A Captivating Time For Agents?

Insurance capacity was drying up and premiums were rising well before a pair of hijacked jets destroyed New York’s World Trade Center. Today, with insurers staring down tens of billions in losses, even the best of risks might be hard to place and prices will surely go sky high.

One consequence of this is that the recent rush to the captive market might well turn into a stampede among desperate buyers. Independent agents and brokers should seize the opportunity to lead the charge before they’re trampled in it.

That’s where Andy Barile comes in.

“Hard markets precipitate the growth of captives,” proclaims Mr. Barile, the omnipresent veteran of the business who has seen the ebb and flow of many an industry cycle.

Right now, he says, captive formation may well be an idea whose time has come again–just the ticket for the right agent, the opportunistic agent, who writes a solid book of specialty business and who is hungry for a bigger slice of the pie and willing to “ride the curve” to get it.

Andrew J. Barile knows his captives, and he knows his agents. Currently, he heads an insurance and reinsurance consultancy in Rancho Santa Fe, Calif.

Among the highlights of a crowded 40-year industry resume is the co-founding of ANECO Re, the first publicly-held Bermuda reinsurance company, as well as a prior 10-year consulting career during which he gained repute as a marketfinder for agents, as an expert in helping corporations establish offshore insurance companies, and as an educator of note on the subject of developing, implementing and managing specialty niche insurance programs.

Andy Barile says the first thing that agents thinking about captive formation should do is determine whether their books of business generate profit for their insurers. If the answer is “yes,” then a further question can be asked (“How do I recapture some of that?”) and answered (“I start my own captive and I reinsure the company I give the business to.”)

Are captives for all agents?

Most agents should look to the formation of an offshore insurance company because of the ease of entry,” explains Mr. Barile. “Capitalization requirements for offshore insurers are simple ($150,000 in startup costs is the norm), selecting a management company with experience isn’t difficult, and the operational aspects are relatively easy to understand.” Then, too, there are many more venues in which to set up your captive than in the past, he noted.

But having said all that, he’s quick to admit that this isn’t for everyone. “Specialization is back and focus is back,” he says, noting that the one-product agency captive has the greatest chance for success. Also, the more focused the product, the better: commercial auto physical damage for private sanitation vehicles, as an example, or non-standard auto long-haul trucking.

The reason this is key, he says, is because agents forming captives are doing what carriers do–taking on underwriting risk, which is something they didn’t assume before. It’s important then, says Mr. Barile, to get the risk as refined as possible, to know as much as you possibly can about that risk “so you can get the pricing and the underwriting under control.” And the best way to do that, he says, is to choose a specialty niche.

“Agents with a specialty niche book of business that falls into homogeneous units, like restaurants or security guards, are the best candidates, because they’re very focused. They’ve gotten to know their particular industry. If they’re doing it well, they know all the nuances of that class of business,” Mr. Barile says.

“They know the whole picture a lot better than if they were switching–today doing the restaurant business and tomorrow worrying about the security guard business or the nursing home business,” he added.

Another Barile example: “If you’re into artisan contractors, you have a very focused agency. But you can take a swimming pool contractor out of the artisan contractor class, or the tile installer, and you’re more focused yet,” says Mr. Barile.

Such a strategy will enable you to avoid a “problem” that insurance companies have long had–trying to underwrite overly broad classes of business.

Take professional liability, for example–Mr. Barile points to the enormous differences between coverage for nurses, nursing homes and accountants. So broad an approach, he says, taxes your ability as an underwriter to judge the nuances within the class.

“You’re going to see more companies go back into their core competencies,” he says, predicting that agents will follow suit.

And many agents–those with profitable niche business and entrepreneurial spirit, and looking to benefit further from the hardening market–may well be looking to build a new core competency, he says.

Andy Barile thinks that’s a captivating idea.

Thomas J. Slattery is NU’s Executive Editor At Large. He can be reached at tslattery@nuco.com.


Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, October 29, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.


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