King of the road

Transportation risks get a smooth ride with Northern Star Management

By Elisabeth Boone, CPCU

Everyone feels the pinch during a prolonged soft market, but it's particularly painful for the MGAs, MGUs, program managers, and wholesale brokers who serve specialty or niche markets. When capacity floods the market and drives down prices even for difficult classes, intermediaries often confront tough challenges.

Rising to those challenges—and converting them to opportunities—is key to the success of Northern Star Management, Inc., a specialty intermediary that focuses on transportation risks and also serves a number of other niche markets.

With headquarters in Somerville, New Jersey, Northern Star was established in 1997 by George A. Karlis Jr., president, who sought an opportunity to leverage his experience in the reinsurance business. "Our main objective was to bridge the gap between specialist retail producers and some of the primary carriers that we had contacts with," Karlis says. His parents, George senior and Doris, have been with Northern Star from the start; and his brother, Michael, came on board in 2001 as vice president and general counsel.

"Family has been a key part of our business," Karlis says. "Over the years, my wife, Karen, and my children have all pitched in and helped out."

Ralph Byrne, a seasoned veteran of the transportation industry, is the firm's head transportation underwriter. Serving as vice president of business development is John Williams, CPCU, ARM, an experienced transportation underwriter who, along with colleague and senior underwriter Phil Fisher, joined the firm in 2011. Williams and Fisher are based in Northern Star's office in Roswell, Georgia. Mark Sedlacek, formerly a principal in a general agency that specialized in towing and collateral recovery, joined Northern Star and brought with him a team of 17 people. Sedlacek is now vice president and program manager at Northern Star's office in High Point, North Carolina. Northern Star also has an office in Costa Mesa, California, that is headed by Steve Feemster.

"We operate as an underwriting manager, wholesale broker, and program administrator that underwrites, places, and services a variety of insurance products via retail agencies throughout the contiguous United States," Karlis explains. "From the beginning, transportation has been a significant part of our operation; it represents about 75% of our total book of business." Other practice areas are workers compensation for small contractors and harder to place risks; high-value personal lines, and a general lines unit.

Why transportation?

Almost since the dawn of the automotive age, trucking has been a vital element of the U.S. economy. From small local delivery vehicles to vast fleets of 18-wheelers, trucks move countless products from factory, farm, seaport, or other sources to distributors and from there to retailers and ultimate consumers. For the professionals at Northern Star Management, trucking is a dynamic industry that is the very lifeblood of the American economy.

According to the American Trucking Association's report ATA American Trucking Trends 2010 and statistics compiled by www.TruckInfo.net, the U.S. economy depends on trucks to deliver nearly 70% of all freight transported annually in the country—close to $700 billion of manufactured and retail goods. Total trucking revenue is estimated to be over $255.5 billion annually, generated by more than 500,000 trucking companies comprised of 15.5 million trucks, almost 15% of which are tractor-trailer units. "By our estimates, there are more than 40,000 towing operations in the country and about 8,000 collateral recovery operations," Karlis says.

"Over 96% of U.S. trucking companies are comprised of fewer than 28 units," he points out. "Thus, not only is the transportation sector a significant industry that provides almost unlimited opportunities for property and casualty insurers, but trucking is composed predominantly of small and mid-sized businesses that depend on retail agents and brokers to meet their insurance needs."

Since opening its doors almost 15 years ago, Northern Star Management has established a strong and growing presence in the transportation sector.

"Initially we focused on small local and intermediate radius trucking fleets, as well as garage and non-franchised auto dealers," Karlis says. "Over the past 10 years, we have expanded our appetite to include long-haul fleets, auto haulers, towing and recovery, and collateral recovery, and we have expanded our product offerings for garage and non-franchised auto dealers. We have also redefined our transportation appetite by expanding the radius, fleet size, and commodities we accept."

Northern Star has programs and products for several key classes within the trucking sector. For truckers and specialty haulers, including auto haulers, the firm has admitted or non-admitted markets in most states for auto liability, auto physical damage, motor truck cargo, and general liability coverages, either packaged or on a stand-alone basis.

"We target risks with up to 25 units under our binding authority," Williams explains. "Under our brokerage authority, we can write most classes and sizes of risks."

For towing and recovery operations, Northern Star has underwriting authority in all contiguous states to provide auto liability, auto physical damage, cargo, on-hook, garagekeepers liability, and general liability, usually on a package basis. "Here again, we target risks with up to 25 units or $100,000 in written premium, but we can work with larger risks that meet our carriers' eligibility guidelines," Williams says.

Northern Star offers the same coverages in most contiguous states for collateral recovery (repossession) operations, and the general liability coverage includes wrongful repossession.

Focus on underwriting

Trucking risks are complex and challenging, and Northern Star's team of veteran underwriters excels at identifying and addressing the exposures that are unique to each class the firm targets.

"Many factors affect an insurance carrier's ability to make an underwriting profit in this segment," Karlis asserts. "We focus on securing an adequate premium based on the assumption of risk and on underwriting the key aspects of the exposure. We thoroughly analyze the pertinent aspects of the risk, including the nature and radius of operations, equipment, driver performance, loss history, financial condition, gas logs and filings, and record with the Federal Motor Carrier Safety Administration. We analyze the correlation between the risk's management and financial situation and its safety record."

The trucking industry is heavily regulated at both the state and federal level, and a risk's compliance with relevant regulations is a key consideration in the underwriting process. "We need to understand how state and federal regulations affect our insureds," Karlis says.

The recession and sluggish recovery have adversely affected almost every sector of the economy, and transportation has been especially hard hit by the slowdown in demand for many different kinds of products that are shipped by truck. Add in the rising cost of fuel, and it's easy to understand the challenges that confront trucking operations.

"In this environment, it's essential for us to understand the economic challenges faced by insureds, and to accommodate them while protecting the assets of the insurance carrier," Karlis declares. "We have been able to address all of these factors and develop a profitable portfolio of trucking business."

The profit picture for some trucking risks is starting to improve, Karlis notes. "Although specialty haulers were hit hard by the recession because of declining freight levels, they've been rebounding over the last two years or so," he says. "There has been a substantial amount of consolidation in the industry, and the driver pool has improved because many of the poor drivers were let go."

In the transportation sector, as in every class of business, a key component of profitability is the quality of the business submitted by retail agents and brokers.

"We work with a number of retailers who specialize in transportation, including large brokerages that have a transportation division," Karlis says. "We also place business on behalf of generalists who may bring us an occasional trucking or towing risk; this is an opportunity for us to educate those producers about transportation exposures and help them build a profitable book of business."

Adds Williams: "It's relatively easy to find retail producers who specialize in trucking. We're eager to cultivate relationships with generalists who may have a couple of key transportation accounts and want to find an experienced wholesaler with access to strong markets."

Delivering on promises

"Our number one goal is to provide a consistent market for both our producer and carrier partners," Karlis declares. "The surest way to accomplish this goal is to consistently write profitable business. We have spent time and resources to develop our staff and facilities so that we can deliver a level of expertise and analytical skill that allows us to achieve maximum returns on capital for our primary carriers and reinsurance partners. Our underwriters have an average of more than 20 years of experience in their respective specialties."

Northern Star's collateral recovery business is handled by Renee Low and Kay Eddinger; towing and recovery by Sharen Dunn, Donna Fairfax, and Ellen Deter; trucking and specialty haulers by Ralph Byrne, Garrett Vogt, Carl Barrish, Phil Fisher, and Sara Santonastaso; and workers compensation by Kevin Claussen, Steve Feemster, and Cindy Kyryczenko.

Looking ahead, Karlis says, Northern Star will continue to seek growth in its transportation business using a multi-pronged strategy of recruiting experienced underwriters, acquiring portfolios or programs, and purchasing existing operations.

"We are open to partnering with wholesale or retail producers in order to achieve our growth and expansion goals," Karlis comments. "We are willing to look beyond our current product offerings when considering new strategic partnerships. We talk with carriers, retail producers, and other wholesale operations, and these relationships open up opportunities for us to bring together talented people and attractive books of business. Our growth strategy is highly flexible and can include making acquisitions, establishing joint ventures, developing employment relationships, or just about any economically viable scenario. Our key objective in any situation is to work with highly motivated individuals who take pride in their performance."

For more information:

Northern Star Management, Inc.

Contact John Williams, CPCU, ARM

Vice President of Business Development

E-mail: jwilliams@northernstarins.com

Phone: (770) 650-1007

Web site: www.northernstarins.com