Shortly after joining Simon Property Group Inc. in 1996, Michael D. Horvath submitted an odd request to underwriting executives at The Travelers Cos. Inc.

Mr. Horvath, senior vice president of risk management, wanted Travelers to allow Simon Property to manage its own property and casualty claims.

Travelers reluctantly agreed to let Mr. Horvath's team of in-house and third-party claims adjusters contracted through casualty broker Boardman, Ohio-based Donald P. Pipino Co. Ltd. to handle the company's claims for two years, with an understanding that Travelers could reassume claim management responsibilities if Mr. Horvath's staff and service providers failed to hold claim rates and loss totals to reasonable thresholds.

“If you go to a traditional insurance market and buy first-dollar coverage, and you turn your losses over to the insurer to handle, their activation rate is typically somewhere between 40% and 60%,” Mr. Horvath said.

In comparison, only about 15% of the more than 19,000 potential casualty loss events Mr. Horvath's in-house and third-party adjusters processed in 2012 ever materialized as insurance claims.

According to its most recent estimates, Simon Property's risk management staff and its service providers successfully transferred more than $5 million of reported liability losses last year to responsible third parties through contractual risk transfer provisions.

%%BREAK%%

“The corporate philosophy at Simon is certainly to pay what we owe and to be a good corporate citizen, but also to vigorously defend against what we think we don't owe,” Mr. Horvath said.

James Barkley, Simon Property's general counsel, said incorporating claims management into the risk management program was yet another manifestation of Mr. Horvath's risk management philosophy.

“If there's one way I would describe how we've changed, it would be that we're more proactive,” Mr. Barkley said. “We're no longer passive consumers of the insurance products, we're active participants in risk management.”

Mr. Horvath attributed his department's success in suppressing the company's claim activation rate and year-end losses to the singular focus of the adjusters in his program, and their attention to detail about the nature of the commercial real estate industry and the indemnity and risk transfer language in Simon Property's contract forms.

Eight months after it had agreed to let Simon Properties manage its claims in-house, Mr. Horvath said Travelers returned in 1997 with an odd request of its own.

“I'm sure they were kidding, but about eight months into that agreement, Travelers came back and asked me if we wanted to handle all of Travelers' losses. That's how good they said our numbers were.” Mr. Horvath said. “From that day forward and for the 16 years since, it's been a nonissue.”