From the Big Apple to the Corn State

From the executive office of the Greater New York Mutual Insurance Companies on Madison Avenue in the heart of New York City, Warren Heck, chairman and chief executive officer, can see Illinois.

“It’s fantastic, unbelievable. I get very excited when I talk about it. It’s so friendly,” Heck enthuses about his company’s recent expansion into the suburbs of Chicago.

He also sees Maryland, Virginia, Massachusetts, Pennsylvania, and New Hampshire — some of the states where the insurer best known for its New York and New Jersey ties has begun picking up business.

After Sept. 11 terrorist attacks, many property insurers decided New York City was too risky and left. But how could Heck’s company — with its name, Greater New York Mutual Insurance Co. — pull out of New York where in 1914 it issued its first policy?

“After 9/11 I called our managers together. Other companies were leaving the city and I told them we have a choice. We can leave the state … or we can honor lots of old relationships with insureds that have been with us for many, many years. We decided it was incumbent upon us to find a way to do business here,” Heck recalled in an interview.

The A.M. Best-rated “A+” insurer, which collected more than $300 million in premium for 2006, did not suffer badly from the terrorist attacks. It had about $17 million in claims from the 9/11 attacks but it could have been hit worse given that about 70 percent of the company’s business was downtown. The company insured a building right across the street from the World Trade Center and that building alone accounted for about $7 million of its $17 million in losses from the attacks.

“No question about it, we were lucky,” admits Heck, who joined GNY 46 years ago.

But good luck is hardly the basis for a business strategy. So GNY decided that while it would not leave the city, it would have to reduce its exposure to high rises, high concentrations of people, and high threat of terrorism.

New look for GNY
Six years later, GNY looks much different.

The first thing the company did was begin the process of downsizing its Manhattan exposure. Heck himself has been intimately involved in this process as he serves as a “hands-on” chief underwriting officer for the company along with wearing his other hats. “I like to have my finger on the pulse of what’s going on,” he offers.

Whereas GNY had been comfortable insuring properties worth up to $250 million, it decided to cap its limit at $50 million, ruling out lots of the biggest properties in New York.

Utilizing a geo-coding tracking system to pinpoint the value and number of people in buildings it insured, GNY used this information to reduce the concentration of its business in urban locations and come up with a revised underwriting plan.

“We knew exactly how much business we had in every area of the city. … We established ‘hot spots’ where our high concentrations are in the city and we established that we don’t want another building within 500 feet of another building we write,” he explained.

To further protect its interests and allow a continued presence in the city, it stocked up on reinsurance, purchasing lots of standalone terrorism reinsurance. GNY is covered with TRIA, the federal reinsurance backup, for up to $250 million. “It costs a lot of money,” Heck says.

Geographic expansion
Downsizing and reinsuring were the initial phases of the post-9/11 plan. But the company was not interested in becoming smaller. So GNY turned to geographic diversification.

The company has operated in other states including New Jersey and Connecticut since the 1960s and in Pennsylvania for a number of years. But since 9/11 it has increasingly focused on business from outside New York City.

“It was very important to diversify away from urban areas. So we decided let’s expand away from cities and move to where there is businesses similar to what we are writing now,” Heck said.

GNY decided to diversify geographically while still sticking with the risks it knows. GNY writes commercial multi-peril and workers compensation business. It is a niche underwriter of habitational, light industrial, office building and restaurants. Its policy enhancements include directors and officers coverage for condos and co-operatives. It does not write contractors and doesn’t touch personal lines.

“We thought since we really understood the classes that we are writing, those classes are not really very different in different regions. It’s all pretty much the same. The difference might be the catastrophe risks that are associated with a particular region,” he added. Having decided to stick with the classes it knows, GNY looked around to see where to take its expertise.

“First place we thought of was upstate New York. There’s a lot of business up there. We found it to be fantastic. We do a lot of business in Albany, Syracuse, Rochester, even some in Buffalo. It was so good that we built a branch,” Heck said.

Today the GNY footprint appears well beyond New York and New Jersey — into Pennsylvania, New England, northern Virginia, Maryland, Delaware — and most recently Illinois.

According to Heck, GNY companies wrote $30 million of business in these newer states. For this year, he’s expecting about $45 million.

Michigan and the rest of the Midwest are in Heck’s plans after Illinois.

Illinois welcome
As for Illinois, Heck couldn’t be happier with the reception the company has received from brokers. “There is a void in this part of the country, not enough capacity. They’re looking for a company like GNY which is well-rated, that can do certain things for example the habitational business we write. That doesn’t seem to be something that most companies want to do. It’s a specialty for us.”

GNY likes the middle market accounts — average premium is about $45,000 — rather than the smaller, BOP-like accounts, so it doesn’t compete with the smaller regionals in the Midwest that go after those risks, according to Heck. GNY is more likely to run into Travelers or Philadelphia Insurance in its markets.

GNY doesn’t yet have an Illinois office. Its representative there is a local Illinois person who actually lives in Chicago and visits with brokers.

“Some of the producers are very large; they’re very much like New York producers. They are very smooth, very capable, very good insurance people. So there’s a very good fit,” Heck said.

According to Heck, the economy seems to be doing well in the new territories, at least in the lines GNY writes such as condominiums, so that there is new business to be had.

“As you go around Illinois, it’s not that different from New York City You see construction all over the place, buildings going up.

“It’s a strong economy. There’s a lot of new developments. And we find that in other areas of the country as well.”

While GNY has lessened its terrorism risk exposure, the company, with its concentration of business in the Mid-Atlantic states, still deals with natural catastrophe risks.

“Natural catastrophes redefined what is coastal,” observed Heck. “We sort of are on the coast now. Brooklyn is coastal and parts of Queens. There’s no question that it’s an issue and we have to cope with that, too. The way we do that is by buying higher limits for property catastrophe reinsurance, which is very expensive.”

Natural cats
Natural catastrophes seem less of a threat in the Midwest.

“It’s not like there are no issues in the Midwest. If you really study it, tornadoes hit certain parts of the Midwest — not in Illinois. But hail is an issue. But it’s not comparable to the Long Island wind issue. It’s not comparable to the earthquake. What we decided to do was to not go too far south where the probability is much higher for hurricanes. The Midwest is manageable.”

Largely due to the risk of storms and earthquakes, the company awhile ago gave up its licenses in California, Texas and Florida. “Not that we had that much business there but we felt we were very vulnerable in being there because in some of these states in the event of very serious catastrophes, companies will be assessed on your surplus not necessarily your writings. So we decided, ‘why be vulnerable?’ That has not hurt us and if we have to we can always go back,” explains Heck

Terrorism risk was an important consideration behind GNY’s geographic diversification and Heck knows it will take time to build up the volume in the new territories so that terrorism in the future will become less of an exposure.

The company has also started its own excess and surplus operation, which allows GNY to offer brokers more options. Heck figures the company, GNY Custom, can be “very lucrative” in the years ahead.

Back at home in Manhattan, GNY is still going places other insurers won’t. Perhaps no site in America evokes more thoughts of risk than Ground Zero, the land under reconstruction and fenced area where visitors could peer down into the hole that once was the World Trade Center.

Heck says a lot of companies were very afraid, but GNY agreed to insure Ground Zero. “It’s more emotion than anything. We try not to be emotional,” the GNY executive said. “It turned out to be a good deal for us.”