In order to meet every client's needs, however, we often must offer products and coverages requiring the assistance of an excess and surplus lines specialist. In these instances, we place special reliance on a select group of intermediaries and invest great effort in knowing this select group very well. We choose to work with these preferred intermediaries because of what services they offer and their attention to detail. As we select and cultivate relationships with these wholesalers and managing general agents, the goal is to maximize protection and service for our clients.

Think Like A Customer

The core of our approach is to view our firm as a customer of the intermediary. Like all customers, we are interested in good service, a quick response and a sense of urgency from the intermediary.

With more than $200 million in premium volume placed through intermediaries (about $170 million annually with U.S.-based intermediaries, $47 million with London, and $5 million with Bermuda intermediaries), we made a strategic decision several years ago to focus the majority of our general business through a limited number of high quality, professional intermediaries. We seek the staff, expertise and market relationships that consistently produce positive results for our clients and, as a result, a competitive advantage for our company.

As with other organizations that practice such limited sourcing, we expect our relative volume of business to translate into operating efficiencies, increased market leverage and better dedication of vendor resources.

Overall, we still use a large number of intermediaries because many have exclusive programs or market relationships. The intermediaries we use for general wholesale placements, however, have been reduced from 27 to six over the last three years.

This strategy has its subtleties. The wholesaler must understand that when we have direct access to a market, we want to place business direct for cost reasons and so that the underwriter more easily identifies that we are sourcing revenue for them.

On the other hand, we understand that some surplus lines insurance companies do not want to conduct business with retail brokers. Intermediaries help screen what retailers bring them, and we accept that. To this point, we have also rejected offers from intermediaries to purchase them, for we believe an arm's length strategy establishes credibility with both our clients and our strategic wholesale vendors.

How We Do It: The RFP Process

Our intermediary selection begins with a formal and detailed Request for Proposal (RFP) process. The RFP includes a cover letter explaining our objectives and requests information that will help us evaluate intermediaries based on factors such as the ability to service our clients and branch offices, market relationships and deal-making ability, quality and experience of brokers assigned to our branch offices, innovative ideas, and products offered.

We consider Web and electronic submission capabilities, and the ability to consolidate rollover from existing MGAs, where appropriate, with minimal disruption to our clients and originating office.

We also require a serious commitment of our approved intermediaries' senior management to a relationship with our firm.

In addition to such core information as the organizational chart, list of locations and ownership details, we ask the candidate to list retail brokers with which they already have similar partnerships. If an intermediary is spread too thin by trying to serve too many key relationships, we expect they will have difficulty meeting our needs. We need to know they can handle the occasional call on Friday at 4:40 p.m., requesting a special events coverage that must bind the next day. Other important considerations include:

o Will the intermediary file surplus lines taxes for us?

o What are the intermediary's financial rating standards for the insurance companies they access on our behalf?

o Does the intermediary have a claims specialist for key product lines? The ability to facilitate difficult claims with the non-standard market is very important. Good claims handling can keep an occasional high-value claim from spoiling an otherwise excellent relationship.

The Dotted Line And Beyond

We require a written contract with each intermediary outlining responsibilities. We make sure the agreement includes an ownership of expiration clause and a mutual hold harmless clause.

We have ownership of expiration clauses in our contracts with insurance companies, and always request the same in contracts with intermediaries to protect our assets, which happen to be clients. An ownership of expiration clause prevents the insurance company or intermediary from assuming control of the client relationship and taking our revenue for the account or policies.

We generally also strike out any guarantee of premium clause.

Many agent/broker contracts we receive from intermediaries have such a clause that guarantees that our agency will guarantee payment of all premium, whether collected from the client or not. Some contracts even request a personal guarantee by the officer signing the contract.

We realize it is our responsibility to collect premium, but when we give an intermediary high volume, we expect the business to be handled on a partnership basis.

We strike through these clauses, and are occasionally successful in getting the change accepted if the relationship is strong enough. We do not guarantee premium payments to our top insurance companies, so why should we do this for intermediaries if we do not have to?

We include our branch offices and client service teams in the selection of our short list of preferred intermediaries. All replies to our RFP are reviewed at both the headquarters and branch office levels. By getting the field involved, we encourage ownership and buy-in and promote the entrepreneurial culture that we ultimately rely on.

In order to protect the integrity of our RFP process and our preferred intermediary relationships, final approval of all new insurance companies or intermediaries rests with our Brokerage Operations department. This prevents client executives and account managers from invoicing premium payable to an insurance company or intermediary without our department knowing about it.

Intermediaries not on our approved list cannot be used if we already have a mutually beneficial relationship established that can handle the client's need.

This may seem a tough policy, but agents and brokers must have a “gate keeper” in order to assure that only approved intermediaries are utilized. Control of all markets utilized also helps assure that insurance companies used to protect our clients assets and associates meet our minimum financial strength requirements.

Every other year we conduct a survey among our offices to audit satisfaction with intermediary performance. Intermediaries who take the time to make regular office visits and establish solid personal relationships win points with our professionals in the field.

Similarly, we find these alliances work best when there is involvement of top-level management by the intermediary. The best intermediaries are skilled at marketing, supporting the linkages of risk assessment, product identification, policy writing and claim service.

Creating retailer-wholesaler alliances is hard work. When completed carefully, we achieve our business goals and everyone wins, which is what we planned all along.

Kavin K. Smith, CPCU, is Director of Brokerage Operations for Palmer & Cay in Savannah, Ga.