Coalition creativity.

To Hartford Steam Boiler Group, the concept of coalition purchasing takes a different turn, amounting to strategic partnerships and alliances that capitalize on the strengths of the parties to create products that, collectively, can respond better to the market. In effect, Hartford Steam Boiler is the hub of these relationships.

Hartford Steam Boiler works with more than 200 property/casualty insurers to provide them with specialty reinsurance programs on an outsource basis. "We underwrite and reinsure the equipment breakdown on a wide range of businesses and institutions," said David Schraeder, western regional vice president responsible for his company's alternative risk transfer segment. "We work closely with our reinsured customer clients to integrate our services with theirs and, by virtue of that, we become an extension of their product strategy and their organization."

This allows the clients to bring a stronger product to the marketplace without having to invest the personnel hours in developing a specialty product, Schraeder said. "Not many are going to be able to just go out and create a startup equipment breakdown, traditionally referred to as a boiler machinery product, so they'll turn to a company like ours and ask us to put them in the business, that is, install that line into their portfolio of products."

This could be a standard line market--Hartford Financial Services, St. Paul Cos., Firemen's Fund--or it could be an excess and surplus market, a program market, a pool or a captive--essentially anyone retaining risk, Schraeder said.

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"We'll work with them to enhance their product portfolio," he said. "We have an integration process that allows for a greater efficiency in market impact for our client companies. Those services essentially include product design--we'll design the equipment breakdown, we'll look at their forms, we'll design a product to fit against that--and then we'll manage the product filings with the state departments of insurance." Hartford Steam Boiler does the underwriting, the pricing and the systems consulting. It also handles marketing and training, the jurisdictional inspections for boilers and pressure vessels, as well as loss prevention, risk management services and claims.

As a result, client companies don't have to put up any of the risk or any of their capital. "It's a product enhancement for them--it drops a little bit of guaranteed income to their bottom and top lines without any risk of loss because it's 100% reinsured," Schraeder said. "We work with the individual carriers to develop a methodology to include equipment breakdown in their packages that's based on their class of business and their exposure. It's almost custom-crafted to that carrier's product."

This can be accessed transactionally, on a program basis or across an entire portfolio of business, he said.

"When the equipment breakdown is written on a program, for example, and it's done with the equipment breakdown included across the entire portfolio, we're able to get the pricing down generally to a level that is below any resistance on the part of the customer," he said. "In the market environment that we're in, that makes enhancing programs with equipment breakdown a new source of revenue growth for many of our client companies."

Hartford Steam Boiler has been adding equipment breakdown or boiler machinery to the packages of other insurance companies for at least 40 years. But it has been honing its client-integration skills only for the past five to 10 years, Schraeder said.

"What we have done as a specialty market is find a new way to distribute our product," Schraeder said. "We do that by partnering with our client companies, by adding our product to their product line and getting a much greater penetration of insureds."

This has the benefit of reducing the adverse selection that Hartford Steam Boiler used to experience, he said. From client companies to agents and brokers to insureds, themselves, this approach finds a new way to distribute a product that has long been needed but was difficult to distribute on a transactional basis, Schraeder said.

"Twenty years ago, you would spend almost all of your time talking to people about why everybody needed boiler and machinery coverage," he said. But that changed about 10 years ago and agents, brokers and client companies--the marketplace in general--finally understood the need but wondered what Hartford Steam Boiler could do to make the transaction easier for them, Schraeder said. "By integrating our product into the portfolio line of other companies, we've made it easy for them," he said.