Marketing

The apartment market

Despite real estate market woes, apartment/condo specialists see opportunities

By Phil Zinkewicz

It is axiomatic that when the regular property/casualty insurance industry is in the midst of a soft market, the excess and surplus lines market temporarily loses business. So fierce is the competition for new premium dollars during a soft market that standard insurers often throw caution to the wind and write business that they would usually leave to the E&S underwriters.

According to Carla Vel, president and COO of Distinguished Programs Group, a program manager that has carved out several niches in the real estate business, such a soft market exists today and she sees no immediate end in sight. “Outside of a few accounts that haven’t performed well, the standard market is competing for a good deal of business that might usually be in the excess and surplus market,” she says.

“There are some states that have coastal exposures and standard insurers are trying to hold the line on rates, but overall the market is extremely soft and it looks like it will remain that way for a while,” according to Vel. “However, by choosing our niches carefully and developing programs for those niches, we have managed to stay ahead of the curve.”

Distinguished Programs has written premiums of about $125 million and is licensed in all 50 states. Based in New York City, the firm employs about 90 people domestically and 600 in Qingdao, China. In the United States, the firm has offices in Ohio, Illinois, California, Rhode Island and Colorado. Distinguished Programs has five operating entities: Distinguished Programs Risk Management LLC, a program developer and manager; Distinguished Programs Brokerage LLC, a wholesale distributor; Saranac Insurance Co., 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; and ReSource Pro LLC, a remote processing facility based in China that handles tasks for both Distinguished Programs and other companies—both retail agencies and MGAs.

Vel says that it is this array of products and services that has enabled Distinguished Programs to thrive through different markets over the years. With a target market of small to mid-sized accounts, the firm writes property, general liability, high-limit umbrella and directors and officers liability. Among the niches the firm serves are affordable housing, community associations such as condos and planned unit developments, city homes such as urban residential buildings with up to 20 units, and student housing.

“We are interested in old, small brick or masonry apartment buildings and condos in urban areas because typically they have performed well,” Vel says. “We are also interested in affordable housing because those buildings are government-financed and the mortgages can be government-backed. As the Baby Boomers move into their sixties, many retired people are moving into affordable housing because of the tax credits and because these apartments are becoming more attractive.”

Vel says that Distinguished Programs works through a network of 1,100 independent agents and brokers. “We’re happy to work with an agent or broker who has many real estate accounts and we’re happy to work with an agent who has one,” she says. Distinguished Programs employs inspection firms to validate the information given by the broker or agent involved.

“We want to know how many units are in a particular building, the type of construction, whether there are sprinklers, etc. We don’t insure buildings that are on golf courses or where there is food preparation,” Vel continues. “Also, while we do provide coverage for student housing, we don’t insure dormitories or student housing that is company-owned.”

Distinguished Programs is also a leading developer of umbrella purchasing groups in the United States. “The size of our pools offers a competitive edge that’s hard to come by on a risk-by-risk basis. We offer limits of $1 million to $200 million. We offer the security of A-rated carriers and fast turnaround. Our umbrellas are available for a wide range of real estate risks, including residential/commercial condo/co-ops; rental apartment buildings; affordable and senior housing; small, urban multi-family buildings; planned unit developers; homeowners and property associations; office buildings; and shopping centers.”

Donna McGovern, vice president of underwriting and marketing for Western World Insurance Co., agrees that the real estate insurance market remains soft. “We don’t see an end to the current soft market right now,” says McGovern. “Economic conditions are partially to blame. There’s too much capacity chasing after too little demand.”

The Western World Insurance Group of companies, rated A+ by A.M. Best, is based in Franklin Lakes, New Jersey, and is primarily composed of three operating insurance companies: Western World Insurance Co.; and two insurance subsidiaries, Tudor Insurance companies and Stratford Insurance Co. All are domiciled in New Hampshire. The group offers commercial insurance products on a surplus lines and specialty admitted basis through appointed wholesale agents and brokers on a nationwide basis.

Product offerings include commer­cial general liability, professional liability, product liability and commercial auto coverages. Western World specializes in underwriting classes of business that are not easily placed in the standard insurance market due to their complexity, high hazard or unusual nature. The group also offers underwriting facilities for associations and affinity groups through Westco Programs.

“Our strategy is to offer a highly diversified selection of specialty insurance products where underwriting adds value,” says McGovern. “We underwrite large multi-state units of more than 250 units up to 15,000 units on one policy,” she says.

While McGovern allows that the soft market has caused Western World to lose some business to the standard market, she says the firm is well positioned to “wait it out,” she says. “Since we’re not a public company, we don’t have pressure from stockholders.”

McGovern admits that the real estate market is depressed at present. “Since we tend to see exposures that have been turned down by the standard market, and since standard insurers are fighting to get new premium dollars, it is a sticky situation for excess and surplus line operators. But it will change down the line. It always does.”