carla Vel, executive vice president, business development, "their costs were less than their existing insurance, they were able to obtain better coverage with higher limits, and they were able to participate in other policy enhancements. Savings of as much as 25% to 30% were not uncommon."
When the opportunity became available in 1987, the company pioneered the country's first Real Estate Umbrella Liability Purchasing Group. Today it is the largest developer of umbrella liability purchasing groups in the country.
Entry into the real estate market, according to Potash, was largely "by accident." Before 1995, the predecessor to Distinguished Programs had been a retail insurance broker for more than 50 years. In 1995 it ceded off its retail book of business and became a full-time program developer and wholesale distributor. "Pre-1995," said Potash, "we were a small insurance agency handling some 300 cooperatives and condominiums, largely in the New York tri-state area (New Jersey and Connecticut). Much of the business was being done with such familiar New York realty names as Douglas Elliman, The Related Companies and the Milstein family."
"The real buyer of insurance for (small commercial customers) is...the insurance broker who makes the decision for the organization."
--Andrew Potash, president
Another reason for choosing the real estate area, Potash explained, is that it is a highly fragmented industry, with lots of small buyers--who individually have virtually no clout when it comes to dealing with an insurance company. "By putting these real estate companies together into a package, we are able to go to an insurance company and obtain far better premiums for the group than if they went to the insurer individually," he said.
Real estate firms--a natural for PGs
There are a number of other reasons why participation in a purchasing group is effective and economical--the combined buying power results in higher limits and significant savings due to the availability of "volume discounts," but equally important, according to Vel, is the fact that "every group member has its own separate policy limits--there is no sharing of limits with other members of the group. And, in the event of nonpayment of a premium by one member of the group, no other member's coverage is jeopardized in any way. In the difficult area of real estate this can be a most important consideration."
Carla Vel, executive vice president, says Distinguished Programs expects to be distributing its products through some 150 agents and brokers by the end of 1999.
From these humble, "by-accident" beginnings, Distinguished Programs has grown by leaps and bounds. "At the end of 1998 we were licensed to do business in 40 states," said Vel, "with approval pending in the remaining 10--something that is expected by the end of 1999. In our real estate programs, we have more than 1,500 accounts and more than 5,000 locations."
The "Distinguished Programs" are designed for small commercial customers--who, Potash notes, are usually the ignored group by the major insurance companies. The characteristics of any of these customers include between $3 million and $25 million in sales volume, from 10 to 100 employees with a total premium account of up to $100,000. "The real buyer of insurance for this type of business is not anyone in the firm but the insurance broker who makes the decision for the organization," he says.
Combined volume in PG creates clout
It's worth noting that while premium volume of up to $100,000 annual is a lot for the business involved, it hardly raises a ripple as far as a major insurance company is concerned--hence the importance and value of group buying by real estate owners and managers and the success of Distinguished Programs. It estimates that its real estate customers currently have some 250,000 residential units and over 100 million square feet of commercial space under their control--giving them the clout to purchase high-limit, quality umbrella protection.
Since becoming a full-time program developer, Distinguished Programs has experienced impressive revenue growth. "Between 1995 and 1998, our revenue has grown at a 30% compound annual rate," says Potash, "from approximately $4 million to some $10 million at the end of 1998. The bulk of our business continues to come from our competitive property and liability program and our umbrella programs. We've taken a look into other areas as well--particularly workers compensation."
While Distinguished Programs got its start in the New York tri-state area, Potash notes that "one-third of our business is now from around the country, and we expect that fully one-half of new business will be from outside the tri-state region."
In addition to purchasing groups for hotels, condominiums and coops, business includes downtown commercial buildings, warehouses, motels, resorts and casinos. The available umbrella liability packages in the real estate area have limits from $10 million to $200 million.
"We're also looking into areas outside our core business of umbrella liability programs," Potash says. "This includes restaurants, retail stores, used car dealerships and employment practices liability. Our total focus continues to be helping small businesses get better--by providing them with umbrella liability insurance programs at the most economical price possible."
The roster of products continues to grow, but it remains "highly specialized and specifically focused" according to Potash. "We chose to go this route because it presents fewer problems than trying to be all things to all customers."
Distinguished Programs distributes its products through a nationwide network of more than 100 agents and brokers, says Vel, adding that "by year-end 1999, we expect to have some 150 agents and brokers in our network."
The company's optimistic outlook extends to its facilities as well. "In mid-1998," said Vel, "we successfully completed our move into new office space, in mid-town Manhattan. Our staff of more than 30 employees now has the room and additional communications and support equipment to serve our expanding group of producers with even greater efficiency and effectiveness. We also expect to hire eight additional employees in the coming year to handle our business."
Distinguished Programs Group is made up of four companies:
* Distinguished Programs Insurance Brokerage, LLC--a program developer and wholesaler
* Distinguished Programs Risk Management, LLC--a program manager
* Capital Risk Strategies, LCC--an insurance merchant banking firm that invests in specialty insurance companies, our project partners and our distribution network
* Saranac Insurance Company, Ltd.--a reinsurer that provides additional capacity for our programs and offers rent-a-captive services to out project partners
Along with umbrella liability programs for the real estate industry, Distinguished Programs offers similar coverage for trade and artisan contractors and construction contractors. Here the policy limits range from $10 million to $25 million. Another area of business is pollution coverage for both commercial and residential real estate. "Our research showed that this vital coverage was cost prohibitive for companies on an individual basis," said Vel, "so we created a program that combined buying power and made this coverage available and affordable to mid-sized and smaller real estate organizations."
"In addition," said Vel, "we're moving into the area of workers compensation insurance for real estate employees and employees of securities industry firms. Thus far this phase of our business is limited to specific states, but we believe it will provide an opportunity for significant future growth."
The buying power that Distinguished Programs brings to the table of a major insurance company is important. "All the insurance carriers we deal with are rated "A-" IX or better," said Potash. "The names include Travelers, General Accident Insurance, CNA and TIG Insurance Co., soon to merge with Fairfax. Carriers providing excess umbrella liability coverage, depending upon the limits selected by the purchasing group, are Reliance Insurance, Gulf Insurance, Fireman's Fund and Cigna.
Looking for partners
The key to Distinguished Programs' future growth is program development. "We begin by looking for partners who have necessary access to groups of small and mid-sized businesses," says Potash, "particularly those buyers who have not been able to benefit from the economy and efficiency that group buying power can deliver. We then design coverage, creating a new rating structure or carving out an industry segment that's not enjoying the advantages of group buying."
He adds, "Our success lies in the relationships we forge with our project partners--whether inside or outside the insurance industry. Each has influential access to small and mid-sized business with similar exposures that are in need of proper and reasonably priced insurance. We manage the entire process for our partners. We pinpoint appropriate risks, create innovative programs, choose insurance carriers, develop underwriting parameters, design rate structure and handle distribution and program management."
Potash and Vel are optimistic about the future for Distinguished Programs. Certainly there can be no disputing the fact that in this day and age, with insurance companies struggling to maintain their bottom line, the value of big-volume business cannot be minimized, and programs such as those offered by Distinguished Programs appear to be one key. *
The author
Samuel Schiff is a New York-based free-lance writer.
©COPYRIGHT: The Rough Notes Magazine, 1999