Weatherproofing the Wealthy

A new venture offers insurance for million-dollar homes, cars, jewelry, art and more, with about 50 residents in Collier and Lee counties already on board. Those who join pool their risk, with the idea that if only well-constructed, wind-resistant homes are insured, the cost will lessen for all members.

"People are frustrated, that's for sure, with the current situation," says Ross Buchmueller, president and CEO of PURE Risk Management, which launched Privilege Underwriters Reciprocal Exchange (PURE) this past spring. He notes that PURE, on average, is saving customers as much as $6,300 on their annual insurance bill.

Floridians with high-value, well-constructed homes believe they have been subsidizing those with average- to poor-risk homes, says Brad Havemeier, president of Gulfshore Insurance, which represents PURE. Case in point: Homes built since the 2002 code requirements that went through the tough hurricane activity in 2004 and 2005 had 50 percent better "loss experience" than those built prior to 2002.

"The No.1 component that drives the actual premium cost of the insurance policy is loss experience. If an insurance company has more losses, guess what? They'll have to raise their rates," Havemeier says.

PURE is selective in underwriting criteria. To qualify, a home's replacement cost must be $1 million or greater and the home must comply with the latest building codes. "By only offering insurance to people who have a home that either was built to the most current building codes or has been sufficiently hardened from an older construction, we can control costs significantly," he explains.

Claire Wilkinson, vice president of global issues for the New York-based Insurance Information Institute, says that in spots like Florida, with skyrocketing costs, it's not unusual to see a company trying to cater to specific market segments. At this point, it's difficult to determine how a niche effort such as PURE could impact homeowners who are less affluent, she says.

Many who own newer structures believe their insurance costs have been unreasonably high, Havemeier says, because their homes can resist winds much greater than older structures can. Typically, wind coverage is approximately 65 percent of the overall premium, he adds.

PURE, a member-owned company, will offer better coverage and more service for less, Buchmueller says. "When premiums in Florida need to be high enough to give sufficient returns to investors, a member-owned company is more interested in charging a premium that is a fair and accurate reflection of the cost of the risk," he says.

Part of PURE's appeal is the exclusivity, with only 400 policies in Southwest Florida expected to be written. About 2,500 homeowners in Florida are expected to join this year.

PURE provides an option at a time when it's getting tougher for these homeowners to use Citizens Property Insurance Corp., the state-backed insurer for those who can't find independent insurers. Starting July 1, 2008, high-net-worth homeowners will need to show that four insurers have rejected them before Citizens will cover them.

Havemeier says that other companies that fulfill insurance needs for people with high-value dwellings have been in business a long time, so they have some older homes on their books that may be more vulnerable to wind loss. To subsidize losses, they might charge more for new, better-built homes.

PURE's business strategy works like this: Members pay a one-time surplus contribution equal to 50 percent of their first-year premiums for homeowners insurance, and 20 percent of their first-year premiums for their private auto, jewelry, art and personal excess liability. These one-time contributions will be combined with a surplus note and a comprehensive reinsurance program.

At the end of every year, PURE will subtract losses and expenses from all collected premiums and return the savings to policyholders as either dividends or credits to the subscribers' savings accounts. The accounts belong to the individual members but will be available to PURE as surplus, which provide "extra comfort" in the event of severe losses, Buchmueller says.

While high premiums and wind coverage are sometimes sticking points in decisions to buy, Phil Wood, president and CEO of John R. Wood Realtors, says clients are still willing to pay the high price of insurance to live in Florida.

"It's not slowing them down at all. It's kind of like, 'Well, gas is high. It doesn't mean I'm going to quit driving,'" he says. "They want a second home. That comes along with it."