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PODCAST OPENER
Welcome to the Inside Insight podcast presented by CR Solutions. At Consolidated Risk Solutions, we are taking our expert knowledge of the insurance world and using it to innovate the industry using technology, groundbreaking thinking and a personal touch. Join us as we talk to masterminds both inside and outside of CR Solutions about how the world of insurance is changing, and how we can be sure to grow along with it. If you have to manage insurance in your work, then you can benefit from the interviews, conversations and insights we’ll be exploring to elevate your business’s success.
INTRO (00:42 – 02:58)
Trevor Casey: We are back again with Dave Melick. He was once an underwriter and now he is an advisor for you.
Beau Lunceford: Wow. That was beautiful. Well done.
Trevor Casey: Dave, you can use that, you can sell it, trademark it, and whatever you want.
Beau Lunceford: That’s our gift to you.
Trevor Casey: That is our gift to you. Guys, we’re back again with another episode. We are joined today by Dave Melick of SML Capital Advisors. And this conversation is really unique because we speak to a lot of brokers, we really see the brokerage side of things, the selling side of things, but we haven’t heard much from the binding side of things. What does it take to get a deal to the finish line? And I think Dave really speaks to a lot of that with his expertise as being an underwriter in a previous life and shows, “Hey, this is what it takes to finish a deal. This is what I’m looking for as an underwriter and it’s just really unique to see.” So to tell us a little bit about Dave.
Beau Lunceford: Absolutely. Dave Melick is a seasoned insurance leader with over 35 years of experience in the casualty insurance industry. Dave’s impressive career includes pivotal roles at major firms like AIG where he oversaw $15 billion worth of construction portfolio and at CNA where he served as vice president of large and complex construction. His expertise spans construction, casualty underwriting, risk management consulting and program structuring for some of the most challenging projects in the industry. With a deep understanding of guaranteed cost and loss sensitive structures as well as hands on approach to leadership, Dave has also served as an expert witness in construction related matters. Now a senior technical advisor with SML Capital Advisors, Dave leverages his extensive knowledge to craft innovative insurance solutions and navigate the complexities of large scale construction programs. This is a great conversation and I love the questions that Dave teaches us to ask as we’re going into try and set good insurance programs up to bind things well together. So before I give everything away like I have a tendency to do, let’s jump into this conversation with Dave Melick from SML.
Trevor Casey: Let’s go.
Interview (03:01 – 29:56)
Trevor Casey: All right. Welcome back to another episode of the Inside Insight podcast. We are joined today by Dave Melick. Dave is a construction related underwriting and risk management specialist. He’s also a senior technical advisor over at SML. And we’re really excited to have you today, Dave, because your insight in some of the world of insurance is so invaluable. And we’re excited to hear a little bit more for our listeners. So welcome. Thank you.
Dave Melick: Thanks for having me.
Trevor Casey: Absolutely.
Beau Lunceford: The titles are mouthful.
Dave Melick: Well, you’ve been in the business for a while, things just kind of stick to you. It’s something that occurs over time. I guess that’s some of the things that I’ll talk to a little bit about today in the underwriting space, kind of what it means and how you get there and you add it all up and you say, wow, it’s a career and hopefully it’s fulfilling. It has been for me a quick kind of dive back about 40 years and kind of tell you how I got into this. So I’ve always been kind of an inquisitive kid. I always shovel. I always kind of did odd jobs in the neighborhood. And then during college, I worked as a maintenance mechanic in an aluminum factory. I continued to do the odd job thing. I always found it interesting how things worked. And so in school I had an economics degree and in that case it was learning about, I focused in the economics really on the micro economic aspects. So that gets into things like pricing dynamics and market forces and things like that. But frankly, in college I had no idea what I wanted to do. So I was taking things in, took a bunch of engineering courses, but certainly wasn’t going down the engineering path. But I did because I found it interesting. So when I got out of school, time to find a job. And so lo and behold, I started at Liberty Mutual is known at Liberty Mutual’s parlance as the loss prevention department or the safety function in the commercial business space. And I started in New York and quickly kind of gravitated to construction and I was part of the underwriting team. And next thing I know, in addition to doing general kind of insurance safety support services, I’m working with the actual underwriters on the accounts and started to learn more about the development of the insurance contract, underwriting of an insurance contract. So over that course of almost 10 years, I picked up a lot. Now some people who are listening maybe get struck by lightning when they’re 12 years old and magically say I want to go into insurance. So they have the good fortune of knowing that there are a number of super high quality risk management programs out there in schools, Temple, Georgia, etc, many others that give you a major head start in terms of the underwriting education. And it’s a great opportunity if you happen to get struck by that bolt of lightning. Well, I did. It took a little bit longer for me to get there, but I was also kind of a very practical guy and I really gravitated and stuck to the construction which led me to move on from Liberty to Willis. But while I was finishing up at Liberty, I had started doing Wrap-Up programs as they had started to again come out as a risk management option to handle risk on large construction projects. So I gravitated to that. And then I’m essentially, for the last four or five years when I was at AIG, I was just doing construction risk management, did placement, account management consulting essentially just in the construction space. And it’s been a lot of fun. I can see in the background between you two. I actually was the underwriter on a number of projects that I can see in the background there in New York. And I need to say also New Jersey. So it’s kind of fun. And what I’ve done in my career is I kind of glom onto things that I’ve done, like I call them my projects. Well, frankly, all I did was be involved on the insurance side. I didn’t lay a brick or drive any screws. But it’s fun. And that’s part of what I get out of what I do in this space is you realize you’re part of a much bigger whole. Over time then, remember I mentioned I worked in the factory and I did odd jobs and things like that, you develop a real respect for the people that actually can put this stuff together and what it takes to do that. And I think that’s one point that’s important to make, is that while you have the insurance process as an underwriter, your greatest value is having an understanding and empathy for what business and the people who are involved in what you are insuring. Whether it’s on the comp side, whether it’s long haul trucking operations, whether it’s construction, any industry. The idea is that you can love the insurance, but if you don’t care, you don’t have an empathy for what else is going on. You’re just so focused on the insurance. You’re missing the ability to build value, understanding and a relationship with your clients as an underwriter to be kind of an important part of their business. And brokers actually have a similar position because they interface with the underwriter and they’re always trying to get the best deal for their clients. But they have to be empathetic as well. They have to understand the business because the broker has to sell to us. What ends up happening is a good underwriter should be a professional skeptic. They need to question things. They need to understand, “What does the contract say?” Broadly speaking, you need to know what you might getting into depending upon where you are in the country. Each region, each state has different rules. So you kind of need to understand that and how that is impacting your contract development that you are putting together as an underwriter. You have to have this balance, this nuance between the client, the broker, and the underwriter saying, “Hey, I can do that. Or no, I can’t do that.” We’re in a regulated environment, so you got to start from there. What am I actually permitted to do? And then the broker is kind of working that process in terms of maximizing coverage, getting the best terms and conditions and best price. Meanwhile, an underwriter has to, “Well, I’m accumulating this risk across these contracts, and then I think about what’s my exposure.” So if you think about Wildfire, out west it’s an issue. But literally today, there’s a problem in New Jersey threatening 120 homes in South Jersey. So what happens is the concept of Wildfire. When you string this one guy, he’s not going to have a problem with that. But then when you have 20 companies that have that same issue that creates a problem to the underwriter and the underlying company itself. So the industry develops things like Wildfire exclusions and things like that that we have to take into account. So there’s this tension and the desire for the broadest terms and conditions and best pricing. But if you can at least understand what your clients are going through and what it takes to do what they’re doing, you’ll feel a lot better about it rather than just kind of doing it by route.
Trevor Casey: So as an underwriter. You’re talking about understanding what your clients are trying to do or try to provide the best placement for the product. What kind of things are you looking for? Or are you asking to figure out what your client is? Because I know we’ve spoken with a lot of brokers, and we see kind of what their pressure points are and what they’re looking for. But as an underwriter, are you looking for the same things or what kind of questions would you be asking that may differ to try to find that solution, find that answer.
Dave Melick: That is a great question that kind of touches on the potential tension points. So the broker wants the broadest terms and conditions, almost essentially like a guarantee of coverage for the best price. Well, the problem is, while comp is pretty much it’s no fault, and there aren’t really, other than what state you might be operating, it’s more logistic. But on the auto and the general liability space, there’s a lot more leeway as to coverage and exclusions and so forth. So that’s where this professional skepticism and the dynamic about the questions and answers about who is the client, what do they do, where do they do it, what are their operational controls, what’s their driving force? Is it just schedule and production, or do you get the sense that there’s a corporate ethos which is thinking about the health and welfare of not only their employees, but of clients and the product that they’re making? So in other words, they take pride in it. Because at the end of the day, insurance is theoretically just this gigantic pool. Losses are going to happen, and the idea is the risk gets spread. But the idea is the one thing that you can do to always kind of beat the insurance company is to never have loss. Now, that’s really hard to do. So what we’re looking to see is an attitude, a structure, and a desire to minimize loss, to provide the best product within their space. So, for example, if somebody comes, a broker comes to us and say, “I have this great new contractor”, and I’m like, “Well, what do they do?” And I’m like, “They do drywall, but they’re thinking about getting into concrete.” It’s like, that’s red flags. That’s telling you that they’re not really focused. Because in order to be really good at something, you have to do it over and over again. And you have to have structure. What’s your access to labor pool, open shop, closed shop, doesn’t necessarily matter to me. But it’s just a question of how good are they. So the idea is that you want to see stability, you want to see a plan, you want to see policies and procedures. It kind of loops back into the beginning of my career where it’s like either as the underwriter or as a safety person, you’re actually asking these questions and then you’re actually verifying with observations that they’re actually doing what they’re saying. So the idea is that broker is kind of like, “All right, I gotta get a good deal here.” And then the idea is the underwriter has got to actually say, “What are they doing? Where are they doing it? How are they doing it?” And then they either ask the questions or see it themselves, or they use their field representatives to check things out. And in the Wrap-Up space, it’s a little different because it’s not what they’re doing now, it’s what they’re gonna be doing, it’s what they are going to be building. So there’s a little bit of a prospective view as opposed to saying, “Well, they’re just a street and road contractor. They lay this much asphalt, they do this much guide rail, whatever they do.” So in the case of a Wrap-Up or a project, it’s like, this is what they’ve done and this is this new crazy thing. I remember I was one of the underwriters on the Apple headquarters project. Pretty crazy project. But I knew the builder, best in class builder. I knew it was a tough client because the tech sector has a view of construction. They think it should be easy and straightforward and they can plan like, they can build chips or execute code. It’s a little different. But it was great job. It was fabulous. There were a couple little hiccups and things, but from an underwriting perspective, from my product perspective, it was great. It was a good deal. Glad to have done it and to be a part of what is a great work environment for the folks out in Cooper Team. That’s, I guess, the long answer to that question.
Trevor Casey: And that was awesome. Thank you. And I feel like you really hit a lot of red flags and green flags that brokers should be looking for. But that kind of pivots me to the question of, let’s say, I am a broker and I find one of these very intricate new jobs or something in the data space because we’re seeing a lot of data centers and things built. So what kind of questions would you recommend as an underwriter that a broker should approach that client with? One you highlighted who’s the general contractor and what kind of work have they done previously? But outside of that and the risk and financials, are there other questions that you’re like, as a broker to come to me, for me to be the most receptive to this deal, I’m really looking for these questions to be answered and then all of the other things that you’ve just spoken to.
Dave Melick: There’s kind of a lot to an answer there, but I’ll try to keep it a little trim. So the first thing is you have this conceptual project. The next step is, how are you actually going to execute that project, which gets into your contracting relationship between your owner and your developer builder construct? Sometimes that’s CM at risk, sometimes it’s program management, depends on the complexity of the deal. And then what happens is that the underwriter wants to know that there’s pretty clear accountability and responsibility through the contracting chain. They don’t want to have disconnects, they worry about low bid contracting environments. So the idea is that you’ll need to see as much structure as you can in the construction contracting space in order to develop the insurance contract to protect the home. There’s one other aspect. So for example, in the P3, public private partnership environment, as opposed to the data center environment, they can be very complex. So what you have is you have a public owner, then you have a private consortium that’s financing, and then you have some sort of a blend of entities that are part of the execution strategy. The idea is the more complex that is, the more challenging it is for me as an underwriter to handle the deal. So that’s on the P3 side. You’re not going to see that for data centers because P3 is kind of the civil stuff. It depends a little bit on how a project is executed. If it needs a lot of public infrastructure as well as some private components, toll roads, bridges, tunnels, things like that. But in the data center space you have a fairly well defined thing that you’re building. It’s technologically cutting edge filled with a couple billion dollars’ worth of chips. But at the end of the day, they know how to build them.Pads, emergency generators, site work, building very controlled space, very, very careful electrical work, lightning protection, all sorts of grant bonding, grounding. They’ve got all sorts of things that they know how to do. So while it may be huge, those are a little bit easier and more straightforward. They don’t have the dynamics of, let’s say, you’re building a very high end, complicated condo in the waterfront in Texas or Seattle where there’s earthquakes exposure. So what ends up happening is the underwriter is thinking about that and saying, “Can these guys actually do that? And is the deal built in a way that it’ll actually go without a hitch?” And I’ve been involved in both. Everything worked out perfectly. And then other ones where I’m kind of like, I don’t think this is going to go very well. And I see it kind of cascading off, over budget, over schedule, some serious defect issues. Why? Because they couldn’t actually do what they said they were going to do in the first place. Because sometimes construction projects are actually cutting edge. They’re like, “We are pushing the engineering here. We have a plan and we think it’ll work” so you rely on the engineers. And the underwriter would want to be involved in part of that analysis and discussion, not detailed analysis, because we’re not the engineers. But if we’re going to be providing millions of dollars’ worth of coverage if something does fail, we want to have an assurance that it’s going to get executed.
Trevor Casey: That’s incredible. Honestly, everything that you’ve been spitting today is just straight knowledge and things that I’m soaking up as if I write business, but I don’t anymore in that capacity. But it’s just so interesting to see, how an underwriter thinks about things versus how a broker thinks about things. And one of the things that you said a minute ago kind of had me spinning. So you talked about Washington with earthquake exposure. And I know you sit in New Jersey, New York area. So as an underwriter who sits on the east coast, do you write all 50 states? Or are there underwriters that specialize in particular areas that you’re bouncing ideas off of or using them as a co-underwriter on a deal.
Dave Melick: You have to start somewhere. So, at the end of the day, I just happened to start in New York. I grew up in New Jersey. I raised my kids in Connecticut. So I was kind of New York centric. But after that 10 years, I was in the entire Northeast. So the next 25 years plus of my career, I was essentially coast to coast. But you do have to start somewhere in order to learn the dynamics. Because, remember, as an underwriter, you’re essentially the business lead, you’re developing the contracts. But there’s functions within the insurance company that you rely on. So for example, the largest department in an insurance company or the largest balance in terms of people is claims. So you have to have some sort of a feedback loop internally with claims folks because they’re going to tell you what’s going on if you have a question about a large claim. While at AIG, I handled expert witness testimony. I was the representative of the company, I was just an underwriting representative. So what’s happening is, by talking to the claims people, you’re checking your work. Did I do a good deal? Was this a loss that I expected? So for example, Oregon has certain rules regarding Wrap-Ups. Well, if you just underwrote on the east coast, you wouldn’t know that. So the idea is as your career builds, you will learn more about the other jurisdiction. You can’t learn everything, can’t know everything. But the idea is to know where you have some potential pitfalls. And that comes a little bit with time. There are certain functions, the underwriting space where you may very quickly get multi, multi state or all 50 state exposure. Like, if you’re a junior excess underwriter, you’re getting that pretty quick because you’re seeing deals where you’re providing coverage wherever that company may be operating. So you’re seeing it and that comes from like a top down approach. But what happens in those cases, you’re not in the weeds with the business relationship between the primary underwriter and the broker and the client. Because you’re just kind of at the top. You’re looking at 60,000 or 50 million or 10 million, as opposed to the first dollar of an insurance tower. So the idea is there are different ways to get there. And to go back to my point about what other operations within the company the underwriter has to be working with, the credit function has to be working with collections, loss collections, which is separate from claims. And then, of course, you have the back office of operations, your systems and your regulatory reporting and all that kind of stuff. Things that I kind of find interesting. But I think I find what my clients did and do much more interesting than the nuances of our regulatory environment. So I guess that answers your question about how you go from one place to coast to coast.
Trevor Casey: Absolutely. And honestly, this whole podcast has just been chocked full of knowledge because one of the things we’ve really spoken to on this podcast is innovation and looking at the brokerage side of things and how things move forward. But we don’t really ever talk about getting those deals to the finish line. We really always talk about creating all these awesome things. But there’s a lot that it takes to get it to the finish line. And you’ve really spoken to a lot of that, and it’s really nice to hear the other side of things, and I think our listeners are really going to appreciate that. So, Dave, thank you so much for your time and the knowledge. We’ll put all of your information in the show notes. So if anybody would like to reach out, learn a little bit more about your history or just want to use your services at SML for some of your senior advisory services that I’m sure they’ll be pointing your direction.
Beau Lunceford: Before we go, though, we do want to ask you, Dave, we’ve established a new segment in our show where we want to know a little bit deeper about the people that we’re interviewing. Something that sits kind of, maybe even outside of the insurance space. And the question that we’re asking is, what is the Inside Insight on Dave Melick? There are certain things that make people tick. There’s mantras that they live by, songs that they really resonate with, and those are the things they make you successful, they make you brilliant in all the ways that we’ve already heard today. So, Dave, what is the Inside Insight on Dave Melick?
Dave Melick: Well, I don’t know. That’s the first time brilliant Dave Melick has ever been put together. So what’s really important in the underlying, in the insurance space when you go to get your license and if you’re a claims person, it applies? It’s a little bit about underlying integrity and honesty and sincerity. And it kind of touches all of the items that I mentioned before. So what do you do when somebody’s not looking? In my career, it’s been about being honest, upstanding, doing the right thing. And what that does is that makes a lot of things a lot easier. So, for me, it’s about communicating, being honest, straightforward, and sharing. Because then you have communicated in a way that there’s expectations or information, and then that starts to build and that becomes the sand, which becomes the sandstone, which becomes a foundation of a real career. So for me, it’s about, I have great respect for the people that I’ve worked for and work for me. And I think there’s a mutual respect because of working with people in an honest and fair environment that they don’t feel like I’m treating them unfairly. I don’t have expectations that are reasonable. Why? Because I’m honest, straightforward, and truthful about things. And sometimes in the New York construction environment, you see certain things. And one time I actually had a little anecdote where it came up out of left field where somebody basically said, he’s unimpeachable. And that was a real validation of my point, which was a solid for that. I’m thankful that I’ve had this run. Got some more time left to share and to grow and to help others and meet whatever needs they may have or questions they may have. Don’t have all the answers, but the idea is I’m pretty much a straight shooter.
Beau Lunceford: Oh, wow. And that is beautiful. That is sweet, sweet sauce right on top of the cake that you have already built for us today. Oh, amazing. Well, Dave, thank you so much for your time, for your insights, for just the energy that you brought into this conversation today. I think that people are really going to get a huge kick out of the stuff that you brought to the table. So thank you. Thank you again.
Dave Melick: No problem. Thank you.
OUTRO (30:01 – 31:40)
Trevor Casey: Man, what a wealth of knowledge.
Beau Lunceford: And everything that he says just is, it traces back to a bigger picture and I love that. He’s asking the questions that drive us towards getting to that final finish line of getting to us to where we need to be. And I love that mentality.
Trevor Casey: One of the things that I always love about these conversations is I’ve worked in the insurance space for, geez, eight years now probably. And I feel like I’ve seen it all, I know it all. I mean, in reality, that’s 100% not true.
Beau Lunceford: There’s so many people that are absolutely just seething hearing you say that right now.
Trevor Casey: I know, I know. And I’m always, always trying to learn. But speaking to somebody who has 35 years of experience and the knowledge that he just pours out, it’s really nice to pick up and be a sponge to that because you start learning that there are so many intricacies to insurance and underwriting and so many things that, I have no idea about in the position that I sit in or having worked on the broker side of things that I just don’t think about. So it’s really nice to have that other side mentality and hear from them.
Beau Lunceford: I like to think that a lot of the people who are going to listen to this episode are people who do sit in those other areas of insurance and are going to learn a little bit about what the underwriting process looks like, how people come to it from a different angle than they might be doing in their everyday business. So I really hope that that’s something beneficial to all of our listeners today. Dave, again, thank you so much for being a part of this conversation, for taking the time, as we always say. So until next, I guess. Stay covered.
PODCAST CLOSER
Thanks for tuning in to Inside Insight presented by CR Solutions. If you like anything that you heard today, subscribe, follow and rate the show so that other industry pioneers like yourself can find it. Maybe even share it with someone you think might benefit from this episode. Do you have a question that you want answered or a concept that you need explain, you can email us at info@c-r-solutions.com with the subject line “Podcast Question”, and maybe your question, we’ll make it onto one of our episodes. You can also submit a question via our website at c-r-solutions.com/podcast. There are no dumb questions, only opportunities to learn something new. Now that’s a wrap on this episode. Join us next time on Inside Insight presented by CR Solutions. Stay covered.
Listen to the full episode here!
