Lexington Insurance

Rough Notes, Oct 1999 by Boone, Elisabeth

The surplus lines leader pioneers new coverages and value-added services

When you're already the country's leading surplus lines insurer, how much higher can you go? That's a good question for Lexington Insurance Company, a wholly owned subsidiary of the giant American International Group and acknowledged leader of the pack in today's competitive excess and surplus lines marketplace.

One thing is certain: This topranked carrier is doing anything but resting on its considerable laurels. In this article we'll talk with Lexington's chairman and chief executive officer, Kevin Kelley, to find out what drives his company's ongoing pursuit of excellence in all its endeavors.

Established in 1965, Lexington has grown to become the largest surplus lines carrier in the United States, with 1998 net written premium of more than $290 million and a market share estimated at 17%. Rated A (Superior) by A.M. Best and AAA by Moody's and Standard & Poor's, the insurer boasts a five-year (1993-1997) combined ratio of 95.5%, well below the industry average of 106.9% for the period. (The low combined ratio reflects not only Lexington's sound underwriting judgment but also its unique distribution system, which we'll learn about in more detail later in the article.) Based in Boston, Lexington employs some 375 people and has offices in London and Bermuda. Within its broad specialty of hard-to-place property/casualty risks, the company has developed expertise in a number of carefully selected niche markets.

Chief among these markets, Kelley says, are design professionals liability, employment practices liability (EPLI), inland marine, elements of the health care industry, and elements of the transportation business. Other key niches are chemical manufacturing, communications, construction, energy, entertainment, program business, and catastrophe-driven high-risk property.

Lexington also offers personal lines coverages under the LexElite servicemark: excess flood (over National Flood Insurance Program limits), personal umbrella, excess personal umbrella, vacant home coverage, and a stand-alone personal articles floater.

Flexible and responsive

A vital ingredient in Lexington's success in its complex markets, Kelley observes, is the insurer's receptivity to new ideas. "Clearly, we want to respond quickly to new ideas; that's why we characterize ourselves as 'pioneers in revolutionary protection,'" Kelley explains, referring to the tagline on Lexington's informational materials. "Implicit within that identity is the belief that innovation is a multidimensional game, in which we need to stay ahead of the trends that affect our customers so we can design products that help them deal competently with those trends." To identify emerging trends in the industries it serves, Lexington regularly conducts focus group sessions with executives from those industries.

How does Lexington seek to differentiate itself in a highly competitive market? "We try to be more innovative than our competitors in responding to the needs of the marketplace," Kelley replies. "We encounter competition in many forms, including the alternative risk market. We must meet our customers' needs or they'll seek other options. We believe that our clients appreciate the value-added services we offer."

To streamline the product development process, Lexington has established a New Products Department whose mandate is to create customized products for the high-risk exposures of specific industries. Among these coverages are simplified professional liability and excess loss for physician groups; sexual misconduct liability; managed care liability; and directors and officers liability for environmental service firms and manufacturers. Other areas for which Lexington has developed specialized coverage products are bloodstock transport, design/build liability, directors and officers liability (particularly for financial institutions and high-tech and biotech companies), franchisor errors and omissions, health care provider excess loss, intermodal contingent liability, and ostrich mortality.

Lexington's New Products unit allows the insurer to streamline the product development process and bring new products to market faster. The unit serves as a liaison among producers, insureds, and Lexington, an arrangement that allows for open communication and contributes to the development of flexible coverages and policy forms.

Programs are a priority

With almost $500 million in premium volume and more than 25 years of experience, Lexington's parent, AIG, is a major underwriter of program business through its AIG Programs unit. AIG Programs consolidates all major program business divisions within the AIG group of companies. This specialized unit offers program administrators, reinsurance intermediaries, agents, and brokers a single source for all their commercial property/casualty program business: large or small, national or regional, standard or high risk.

Lexington itself has developed programs to meet the needs of a diverse selection of niche markets: computer resellers, ambulance services, churches, certified nurse midwives, clinical research professionals, health care governmental liability, tattoo and body piercing shops, camps and clubs, bridge painters, animal mortality, pet health, tanning salons E&O, ski resorts, and managed care E&O, to name a few. Lexington has existing programs which producers can offer to their clients, or the producers can work with the insurer to develop new programs.