Playing to Win 04/01

Gulf Insurance brings enthusiasm and expertise to a
complex and challenging market

By Phil Zinkewicz

Steven S. Zeitman is senior vice president of the Gulf Insurance Group.

ifteen years ago, the environmental impairment liability insurance market was in a state of flux. Insurance carriers, having been stung by a surge in unanticipated pollution-related claims from business written during earlier years, began pulling away from pollution exposures, seeking to exclude the coverage from standard commercial general liability policies altogether. The litigation explosion in the pollution area caused carriers to panic.

So great were the losses in the pollution arena that they almost toppled the towers of the venerable Lloyd's of London. Lloyd's, in fact, spent the latter part of the 1980s and most of the 1990s trying to extricate itself from lawsuits filed by disgruntled investors on both sides of the Atlantic who alleged that they were duped into signing on with syndicates where pollution losses were expected to be crippling.

But now we're into the new millennium. Lloyd's has survived the investor lawsuit litigation and is now a new marketplace where corporate capital, rather than individual investor capital, dominates. Moreover, insurance carriers, most of whom for more than a decade shunned the environmental impairment arena, are apparently moving back in.

Gulf is good to go

One example is the Gulf Insurance Group, which is owned by Travelers Insurance and therefore a member of Citigroup. Prior to August of 2000, Gulf had been involved in writing pollution insurance coverages--primarily for small accounts--through a program administrator based in Denver. Then an opportunity arose that promised to bring Gulf into the category of "major player" in the pollution insurance business.

Here's how the scenario played out. United Capitol Insurance Company had been successfully writing asbestos abatement and contractors liability insurance since 1986, the tail end of the last hard market. By 1996, United Capitol had developed so much expertise in the pollution area and had performed so well that it became attractive to Frontier Insurance Company, a well-known specialty lines carrier. Frontier then acquired the pollution insurance specialty company.

But Frontier began encountering financial difficulties, not related to United Capitol's environmental business, and needed to divest. Last year, Gulf and Frontier agreed to an arrangement whereby Gulf would purchase Frontier's book of environmental business and bring to Gulf the environmental experts who were responsible for that business. Gulf did not take on any of Frontier's liabilities, only the business and the people.

"This is in no way a start-up operation even though the purchase was only completed in August of 2000," says Steve Zeitman, senior vice president of Gulf Insurance Group. "We were a natural fit with Gulf, which is recognized as one of the foremost specialty carriers. Most of us were with United Capitol dating back to 1986, so we've brought on years of experience in the environmental area. We have a definite track record."

Thomas Owen, vice president of Environmental Underwriting (left), and Steve Zeitman bring a level of expertise in environmental coverage that has helped Gulf Insurance become a major player in the market.

"A good portion of our business last year came from clients that had never bought pollution insurance before."

--Steven Zeitman

And, adds Tom Owen, vice president of the environmental division in charge of day-to-day operations: "Gulf can now offer a broad range of environmental products to the smallest exposures as well as the Fortune 500 companies."

Strength and solidity

Zeitman and Owen say that the environmental division at Gulf can only benefit from the company's established ties with Travelers and Citigroup. Gulf traces its origins back to 1940, when it was then called the Washington Fire & Marine Insurance Company. The name was changed to Gulf Insurance Company in 1968. It wasn't until 1987, however, that Gulf really moved into the specialty lines arena, providing directors and officers liability, errors and omissions, professional liability, fidelity and surety, entertainment and sports coverages, and other specialty risk products and services.

In 1991, A.M. Best rated Gulf Insurance Group A+ (superior), and the company retains that rating today. In 1996 Standard & Poor's awarded Gulf an AA (excellent) rating on claims-paying ability, which is also retained today. In 1993 Gulf, through a merger between Primerica and Travelers, became a wholly owned subsidiary of Travelers. In 1998, when Travelers merged with Citicorp and created Citigroup, Gulf became a member of one of the largest financial institutions in the world.

Broad risk appetite

"We offer a broad range of environmental products and programs for virtually all risk classes," says Zeitman. "We offer occurrence and claims-made commercial general liability, contractors pollution liability, asbestos and lead abatement liability, professional liability, claims-made, with pollution for all classes of engineers and consultants, transportation pollution liability, and umbrella coverages. We will consider all industry groups--environmental and remediation contractors, wetlands restoration, environmental companies such as consultants, engineers and laboratories, hospitals, real estate firms, storage tanks, property transfer, and more," he says.

Adds Owen: "We are one of the few carriers that offers umbrella coverage that is excess of the pollution coverages. An area of opportunity is providing pollution coverage to companies that may not have a specific environmental exposure or that may have an exposure but are not aware of it. Streets and roads, sewer and water, and janitorial contractors have a pollution exposure. Hospitals, warehouses and other commercial operations have an exposure to pollution liability."

"Because of our years with United Capitol," says Zeitman, "we have the expertise to recognize pollution exposures that people don't realize they have. Take property owners, for example. For years the federal government has been trying to force property owners to clean up their properties. But there has been a good deal of procrastination. But when the real estate boom hit, owners became motivated to clean up their properties to enhance their values. The economic incentive was all they needed. However, in the cleanup process these property owners face very real pollution exposures."

As vice president of the environmental division at Gulf Insurance, Thomas Owen is in charge of day-to-day operations.

"We are one of the few carriers that offers umbrella coverage that is excess of the pollution coverages."

--Thomas Owen

Expertise = competitive edge

Zeitman and Owen say that the market in the pollution insurance business is competitive but not as competitive as other lines of insurance. "It is less competitive because there are fewer carriers willing to offer environmental coverages," says Zeitman. "The reason it's less competitive is that many carriers don't have the expertise to underwrite environmental exposures. That lack of expertise is a real barrier to entry into this marketplace. The staff of people who have come to Gulf from United Capitol have brought with them years of underwriting and claims experience in the environmental area."

According to Owen, the group boasts both environmental and insurance expertise. "We have 12 underwriters, for example, six of whom have environmental degrees and six with degrees in insurance and risk management," he says. "In addition, we have several underwriters with advanced environmental and business degrees."

Gulf operates in all 50 states, and Zeitman and Owen say its goal is to put underwriters in various offices across the country as the business grows and the need arises. Right now, the environmental division is based in Atlanta with an underwriter in Chicago.

But Zeitman and Owen emphasize that they are looking primarily at an untapped market. "A good portion of our business last year came from clients that never bought pollution insurance before because they never thought they had an exposure or because they thought the coverage was too expensive," says Zeitman. "For those who don't believe they're open to pollution lawsuits, we want to educate them as to the risks they really face. For those who believe the coverage is expensive, we want to inform them that pollution insurance coverages have become more affordable. We as carriers have learned a good deal since the pollution crisis days of the late seventies and the early eighties. We've learned about loss control and risk management measures that make a risk insurable. That's why costs are coming down."

Strong agent relationships

As for distribution, here's where Zeitman and Owen are banking on Gulf's relationship with Travelers and its agents. "Because we're looking at a market with risks that have never bought environmental coverages before, we think we can benefit greatly from the contacts that Travelers agents have already made in the commercial lines area," says Owen. "Our agents are very important to us in terms of explaining to their existing clients why they need pollution insurance and that the coverage is available and affordable. Through our program administrator we can handle the smaller accounts; and with the expertise we've brought to Gulf from our 15 years with United Capitol, we can handle the Fortune 500 companies. We're ready to cover the entire spectrum of pollution risks." *

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