Today's insurance agents are conducting business in a revolvingdoor. This week their standard company may be looking at a piece ofbusiness and competitively writing that particular class, and nextmonth the same application may be denied. Wholesale brokers,managing general agents and surplus lines brokers with which agentshave established relationships can, in the long run, help determinehow successful their agencies will be in this volatile softmarket.

A relationship exists when two people or entities have aconnection to one another. But can the two have that connectionwithout really understanding the needs of the other?

What is the agent really looking for in the relationship? Whatis the wholesaler looking for?

Before exploring these questions, it is important to understandthe differences between the players since each will serve the agentrelationship in a different manner and satisfy different needs ofthe agent. (See sidebar on page 13.)

As the insurance cycle creates softening pricing and betterpolicy terms, underwriters in the specialty non-admitted marketreact in a manner similar to their admitted company brethren. Theyreduce rates, broaden coverage and try to retain their better booksof business.

This is difficult in the non-admitted market because most statesrequire business to be first offered to admitted companies. By thevery nature of the surplus lines market, business returns to theadmitted companies when the cycle softens.

Exceptions may exist if a state has an exportable list exemptingcertain lines or classes of business that traditionally ortemporarily have limited market access.

When there is limited market access, states will allow risks tobe placed in the surplus lines market. For example, classes thattraditionally are placed in the excess and surplus lines market arenursing homes and hot-tar roofing contractors. A temporary classmay be lawyer's professional liability or windstorm on coastalproperty.

The softening insurance market traditionally impacts surpluslines brokers before managing general agents. As capacity entersthe marketplace, the larger-premium accounts flow to the admittedcompanies first since their premium size is more attractive; theymeet the need of admitted companies to use their financial capacitymore quickly.

Surplus lines brokers rather than MGAs lose accounts fasterbecause they typically place the larger accounts that are writtenin the specialty market. Accounts that have been in the surpluslines market for a few years–that are priced higher withrestrictive terms–allow the retailers' admitted markets to offercompetitive prices and better terms.

The further along a softening market continues, the more likelywill be competition for smaller-premiums risks. They are typicallywritten by MGAs in the non-admitted market, and they also can flowto the admitted companies.

This is usually seen in classes or lines of business rather thanindividual risks. An example of a class would be inner-cityhabitational business. An example of a line of business might beemployment practices liability.

Program managers will also expand their offerings as companiesseek premium and are willing to offer competitive terms and pricingto either maintain or increase their premium writings.

WHAT DO YOU NEED?

To understand whether to work with an MGA or surplus linesbroker, retail producers should spend the time deciding first whattheir own needs are.

If you are a retail agent located near coastal properties, forexample, your needs are different than the inner-city producer withlimited market access.

The number-one reason to use any of the available types ofwholesalers is market access. Surveys indicate that market accessis closely followed by service, after which competitive pricing andretained revenue follow.

Once a retailer knows their needs, the retailer should thendecide what MGA or surplus lines broker fills them. With thespeed-to-market improving each month because of technology, thereshouldn't be a necessity to use more than two or three wholesalersthat can service the retailer's needs.

Relationship is vital to both parties, and once an interview andresearch process is completed, both parties need to make an effortto know the reasons for doing business together.

Consistency between retailer and wholesaler gets the accountsplaced for the ultimate customer–the insured whose needs must beserved by both parties.

THE BOTTOM LINE

Risks get placed more quickly and efficiently when both theretailer and wholesaler generate a profit from the relationship.There may be times when a product manager or managing generalunderwriter has the best available market, and if a strongrelationship exists, the wholesaler will likely assist the retailerby referring the account to those markets.

Today more than ever, with the increasing number of onlinecapabilities and competition facing the retail agent and wholesalercommunities, communication is by far the key component to anysuccessful relationship.

When agents communicate their needs quickly, concisely andaccurately to the wholesaler, and the wholesaler, in turn,communicates to the agent what they can and cannot do, both partieswill be more effective, efficient and profitable with their timeand the bottom line.

PROFESSIONAL STANDARDS

While this article has highlighted some differences between theplayers in the E&S distribution system, members of twowholesaler trade associations share a dedication to professionalismand integrity.

The American Association of Managing General Agents and theNational Association of Professional Surplus Lines Offices are twotrade associations through which retail agents can locate activemembers in their area.

These associations only accept members who meet specificcriteria. They offer continuing education, exchange of ideas duringmeetings, follow governmental changes and disseminate relevantinformation to their members.

Membership in these two trade associations means that thewholesaler/MGA subscribes to a code of ethics and demonstrates highstandards of professionalism, excellence and integrity.