Choose Wholesale Partners Wisely

Filing surplus lines taxes and being available for golf are nottrue measures of good wholesale broker's worth

By Peter R. Taffae

As a retail broker for 14 years, I remember saying to myself,“If I treated my clients like this wholesaler is treating me, wewould be out of business.”

Today, as a wholesale broker, my colleagues, many of whom wereat one time retailers, laugh when we think about those days. Thiswas one of the reasons we started our own wholesale brokerageoperation five years ago. Since that time, we have seen solidgrowth year after year, and most importantly, we are viewed by ourretailers as “business partners.”

The perception, and unfortunately in some cases reality, is thatthe wholesale broker is merely a “vendor” used only in thefollowing circumstances:

o To place “impossible business.”

o To access certain otherwise closed markets.

o To block markets in certain competitive situations.

o To file surplus lines taxes.

o To serve as a host for the occasional round of golf.

But the sophistication of today's insureds' exposures,complexity of insurance products, stiff competition, rapidlychanging legal environment and overwhelming amount of work inplacing accounts all require a true wholesale partnership to be inplace to meet insureds' high expectations.

The choice of your wholesale partner is a decision that willeither bring added value to the process, allowing the retailer toachieve greater success, or, unfortunately, the opposite can occurand the retailer could lose a client. The importance a retailerplaces on choosing a wholesale partner is as important as thedecision the insured made in choosing the retailer.

We suggest that a good place to start is to assess a prospectivewholesaler partner's values and mission. At our firm, for example,our mission is to make our retail partners more successful whileacting with the highest degree of integrity and professionalism. Webelieve that focusing our attention on the retailers' needs at alllevels of our organization will bring them success and get usinvited back often so that in the end everyone including theretailers' clients succeeds.

The following factors might also be considered in choosing awholesale partner:

o Generalist or Specialist

For a retail agent or broker, knowing the right specialist isone of the keys to differentiating yourself from the competitionand winning the account. Granted, it might be hard to rememberwhich wholesaler is a marine specialist, a directors and officersliability specialist, or an earthquake specialist, but not knowingcould cost the account or open up the retailer to potential errorsand omissions exposure.

No one person–and no one firm–can be everything to everyone andyet still remain completely focused. Today's financial products(D&O, E&O, employment practices liability, legalmalpractice, digital liability, and fiduciary liability) requirefull-time concentration. Each insurance company has a differentunderwriting appetite as well as its own policy form, and there areconstant legislative changes, all of which require the wholesalerto be on top of his or her game every day.

Since all of these products are underwritten with a high degreeof subjectivity, the extent to which a wholesaler has cultivatedunderwriter relationships among the various insurers can make asubstantial difference in the quality of a placement.

o Subsidiary or Independent

An independently owned and operated wholesaler is solelydependent on the success of its clients. There are no mixedloyalties. The wholesaler does not have a sister company, such as aretail or MGA subsidiary whose best interest may be in conflictwith those of its clients.

Senior management of a wholesale operation should share the samemission as the front line broker. That is why the wholesaler shouldnot have contingency arrangements nor have in-house underwritingauthority nor work both the wholesale and retail side of theindustry.

In-house underwriting can easily compromise the fiduciary dutyof the wholesaler. The wholesaler's duty is to provide the bestproposal and to offer unbiased recommendations, even if it is notnecessarily in the wholesaler's financial best interests to doso.

Many wholesalers also operate retail divisions, which sometimescompete with the wholesale division's retail client. We believestrongly that once you cross this line there is no coming back.Instead, we suggest choosing a wholesaler who is independentlyowned and is committed to honoring the insurance industry'straditional insured-retailer-wholesaler distribution system. Askyour wholesaler if the parent company is 100 percent wholesale.

o Broker Compensation

How your broker is compensated within his or her organizationshould be of concern in choosing your wholesale partner. Eachwholesaler has a different philosophy and each system ofcompensation has its merits.

We compensate our team members based on how well they fulfillour mission of making our partners more successful. We do this viaa complicated formula that is largely founded on our firm's overallsuccess rather than purely upon total commissions earned.

Additional bonuses are granted when individuals exceed theirpersonal goals, such as publishing specific articles on ourproducts.

We do not want personal profit to cloud our overall mission, noris the largest deal always the most important. Rather, clientloyalty and the quality of partnership relationships establishedand maintained play a primary role in setting priorities.

By not compensating our brokers based on each transaction, webelieve they can take a larger view of each relationship and willbe motivated to do the best job in the long run, not necessarilybringing the highest short-term profit. This motivates and rewardsteam success. Therefore, it is appropriate to ask your individualwholesale broker the method by which he or she is compensated.

o Claims Department or Claims Broker

Most large wholesalers have a claims department. But is thatreally the best way to handle claims?

When we formed our wholesale brokerage firm, our brokers met anddecided that based on our experience, there is a better way todeliver high-quality claims advice and support.

Rather than a formal claims department, we have a dedicatedclaims associate who handles the administrative aspects (includingclaims acknowledgments, record retention and file construction). Inaddition, all of our brokers meet bi-weekly to review the claimslog, monitor the claims process and act in a role very similar tothe one which he or she played when originally placing thebusiness–that is, in a hands-on, client-driven manner.

We feel the individual that is best qualified to manage theclaim is the one who negotiated the initial insurance transaction,since this person knows the underwriter, knows the coverage, andhas a vested interest in the claim's successful resolution.

Anytime you interview or consider establishing a wholesalerpartnership, be wary if the claims aspect is not discussed. Webelieve that active and expert claims management is one of the bestways to earn the respect and loyalty of our clients.

o Real Expertise or Perceived Expertise

Normally “gray hair” could be the first tip as to whether or nota wholesaler possesses real expertise, but there are numerousadditional questions that should be asked and answered. There is nosubstitute for experience, be it as an underwriter, broker, ordepending upon the specific type of coverage involved, investmentbanker or attorney.

When dealing with financial products, any of these backgroundsare helpful. But in my humble opinion nothing beats the hands-onexperience of someone who has actually found an underwriter towrite some of the most challenging risks, be it a D&O placementof a major airline shortly after 9/11, or an oil company rightafter Piper Alpha, an EPL placement after a multimillion-dollardiscrimination settlement, or a legal malpractice renewal for afirm practicing Intellectual Property law.

Knowing how to avoid the minefields comes with brokeringexperience–from great mentors and by sharing “war stories” withknowledgeable colleagues. Each placement is unique and wholesalebrokers whose members meet regularly to 'toss around' ideas andexchange successful approaches are positioned to meet the toughestchallenges.

The more minds the better.

o One Location or Many Locations

It is very popular for wholesale brokers to open locations allover the country. If size truly matters, then it is the rightdecision to open as many offices as possible.

However, we are not convinced that multiple offices help toachieve the core mission of making retail partners more successful.In fact, many locations may actually make the goal that much harderto achieve on a consistent basis.

Does a retailer really lose anything in the way of service orexpertise by dealing via phone, fax and e-mail rather than inperson? Not if its wholesale broker is located near a major airportand is committed to making his or her client successful.

The keys are commitment and passion–not proximity. We live in aworld that allows us to travel across the country in five hours andbe available for face-to-face meetings on short notice.

Infrastructure, values, mission and know-how will make thedifference. We believe that your expectations of a wholesalepartner should far exceed being available for a round of golf. Theemphasis should be on results.

o Service or Lip Service

The key to success in any service business is bringing value toa transaction.

We have already addressed expertise, which cannot beunderestimated. When choosing a preferred wholesale partner,however, there are other important value-added services thatretailers should seek, expect and receive.

An obvious but often overlooked requirement is finding awholesaler who consistently keeps a retailer “in the loop” byproviding updates and progress reports.

This is important for two main reasons. First, it's theretailers' accounts that are at stake, so the last thing anyretailer wants is not to know what is happening with his or herclient. Second, it is better for retailers to know about any bumpsin the road before they become sink holes! A valuable lesson everywholesaler should learn early in his or her career is that “badnews only gets worse with time.”

Prompt notification about the status of the submission isimportant. The more the wholesaler takes off your plate–even ifthey're little things–the more time you have to produce newopportunities. That includes having binders extended before youmust call and follow up, and it includes knowing and working withthe claims adjuster before the insured calls asking about thestatus of the claim submitted last week.

Prompt policy delivery is also an important part of awholesaler's commitment to quality.

Ask your wholesaler what your expectations should be regardingservices that are important to you and your clients. Ask how thewholesaler differentiates itself from competitors. Be sure to gettangible answers so that you can use these answers to confirm yourdecision in choosing the wholesaler as a partner. We often offer tohave potential clients call existing clients as references.

The level of quality you expect should be no different than thelevel of quality you deliver in running your own book ofbusiness.

o Filling in the Gaps or Creating Gaps

The right wholesaler should fill in the gaps that exist in yourorganization, or at the very least enhance the sales process foryour company.

For example, we are often asked to perform risk analyses todetermine adequate policy limits for our products. Although mostbrokers try to avoid this assignment, we know how to do this andhave the intellectual capital to make recommendations and toprovide “worst case claims scenarios.”

On large accounts, we provide both a “briefing book” forsoliciting the account and a presentation book for delivering thefinal proposal. Ask your wholesaler to show you examples of theirwork product to help you determine if such services bring value.Ask what other services are provided to make the retailersuccessful and to enhance the relationship between retailer andinsured.

Our greatest success stories–and those of our clients–have comeabout when we worked together as partners with retailers. Yourrelationship with the right wholesaler should be no different.

Peter R. Taffae is managing director of ExecutivePerils Inc., anational wholesaler dedicated solely to D&O, EPL, E&O,Legal Malpractice, Cyber/Digital, Crime, Fiduciary Liability,K&R, Partnership Liability, and Intellectual Propertyinsurance. He can be reached at [email protected].

We believe that your expectations of a wholesale partner shouldfar exceed being available for a round of golf. The emphasis shouldbe on results.

Art Caption

Playing On the Same Side Of the Net:

The importance a retailer places on choosing a wholesale partneris as important as the decision the insured made in choosing theretailer.

Flag: More Than Lip Service

Wholesale brokers add value when they:

o Keep retailers “in the loop.”

o Promptly notify retailers about submission status.

o Take tasks off a retailer's plate.

Even doing the “little things” gives retail partners more timeto produce new opportunities.

o Have binders extended before retailers call to follow up.

o Work with claims adjusters before an insured calls askingabout the status of the claim submitted last week.

o Deliver policies promptly.