2017 Power Broker

Real Estate

A Key Innovator

Robert Colburn
Principal
ColburnColburn, Bloomfield Hills, Mich.

One of Robert Colburn’s clients faced challenges with the historic renovation of some of its buildings and the purchase of vacant distressed properties. Colburn was able to create and negotiate a program with the carriers to successfully mitigate the risks and costs across the entire portfolio.

Another developer, owner and property manager just recapitalized a high-rise office property with extensive catastrophe exposure and a high total insurable value. The lender imposed a new set of loan and insurance terms including high limits for flood and wind coverage. But because capacity wasn’t readily available in the traditional marketplace, Colburn had to go directly to the carrier’s top management to obtain the necessary limits to meet the lender’s requirements.

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“Even while on a family vacation in a different time zone, Robert accommodated several conference calls, which is a clear example of dedication,” said his client, William Gilbert, vice president and corporate controller at REDICO Management.

For another client, he leveraged his relationship with a carrier to create a stand-alone property program with comparable terms to its historic master global property program run by its joint venture partner. He was able to negotiate significant savings on the property rate and lower the attachment point in line with the client’s risk tolerance.

“Once Robert has the ball on something, I don’t need to worry about whether it gets done — I know it will,” said his client.

Man of Many Talents

Michael Feinberg
Executive Vice President
Alliant Insurance Services Inc., Boston

When one of Michael Feinberg’s clients was left without a competitive policy for its multi-building phased development project, Feinberg was quick to act.

Designing an $80 million-limit residential builder’s risk coverage in a secondary market policy form, he was able to achieve best-in-class coverage terms as well as a lower price and more favorable security terms than quoted by the incumbent.

Another client suffered fire damage to a $500,000 HVAC chiller at one of its properties in South Carolina, but the insurers were only willing to replace the control board with a retrofit model. When the client insisted that a new chiller was the only way to ensure proper HVAC operation, Feinberg spent more than six months advocating to 11 insurers and received a $530,000 payment to replace the chiller.

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In another case, he redesigned a large residential real estate client’s property insurance placement after the incumbent declined to renew after substantial flood losses.

Feinberg successfully procured the same coverage at a lower rate, including a $20 million flood aggregate with a $10 million aggregate in high hazard to meet the lender’s requirements.

“Mike has a personal feeling for every loss — he treats it like it’s his own,” said his client Edward J. Easton, owner of the Easton Group. “He’s extremely professional and highly responsive to everything that we do to meet our insurance needs.”

A Force of Nature

Alexandra Glickman
Managing Director
Arthur J. Gallagher, Glendale, Calif.

Starting a multimillion dollar five-star destination resort from scratch is never easy. Risks to consider include potential business interruption due to offshore pollution and contingent business interruption for shipments of one-of-a-kind materials.

That’s not to mention the decision to go with owner controlled or contractor controlled insurance programs.
That was the challenge facing Alexandra Glickman when her client Caruso Affiliated announced a new California coast development.

Having gone out to about 30 markets, she came up with a comprehensive and highly manuscripted insurance and risk-financing program that satisfied all parties’ needs.

She also put together a liability and property insurance program for a real estate investment trust that runs an incubator for startups in its properties across the country.

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“To be able to structure a deal that protected not only our interests and the interests of the landlord, but also to provide the startups with a simple license solution was a big win for us, both in terms of coverage and cost,” said her client.

“Alexandra is a force of nature — she’s probably one of the best brokers on the West Coast, if not in the country.”

Another client said: “Alexandra sets the tone immediately in familiarizing her clients with delivery expectations, given her real estate knowledge and stellar relationships with the insurance markets and professional networks.”

‘He’s That Good’

Mike Gong, CIC, CAWC
Area Vice President
Arthur J. Gallagher, Fresno, Calif

Mike Gong discovered that a self-storage client was paying far more than necessary for flood insurance. Working closely with the client and a risk management company specializing in flood risk, Gong proved that the majority of the client’s buildings weren’t in a flood zone, and convinced the client’s lender to amend its insurance requirement, saving the client 80 percent on its flood insurance premiums.

“Mike understands how our business works and is quick to resolve issues that arise from time to time,” said Charlie Fritts, COO for Storage Investment Management. “Because of his extensive experience he knows many of the underwriters whom he will contact personally when he feels he can make a good argument for a lower rate.”

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He has also come up with a solution for self-storage clients whose properties don’t conform to local zoning laws, which enables them to rebuild their real estate asset and indemnifies against losses.

“Mike’s key strengths are his knowledge and customer service,” said another client, Terry Aston, vice president at Carlo Development Co.

“I just send something to him and I never even have to think about it again — he’s that good.”
Another client said: “I have dealt with many brokers and agents during my time but Mike is up there with the best.”

Taking It to the Next Level

Tony Lorber
Senior Vice President
EPIC, San Francisco

When one of Tony Lorber’s clients told him it wanted to purchase earthquake insurance on its large portfolio of properties, it was time to put his thinking cap on.

Leveraging the use of earthquake models and analytics as well as his knowledge of the market, he quickly identified specific criteria where the client didn’t need to buy cover on all of its properties, on a program the client admits is difficult to insure.

This allowed the client to maximize the amount of coverage it could purchase at the best value. Last year, his client asked him to develop a new methodology that would significantly increase the number of properties included without a rise in premium.
He was able to achieve this by looking at every building on a case-by-case basis and then utilized his contacts to find the best carriers.

In another case, he recommended that his client could take greater control of its general liability losses if it had a larger retention, while also providing cost savings.

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He took about six months to finally convince the carrier that this approach made sense for his client and how it could implement this practice going forward.

“Tony is probably the most experienced and knowledgeable broker that I have ever worked with,” said Shanna Berrien, director of risk and insurance at CWS Capital Partners.

Another client said: “Tony just takes broking to a new level with his unique approach, hard work and dedication, meaning that he always exceeds our expectations.”

The One to Rely on for Complex Projects

Fred Zutel, CIC
Senior Vice President
Willis Towers Watson, Miami

When real estate development company BH3 Management decided to build a $200 million-plus ultra-luxury condominium project on Miami’s last private island, they turned to Fred Zutel.

He managed to secure an extremely competitive program, reducing the projected premium spend by more than $1.5 million, while leveraging analytics to negotiate insurance requirements with the lender and optimizing the builder’s risk program.

For another developer working on a condo project of similar size, he structured a unique surety program that saved millions and significantly reduced overall exposure.
Rocco Carlucci, director of risk management at Property Markets Group, for whom Zutel designed a new program, said: “Over the course of the 11 months that we worked together, Fred has brought to light issues that previously existed that we were then able to address at renewal, as well as to make sure that we are adhering to industry best practice.

“Fred has gone out of his way time and time again to make sure I understand what we’re discussing and why it’s important. He’s taken the time to make me feel comfortable with the options presented and in determining what solution works best.”

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Another developer client said: “Fred has always provided exceptional customer service.

“He is extremely responsive and has a quick turnaround. He always delivers when or before he says he will.”

Finalists:

Nancy Ayers
Senior Vice President
Alliant/Mesirow Insurance Services, Chicago

William Bray
Vice President
Wells Fargo, Houston

Robert Mazzaro
Managing Director
Marsh, New York

Caroline Parrish
Senior Property Broker
Aon, Miami

Nicholas Rawden
Vice President
Marsh, New York

More from Risk & Insurance

More from Risk & Insurance

Risk Report: Hospitality

Bridging the Protection Gap

When travelers stay home, hospitality companies recoup lost income through customized, data-defined policies.
By: | October 12, 2017 • 9 min read

In the wake of a hurricane, earthquake, pandemic, terror attack, or any event that causes carnage on a grand scale, affected areas usually are subject to a large “protection gap” – the difference between insured loss and total economic loss. Depending on the type of damage, the gap can be enormous, leaving companies and communities scrambling to obtain the funds needed for a quick recovery.

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RMS estimates that Hurricane Harvey’s rampage through Texas could cause as much as $90 billion in total economic damage. The modeling firm also stated that “[National Flood Insurance Program] penetration rates are as low as 20 percent in the Houston area, and thus most of the losses will be uninsured.”

In addition to uninsured losses from physical damage, many businesses in unaffected surrounding areas will suffer non-physical contingent business interruption losses. The hospitality industry is particularly susceptible to this exposure, and its losses often fall into the protection gap.

Natural catastrophes and other major events that compromise travelers’ safety have prolonged impacts on tourism and hospitality. Even if they suffer no physical damage, any hotel or resort will lose business as travelers avoid the area.

“The hospitality industry is reliant on people moving freely. If people don’t feel safe, they won’t travel. And that cuts off the lifeblood of the industry,” said Christian Ryan, U.S. Hospitality and Gaming Practice Leader, Marsh.

Christian Ryan
U.S. Hospitality and Gaming Practice Leader, Marsh

“People are going away from the devastation, not toward it,” said Evan Glassman, president and CEO, New Paradigm Underwriters.

Drops in revenue resulting from decreased occupancy and average daily room rate can sometimes be difficult to trace back to a major event when a hotel suffered no physical harm. Traditional business interruption policies require physical damage as a coverage condition. Even contingent business interruption coverages might only kick in if a hotel’s direct suppliers were taken offline by physical damage.

If everyone remains untouched and intact, though, it’s near impossible to demonstrate how much of a business downturn was caused by the hurricane three states away.

“Hospitality companies are concerned that their traditional insurance policies only cover business interruption resulting from physical damage,” said Bob Nusslein, head of Innovative Risk Solutions for the Americas, Swiss Re Corporate Solutions.

“These companies have large uninsured exposure from events which do not cause physical damage to their assets, yet result in reduced income.”

Power of Parametrics

Parametric insurance is designed specifically to bridge the protection gap and address historically uninsured or underinsured risks.

Parametric coverage is defined and triggered by the characteristics of an event, rather than characteristics of the loss. Triggers are custom-built based on an insured’s unique location and exposures, as well as their budget and risk tolerance.

“Triggers typically include a combination of the occurrence of a given event and a reduction in occupancy rates or RevPar for the specific hotel assets,” Nusslein said. Though sometimes the parameters of an event — like measures of storm intensity — are enough to trigger a payout on their own.

For hurricane coverage, for example, one policy trigger might be the designation of a Category 3-5 storm within a 100-mile radius of the location. Another trigger might be a 20 percent drop in RevPAR, or revenue per available room. If both parameters are met, a pre-determined payout amount would be administered. No investigations or claims adjustment necessary.

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The same type of coverage could apply in less severe situations where traditional insurance just doesn’t respond. Event or entertainment companies, for example, often operate at the whim of Mother Nature. While they may not be forced to cancel a production due to inclement weather, they will nevertheless take a hit to the bottom line if fewer patrons show up.

Christian Phillips, focus group leader for Beazley’s Weatherguard parametric products, said that as little as a quarter- to a half-inch of rain over a four- to five-hour period is enough to prevent people from coming to an event, or to leave early.

“That’s a persistent rainfall that will wear down people’s patience,” he said.

“A rule of thumb for parametric weather coverage, if you’re looking to protect loss of revenue when your event has not actually been cancelled, you will probably lose up to 20 to 30 percent of your revenue in bad weather. That depends on the client and the type of event, but that’s the standard we’ve realized from historical claims data.”

The industry is now drawing on data to establish these rules of thumb for more serious losses sustained by hospitality companies after major events.

“Until recently the insurance industry has not created products to address these non-physical damage business interruption exposures. The industry is now collaborating with big data companies to access data, which in turn, allows us to structure new products,” Nusslein said.

Data-Driven Triggers

Insurers source data from weather organizations that track temperature, rainfall, wind speeds and snowfall, among other perils, by the hour and sometimes by the minute. Parametric triggers are determined based on historical storm data, which indicates how likely a given location is to be hit.

“We try to get a minimum of 30 years of hourly data for those perils for a given location,” Phillips said.

“Global weather is changing, though, so we focus particularly on the last five to 10 years. From that we can build a policy that fits the exposure that we see in the data, and we use the data to price it correctly.”

New Paradigm Underwriters collects their own wind speed data via a network of anemometers that stretch from Corpus Christi, Texas, all the way to Massachusetts, and works with modeling firms like RMS to gather additional underwriting information.

The hospitality industry is reliant on people moving freely. If people don’t feel safe, they won’t travel. And that cuts off the lifeblood of the industry.– Christian Ryan, U.S. Hospitality and Gaming Practice Leader, Marsh

While severe weather is the most common event of concern, parametric cover can also apply to terrorism and pandemic risks.

“We offer a terror attack quote on every one of our event policies because everyone asks for it,” said Beazley’s Phillips.

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“We didn’t do it 10 years ago, but that’s the world we live in today.”

An attack could lead to civil unrest, fire or any number of things outside an insured’s control. It would likely disrupt travel over a wide geographic region.

“A terrorist event could cause wide area devastation and loss of attraction, which results in lost income for hospitality companies,” Nusslein said.

Disease outbreaks also dampen travel and tourism. Zika, which was most common in South America and the Caribbean, still prevented people from traveling to south Florida.

“Occupancy went down significantly in that region,” Marsh’s Ryan said.

“If there is a pandemic across the U.S., a parametric coverage would make sense. All travel within and inbound to the U.S. would go down, and parametric policies could protect hotel revenues in non-impacted areas. Official statements from the CDC such as evacuation orders or warnings could qualify as a trigger.”

Less data exists around terror attacks and pandemics than for weather, though hotels are taking steps to collect information around their exposure.

“It’s hard to quantify how an infectious disease outbreak will impact business, but we and clients are using big data to track travel patterns,” Ryan said.

Hospitality Metrics

Any data collected has to be verified, or “cleaned.”

“We only deal with entities that will clean the data so we know the historical data we’re getting is accurate,” Phillips said.

“There are mountains of data out there, but it’s unusable if it’s not clean.”

Parametric underwriters also tap into the insured’s historical data around occupancy and room rates to estimate the losses it may suffer from decreased revenue.

Bob Nusslein, head of Innovative Risk Solutions for the Americas, Swiss Re Corporate Solutions.

“The hospitality industry uses two key metrics to measure loss of business income. These include occupancy rate and revenue per available room, or RevPAR. These are the traditional measurements of business health,” Swiss Re’s Nusslein said.  RevPAR is calculated by multiplying a hotel’s average daily room rate (ADR) by its occupancy rate.

“The hotel industry has been contributing its data on occupancy, RevPAR, room supply and demand, and historical data on geographical and seasonal trends to independent data aggregators for many years. It has done an exceptional job of aggregating business data to measure performance downturns from routine economic fluctuations and from major ‘Black Swan’ events, like the 9/11 terrorist attacks, the 2008 financial crisis or the 2009 SARS epidemic.”

Claims history can also provide an understanding of how much revenue a hotel or an event company has lost in the past due to any type of business interruption. Business performance metrics combined with claims data determine an appropriate payout amount.

Like coverage triggers, payouts from parametric policies are specifically defined and pre-determined based on data and statistical evidence.

This is the key benefit of parametric coverage: triggers are hit, payment is made. With minimal or no adjustment process, claims are paid quickly, enabling insureds to begin recovery immediately.

Applying Parametric Payments

For hotels with no physical damage, but significant drops in occupancy and revenue, funds from a parametric policy can help bridge the income gap until business picks up again, covering expenses related to regular maintenance, utilities and marketing.

Because payment is not tied to a specific type or level of loss, it can be applied wherever insureds need it, so long as it doesn’t advance them to a better financial position than they enjoyed prior to the loss.

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Parametric policies can be designed to fill in where an insured has not yet met their deductible on a separate traditional policy. Or it could function as excess coverage. Or it could cover exposures excluded by other policies, or for which there is no insurance option at all. Completely bespoke, parametric coverages are a function of each client’s individual exposures, risk tolerance and budget.

“Parametric insurance enables underwriting of risks that are outside tolerance levels from a traditional standpoint,” NPU’s Glassman said.

The non-physical business interruption risks faced by the hospitality industry match that description pretty closely.

“Hotels are a good fit for parametric insurance because they have a guaranteed loss from a business income standpoint when there is a major storm coming,” Glassman said.

While only a handful of carriers currently offer a form of parametric coverage, the abundance of available data and advancement in data collection and analytical tools will likely fuel its popularity.

Companies can maximize the benefits of parametric coverages by building them as supplements to traditional business interruption or event cancellation policies. Both New Paradigm Underwriters and Beazley either work with other property insurers or create hybrid products in-house to combine the best of both worlds and assemble a comprehensive risk transfer solution. &

Katie Siegel is an associate editor at Risk & Insurance®. She can be reached at [email protected]om.