The AmRisc Insurance Program

What is AmRisc?

AmRisc is a company that touts itself as a “Managing General Underwriter for Commercial property Risks.” According to its filings with the Texas Department of Insurance, AmRisc acts as an excess and surplus lines managing general agent in Texas. Essentially, this allows AmRisc to put together portfolios of insurance risk for out-of-state (and in many cases, out of the United States) insurance companies that are not admitted to do business in the State of Texas. Through a wholesale broker, AmRisc finds policyholders who were supposedly unable to find property insurance through traditional, admitted carriers, and those policyholders obtain coverage through AmRisc’s hand-picked carriers.

Neither AmRisc nor the brokers and agents with whom it does business, make a diligent effort to find admitted or otherwise qualified insurance carriers to underwrite the risk. Instead, and in open defiance of Texas law, AmRisc places policyholders into a packaged insurance scheme with pre-selected insurance carriers who have subscribed to the AmRisc program.

This scheme is believed to be highly profitable for AmRisc, because it is involved at both ends of the insurance transaction: the selection of insurers to participate in the AmRisc program, underwriting, premium-setting, and binding of the policy in the first instance, and, if a claim is filed, the intake and administration of the claim.

AmRisc completes the underwriting risk valuations and physically inspects the commercial properties prior to coverage being bound. But it also manages a captive third-party claim administrator, CJW Associates. AmRisc is incentivized to closely manage CJW Associates to minimize claim payments, attempting to thereby reduce the amount the Carriers will owe, because AmRisc’s compensation is believed to be directly tied to the portfolio or “book profitability,” which is based on a ratio—the sum of the incurred losses and expenses, divided by the earned premium. The lower the ratio, the higher the profit. In other words, the less AmRisc has to pay out in compared to the amount of premiums taken in, the greater AmRisc’s profitabilty.

The arbitration scheme AmRisc has devised and implemented has greatly benefited its profitability because the carriers are fully in control of the process. This, in turn, leads to significant commissions for AmRisc. The less that the carriers pay out in claims, the more AmRisc makes. And the arbitration provision in the AmRisc program greatly disincentivizes policyholders to pursue dispute resolution if their claims are denied or underpaid.

Underwriting

AmRisc completes the underwriting risk valuations and physically inspects the commercial properties prior to coverage being bound. But it also manages its captive third-party claim administrators (“TPAs”). AmRisc is incentivized to closely manage TPAs to minimize claim payments, attempting to thereby reduce the amount the Carriers will owe, because AmRisc’s compensation is directly tied to the portfolio or “book profitability.”

The AmRisc Arbitration Clause

AmRisc has successfully orchestrated a plan to maximize its own profits, and that of the surplus lines insurance carriers it recruits, through the use of an arbitration clause that purports to select New York law and a New York venue for insurance claims that have no relationship to New York. The purpose is to discourage policyholders from asserting valid claims, increase their costs, and then reduce claim payments if and when they are made.

While arbitration in New York under New York law may be appropriate for other businesses and industries, it has a chilling effect on the efficient management of Texas based commercial property insurance claims for a variety of reasons. The program takes a very local evaluation of Texas real estate, and turns it into an out of state dispute. At a minimum, this can discourage an arbitration panel from conducting a physical inspection of the property. It also discourages depositions and interviews of key witnesses, all of whom reside in Texas where the property is located. It reduces the capacity of experts to meet, compare data, and align or narrow the engineering and cost information that is inherently a part of the claim. The arbitration clause often prohibits for exemplary, punitive, multiple, or other damages of a similar nature. These are all deliberate inefficiencies that AmRisc injects into its program with the objective of increasing claim costs for its policyholders, reducing the ability of the parties or the arbitration panel to fully assess the condition of the property, and ultimately reducing claim payments so that AmRisc can make more money.