|
In the 1970s, David Sterling
was studying at the University of Wisconsin and, frankly, at
that time was not getting all that serious about his future. But
then came a call from home with some news from his father,
who had founded an insurance brokerage in New York with
his brother as partner decades earlier.
What Sterling learned upon arriving home was that his
father wanted to take the firm in a new direction, perhaps
taking over the business in its entirety. What the father
wanted to know was, would David help him run the company
if he bought his brother out? Sterling’s father also made an
emotional appeal, telling David that he wanted to pass the
firm along to him one day.
“At that point, when I became aware of how my father
felt and that he wanted to set up a family succession, I was
very moved,” said Sterling. “I resolved to devote myself to
building up the firm.”
Fast forward 25 years, and David Sterling is sitting at the
helm of a $300 million a year agency, a firm Sterling has built
into one of the largest insurance brokerages in the nation.
Along the way, Sterling has emerged as among the country’s
most successful and respected insurance men, with widely
recognized sales skills and a keen, in-depth understanding of
the highly complex commercial insurance markets.
Two years ago, Sterling & Sterling entered the treatment
industry commercial lines business through its purchase of
the Van Wagner Group. Founded by Tom Van Wagner in the
1970s, the Van Wagner Group is by far the nation’s leading
addiction industry insurance agency, with over 7,000 therapist
liability policies and 700 treatment programs on its books.
Bagging the Elephant
The Van Wagner Group has now, under Sterling’s guidance
and direction, bagged the elephant. Last month, the agency
signed an exclusive deal with Therapeutic Communities of
America, TCA, the leading trade association representing the
publicly funded side of the treatment business. With the
association, Sterling will now attempt to persuade TCA’s
members, which include huge industry players like Phoenix
House, Daytop Village and Gateway Foundation, to pool their
risk by buying their insurance through Van Wagner.
Outgoing TCA chairman Richard Steinberg, who in his day
job is the CEO of fast growing WestCare Foundation,
believes strongly that the membership should pursue
insurance purchases through TCA’s arrangement with Van
Wagner: “I believe that over the long-term that it can only
make sense for us to pool our risk. And Sterling really knows
what he is doing, having put together some in-depth programs
for other associations.”
Certainly, the TCA deal is vintage David Sterling, who has
driven much of the growth at Sterling & Sterling by signing
similar deals with associations. “We go to these
associations and tell them that we can save their members
money on insurance premiums because that is exactly what
we do,” said Sterling, who says he expects his deal with TCA
will be generating $10 million in annual premiums relatively
quickly, reaching $20 million within a few years.
Big Cost Center
There is no doubt that insurance premiums are a very major
cost at all treatment centers. In its research, Treatment
Magazine has found that larger treatment facilities tend to
spend between 5 percent and 7 percent of their total expenses
on insurance premiums, excluding employee health care,
while medium and small-sized centers spend between 7
percent and 12 percent of expenditures. The Caron
Foundation’s experience is fairly typical of a larger
institution in the treatment field. Says CFO Andrew
Rothermel: “This is definitely a very significant cost for us,
we spend about $1.2 million a year in premiums, not
including employee health, which is about 6 percent or 7
percent of our cost base. There is no doubt that we are
constantly working to keep our premiums down.”
And that is exactly what David Sterling does for his
industry association clients, a case in point being his
experience helping the International Association for the
Leisure and Entertainment Industries, IALEI, which represents
the family fun park business. The IALEI had been
desperate to get its members soaring insurance costs under
control, according Carol Sjolander, the association’s
executive director. “We had approached several agencies,
but in the end only David came through for us. Our members
have averaged about a 25 percent reduction in their
premiums since we launched the program, which has proven
a boon for attracting new members.”
A Niche Market
Sterling & Sterling, based on Long Island in Woodbury, NY,
is an insurance brokerage, which means it is in the
business of the selling insurance products that are
underwritten by a wide variety of insurance carriers. And
while its carrier partners, showing a high degree of trust in
Sterling & Sterling, often devolve underwriting powers to
the agency as a means of saving time and money, selling is
the principal business of the brokerage.
There are many, many carriers that underwrite addiction
treatment risk, most of them targeting certain risks on a
piecemeal basis, writing a counselor liability policy here, a
workers compensation policy there, and a property casualty
risk somewhere else. There are very few carriers who target
the addiction treatment business for what’s known in the
insurance business as comprehensive coverages. When a
carrier targets a business for comprehensive coverage, what
what it’s doing is targeting businesses whose operations it
wants to insure in their entirety, offering every type of
coverage in a comprehensive umbrella, in effect forming a
risk management partnership with the business it is insuring.
When it comes to comprehensive coverages, there are really
only three players who are currently working the addiction
treatment and behavioral health marketplaces, industry giant
American International Group, AIG, Philadelphia
Insurance Companies and more recently ACE Insurance
Company of North America.
“We’ve been a signifi cant writer of social services agencies
and non-profi ts for over twenty years,” says Cole Henry,
Senior Vice President Commercial Lines at Philadelphia
Insurance Companies, which is based in Bala Cynwyd, PA.
“We do perhaps $500 million a year in premiums there.”
But it has only been in the last fi ve years or so that
Philadelphia Companies has made a tighter focus on offering
comprehensive coverages specifi cally to mental health and
addiction treatment centers. “This has been a very fast
growing business for us, one that I have had to apply the
brakes to at times, says Henry. “We do about $100 million in
premiums in this area now, about 30 percent of which is with
addiction treatment centers.”
Due to the specialization and expertise required underwriting
addiction treatment and behavioral health risk, not many
carriers are in the business of providing comprehensive
coverages, according to Henry. “It is most defi nitely not a
commodity business, which had its attractions for us.”
ACE Insurance, an $18 billion a year company and much
larger than Philadelphia Companies, nevertheless has a
smaller presence in behavioral health and substance abuse
underwriting risk, but addiction treatment is a market that the
company is very keenly interested in expanding substantially.
“We have been involved in mental health for some time, but
on a different level,” says Ross Bertossi, President of Ace
Medical Risk. “We are going to be working closely with
David Sterling to develop the kind of comprehensive coverages
he’s seeking for the industry.”
ACE began its involvement in mental health risk many
years ago when it began insuring members of the American
Psychological Association, 40,000 of whose members are
now covered for liability at the insurance company.
Risk Managers
David Sterling says his intention is to work very closely with
carriers that are offering comprehensive coverages to better
manage risk throughout the treatment business, with the aim
of lowering premiums for treatment centers that do business
with the Van Wagner Group and Sterling & Sterling.
For outgoing TCA President Richard Steinberg, it was
Sterling’s strong expertise and skill in managing insurance
risk that was the major reason behind the association’s choice
of the Van Wagner Group for its program. “The one thing that
David Sterling talked about more than anything else was risk
management,” said Steinberg. “They have put together an
in-depth program for us that was a real driving force behind
our choosing the agency.”
When insurers talk about risk management, what they are
refering to is a century old practice by agencies and
carriers working together to examine their clients business
from an insurance risk perspective, helping fi nd ways to
mitigate that risk and lowering the risk profi le of the business
overall. Since insurance companies are in the business of
correctly pricing risk, lower risk usually translates into lower
claims, which means more profi ts at the insurance companies.
But in practice, what also occurs, largely because insurance
markets tend to be hotly competitive, is that carriers often
give the lion’s share of that savings back to the customer in
the form of lower prices. Lower risk equals lower prices.
Sterling is indeed very familiar with this process, having
helped many associations and their members lower their risk
profi les in the manner described above. “What we do, and
have done already with the treatment business, is assign what
we call loss control engineers to the task of looking at risk
industry-wide and by visiting specifi c facilities,” said
Sterling. “The results from this level of study can often be
very dramatic, with big premium savings realized”
But when treatment centers, or other businesses, buy their
insurance piecemeal, - workers comp from one carrier and
property casualty from another, for example - it is virtually
impossible for businesses to get comprehensive risk
management advice unless a consultant is hired expressly for
that purpose.
“If you’re a factory owner, the property casualty guy is going
to tell you you need fi re doors so fi re won’t spread to the rest
of the building, but the workers comp guy is going to say that
workers may be injured or trapped by such doors,” says
Sterling. “You need someone to help you navigate this
confl icting advice. That’s exactly what we do, taking into
account the entirety of our client’s risk profile.”
But in order to do this Sterling must be writing coverages
that are comprehensive, writing policies that cover the entire
business of the treatment facility, or at least as much of it as
possible. “This is why we are working so closely with the
carriers,” says Sterling. And it is one major reason why
TCA decided to go with his agency. “We are looking to
David to explain the nature of our risk to the carriers, hoping
that new ones will take a look at our business and the risks
involved.” Certainly, Sterling is already doing this, having
recently persuaded ACE Insurance to enter the business of
coverig inpatient facilities.
And while Sterling and Van Wagner will certainly have a leg
up in selling comprehensive coverages to the TCA
membership, which number about 50 mostly quite large
treatment centers, there is nothing in the deal that guarantees
the TCA members’ business to Sterling and Van Wagner.
“Sterling has the very strong backing of the board, which
believes very deeply that pooling our collective risk in a
program together will have substantial long-term benefi ts,”
says Steinberg. “But David has still got some selling to do
with the individual members.” TJ
 |
Special Reports 
Subscribe to this comment's feed
