BAND-AIDS

TRANSCRIPT

[Bruce Silverman] Hey, everybody, welcome once again to another episode of "Managing Risk for Tomorrow, Today." Today is with Adam Perea. He is the vice president of Elite Risk Insurance. 602-882-1213 is his phone number, aperea@eliterisk.com is the email address and the website is eliterisk.com. Adam, always good to spend time with you. And to get into this wonderful wacky, complicated, stressful, whatever you want to throw at it - insurance world that we're living in today. 

[Adam Perea] Yeah, no, I appreciate you having me. It changes day by day.

[Bruce Silverman] Does that make it fun? Or does that make it frustrating? Challenging? I know, I'm just throwing out all of these words.

[Adam Perea] Yeah, no, you know what I mean, for me, that's the beauty of it. I I'm, I'm the kind of guy that if I do the same thing more than you know, two times it's, it's I get bored and I lose interest. So the great part about what we do is every day we wake up and it's it's usually different than the day before. So you know, we always encounter something new and different. And that's exciting for me.

[Bruce Silverman] Well, let's just jump right into the excitement you're calling this episode "Band-Aids." So first of all, love, love the creativity that comes out of Elite Risk, you know, between Henry coming up with cool titles for episodes and, and Jeff trying to send me jokes. So we'll get into that.

[Adam Perea] Never a dry moment here at Elite.

[Bruce Silverman] No, definitely not. Definitely not. So bandaids. And it really comes down to as I was talking about earlier, the insurance industry today is tough. It's not easy. What I really love about Elite Risk is you guys are very creative. You you find the solutions, you're able to force the round peg into the square hole and find solutions for companies. But sometimes, sometimes you feel like there's band aids that need to be used instead of complete solutions.

[Adam Perea] Yeah, you know, and then I came up with that, because it's exactly like it sounds, you know, sometimes a bandaid solves the problem. If you have children, you'll know what I'm talking about. Sometimes a band aid fixes the issue. And sometimes it's a temporary fix until you can address the larger issue. Right. And insurance right now what we're seeing is a greater need for that. As we see this hardening market, and carriers leaving states zip codes, sections of business, you're familiar with Florida. And, you know, carriers are just that we're not going to write here anymore, we're not going to write insurance, and they're leaving my you know, I joke, there's a few states, you could stand at the state line and highfive the carriers as they're leaving. We're seeing emails and you know, articles come out that there's some carriers saying great for the rest of the year, we're no longer gonna write any more insurance could be as a company could be in a specific region could be in a specific vertical. So when you're already in a hardening market, that makes things even more difficult for the insurance. And I think I mean, I'm not that old, but this is one of the longest hard markets, you know, that I could, that I've ever been involved with or seen. And, unfortunately, I don't see it changing anytime soon.

[Bruce Silverman] So, what areas of insurance and customers needs can you think of, that would benefit from a band aid approach?

[Adam Perea] Right now? Property. I mean, anybody that you talk to an insurance, if you tell them I've got a property solution, you know, you're gonna get just bombarded with emails and phone calls about what your property solution is, and, and there's many different parts to that and pieces to that, right, is it? Some some places may need flood coverage, you know, some people might need wind, some might need hail. It's difficult when you're in a coastal city. And you know, what type of construction your company your buildings in so there's a number of factors but properties, one that we see in high demand right now that we're working on, you know, possible Band Aid solutions.

[Bruce Silverman] So I know in Florida there are friends of mine that have renewals that will go up 50%, all of a sudden, they're paying more in insurance than they are for their mortgage. So what would be the types of things that they could do from a band aid type of approach that can lower their costs?

[Adam Perea] Yeah, so we're seeing some significant changes in them in in just the industry, the market, the, you know, everything involved with this. So, you know, most of the time, they'll have these properties with a mortgage, so they'll have it financed. And when you have a lender involved in your transaction, you know, there could be loan covenants on your outstanding balance, there could be certain minimum restrictions for the type of insurance and the amount of insurance you have. And unfortunately, you know, we're just seeing companies just simply aren't able to comply, not because they say, I don't want to pay that much for insurance, they just can't get insurance coverage. So you know, we're seeing the rising cost of insurance inflation, what happens with inflation and insurance is it starts to push more premium into your excess layers. So your years property stacks, you know, when you're buying multiple layers of insurance, those start to increase just because of inflation, then we see treaty renewals for these big reinsurance companies coming in, and they're not favorable. So people are reduced in their capacity. So, you know, they're the cost of insurance is rising capacity is getting lower. So what do you do you know, how, as a lender, can you continue to enforce, you know, these minimum requirements on on these properties when they're simply not an option?

[Bruce Silverman] So what can a business do when their rates are rising; their options are limited; they know they have to have the coverage; and yet, they're looking at the balance sheet, and trying to literally balance everything?

[Adam Perea] Yeah, so one of the things that we see in it is prevalent, and, you know, the southeast, but it's, it's also, you know, concern across the country for different areas, you know, might be wildfire in California versus, you know, category three windstorm in Florida, but they're kind of facing the same issues. So, you know, company or individuals that aren't able to get insurance right now, whether they like it or not, or want to or not, they're self insuring, right? So if you've got $50 million in insurable buildings, and you can't find insurance, whether you want to or not, you're insuring $50 million. So if you have a loss, you're paying for it. So there's other there's other avenues that they can go down, right?

Maybe they look at it, and you used to be able to do some net cat modeling, and, and have predictable wind patterns. And you know, say, Hey, we're gonna do a, a one in 10, or one and 25, I've seen them up to one and 500 year events where they model it out and say, Hey, based on your location, and the historical weather patterns, this is what you can expect over the next five years, you're gonna have two large losses, or, you know, whatever it might be, well, whatever, whatever is occurring in the world right now could be climate change, whatever you want to call it, the weather patterns are starting to become more unpredictable. So you just can't rely on you know, the old methods. So, so when you look at this, and the title, the episodes, band aids, right, so what, how does, how did we come up with band aids? Well, if you've got $50 million in property that you need to insure, but let's say you only have 20 million of it, that is still has a loan against it, right? So you have those loan covenants. Maybe you're just looking for a solution for $20 million right now, not the 50. But just the 20, just to get the lenders satisfied, and make them happy.

There's others that are even smaller than that, that says, hey, we can't even get to that $20 million. I just need something. Right? Give me something. And you know, that could be Hey, I'm willing to take the first million on by myself as the owner, but then at least give me $5 million, you know, above that, just something that I can get coverage for, right. So that's what we talked about, you know, a band aid could be just a temporary fix, you know, give me $5 million a coverage, cross my fingers hope nothing happens. And that gets me through, you know, this year, and then maybe next year the market changes and I can procure more coverage. Maybe that's the solution, right? We talked about sometimes band aids are the solution. So maybe it says hey, I'm fine with that. We're good. I don't need more than that. So so that's what we're looking at right now is You know, we're looking at the cash flow of these companies, we're looking at their balance sheet. And where do you want coverage? How much do you want? That's what we're trying to figure out. And then you can go tomorrow, there are other options.

There's more options, where you say, Hey, how about I just buy insurance to protect me against a category three storm, you know, if I don't have coverage, unless the winds get to 110 miles an hour, then I have some coverage, right? So now you're self insuring anything below that, which could be some damage. But now you've got a band aid that says, hey, I might have $5 million of coverage for you know, an event where the wind speeds get up north of 110 miles an hour. So that's a very small defined exposure, but at least you have coverage, right? You do have some coverage. Does that help you sleep at night as an owner, does that help with your loan covenants? But those are temporary partial solutions, right. So that's why we liken them to a band aid.

[Bruce Silverman] Fair enough. Creativity, creativity, creativity. That's what I that should be the slogan of Elite Risk - "We are creative." I'll run that one by by Jeff and see if it works. Yeah. "Managing Risk for Tomorrow, Today" with Adam Perea. 602-882-1213 is his phone number, aperea@eliterisk.com is the email address and the website is eliterisk.com. Adam, always learn so much when we visit, and if anybody has any concerns if they're thinking about self insuring, which we did on a previous episode and all about captives are you're just looking for a bandaid to get you through a situation with your business - Adam is the gentleman to call.

Adam always appreciate spending time with you. 

[Adam Perea] Thanks Bruce.