Small insurers to the rescue?

(FSB Magazine) -- When some national carriers announced that they were withdrawing from the troubled Gulf Coast insurance market, a handful of ambitious specialty insurers saw the move as an engraved invitation.

One such company is Ironshore Insurance (ironshore.com), a startup formed in January specifically to serve the businesses that the majors had declined to insure. Specializing in "nonstandard" insurance lines, Ironshore offers policies for wind, flood, and earthquake damage as well as directors' and officers' liability.

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As of late July, the company, headquartered in Bermuda with offices in New York City, had written some 600 policies totaling more than $200 million in coverage. Two-thirds of that, says CFO Mitch Blaser, is for businesses in coastal areas, stretching from North Carolina to Texas. Most clients are small to midsized enterprises that have had trouble getting coverage. "The people who come to us have often had their requests rejected by the major carriers," says Blaser.

Specialty insurance, however, is not a cheap substitute for commercial policies - it's for special situations and is priced accordingly. "If it's easy, then you go to one of those companies that provide very standard protection at the lowest cost possible," Blaser says.

Specialty carriers also can pose risks that conventional insurers do not. For example, they do not pay into state guarantee funds, so policyholders can see their claims go unpaid if the insurer fails. A.M. Best lists ratings of specialty insurers on its website, ambest.com. Currently it deems Ironshore an A -.