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By CYRIL TUOHY, managing editor of Risk & Insurance®.

In retrospect, Silverstein Properties Inc.'s efforts to secure coverage for the reconstruction of the World Trade Center, began with a masterstroke of counterintuition spearheaded by Shari Natovitz, the developer's vice president of risk management.

Nor were they going to talk about probable maximum losses, loss triangles and loss picks--the traditional language of underwriting. The technical submission for the builder's risk program alone was five inches thick--enough to scare off even the most battle-hardened of underwriters.

And they certainly weren't going to boast of how Larry A. Silverstein, developer of the original World Trade Center towers in the 1970s, knew more about rebuilding in New York City than anyone else.

No, Natovitz, her brokers and her project consultants decided they were going ditch the minutia of process and numbers, forego speaking about parsing out risk in finer and finer tranches, eschew the approach of burying underwriters under a spreadsheet blizzard.

"The strategy was to engage upper-level management and get out in front of the marketing process," said Joseph Russo, senior vice president in Willis Group's construction practice. And get out in front of it she did.

Natovitz and her team opted instead to approach underwriters by talking about rebirth and renewal.

Underwriters wanted in, Natovitz told them, because they were doing their part in the healing of a wounded city. The underwriting community would be honoring many of their own colleagues whose lives were cut short, she reminded them.

Underwriters wanted in, Natovitz told them, because not only would they be making an emotional and financial investment in their own lives, but they would be doing so in the lives of others and in the lives of generations yet to come.

Underwriters wanted in, Natovitz and her team intimated, because they would be endorsing the life-affirming forces of reconstruction instead of wavering in a cloud of doubt and delay.

Ironically, heavy insurance talk wasn't even part of the discussion, at least not just yet. Talks in the early going were vintage Natovtiz, a highly effective, unconventional risk manager more at ease wearing a hard hat than a business suit.

"The initial meetings with markets were about rebuilding New York, the neighborhood and how we were going to manage the project; there was nothing about insurance," Natovitz said, recalling a series of meetings in the fall of 2007 in which she and her brokers pitched the reconstruction project to more than 40 markets.

Willis Chairman and CEO Joseph Plumeri, speaking via recorded message, spoke of the revitalization of sacred ground, and that the industry was literally duty bound to make this project work.

"Everyone will know what risks were involved, what expense, what daring, what persistence, what effort, what passion it took to bring these new monuments into being," he said.

By the time the meetings were over, it was as if the executives and underwriters were left with the feeling that they had no choice but to participate.

"The entire insuranceindustry was affected by the attack, we all lost friends and colleagues," said Natovitz, in a June interview with Risk & Insurance® at Silverstein Properties' headquarters in World Trade Center 7. "There was a lot of emotional investment. They knew these people."

Whether through the property/casualty program, the workers' comp coverage, the builder's risk program, the construction wrap-up program, the pollution coverage program, or even the ancillary safety and prevention efforts, the idea was to appeal directly to senior-level managers at the carriers.

From the perspective of a line underwriter sitting in his or her office sifting through a variety of submissions, it was true, the reconstruction of the World Trade Center could be viewed as a big headache and so the idea was to pitch the project to those above them. "We had a quality project and an important storyto tell to the markets," Natovitz said.

And they did. But Silverstein's disputes with regional agencies, the constant pressure of New York City regulators, and the endless scrutiny by the media surrounding a site that was all of 16 acres--not all that large in the scheme of things--often had the effect of putting off underwriters.

"When we first looked at the project, many of us looked at each other and said this is just too daunting of a task," said Dan Conway, president of construction risk and surety in Chartis' Commercial Casualty division in New York.

In 2004 and 2005, the economy and construction nationwide was booming. There were more than enough individual commercial development projects to satisfy an individual carrier, underwriters said. Why would underwriters even want to bother with the World Trade Center?

"Back then, though, there was enough work going on that it was easy to walk away from it because underwriters had their coffers full with other projects," Conway said. "They didn't have to worry about the politics, and it was going to be in a fishbowl."

Even when slices of the reconstruction project seemed to move forward with new life, they soon slid backward, causing delays--delays that could reach penalties running into tens of thousand of dollars a day.

Every initiative seemed to come with a caveat. The needs of the 9/11 Memorial Foundation were separate from the Silverstein towers. Redesigning and rebuilding the commuter PATH rail lines added a massive public transit risk element to the site. Even the discovery of a brigantine dating from the late 1700s caused delays as the architectural community swept in to unearth new layers of history.

Keep in mind, too, that negotiations about site redevelopment were taking place among the din of fractious local community groups pressing for advantage. "The last time the towers went up Lower Manhattan was much more of a commercial area withlimited residential neighborhoods," Natovitz said. "We built safety and consideration for our neighbors into the construction whether it is controlling noise, dust or other related issues."

For a glimpse of the scope of the project, consider the teams involved in the construction and design of one--only one--tower, 2 World Trade Center. There was the developer, the landowner, the design architect, the architect of record, the structural engineers, the "vertical transport" engineers, code consultants, security consultants, LEED consultants, dynamic loading consultants, the landscape architects, and lighting architects.

If line underwriters threw their hands up in despair at the builder's risk program for the project in favor of crunching numbers for cookie-cutter minimalls in Florida or Arizona, who could blame them?

"Silverstein Properties had established an identity in the carrier marketplace," Natovitz said. "The headlines were defining us; not who we were, how we did business and expertise of the staff."

Finally, after talking to as many as 40 markets in the United States, London and Bermuda over the preceding eight months, Silverstein and Willis announced in February 2008 the placement of workers' comp, general liability, excess liability and specialty insurance coverage for the construction of towers 2, 3 and 4.

In a statement released at the time, Silverstein called the efforts a "significant step" in the developer's efforts to rebuild.

In the end, the workers' comp and general liability coverage, which are wrapped into an owner-controlled insurance program, along with safety and loss control services, as well as environmental liability coverage was provided by AIG, now Chartis.

Excess liability coverage is provided by 12 different carriers with ACE in the lead position and specialty coverage provided by the Lloyd's syndicate Beazley.

Natovitz said that 70 percent of Silverstein Properties' total insurance buy for towers 2, 3 and 4 is for builder's risk and terrorism, and for workers' comp and general liability.

The remaining 30 percent of the insurance buy was spent on pollution, professional liability, railroad protective liability, and excess liability. Between 20 to 30 carriers eventually decided to participate in the program, with the major players being Chartis, ACE, XL Group and Munich Re.

Natovitz and her brokers were able to secure $250 million in liability limits per tower, for towers 2, 3 and 4, and commitments for property limits of $5.3 billion for all three. In addition, Willis secured another $100 million in limits for pollution liability coverage, Natovitz said.

WTC tower 1, the tallest building in the complex, originally fell under Natovitz's responsibility but Silverstein's broker at the time could only provide $400 million in capacity in 2004-2005, when the building needed as much as $1.5 billion.

Jon C. Huxel, risk manager for the Port Authority and its broker Aon, arranged a separate insurance policy for WTC tower 1, also knows as the Freedom Tower. It will rise 1,776 feet into the air and provide 2.6 million square feet of office space.

"When these towers open in 2012, the world will be watching," Plumeri said. "All eyes will be on this square of land on this island in the Hudson River because of what it represents on so many levels."

September 1, 2011

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