 |
 |
 |
|
Marketing Real answers for real estate risks Distinguished Programs is a market for commercial and habitational needs By Elisabeth Boone, CPCU From strip malls to student housing, the market for real estate risks is complex and challenging, and it can be a trap for the unwary. Distinguished Programs, a program manager based in New York City, has carved out a niche, or rather several niches, in the real estate market, providing retail agents and brokers with expertise and carefully designed programs. Distinguished Programs traces its roots to the 1940s, when its predecessor was established as a small retail broker to handle co-op risks in the New York metropolitan area. In 1995 the company phased out of the retail business and became a full-time program manager and distributor. In 1987 the company developed the country’s first real estate umbrella liability purchasing group, which is still in operation today. (See “Umbrellas for Purchasing Groups Provide Impetus for Growth” in the March 1999 edition of Rough Notes.) Today Distinguished Programs has written premium of about $117 million and is licensed in all 50 states; it actively writes business in 48 states. The firm employs 180 people and has offices in Ohio, Illinois, California, Rhode Island, Colorado and Qingdao, China. The Distinguished Programs Group LLC is a holding company for five operating entities: • Distinguished Programs Risk Management LLC, a program developer and manager • Distinguished Programs Brokerage LLC, a wholesale distributor • Saranac Insurance Company, Ltd., a reinsurer that provides additional capacity for the firm’s programs • SES Insurance Brokerage Services, Inc., an insurance program manager and service provider for bank-managed trust property portfolios • ReSource Pro LLC, a remote processing facility based in China, that handles tasks for both Distinguished Programs and other agencies and MGAs Distinguished Programs, whose target market is small to mid-sized accounts, offers a range of products, including property, general liability, high-limit umbrella, and directors and officers liability. Among the niches the firm serves are affordable housing, community associations (including condos and planned unit developments), city homes (urban residential buildings with up to 20 units), and student housing. Distinguished Programs works with a number of high-rated carriers. Just as the three most important factors in real estate are location, location, and location, the Big Three for niche program managers are experience, experience, and experience. At Distinguished Programs, many of their people have more than 30 years of experience in marketing and developing programs for real estate risks. Gaining an edge “We definitely find that the market is softening, which results in some competitive pressures,” says Carla Vel, president and chief operating officer of Distinguished Programs. “Typically it’s the national carriers, that have a global approach. For the regionals, if they’re in the market, they tend to stay in it.” Vel continues, “What we’ve done to stay ahead of the curve is to develop niches like student housing, affordable housing, older buildings, and condo associations. We have different competitors in different parts of the country,” Vel says, “and we try to take advantage of what we do better in any given part of the country.” A key focus of Distinguished Programs is developing programs for segments of the real estate industry that standard insurers tend to avoid, either because of the small premiums they generate or the belief that ISO’s more generalized rating categories do not accurately reflect the risk involved. Judith Sigel, vice chair for program development, explains that for the real estate market, ISO distinguishes among rentals, condos, and commercial classes, but goes no further. “We’ve determined that there are far more segments, starting with occupancy—for example, student housing versus senior housing. “For instance,” she continues, “if a student falls down, she gets up and she’s fine. If a senior citizen falls down, he might break his hip.” Conversely, “If a student has had too much to drink and is sitting on a balcony, he might fall off and get hurt, whereas a senior probably isn’t going to do something like that.” At Distinguished Programs, Sigel says, “A lot of what we do is about drilling down more specifically. It might be occupancy, geographic location, the age of the structure—there are so many different things about a risk we can look at to define it precisely, and on a long-term basis that gives us a better result because we’re serving the specific part of that niche as opposed to the whole ‘basket’ of real estate.” Where and how we live Sigel says, “What we do is step back and say, ‘We’re in the real estate business; what factors are driving where people live and how they live?’ It might be economic conditions, political conditions, or sociological conditions. For example, a clear trend now is that the first baby boomers are turning 60 and beginning to retire,” Sigel observes. People in this market segment may be interested in moving into active lifestyle communities, she says. “We’ve also become very active in affordable housing,” Sigel says. “In this country, affordable housing is a very difficult market to underwrite profitably. It tends to be thought of as public housing or welfare housing. It’s looked at negatively, and it ends up in the E&S market.” At Distinguished Programs, Sigel explains, “We’ve been able to determine that there are segments of tax credit housing or subsidized housing that any of us would love to live in. A prime example of that is if you lived in Greenwich, Connecticut, and made $80,000 a year, you would actually be eligible for affordable housing,” she says. “Both local governments and the federal government are looking at affordable housing as a huge issue, and we see it as a great opportunity. Understanding the niche, under-standing what we can write and what we should never write, is an extremely valuable way for us to educate our underwriters about the products people actually need,” Sigel declares. Sigel mentions additional estate trends. “Many retired people are moving out of their homes and into condos where they can enjoy certain amenities and where residents must be over age 55,” she says. In the South, she adds, there is growth in the construction of two- or three-story garden apartments; and in urban areas, high rises are being built for people who want to enjoy city living. Adds CEO Jeremy Hitzig, “There’s a lot more specialized housing today than there ever has been before. For example, timeshares didn’t even exist 20 years ago. There are also resort communities promoting active living for seniors. Each of them has unique characteristics that we’re working hard to understand and serve.” “Almost everything that happens in our world affects real estate,” Sigel declares. “Just listening to the news or reading the newspaper are good ways to find out what’s going on. We pay attention to these things in trying to figure out what our product is going to look like and how to underwrite and price it correctly.” Adds Vel: “We’ve created our own proprietary database, and on every submission that comes in, we collect at least 30 very specific pieces of information having to do with the characteristics of the risk: location, age, and type of construction; type of ownership and occupancy; how many stories, how many units, sprinklered or not, fire and life safety information, and so on. That allows us to slice and dice information so we can understand what the risk looks like.” “When we sit down with an insurance company to negotiate something or to create something new, having data is a huge strength of ours and a big way we differentiate ourselves,” Sigel adds. “We’re not like the people who approach an insurer and say, ‘I need this because I need it.’ Being able to present a detailed analysis and projections gives us a real advantage.” Distinguished Programs also has retained people with unique expertise, including a former firefighter and a current firefighter and a building manager with 30 years of experience. A booming market A key trend identified by Distinguished Programs’ product development department is strong growth in planned unit developments, which the company views as a market with high profit potential. Earlier this year the company launched a program for planned unit developments. “The most appropriate term for what we’re writing in this class is homeowners associations,” Hitzig says. “A homeowners association is an association of single-family homes. We’ve built a small niche in insuring homeowners associations.” Distinguished Programs doesn’t insure the individual homes, Hitzig emphasizes. “In a gated community there may be a guardhouse, a clubhouse, a swimming pool, tennis courts—all of those things are picked up under our program.” Planned unit communities are less common outside California and the Southwest, Hitzig observes. However, he adds, “In the older parts of the country, some home owners may get together for group activities, and they might form an organization with a board of directors.” Distinguished Programs also insures groups like these, Hitzig says. Working with retailers Distinguished Programs operates nationwide through a network of approximately 1,100 independent retail agents and brokers. “We’re happy to work with an agent who has many real estate accounts, and we’re happy to work with an agent who has one,” Vel says. “It’s the risk that’s important to us. All of our agents are trying to do the best job for their clients, and we become a resource for them.” A valuable resource indeed, if these comments from retailers are any indication: “My niche is affordable housing,” says Kyle McKinney of Global Insurance Network in Boston. “A lot of insurance companies have stereotypes of this business that are simply wrong. Underwriters hear affordable housing and they think of the old housing projects. The fact is, in many cases you can’t distinguish affordable housing from market value housing. The trend today is toward mixed housing where affordable is a percentage. Distinguished Programs is one of the few organizations that was willing to take the time to listen and understand the business.” John Stathopolous, commercial account manager for Asco Insurance Services, a family-run agency in the Chicago suburb of Morton Grove, says, “Companies come in and try to tap the habitational market, but they usually get eaten up and then drop out. Distinguished Programs knows the business. They understand what they’re doing. That’s enabled them to be a more consistent player.” Steve Dickerson, a senior vice president who specializes in writing condo and co-op business at USI of Falls Church, Virginia, says, “We use Distinguished for umbrella on habitational accounts. They approach the business the way it should be done. They’re specialists, and they understand how to segment and underwrite the business. As a result, even during very tough market times, they have been able to bring strong, large, reputable companies to the table.” Brian Berg, president of Brian Berg Insurance in Lake Forest, California, says Distinguished Programs helps him gain entrée to accounts that otherwise might not want to meet with him. “Getting your foot in the door with property managers of condo and homeowners associations is tough,” Berg says. “But if I can show them where there is a coverage deficiency, I can get in. Distinguished found deficiencies in the existing markets for community associations. They’ve differentiated their umbrella and D&O products. They offer the broadest coverage and best pricing in the market.” With its depth of industry experience, market knowledge, and underwriting savvy, combined with a willingness to listen, Distinguished Programs clearly has real answers for real estate risks. * For more information: |
|
|||||||||||||||||
| ||||||||||||||||||
