Talking Business

NorthStar Risk Management: History Is Their Guiding Light

by Emily Landes

Charles Bates and David Costello of NorthStar Insurance Services make their living selling earthquake and other disaster insurance policies, yet, ironically, they were completely unprepared when they lived through their own Big Ones. Bates was at the World Series with his wife when Loma Prieta hit in 1989. At the time, he thought the fans were shaking the stadium, and only realized the magnitude of the disaster when he saw on the arena’s television screen that a whole section of the Bay Bridge had fallen. “That’s when we knew it was serious and that we were going to have problems getting home,” understates the Piedmont-based insurance broker. Bates’s home managed to escape serious damage, even though plenty of neighboring homes had not been as lucky. Any damage could have been financially disastrous; the young family had no earthquake insurance at the time.

Costello was living in Southern California in 1989 and missed San Francisco’s last great quake. But he had a front row seat for the destruction of the 1994 Northridge earthquake a few years later. “It was like a freight train was coming through the house and it didn’t stop. For the first time in my life I thought I was going to die,” he recounts. Costello had some damage to his home, but it was nothing compared to his in-laws’ home, which lost its chimney, garage doors and two-story plate glass window in the quake. The house was eventually red tagged and had to be torn down. “The last thing I ever thought was that you could lose your whole house,” he remembers. “The first thing you think when you’re looking around at all this carnage is, do I have earthquake insurance? Up to that point, we’d never even discussed it.” In fact, Costello did not have earthquake insurance. But his in-laws did and were able to buy a new home with the payout from their policy.

It’s surprising that men with such longstanding ties to the Bay Area would take their chances with Mother Nature. Both Bates’s and Costello’s families came to California in the mid-1800s, according to Bates, “to seek their fortunes.” And fortunes they found; Bates counts investment icon Dean Witter among his relations, and Costello’s family owned the Macy’s in Union Square. Both their families were also affected by the 1906 quake, with Costello’s forced to live in the tent encampments that sprang up after the earthquake and fire.

It’s no wonder Costello’s family got into the insurance industry after seeing the property damage that can occur following a disaster of that magnitude. His grandfather and father were both in insurance, and his brother has his own brokerage as well. Bates’s family stuck with investment and law, so it was pure coincidence that he ended up taking a job in the early 1970s with an insurance broker. At the time, Bates, an East Bay native, just wanted to live in San Francisco. He took the job straight out of college, intending to do something else in a few years, but it ended up being too much fun to give up. “With insurance, you can go into any corporation and sit down with the top people and figure out what’s really going on with the operation so that you can insure it properly,” explains Bates. “You really have to find out about them, and you get to know these people very well.”

Bates’s enjoyment of the insurance industry made him want his own brokerage. In the early 1990s, he and a partner formed NorthStar and began selling membership in the Commercial Industrial Building Owners’ Alliance. CIBA is a “risk purchasing group” that buys insurance policies for commercial real-estate property owners, homeowner’s associations and affinity groups en masse, so the cost for high-priced items like earthquake insurance is a lot lower than if those people had decided to buy insurance independently. “It gives the smaller guy the advantage of the big guy,” comments Bates. At the time, Costello was working for his brother, who knew Bates’s partner, and Costello realized that the CIBA program could be great for high-value homes whose owners wanted to insure them against earthquakes but balked at the high cost. Soon, he was selling so many CIBA policies that Bates asked him to join NorthStar. The team (Bates is Northstar’s CEO and Costello is the president) has been working together ever since.

Costello and Bates believe they work well together for many reasons, not the least of which is their shared commitment to their clients. After all, the men not only have their own reputations to think about, but their whole families’ as well.

“We have a lot of history and a lot of people know our families and our reputations in this business,” says Bates. “We both agree that our integrity is of the utmost importance. Because we’ve been around so long, what we do now reflects on our parents’ reputations too, and our grandparents’.”

Of course, they not only have the distant past, but the not-too-distant memories of the 1989 and 1994 California earthquakes to inspire them. After their near misses with those quakes, they are both completely covered in the event of another earthquake and suggest that now is the time to buy earthquake insurance, not right after another Big One. “Right now, it’s a soft market because there hasn’t been an earthquake in awhile,” reminds Costello. “But the second there’s a big jolt, the insurance companies will react because they’re in the business to make money. So if they’re starting to lose money, they begin pulling out, and it becomes a hard market very quickly.”

Costello can understand the rationale of avoiding earthquake insurance. A lot of building owners are just looking at the bottom line and not investing in earthquake insurance,” he states. But his experience has taught him that it’s better to pay a little money now than lose it all later. “It’s one-tenth of 1% of the cost of the building sometimes, and yet people will fight over paying that. But then when you have a disaster and their building is a pile of rubble, they realize how inexpensive insurance is compared to the loss.”

The opinions expressed in this article are those of the author and do not necessarily reflect the viewpoint of the SFAA or the San Francisco Apartment Magazine. Emily Landes is the assistant editor of the San Francisco Apartment Magazine. Copyright � 2006 by the San Francisco Apartment Magazine. All rights reserved.