By STEVE YAHN, who has written for and edited national publications for more than 30 years
Mary Harrington, director of risk management for Subaru of America Inc., and her eight-person staff have methodically added profit-making ventures to the auto maker's insurance departments.
Auto warranties are a perfect example. Dealers sell service contracts to clients when they purchase a vehicle, and the premiums are managed by Subaru of America's captive, Pleiades.
"These contracts are the largest source of income we bring in," Harrington said.
Bermuda-based Pleiades is one the signature accomplishments of Harrington's stewardship at Subaru of America, which is the United States sales, distribution and marketing arm of Fuji Heavy Industries.
Born of necessity, Pleiades has grown to play a central role in Subaru of America's insurance and risk management strategy.
The captive was created in the mid-1980s when the insurance market was so hard that Time magazine ran a cover story with the headline, "Sorry, America, Your Insurance Has Been Cancelled."
Conditions were so bad that for a year Subaru of America opted to purchase just the basic insurance, such as workers' compensation and auto liability, as most states required, Harrington said.
That's when she turned to the Atlanta-based broker Beecher Carlson for help in setting up a captive. "A fellow risk manager at Toyota recommended Beecher, which has a specialty in the automotive area," she said.
Today, Pleiades has grown to 28 lines of coverage, with 10 reinsurance companies behind it.
The captive handles Subaru of America's all-important auto liability and auto physical damage fleet insurance, which covers the use of autos by approved drivers in the United States, including fleet staff and managers, dealers, loaners to celebrities and public relations and magazine staff representatives, and cars driven by family members of Subaru employees.
Other major lines Pleiades has the risk for are workers' compensation, fronted by Old Republic but with Pleiades reinsuring excess workers' comp losses to Maiden Re; general liability, with Subaru of America purchasing a layered excess program above Pleiades with several companies; contingent liability, and life insurance. In addition, Pleiades insures autos on dealers' lots for physical damage.
For product liability, Marsh is the broker, with Tokio Marine Nichido handling the underwriting.
As an importer with 620 dealers, marine insurance is crucial to Subaru of America, which owns and insures its cars until the moment they are delivered to its dealers.
"One of our major risks is weather," Harrington said. "From the standpoint of hurricanes, windstorms or tornadoes we spend a lot of time protecting the cars, selecting ports, and choosing storage facilities."
Using Willis as a broker, Harrington buys stock throughput coverage, which is one continuous policy that covers vehicles and parts from the point Subaru assumes the risk through all modes of transportation and storage until the cars reach their final destination.
"We've done it other ways in the past, where we've bought individual policies," she said, "but we've found that this is definitely the best way for us to do it. That way, you're not constantly trying to determine where the damage occurred."
The underwriters for this marine coverage are Allianz, Royal & SunAlliance, Ascot and Tokio Marine Nichido, with Pleiades responsible for the first $2.5 million of coverage.
"She is one of the best examples I've seen of how you use a captive company that keeps growing over time," said Gregory K. Myers, New York-based executive managing director of Beecher Carlson. "She's used the captive as a flexible tool to meet any of many needs of Subaru, both for internal coverages and then turning it into a profit mechanism with all the consumer insurance programs."
Subaru of America also uses Pleiades to insure short-term needs for employee benefits, Myers said.
October 1, 2011
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