Real estate risks: Weathering the storm

Distinguished Programs brings high-tech savvy to a variety of real estate niches

By Elisabeth Boone, CPCU

What goes up must come down—and the industry that took the hardest fall during the Great Recession was real estate. As the economic recovery slowly takes hold and unemployment numbers begin to decline, the markets for both residential and commercial real estate continue to struggle, and few experts are optimistic about the chances for improvement in the near term.

Amid the gloom that hangs over the real estate industry overall, some bright spots exist in certain niche markets, and therein lie opportunities for retail agents and brokers who cultivate relationships with intermediaries that specialize in those niches.

Distinguished Programs, a national real estate program manager based in New York City, has developed programs for small to mid-sized risks in a range of residential and commercial market segments. Tracing its roots back to the 1940s, the firm offers programs for condos and co-ops; rental apartment buildings; New York brick and brownstone homes; affordable housing; student housing; independent living housing for seniors; small urban multi-family dwellings called city homes; planned unit development, homeowners, and property owners associations; office buildings; strip malls; and timeshares.

Distinguished Programs is licensed and active in all 50 states, where it places business exclusively through a network of retail independent agents and brokers. In addition to its headquarters in Manhattan, the firm has offices in California, Colorado, Illinois, Ohio, Pennsylvania, and Texas. Available coverages include property, liability, directors and officers liability, crime, and high-limit umbrella liability.

A profile of Distinguished Programs appeared in the October 2006 issue of Rough Notes ("Real Answers for Real Estate Risks"), and clearly a lot has changed since then for real estate risks and those who insure them. We asked Carla Vel, president and chief operating officer, and CEO Jeremy Hitzig to update us on key developments at Distinguished Programs over the past five years.

New tech platform

In February of this year, Vel says, Distinguished Programs gained access to a robust technology platform for agents and brokers when it acquired a controlling interest in GreenLine Underwriters, a program administrator that delivers insurance products through Web-based technology.

"We've been fortunate to have GreenLine's principals, Rod Taylor and Kellam Radford, join our executive team," Vel says. "They both come from the carrier side, and Rod has a strong underwriting background, particularly in areas that fit nicely with our real estate programs such as builders risk and vacant properties.

"We're very excited about GreenLine's technology platform," Vel adds. "It allows agents to rate, quote, bind, and issue policies seamlessly, and we'll also benefit from GreenLine's expertise in risk analytics and predictive analysis.

"The soft market has affected our business as much as the economic downturn," Vel remarks. "The recession, of course, has affected new construction. In the community association space, a lot of the development has slowed down or been stopped entirely. That said, the owners of commercial real estate still need insurance, so we've responded by making it easier for brokers to do business with us.

"That's particularly true for the smaller lines; it's only cost-effective for a broker to write a smaller account if he or she can do it easily, quickly, and efficiently," Vel observes. "We're providing the platforms that allow brokers to do that, and at the same time we're working to make sure that our policy terms and pricing are competitive in this market segment."

Steering through the storm

Hitzig, who is president of Target Markets Program Administrators Association, offers some statistics that illustrate the growth and development of Distinguished Programs over the past five years.

"In 2006, we were doing business with 1,250 brokers; today we have 2,200 brokers," Hitzig says. "In 2006, we had just over 27,000 policies in force. Currently we have 48,000 policies in force. So we've experienced strong growth in terms of our distribution network and our business in force.

"Between 2006 and 2008 we were dealing with a soft insurance market, but we also were operating in a strong economic environment," Hitzig comments. "We did well at the intersection of those two conditions, but in the last two to three years we've been challenged by a continuing soft market as well as a struggling economy and real estate market. Despite all of that, we've still managed to grow the business quite substantially over this period," he says.

A strong growth area for Distinguished Programs' parent company, Distinguished Programs Group LLC, has been the expansion of its outsourcing subsidiary, ReSource Pro, Hitzig remarks. Based in China, the remote processing facility was established by Distinguished Programs in 2003 to handle its own transactions and now provides services to 115 managing general agencies, retail agencies, insurance intermediaries, insurance companies, and third-party administrators throughout the United States.

"ReSource Pro has grown from 150 employees in 2006 to 950 today, and we expect to top 1,000 sometime this year," Hitzig says. "ReSource Pro has been a powerful growth engine of revenue and earnings for our organization over the past five years."

Time of opportunity

The professionals at Distinguished Programs are realists, and it's safe to say there isn't a Pollyanna in the bunch. That said, Hitzig sees reason for optimism on a number of fronts.

"When we look at the world of real estate and the insurance marketplace, we actually see this as a time of opportunity," Hitzig asserts. "It's not without substantial challenges, but to the extent that we've been able to build and grow our business during this period, we believe we can position ourselves to benefit from changes in the economy and the insurance market."

Specifically, Hitzig says, "We've been looking to expand through acquisitions. This is a new area of focus for us, and our thesis is that a lot of things that we've learned in the real estate program management space are valuable assets that we can leverage to acquire businesses."

For example, Hitzig says, "We've raised capital in the form of a joint venture with Ironshore, Inc., and we're putting that capital to work in an acquisition effort." Called IDP Holdings LLC, the joint venture will target acquisitions of small to mid-sized program managers and managing general underwriters as well as the development of start-up operations built around key underwriting teams. Based in Bermuda, Ironshore is a global insurance carrier that underwrites a broad range of risks, including specialty commercial property and casualty coverages.

As noted earlier, Distinguished Programs significantly enhanced its technology platform with its acquisition of GreenLine Underwriters. "We've made it a priority to invest in technology that will position us as a place where it's easy for agents and brokers to do business," Hitzig declares. "Through acquisitions, we can bring technology, distribution, analytical, and data management skills and resources to our retail partners. Those are valuable assets that we can bring to bear in our real estate business, and we can also employ them to diversify our footprint beyond real estate and bring some best practices to our acquired businesses," Hitzig explains.

Launching new programs

Like Hitzig, Rod Taylor is excited about the opportunities created by the strategic alliance between Distinguished Programs and GreenLine Underwriters.

"When things are difficult, as they are in real estate and in the insurance market, you can hunker down and wait to see what happens, or you can seek out opportunities," Taylor says. "Distinguished Programs has done the latter by bringing in Kellam and me. When the market rebounds, we're confident that we'll be ready.

"We're starting out with two new programs," Taylor continues. "One is for vacant buildings, where there's tremendous opportunity right now. I have strong relationships with a number of retail agents, and they consistently tell me they need a solid market for vacant properties. There's plenty of competition, but we think we can differentiate ourselves by providing rapid turnaround, ease of doing business, and the flexibility that comes from having our program with a national carrier."

Although the real estate market continues to struggle with declining prices caused by an oversupply of housing, Taylor says the outlook is improving. "We're starting to see an uptick in activity in terms of housing starts, so we're developing a builders risk program. I have a background in that area on the carrier side, and we're analyzing all the offerings in the market so we can take the best of the best to create our program," Taylor explains.

"We're excited about the features and pricing of our program—and especially about the technology we'll be using to make it easy for our agents to write the business," Taylor says. "The agent just has to input two screens of data, and then the policy can be issued. It's as simple as that. As Jeremy mentioned, technology is going to be a key driver of our future success."

For more information:

Distinguished Programs

Web site: www.distinguished.com