As we move through the first part of 2009, there is still plenty of capacity in property-casualty lines, but most of us are seeing some changes beginning to emerge.
Specifically, there are signs that our country's financial crisis, coupled with last year's catastrophic losses and an overall deterioration in combined ratios, will halt the erosion in price, terms and conditions.
We could very well see some firming in pricing and hardening on the property side in the second quarter of the year, along with rate increases in catastrophe areas. Casualty lines are generally not far behind.
In these uncertain times, it will become paramount to have access to the broadest marketplace in order to get the best deal for insureds. To accomplish this, retail agents and brokers can count on their relationships with wholesalers to assist them--relationships that will allow them to tap the excess and surplus insurance lines market, which is still strong in these changing times.
To understand the value of wholesalers, an analogy from the world of medicine is helpful. We all have a general practitioner for our day-to-day health, but when something goes wrong with your heart, it makes more sense to call upon a cardiologist. If I need heart surgery, I don't want my GP doing it. I want a heart surgeon.
The specialized knowledge wholesale brokers bring to the table can help retailers by providing industry-specific knowledge and broad geographic perspective.
This knowledge expands the value of using wholesalers beyond access to markets that retailers simply cannot access--markets that won't work directly with retailers.
With specialized, industry-specific and insurance market knowledge, a good wholesale broker partner can help a retailer who is looking to broaden their book of business by expanding into new industries or specialty lines.
In addition, many retailers are by nature limited in their geographic scope. Underwriters seeing an account year after year in the same local marketplace can develop narrow opinions.
In contrast, a wholesaler sees a broader spectrum of business being produced from all over the country--forming a view of what's going on in the marketplace and what different pricing approaches are out there. These are factors that a retailer operating on a localized level might not see.
Accessing different underwriters opens up a variety of opinions on what's happening in the marketplace, but over time, a retailer and the insured may benefit from more diverse relationships.
For example, a wholesaler and a retailer might be able to get to the same companies--but within those companies, the wholesaler might have strong relationships, allowing for ready access to different underwriters in a different territory.
When markets change and capacity tightens, wholesalers know where to turn. It's their job to work quickly to find coverage.
As the market shifts, another benefit to calling on wholesalers is their ability to provide creative solutions and to customize coverage specific to an individual insured's needs. For instance, a wholesaler with a large book of multifamily habitational business understands the needs of these insureds and can tailor coverage that is generally not provided.
Wholesalers often can find solutions through their ability to provide unique "layer" approaches--taking advantage of different carrier appetites. By combining insurers, they might be able to provide coverage for those who cannot find it anywhere else. Wholesalers are problem-solvers.
For example, a particular wholesaler might frequently see catastrophe business with industrial plants in the Gulf Coast states. This is a unique problem requiring specialization that might be beyond what the retailer can provide with admitted market contacts.
Wholesalers often have a national overview because they talk with underwriters from coast-to-coast every day. Their key responsibility is to know what the market will bear, and then ask the market to bear it.
Although many retailers appreciate the value of wholesalers, there can be a misperception that insureds are paying too much when a wholesale broker is involved. This is a myth.
In fact, specialty carriers often operate at significantly lower expense ratios than the standard market. A wholesaler's unparalleled expertise, market intelligence and ability to tailor coverage to fit each insured's needs combine to keep the expense ratios of their insurance company partners low.
In fact, turning to specialty carriers is more cost-effective than not.
We do business with a major specialty carrier that writes the same volume as a standard lines company, but the specialty insurer writes the business with just 800 employees, compared with the 3,600 employees of the standard lines carrier.
The lower employee count allows the insurer to operate at a lower expense ratio, which in turn means it can provide more cost-effective solutions for the insured while still paying its wholesale partners.
Wholesalers are also able to provide quicker responses. Because specialty underwriters tend to have more expertise, they are authorized to make decisions on their own. While standard lines underwriters will likely need to turn to a manager for approval, most specialty underwriters can make quick decisions, and that could make the difference when time is ticking.
Just like a heart surgeon is there in minutes when you need emergency care, wholesalers will be there for the retailer in uncertain times--to tailor a creative new approach or deliver the specialized coverage needed in a pinch. That makes wholesale brokers especially valuable partners in changing markets.