In Florida, A New Way To Sell Hurricane Insurance

Most insurance executives look at the lavish houses and condominiums along the Florida coasts and cannot help but think: hurricanes, wreckage, financial ruin.

Ross J. Buchmueller found that big, expensive houses fared the best in hurricanes, and his company will sell only to owners of those homes.

But Ross J. Buchmueller sees opportunity.

As most big insurers are cutting back coverage in Florida and other coastal states after a string of catastrophic hurricanes, Mr. Buchmueller has started a company offering policies that hardly anyone else wants to sell — and at as little as half the going rates.

His strategy, he says, is not as daring as it seems. By studying industry statistics he has found that big, expensive houses have fared the best in hurricanes. And his company will sell only to owners of those homes.

To obtain coverage, a home needs to be worth more than $1 million. It must be fairly new, solidly built and equipped with the strongest shutters, or such high-grade windows that flying debris merely bounces off them.

To further reduce his risk, Mr. Buchmueller said, he is limiting sales in the first year to a few thousand policies and buying insurance from big international insurance companies, known as reinsurers, that will cover 75 percent of his potential losses.

The cost of the reinsurance will sharply lower his profit. But Mr. Buchmueller, 41, has set up his company, Privilege Underwriters Reciprocal Exchange, as a nonprofit concern, owned by its policyholders. His reward, Mr. Buchmueller says, will come in the form of a management fee that should rise as the company grows and expands into a national business.

Mr. Buchmuelller has been quietly selling policies for several weeks and plans to formally announce the opening of his new company on Tuesday.

Some insurance experts say Mr. Buchmuellers venture may inspire other entrepreneurs — or groups of property owners, like condominium associations — to create similar arrangements. Doing so could help break the crippling pattern of big, established insurers reducing coverage, and investors in new companies chasing ever higher premium prices.

But others are skeptical. Its a creative approach, said Michael Koziol, a public policy specialist at the Property Casualty Insurers Association of America, a large insurance trade group. But like any new company, theres a certain risk. More new companies go under than old companies.

Robert P. Hartwig, the president and chief economist at the Insurance Information Institute, a trade group in New York, said that even with insurance premium prices at their all-time high in Florida, they were still not high enough to offset all the potential damage that many weather analysts anticipate over the next decade or so.

Mr. Buchmueller says his company will have considerably more capital than most Florida start-ups — an estimated $45 million by the end of the year. And he says that he is confident that he has found a gap in the market where the going prices are higher than the actual risk. Everyone in Florida thinks theyre paying too much for insurance, he said. And some of them are right.

Florida has been hit by a number of hurricanes in the last few years. The insurers have paid billions of dollars in claims, and prices in the state are the highest in the nation. Some people are paying almost as much for insurance as for mortgage payments. And every week, 15,000 homeowners in Florida are requesting bare-bones coverage from the state-run insurance agency because no one else will sell it to them — at any price.

In January, Floridas legislature went into special session to deal with the insurance crisis and decided to force down prices for all companies, including Mr. Buchmuellers, by perhaps 20 percent.

But many insurance experts say that if hurricane damage is heavy in the next few years, the state will probably have to make up for the price cut and possibly a lot more in claims costs by issuing bonds and passing on potentially enormous expenses to all policyholders.

Florida regulators welcomed Mr. Buchmuellers company as a new source of coverage. They approved his plan in mid-January, and he has started selling policies through independent agents across the state.

Charles Kilvert, the owner of the Claude D. Reese insurance agency in Palm Beach, said the first question he hears is: Are these guys going to pay their claims?

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