This week we’re featuring our conversation with Adam Weber, president of Irving Weber Associates, Inc. (IWA), who we spoke to about the Fabricare industry (dry cleaners, linen supply, uniform rental, and commercial launderers). Adam talked to us about where he sees this niche market heading, trends taking placing, insurance pricing and coverage, and more.
IWA is a fourth-generation insurance brokerage based in Ronkonkoma, New York, providing turnkey insurance programs for the Fabricare industry since 1946. Many state and national associations endorse IWA’s Fabricare program, including the Certified Restoration Drycleaning Network, the Drycleaning and Laundry Institute, and America’s Best Cleaners.
With the largest program for Fabricare in the country, IWA is recognized as a leader in this industry. The program is available nationally to independent agents and brokers on an open-access basis. It’s written through niche carrier Argonaut with IWA carrying the pen, performing all marketing, underwriting, rating, and placement of accounts. Additionally, a dedicated team at IWA handles all customer goods claims through its office.
Annie George (AG): Adam, how has the economy affected the Fabricare industry?
Adam Weber (AW): “During the last six to eight months, we’ve been seeing the industry beginning to consolidate, something we didn’t experience in ‘08 or ‘09 when the economy first suffered a downturn. We’re seeing dry cleaners either closing down completely or closing certain unprofitable locations, with the stronger operations picking up the better locations and adding them to their insurance policies. Having said this, there are probably too many dry cleaners for the population, and the industry will eventually get to a level that makes sense. We’re not certain yet where that level is, but this is what we’ve been seeing over the course of these last months.
“Additionally, the supply side is not as strong as before. People are not dry cleaning as often or aren’t bringing in as much inventory. Part of this is due to the economy; the other factor is a shift in work attire and lifestyle. Many larger firms have implemented business casual policies and are not requiring people to wear suits. You’re seeing more dry cleaning of shirts, which is a lower revenue generator. These issues have forced owners to take a harder look at their operations and undertake proper business prudence, evaluating which locations should remain open. If they’re losing money or marginally making a profit, it doesn’t make sense to keep those locations.”
AG: What other changes or trends are you seeing in the industry?
AW: “The biggest change is a push to get involved in environmentally friendly cleaning. This is coming both as a result of strict federal and state regulations and the consumer’s desire for ‘green’ products. Federal and state guidelines look at dry cleaning operations as potential hazardous waste sites that may or not be harmful to the environment or individuals. The solvent of choice for the last 35 years has been Perchloroethylene or PERC as it’s known. There have been challenges against the use of PERC [due to carcinogen claims] both from the states and the green movement. In fact, some states, such as California, have banned its usage. PERC will be phased out eventually, with another solvent replacing it that doesn’t get into the air or water.
“The challenge is coming up with a solvent that can replace what was a great cleaning agent while also being inflammable and considered environmentally safe. Fifty years ago, we went from an oil-based solvent that if used in a hot area the plant could explode or catch fire, to non-flammable PERC, to more recent solvents such as Dexron 2000; Green Earth, a liquid silicon-based solvent; and a CO2 application, which is a pressure-type vessel not yet affordable for most cleaners. Most recently a German product called System K4 has been introduced in the U.S. SK4 is a halogen-free, organic solvent, which claims not to pose a risk to air, water, soil, and humans. At the Clean 11 international trade conference we attended in Vegas in June, there was tremendous buzz about this product. Everyone who came by our booth had been to the SK4 demonstration. Some of the top operations that are members of America’s Best Cleaners and our insureds are piloting the product.
“In addition to shifting from environmentally unsafe solvents, many dry cleaners are marketing themselves as an eco-friendly operation. They’re promoting recycling hangers and reusable garment bags, offering ‘wet cleaning’, which is a more scientific method of laundry and uses a small amount of water and non-toxic, bio-degradable soap and conditioner to gently remove dirt. They’re trying to get on the good side of the environment versus some of the bad publicity that they were getting before. And they’re doing a good job of this, with the support of industry associations who are pushing the move to green.”
AG: Can everyone afford to go green in his or her operations? Will there be an increase in prices for the consumer?
AW: “The operations on the cutting edge can afford the shift to green or they are willing to make the investment. Typically they’re in areas where margins are broader, so they may not necessarily have to increase consumer prices. But, ultimately everyone who remains in the industry will have to make these changes to get on board.”
AG: How will the move to green affect insurance, if at all?
AW: “With the move to change the type of solvent used, you may see some potential savings on the Pollution Liability side. Many landlords require their dry cleaning tenants to carry Pollution Liability to protect them and their property from potential contamination. If the solvents that come out are given a ‘stamp of approval’ versus the current solvents that could help to either reduce the Pollution Liability costs or the need to carry the coverage at some time point. I’m hard pressed, though, to say right now that you will be able eliminate it. We’ll have to see.”
AG: What is happening in our industry as it pertains to this niche market? Is pricing remaining soft? Do you see any contraction and changes?
AW: “The market is still soft so we’re seeing carriers that dabble in this industry beginning to exit. They simply don’t have the mass to spread the risk. The carriers leaving are national broad-reaching generalists with dry cleaning as a line item among thousands of other different industries they represent. They aren’t specialty writers, and don’t truly understand the mechanics of the business and how to price it. If you don’t write enough mass, you won’t be in this industry very long if you’re keeping an eye on your individual class loss experience. When you drill down and see that this class is not performing well or the policy is not structured correctly with appropriate limits and deductibles, you’ll exit, modify coverages, or restrict customers with claims. We’ve seen this before during our 65 years in this niche. You have carriers coming in and out of this market regularly.
“What we do believe will occur, not only in our class of business but in many classes, with the types of storms that we’ve experienced over the last 12 months, is a move to include more sub-limits, wind/hail deductibles, or named-storm deductibles in policies. There won’t necessarily be rate increases in coverages needed to protect the day-to-day business. But the rise will occur for catastrophic-type losses for which we have not traditionally underwritten, like a tornado in Massachusetts. Right now, we’re not collecting premium for the types of loss occurring on a more frequent basis in areas you don’t expect. We have to come up with a way to control the maximum probable loss in the event it does happen. This will better serve the masses in all different types off classes.”
AG: “Let’s discuss IWA’s Fabricare program.
AW: “We write dry cleaners, linen supply, uniform rental, and commercial laundries, and will entertain any type of operation within those niches – from a $1,000 mom-and-pop premium operation to the large uniform rental accounts that generate $1 million-plus in premiums. We offer all lines of coverage: BOP or package policy, Auto, Umbrella, Workers Compensation, Pollution Liability. We have been partners with specialty writer Argonaut for seven years, offering this program throughout the country. And, we have 16 association and industry endorsements.
“Our program is unique in several ways. We have Customer Goods coverage on an unlimited basis, and our Workers Comp program is a national safety group that pays a dividend. Every one of our BOPs is sold with Boiler & Machinery, because it’s a real every-day risk and many times this coverage is overlooked. We also provide some low limits on EPLI as well as Identity Recovery.
“Furthermore, when there are issues that fall outside the box, which is often the case as many cleaners are diversifying these days, we have the ability to tailor the program. For example, dry cleaners are getting involved in restoration. When a home owner has a fire or water damage claim, his/her insurer will contact a restoration dry cleaner to salvage the home owner’s clothing inventory as opposed to having to pay the cost of replacement. The insurer will pay the dry cleaner to get the odors out, remove water stains, and restore the garments to the way they were before. There is now a contractual obligation on behalf of the dry cleaner to the insurer as to the specific coverages required and the fact that the dry cleaner is accepting an entire inventory. The dry cleaner is now going to be storing inventory for an extended period of time while the home is being repaired. They may have to store the garments for six months or so. Many policies have limitations that stipulate that after a 30-day storage period, coverage is not provided or the limits are reduced. Our program is written on an unlimited basis with a Restoration endorsement.
“Another example is that dry cleaners are expanding their routes, with home pick up and delivery. They’re not relying on the community bringing them goods, they are going out and getting them. Now you have automobiles and drivers to insure in addition to covering a customer’s goods while in transit. We provide coverage for garments in transit on an unlimited basis whereas many policies restrict this coverage.
“We also offer a Data Compromise endorsement on our policy, which provides data breach coverage if customer information is lost or stolen. Coverage includes the costs associated with customer notification, monitoring customer credit rating, and crisis management. You may not think of a dry cleaner needing this coverage, but the reality is that very few businesses are strictly on a cash-basis anymore. Dry cleaners have house accounts, do credit card sales, and have on file vital customer information. If this information is breached somehow dry cleaners need guidance and protection.
“What we do best is continually think ahead, know the operations, know the changes that are occurring in the industry and offer solutions that respond to these changes. We’re a recognized leader and someone who is in-tune with what’s going on.”