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PURE at heart

New insurer offers homeowners coverage in Florida

By Michael J. Moody, ARM, MBA

March 6, 2007, saw the launch of a new insurance company known as Privilege Underwriters Reciprocal Exchange (PURE). In and of itself, that may not sound too newsworthy. In fact, subsequent to the active hurricane seasons of 2004 and 2005, new capacity in one form or another has been heading to the insurance industry in record numbers. Whether through more traditional insurance company formations, captive and risk retention group start-ups, or direct investments from the capital markets, the insurance industry has attracted significant amounts of capital over the past few years.

What is it then that makes PURE noteworthy? Well for one thing, it is providing homeowners coverage in Florida. Yes, you read that correctly—PURE is writing homeowners coverage in Florida. But not just any homeowners, according to Ross Buchmueller, president and CEO of PURE Risk Management. It is writing comprehensive property and casualty coverage for high net worth individuals and families in Florida. The comprehensive package consists of property coverage, including windstorm and optional excess flood coverage for homes with values in excess of $1 million that are built to the most current building codes. He also notes that coverage for jewelry and fine art also can be included, as can private fleet auto insurance. To complete the package, PURE also offers personal excess liability coverage with limits ranging from $5 million to $10 million.

Buchmueller, who previously headed up AIG’s Private Client Group, has a good feel for what high net worth individuals are looking for with regard to their insurance coverage. He says: “The high net worth customers have a tremendous appetite for transparency in their business dealings.” This goes for everything from their asset manager to their dry cleaner, he notes. “They want to understand how the cost is created.” This was one of the primary reasons why PURE was designed as a reciprocal, he points out.

Structural components

PURE has been established as a reciprocal insurance company that is licensed in the state of Florida. Reciprocal insurance companies are one of the oldest forms of ownership, typically favored by nonprofit groups. According to Buchmueller, the reciprocal not only proved to be more cost efficient, but also “created a greater alignment of objectives.” This form of organization allowed subscribers (insureds) of PURE the opportunity to see how an insurance company is run. He also notes, “Our willingness to show them where the money goes has been one of the most surprising attributes of the company.” The response thus far has been very favorable, he points out.

Because PURE is owned by its insureds, it requires capitalization from them as well. In order to properly fund the company, PURE has had to collect from members (policyholders) an additional capital contribution that is equal to 50% of the first year’s premium. This, of course, “put price pressure on us because it was such a meaningful amount,” says Buchmueller. However, PURE has now found an alternative approach to funding its surplus. Buchmueller says that the 2006 Florida insurance reform package contained a provision called the “Capital Buildup Incentive” program. He notes that this provision (Florida Senate Bill 1980) says that if an insurer is willing to commit capital to the homeowners business in Florida, the state is willing to provide a degree of matching capital at a very low rate of interest.

This feature has allowed PURE subscribers to spread their capital contribution over five years, by collecting 10% of the annual premium for each of the five years. Buchmueller says that this has really “taken the pressure off the policyholders to fund the entire amount during the first year.” He also notes that this capitalization aspect coupled with a non-assessable feature has provided PURE’s insureds with a very competitive insurance product.

Unique approach

While some may question the decision to start a new homeowners company in the state of Florida, there is quite a bite of science behind PURE’s underwriting approach. The most significant aspect is the fact that was brought out in a recent revision to the Risk Management Solutions (RMS) hurricane model. Most insurers found that Version 6.0, which was issued after the 2005 hurricane season, would mean significant amounts of capital would be required to underwrite their book of business. Buchmueller notes, “Many insurers were up in arms about how much greater their expected loss would be.”

But PURE found some good news there as well. Buchmueller said they found a footnote in Version 6.0, which addressed homes with values of $1 million and above. The footnote indicated that homes that exceed 4,500 sq. ft. are as much as 40% less vulnerable to storm damage. The reason for this, Buchmueller explains, is “that the wind pressure on the four corners of the structure, when the corners are further apart, has less of an impact than it does on a smaller home.” There is a greater concentration of pressure on the smaller home. Thus, assuming the home is built to the current code, the house should on average experience less damage.

PURE has also found a favorable aspect with regard to the auto coverage of the high net worth families. Buchmueller said that typically these families own more vehicles than they have drivers.

Traditionally, he notes, most auto underwriters would look at this situation and think that the family was “hiding” a teenage driver. But today, that is not necessarily the case. Buchmueller indicates that this situation is one that has been changing dramatically in the last few years. He points out that in 2003, the United States had one vehicle for every driver; but since that time, it has grown to 1,100 cars for every 1,000 drivers. This remarkable change has resulted in a misalignment and some major disconnects in the auto market, particularly for high net worth families. He says, “Traditional markets have failed to reflect the proper cost-of-risk for this exposure, and this represents another marketing opportunity for PURE.”

Pricing concerns

One of the issues that Buchmueller is quick to discuss is the contention that PURE’s homeowners rates are “too competitive.” But that’s because people are comparing PURE’s rates to those of the surplus lines market. “This is probably one of the most misunderstood aspects of the program. If you look at Chubb or any major, admitted market competitor in this space, you will find our rates are similar.”

The big difference, however, he points out, is not the rates, but the availability of coverage. For a $500,000 home in Florida, coverage is still available from several admitted carriers; however, coverage for a $1.5 million home from an admitted carrier is simply not available in today’s insurance market. Thus, many home owners have had to turn to Citizens or the surplus line market. So, if PURE’s premium on a $1.5 million home would be $10,000; the surplus market would probably be in the $20,000 range. Thus, many people have said that PURE’s rates are half of the competition. But Buchmueller says one cannot compare their rates with the demand-based pricing of the surplus lines market because “they are not anything that is based on the underlying cost of risk.”


Florida insurance company start-ups are rare. Rarer still are Florida homeowners insurance companies. But PURE appears to have done its homework and may prove to be a successful exception. The company realizes that there are two main underwriting factors that have allowed it to start this venture: the size of the homes involved and the quality of the construction. Larger, well-constructed homes are less susceptible to storm damage, and Buchmueller believes that the rates should accurately reflect this fact.

Buchmueller and his management team understands the high net worth market, and has designed an alternative insurance product that is specifically intended for that market. It takes advantage of the disconnects in the current marketplace and provides a viable solution for the problem. And while PURE is planning on extending into other states, it is taking the remainder of the year to study its options for an orderly growth. It would appear that PURE has a bright future ahead, catering to the high net worth market with specifically designed products. *

For more information:
Privilege Underwriters Reciprocal Exchange

Web site:


“The high net worth customers have a tremendous appetite for transparency in their business dealings.”

— Ross Buchmueller
President and CEO
PURE Risk Management