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Pennsylvania Lumbermens Mutual: Manage Nat Cats with Modeling, Deductibles, Endorsements

Pennsylvania Lumbermens Mutual Insurance Co., a property and casualty insurance company dedicated to serving the lumber and woodworking industries, has managed natural catastrophes through modeling, endorsements and deductibles, said John K. Smith, president and chief executive officer.

Smith spoke with Insider Engage at the Joint Industry Forum in New York. Click below to view the video interview, or read the edited transcript, below.

Q: For those unfamiliar with your company, can you tell us what your company does?

A: Pennsylvania Lumbermens was founded in 1895 by a group of lumbermen for the lumbermen. So today, we honor that tradition and write wood business or wood-related businesses only — sawmills, lumber yards or light wood manufacturing. We write in 48 states, all commercial lines except for compensation workers compensation, which we use an in-house broker to place.

Q: Can you tell us how your company has handling or how it manages resiliency?

A: I think resiliency has become a much bigger issue, obviously, as a result of COVID. But it's been part of our enterprise risk management program for many, many years. We had a situation seven or eight years ago, where we had to close the office down for three days because a dignitary was coming to speak in Pennsylvania in our local area. So we had some notice, and we learned a lot about it at that point in time. So closing down for COVID was not a big deal for us as far as how to do it. That was the easy part, quite frankly, the more difficult part was not over closed, how do we keep the employees engaged? And eventually, how do we get back into the office because we're still out of the office at this point in time.

We're doing a lot of unique things. We're worried about the employee's health, we're about their family's health, because if if we have problems there, then we can't conduct our business. And we right up front told the employees that that was their major concern — their health, their families' health — we didn't want to get into any situation where it was a downturn in our business, that we had to lose people as a result of that.

We have the same problem that a lot of my peers running companies have, which is how do you keep the culture going? How do you develop the younger people today? How do you transport that knowledge or transfer that knowledge from the older to the younger? How do you you cooperate and excel in a remote environment? I think we're all burnt out from a Teams standpoint. So we're doing a lot of different things. I mean, we do things in the evening with families. We do family bingo, for instance, right now, and anybody who knows me knows that, you know, running those kind of programs for employees is not in my DNA, but we've we've made that transition and so have I.

Q: Can we talk about the increase in natural catastrophes? There's been a an increase in reported natural catastrophes in the last five years worldwide. Has that impacted your business?

A: I'm glad your framework was natural catastrophes, because of that we have we can avoid the whole issue of whether or not there's global warming, which I think is a debate that I really don't want to want to have or choose to have. I think we have to look at the facts. And the facts are there are more activities, that would suggest there's been some type of change in weather patterns? And then how do we react to that as a company?

In our, in our world, we're a little unusual, because it's all commercial. And we don't have tens of thousands of homeowners. We can step back, and we can look at and model everything. We can develop individual programs for different areas of the country. So for instance, California is our fifth largest state. We have had one wild fire loss in five years on the West Coast. But we model everything. We're very careful when we place business. And we can do that, again, because we're looking for specific risks. And we're not looking for 10,000 risks in California, we're looking for 500 risks. The Midwest, we haven't had hail damage, or tornado damage because we do a lot of work with the IBHS getting that information. So they have enhanced roof programs. We've put on cosmetic roof endorsements. We've used windstorm and hail storm deductibles in those areas, and we've stuck to them. When others have wandered in and taken that business from us, we've let that business go.

We've always been an East Coast writer, so we've always dealt with hurricanes. We have a hurricane program that we put in place 15 years ago. At a time when everyone was leaving leaving Florida, we stayed and over a 10-year period of time, on a gross basis, Florida became our most profitable state. Even when a hurricane blows through, we handle that pretty well.

It's funny. I'm doing our reinsurance and a number of reinsurers have asked me what what have we learned from hurricanes, this most recent being Ida. I looked at him and I said, "we haven't learned anything." It's a hurricane — the wind blows, roofs blow off, buildings collapse. You have to be prepared for those things and we are and we help work with our insureds to make sure they are.

Q: What is next for Lumbermens Mutual going forward?

From my standpoint, as we look at the wood niche, we're the last surviving lumber mutual. There originally was six or seven of them. We are slowly growing the franchise, the brand. Within the insurance business, the brand is not as well known. When you go into the wood business, the brand is extremely well known. So how do we convert that into a larger, more profitable business? What I'd like to think is that over the next 10 years, we will actively engage our agency, and that when a broker throughout the United States thinks of a what account and wonders where to put it, they'll send it to us. We'll either put it on PLM paper in house, or we'll take it to an excess or surplus lines market for the broker to our agency and place it that way. So that, we talk about wood and what is all we do. The broker will see that and come to us with their with risks, and we'll find a solution for them and for the insureds, which as a mutual is very important to us. We're very tied to our insureds.

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