What does a retail agent's book of business have in common with a 401(k)? The future is more secure when both are diversified.

Just as it makes good sense to have a mix of stocks, bonds and annuities with varying risk exposures to ensure a sound financial future, an agency with a book of business ranging from traditional policies to specialty coverages makes for a healthier business.

“I think it's a smart idea for retail agents to want to grow the E&S side of their businesses,” said Kevin Westrope, president and CEO of Westrope, located in Kansas City, Mo. “I'm not an advocate for any agent being all specialty or all standard market. I think you want to have a nice blend.”

Scott Culler, regional president of Markel West Insurance Services in Woodland Hills, Calif., agreed, adding that an agent who takes the time to become familiar with the options the nonstandard market offers potential clients opens the door to many new opportunities and beneficial relationships, especially as the market changes.

Related: Read the article “In Select Lines, Risks Shifting to E&S Carriers.”

Often retail agents don't bother going after certain classes of business because they place a majority of their clients with only a handful of companies. But if those companies don't cover a particular risk or risk level, agents often miss out on the rich opportunities only specialty insurers can place.

Generally, the business that finds its way to the E&S side of the market tends to be more complex, requiring more expertise. But it isn't the sort of business in which you are going to be in competition with major stock companies year-in and year-out. Although the risks may be greater, Westrope said that the accounts tend to stay in place longer.

Another benefit to having healthy E&S business is being able to react to change in a hardening market.

“If you go to South Florida, you cannot get things placed in the standard market very easily,” said Joel Cavaness, president of Risk Placement Services in Itasca, Ill. “There, every property falls into the E&S category. And there are indications we will begin to see this in the Northeast as well. E&S offers other options when the standard market no longer wants to cover a current client.”

Creating a Mix of Business

So how does an independent agent build his E&S business? Simple: Start where you are.

The wholesale market handles everything from complex personal lines to complicated and layered property accounts. In fact, every account is insurable, at least at some level, given the price and terms in the specialty lines side. If you can't find a company in the standard market that has an appetite for a particular risk, you likely can find an E&S option to get the job done. And you don't have to go very far to find a potential client.

“Remember, it's not always about 'big business,'” Westrope said. “It can be a specialty program. It can be as simple as tow trucks. Maybe you have a great product and a great market for it. So start calling all the tow truck companies in your area. It's any kind of business where there is increased exposure and the standard market is not readily covering it.”

Related: Read the article “Income Statements, Not Balance Sheets, Driving E&S Rate Increases” by Chad Hemenway.

“It happens all the time—we get a call from a retail agent in a relatively small town who goes to church with someone who is a buyer for a grain elevator, for example,” said Westrope, whose company specializes in the agribusiness arena. “The agent doesn't have expertise in that field, but he has a relationship that led to the opportunity. He turns to us as a partner in helping secure the best coverage for his client.”

Working with Wholesalers

Wholesaler brokers can help smaller, independent and more regionalized operations compete with national brokers for E&S business. A wholesaler adds value not only in determining the appropriate level of coverage and the right carrier fit, but also provides expertise in areas retail agents may not have.

“Retailers and insureds look to wholesalers for access to markets and coverage they cannot find anywhere else,” said Matthew D. Nichols, president of All Risks and president of the National Assn. of Professional Surplus Lines Offices (NAPSLO), the national professional trade association representing the surplus lines and wholesale industry. “But the real value of wholesalers is the expertise, experience and knowledge they bring to the placement of specialty insurance.”

Wholesalers generally specialize in one industry or a handful of related industries and the associated product lines. This enables them to become experts in that area. It also makes them excellent allies in preparing documentation for underwriters and ensuring that situations unique to that particular industry are considered. In essence, they become an extension of a retail agent's knowledge base.

Westrope's background is in property, and he started his career on the West Coast, including a stint as an underwriter. Consequently, he handled earthquake placements, on which he now relies when assisting Midwestern retail brokers placing the same insurance. “Because of that experience, I understand how underwriters think, what information they are going to need, how to structure the submission and, ultimately, how to get the best deal for the underlying insured client,” he said.

The underwriting capabilities of wholesalers are often forgotten by most retail agents. But this is actually one of the major benefits of working with these professionals because it increases their ability to respond to an agent's needs with speed and agility, and fosters flexibility and creativity when working in niche markets.

“In fact, wholesalers rely on these skills to assess capacity, pricing, risk appetites, terms and program design,” Culler said. “Wholesalers find stability by adhering to the underwriting discipline.”

That's why cultivating a relationship with wholesalers who specialize in the types of specialty lines of the business you usually cover is critical—even the lines that are covered by the standard market. Because all it takes for a particular line of business to move from the standard to nonstandard market is a long period of underpricing in conjunction with a bad legal environment or a catastrophic event like Hurricane Katrina.

Related: Read the article “Scott Bayer: Philadelphia's New E&S Expert” by Shawn Moynihan.

But, as Westrope points out, you want to have those relationships in place long before you need them in an emergency.

“Retail agents may not always understand or appreciate the value that wholesalers can bring to the E&S transaction,” he said. “Most of us are readily willing and able to offer information and training. We can assist the retail agent not only in securing and keeping business, but also help the retail agent learn about that particular specialty line, acting as a resource until the retailer becomes an expert in that segment. But it's just like any other scenario—in a crisis, the wholesalers you have a relationship with are going to come to your aid first—your request will rise to the top of the pile every time.”

Hallmarks of a Reputable Wholesaler

How do you choose which wholesaler with whom to form this relationship? Read a quick primer:

1. Unparalleled access
   One of the biggest advantages to partnering with a wholesale broker is the access to a number of markets that can handle a number of risks.

“Wholesaler value goes beyond just being aggregators that can streamline the process and find a market for a hard-to-place risk,” Nichols said. “It involves using expertise to solve problems and find the right coverage in the right market, which requires solid relationships with specialty companies that retail agents can't access independently.”

“Wholesale firms see a critical mass of business in niche areas and, as such, this critical mass allows for real-time market knowledge regarding capacity, pricing, risk appetites, best terms and program design,” Culler said.