Magazine article Risk Management

Creative Streak in the Insurance Market

Magazine article Risk Management

Creative Streak in the Insurance Market

Article excerpt

To create, rather than imitate , is the basis of a creative streak. Though the insurance market may be marked by its historic legacies, there lies within it an array of innovative qualities. Every year, as the pitch of competition heightens, more organizations are encouraging and developing the means to present a creative streak as a solution-builder for present and potential clients.

Creativity may be found where insurance companies are scouring the business realms of the world for quirky-sounding solutions to never-before-seen problems, like an insurance policy for wine growers in England, a place where prior climatic patterns precluded any such agribusiness. Or it can be seen in the institutional effort of an insurance company breaking out a new division that specializes in customizing hard-to-cover risks, like a new practice devoted to finding contractual coverage for past issues involved in mergers and acquisitions.

Here we dig past the marketing campaigns, where any insurance industry provider is likely to pronounce its creative strategies, to get a hold of the case examples that back up those words. Each provider-insurance companies and brokers alike-had a different perspective, a different problem to solve and a different set of tools to go about it, but, in the end, they all delivered a unique product to their clients using some shade of a creative streak.

Savings Worth a Brand New School

A few years ago, an amendment to lower school class sizes was passed in Florida, inducing a sudden need for many more rooms in which to put those smaller classes. As massive construction was underway for the Miami Dade School District in the second quarter of 2006, the Florida property market was all but gutted, due to insurer reluctance to fund any large amount of exposure in the hurricane-prone region.

"They have all these projects going on, and they require by contract that the general contractor have builders' insurance during the construction until they receive a certificate of occupancy. They could not get it," says Rick McAllister of Arthur J. Gallagher's public entity and scholastic division. "And if they did get it, the price was getting to the point where it was costing up to $3 or $4 million for $50 million in coverage. Not only that, but the contractors were passing on the cost of the wind deductible, which had gone up 5%."

Luckily the Gallagher team in Florida had come across a similar problem with a similar entity the year before which provided a blue print for the brainstorming process. It developed a unique master builders program that provided the coverage needed, using familiar techniques in a different situation.

"We've always prided ourselves on coming up with unique insurance alternatives," McAllister says. "There were not a whole lot of people doing these master builder risks in Florida because there was a significant concern for the exposure. But a lot of what Gallagher does historically is bring people together to create risk pools or risk sharing concepts to maximize the efficiencies of the business. This is very similar to what we've done before-different lines of coverage, different groups and different needs-but we're still providing a similar method of transportation, per se."

Coming up with a novel idea is one thing, selling it to the market is another. This is the aspect of the creative streak that many brokers and insurers insist is vital-being able to explain your ideas. With the solution accepted by an insurance market shy before such a so-called "capacity-aggregate hog," the Gallagher team estimates that, on more than $1 billion in construction, they saved the Miami School District between $60 and $80 million.

"They could buy a brand-new high school for that," says David Marcus, vice president of the southeast region and managing director of the public entity and scholastic division.

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