Marketing

Safety National expands offerings in soft market

Insurer sees its future growth coming from local brokers and agents

By Michael J. Moody, MBA, ARM

For years, specialty carriers have filled an important role within the insurance marketplace. Historically, most of these carriers have provided specific products and services in one or possibly two lines of coverage. Typically they developed a specialized knowledge and expertise in the coverage area, and, as a result, could provide a unique product that solved an insurance buyer's needs.

However, the last few years have seen a decline of specialty underwriters. While there are a number of reasons for this decline, according to Gus Aivaliotis, vice president of Large Casualty for Safety National, one of the major reasons has been the general stress in the financial service sector over the past few years. He also points out that a major contributor has been the ongoing consolidation within the insurance industry.

Bottom line, many of these carriers are no longer viable, stand-alone options. As a result, Aivaliotis suggests that much of the flexibility generally associated with these types of carriers is lacking in today's commercial insurance market. However, Safety National is one specialty carrier that has remained, and even expanded its operations.

Company overview

Safety National began writing excess workers compensation in 1942 and, according to Aivaliotis, "For the vast majority of the past seven decades we have continued to do so." For many years, excess workers comp was the only product Safety National wrote, he says, "but over time we have tried to expand our product portfolio into other underserved areas." One of the first forays into expansion was the introduction of self-insured bonds for their excess workers comp customers.

Several years ago, the traditional bond market hardened and left many self-insurers without any options for bonds, and Safety National moved into this line of coverage. The company realized that without the bond, which is required by the states to gain and maintain self-insured workers comp status, they would likely lose business.

Another example of Safety National's entrepreneurial nature, says Aivaliotis, "is our loss portfolio transfer (LPT) product." Again, Safety National realized the value that being able to close open workers comp claims from prior years would have on their customers' financial statements. Safety National saw this underserved market and introduced an LPT product where the majority of activity surrounds the workers comp market.

But Aivaliotis notes that while most of Safety National's LPT business is workers comp related business, because of the company's entrepreneurial nature, "we have a willingness to look at other lines of coverage as well." One of Safety National's strengths has been a corporate culture that allows it to remain flexible when considering solutions for a customer's needs. The LPT product is just another example of that flexible problem-solving ability.

Yet another area that Safety National has moved into, in recent years, is a large deductible workers comp product. The stand-alone, large deductible product was introduced about 10 years ago, due in large part to the difficulty insureds were having gaining self-insured status from the states. As a result, interest in large deductible programs has been growing throughout the workers comp community. Aivaliotis points out that Safety National "has had some pretty good success with this product in several key niches." Additionally, the success with the large deductible workers comp program has also opened the door for other opportunities to expand Safety National product lines.

Soft market opening

The past six to eight years represent one of the softest commercial insurance markets in history. And at this point, the market shows little signs of changing in the short term. Obviously, this is a difficult time for any carrier to introduce a new product, but that is exactly what Safety National did at the Risk and Insurance Management Society (RIMS) Conference earlier this year. The company announced that it was going to begin writing large deductible general liability and auto liability coverages. Aivaliotis points out that there were, in fact, "very logical reasons for this move."

First of all, Safety National had found out that over the past 10 years, many of the companies that were attracted to their large deductible workers comp product tended to want similar programs for their GL and auto liability policies. "We noted that there was a tendency to want a single carrier to provide coverage for all three major casualty lines," Aivaliotis indicates.

Other major reasons were that corporate insurance buyers like the simplicity of dealing with a single carrier. This most frequently manifests itself in the claims management area.

Dealing with three separate sets of claims administrators can be difficult, according to Aivaliotis. Since Safety National allows the claims handling to be provided on an unbundled basis, "The insured has a great deal of flexibility with regard to how they structure their claims management program, thereby being better able to coordinate this important aspect." Aivaliotis notes, "This represents a real value-added program aspect for brokers to market."

Typically, he says, "Most carriers will only offer an unbundled approach to claims management to jumbo accounts." However, "Our approach allows mid-sized accounts the ability to select from a list of approved TPAs." The insured can then "determine the level of professionalism of the TPA, in addition to being able to isolate the actual cost of claims management."

One of the other major advantages to maintaining the three coverages with a single carrier involves the issue of collateral. Safety National offers several ways to satisfy its collateral requirements. Like most insurers, it will accept a letter of credit (LOC) to satisfy the requirement. In addition, it will also accept a 114 Trust and, should the corporation wish to utilize cash, it must flow through a 114 Trust. Aivaliotis notes that recently a new bond form has been introduced by some third-party carriers to fulfill the collateral requirements. He indicates that Safety National will consider using these new bond instruments for a portion of the requirements.

He also points out that there are economies of scale issues regarding collateral. Having all three coverages with a single carrier can typically result in a reduction of the overall collateral requirements. However, despite this, stacking of collateral continues to be an issue for many insureds. All too often, carriers look at each year in a vacuum when considering collateral amounts, Aivaliotis notes.

But, he says, "Safety National's approach tries to be more realistic about the stacking issues." For example, he says, "We look at losses versus loss picks, and the financials of the insured each year." From this information he notes, "We adjust the collateral to the actual loss experience." And he says, "We believe that this is the only way to do it."

Safety National has found that getting involved with general liability right now is very advantageous since it does not have any of the traditional legacy issues to deal with. This means that it does not have to embed additional premium for things like asbestos or environmental into their pricing. "We do not have to 'pay for the sins of the past,' in the premium calculations," Aivaliotis notes.

Going forward, the company wants to make certain that it avoids getting involved with the "mass tort" type business. He also notes, "Most of the classes of business we are not interested in are those that may involve these types of issues." But he says, "We have found that we are very competitive with Main Street type accounts."

And while self-insuring workers comp is typically considered the exclusive domain of large Fortune 500 companies, Safety National has found that large deductible products are appealing to more mid-sized accounts as well. Before the introduction of these products, the national brokers had accounted for a high percentage of Safety National's distribution network.

Aivaliotis notes that now the large local/regional brokerages make up about 50% of their business. As a result, Safety National now has 15 business development managers to help establish relationships with the local/regional brokerage community. This has greatly helped to turn Safety National into a viable, multi-line carrier.

"This has opened a whole different world for us and, as a result, the flow of business and submissions have both increased dramatically since the introduction of the GL and AL products," Aivaliotis says.

Conclusion

The move into the large deductible casualty business has been a game changer for Safety National. Not only has it allowed the firm to become a multi-line carrier, but it has also allowed brokers to see the uniqueness of Safety National—the company—not just the products. The brokers soon find that Safety National is an "underwriting company," that is designed to be a long-term, stable market. They have also found a management team, whose members average more than 25 years with Safety National, that has a willingness to be flexible and act quickly.

Safety National has made a major commitment to reach out to mid-sized, Main Street businesses via the local/regional brokerage community. According to Aivaliotis, "Safety National is primarily interested in sustainability, which builds on our seven decades of service to the alternative risk market." He says the key to the company's success is being "responsive but responsible," and their entrepreneurial pedigree, which allows them to look at a client's needs, and then craft a viable solution to fill those needs.