Excerpts of an interview conducted just before the annual meeting of the National Association of Professional Surplus Lines Offices, Ltd. follow.
Q: Are there any lines, regions or account sizes where you see evidence of a hardening market? What are the most competitive segments?
A: "Generally speaking, property and casualty rates and terms continue to soften. The only exception is cat wind, where we've seen a slight--very slight--increase in rates," Mr. Turner said.
"But across the board, rates continue to fall because there's more surplus than ever. New capacity continues to come into the North American market," he said.
As for differences by account, he said there's a higher level of competition for six- and seven-figure premium accounts, producing the most competitive rates for those larger insureds.
Q: What is the main source of competition, causing a continuation of soft pricing?
A: "For surplus lines carriers and brokers, our single biggest competitor is the standard market. Their appetite and encroachment on our business is very strong," Mr. Turner said.
Q: What are the biggest challenges your firm faces this year? What strategies do you have in place to address them?
A: "Managing expenses and growing our revenue stream at the same time" are the challenges, and CRC is responding with tighter management constraints and more aggressive travel and sales calls to customers, Mr. Turner said. "We want to reemphasize the partnership, strengthen personal relationships and be more hands-on, service-oriented for clients during these difficult times," he said.
Q: What are some of the things CRC is doing to set the firm apart in the minds of retail broker clients?
A: "Having very large property and casualty brokerage offices in the major E&S regions has put our platform in a unique position," Mr. Turner said, pointing to his firm's "hub concept." In addition, "our team-oriented service approach to our clients has helped us distinguish ourselves from our competitors."
Further explaining the hub concept, he said that national brokers tend to open as many offices as their organizations' talent and brokers will support. "We didn't take that route. We believe it's better to have fewer offices, but larger [ones] with more depth, and that our clients respond better to that type of platform."
Depth, he said, means CRC not only has more experienced brokers, but has more personnel on its service teams--"a lot more hands on deck" to service its accounts.
Q: CRC made two acquisitions in late 2008--Southern Risk and TAPCO. Is the firm still pursuing acquisitions? Do you see other opportunities for growth?
A: "Our MGA platform under the Southern Cross banner has continued to grow for us via acquisition," Mr. Turner said. He said CRC expects premium volume to be up a few percentage points this year, closing in on $3.0 billion by year end, compared to $2.8 billion in 2008.
"Acquisitions have certainly helped us, but we've had some solid organic growth as well," he said, pointing to the transportation, catastrophe-property and allied health areas as segments growing organically in 2009.
Asked how CRC managed to grow its transportation book even though the transportation industry itself is shrinking, Mr. Turner explained that CRC attracted a significant number of broker experts in transportation to the firm within the last five years. "They're growing that book based on their experience," he said.
He said another growth strategy CRC is pursuing is an internal one. "We're always searching for the highest caliber talented brokers to help build our offices. Our [in-house] training program is a big part of our success," he said.
The long-standing CRC training program was stopped about two years ago because of soft market conditions. "We just recently restarted it, because we believe the market will turn in the near future and we want to be prepared. So we're investing in young brokers," he said.
CRC's internal training is a very specific, defined three-year program that involves technical assistant work, broker assistant work and then broker trainee work At the end of the three years, the trained professionals are able to place business on their own, he said, noting that the program is not just open to industry newcomers graduating from insurance colleges, but also to people having a few years experience with an insurer or retail broker.
Q: So what is your best guess--when will the market turn?
A: "Somewhere in the 12-to-24 month range," Mr. Turner responded.
In addition to the high level of industry surplus, combined ratios are still fairly healthy. Major carriers' combined ratios have not deteriorated to the level seen in previous soft markets before they turned.
Q: When the market does finally turn, do you think we'll see the magnitude of price increases of prior hard markets--double-digit price hikes?
A: "I think this turn will be a little different in that price increases will be a lot more under control. But there will be a lot more surplus lines business on a percentage basis," Mr. Turner predicted.
He cited the 2002-03 period as a comparable turn, contrasting the very hard market of 1985-86, when pricing doubled and tripled. In 2002-03, "pricing generally didn't go up as much, but the percentage of nonadmitted business quadrupled, and that's what I think will happen [this time]. I don't think [insurers] will raise prices to the point of not being able to justify them, but I believe the standard admitted markets will dump a lot more business--unprofitable business--and the surplus lines market will pick it up."
In November's edition: John Jennings, president of Crump Property & Casualty Insurance Services, is featured in the Broker Q&A spotlight.
