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McALLEN, RGV – It may be hard to believe but the “Names” at Lloyd’s of London know all about Hidalgo County.

Safeguard Insurance owner Abraham Padron said he found that out when he visited the venerable institution.

“The underwriters would ask me, where are you from. I said McAllen, Texas. They would say, where is McAllen? I would say, it is just about the most southerly point in the state. They said, well tell me which county and I said, Hidalgo. They said, ‘Oh, the Hidalgo Incident. We know about that’,” Padron said.

Abraham Padron with Richard Boughton, managing director of RFIB Group, Ltd., at Lloyd’s of London.

“It is amazing but South Texas is known at Lloyds of London as the Hidalgo Incident. It made such an impact on a world and international level. The losses we incurred due to the litigation that followed the March 29, 2012 hailstorm, made the news in England. They call it the Hidalgo Incident.”

Asked to explain the Hidalgo Incident, Padron described it as a sorry chapter in the history of lawsuit abuse in the Rio Grande Valley. He explained that after a March 29, 2012, catastrophic hailstorm in the county, thousands of lawsuits sprung up and the number of insurance carriers shrunk from more than 20 to just two or three. Padron lost about a third of his business. With less competition in the marketplace, insurance premiums doubled or trebled, particularly for homes valued in the $80,000 to $150,000 range.

Padron said before insurance agents could get around to inspecting the thousands of homes damaged by the hailstorm, law firms, mostly from out of town, had sprung into action. They signed up to represent the homeowners. If an insurer tried to negotiate with a homeowner who had signed up with a lawyer, it was deemed tortuous interference.

Inside Lloyd’s of London

“Before 2102, if you came to me and said, I want to insure a $100,000 home, you would have 15 or 20 companies to choose from. After March 29, 2012, if you came to me with that same $100,000 home I might have had two companies, maybe three that were prepared to insure your home. And, even then, the premiums were doubling. It was very difficult for us to insure our local community,” Padron explained.

Padron’s company has ten offices, stretching from Brownsville to Laredo. Its head office is in McAllen. Safeguard Insurance employs about 40 workers and is one of the few Hispanic-owned insurance businesses in Texas. Safeguard Insurance has about $20 million in premiums, which translates to about $2 billion in insurance annually. The company sells life insurance, homeowner insurance and commercial property insurance.

Padron said he was not prepared to throw in the towel even though the Hidalgo Incident had hit his firm hard.

“In 2012, I could have very easily said, any rational business owner would have said, having lost a third of their customers, I am going to fire a third of my employees and close a third of my offices. We decided to do things differently. As local businessmen, we have to step up.

“So, I started researching what was going on. We hired some consultants, some brokers in England and we were able to speak to Lloyds of London, to show them that, even though we have overwhelming litigation here in the Rio Grande Valley, not everybody is out to make a buck or sign up with a lawyer. We still have people here that need insurance. With that we were able to secure this program and be able to not only bring it back here, but bring it at an affordable rate for our clients. To be able to insure the homes at between $80,000 to $150,000 at an affordable rate.”

Padron said homeowners with homes valued at $80,000 and $150,000 have seen their premiums rise most sharply. “People at $200,000 and higher are not being affected by the problem of having no insurance companies down here. Those people have plenty of companies to be insured with. It is the people that have homes at under $150,000, those are the people that are suffering right now. Those are the people that maybe have less resources, less education, and maybe have a language barrier.”

Abraham Padron with Malcolm Craig of Tri-Mac Consulting, Ltd., at Lloyd’s of London.

So, last summer, Padron paid a visit to London.

“We went to Lloyd’s to secure an insurance program to cover homes in Hidalgo County. With so many carriers moving out of the market, we needed some coverage down here. I have been working these past couple of years on getting us a program. I was able to secure $200 million of insurance for Hidalgo County. At a time when nobody wanted to do it, we were able to get Lloyds of London to step in take a lot of those homes and insure them.”

Lloyd’s of London is an insurance market located in London’s primary financial district, the City of London. Wikipedia points out that unlike most of its competitors in the industry, it is not an insurance company. “It is a corporate body governed by the Lloyd’s Act of 1871 and subsequent Acts of Parliament. It is a partially mutualized marketplace within which multiple financial backers, grouped in syndicates, come together to pool and spread risk. These underwriters, or ‘members’, are a collection of both corporations and private individuals, the latter being traditionally known as ‘Names’.”

Padron said Lloyds of London is like the Wall Street for insurance. He said a lot of insurance carriers are backed by Lloyds.

“It is all about personal relationships. They don’t deal with you over the phone. You have to go in person. They like to look you in the eye. Lloyds has the most capital, they think outside the box. They are the leaders, have been for centuries. They are basically gambling, for a certain amount of capital, that nothing is going to happen and they are going to make money. They are taking a risk.”

Asked how much coverage he can provide with an extra $200 million available, Padron said:

“It translates to about 2,000 homeowner accounts. It does not sound that much. However, when you do not have too many companies insuring, giving 2,000 homeowners competitive insurance is great. They (Lloyd’s) have committed to giving me $500 million, or 5,000 homes, if I need it. It gives me a lot more control. I have the authority to drop rates, if I want. These days we have a two percent deductible. Pre-2012, the industry was one percent. One percent is good for us.”

Padron said the underwriters at Lloyd’s could not believe one could buy a nice house at $130,000, which is certainly the case in Hidalgo County. “I had to prove to Lloyds, they thought a home worth $130,000 would be a shack. We had to prove to them wrong. My consultants toured the Valley. They could not believe it. They think we live in a shack and ride horses to work. We had to educate them. Some guy from New York City is not going to educate a guy from Lloyds of London about the Rio Grande Valley. But, I was able to.”

Asked if he thought he was blazing a trail, Padron said: “People are starting to recognize us. We are now able to say, this is what our needs are, can you help us? We were able to convince them the Valley is a good place to do business. A good place to be. So, yes, it is groundbreaking. While the rest of the industry was saying, we have to get out of the Rio Grande Valley, we were able to convince Lloyds of London, we can play. Now, I am pleased to say, they know us. We had a hard time in 2012 but it was time to get some other players involved. It just takes a little convincing and showing the potential we have.”

One of Padron’s next moves, now that he has a program with Lloyd’s, is to branch into mobile home insurance.

“We have about 100,000 mobile homes in Hidalgo. That is second only to Harris County in Texas. Many of the homeowners have a 30-year-old mobile home and it is pretty. It looks great. It is not worth much but it looks great. But, nobody wants to insure them. I want to swim against the current. If everyone is going this way, I want to go that way,” Padron said.

“We can insure homes companies are backing away from. Yes, the mobile homes are only worth $20,000 or $30,000. But maybe the owner wants to fix the home and get a loan. Currently, he or she cannot. I want to help. I think it is an exciting time to be in insurance. Even though I was handed lemons in 2012. I have tried to make lemonade.”