Today's insurance agents are conducting business in a revolving door. This week their standard company may be looking at a piece of business and competitively writing that particular class, and next month the same application may be denied. Wholesale brokers, managing general agents and surplus lines brokers with which agents have established relationships can, in the long run, help determine how successful their agencies will be in this volatile soft market.

A relationship exists when two people or entities have a connection to one another. But can the two have that connection without really understanding the needs of the other?

What is the agent really looking for in the relationship? What is the wholesaler looking for?

Before exploring these questions, it is important to understand the differences between the players since each will serve the agent relationship in a different manner and satisfy different needs of the agent. (See sidebar on page 13.)

As the insurance cycle creates softening pricing and better policy terms, underwriters in the specialty non-admitted market react in a manner similar to their admitted company brethren. They reduce rates, broaden coverage and try to retain their better books of business.

This is difficult in the non-admitted market because most states require business to be first offered to admitted companies. By the very nature of the surplus lines market, business returns to the admitted companies when the cycle softens.

Exceptions may exist if a state has an exportable list exempting certain lines or classes of business that traditionally or temporarily have limited market access.

When there is limited market access, states will allow risks to be placed in the surplus lines market. For example, classes that traditionally are placed in the excess and surplus lines market are nursing homes and hot-tar roofing contractors. A temporary class may be lawyer's professional liability or windstorm on coastal property.

The softening insurance market traditionally impacts surplus lines brokers before managing general agents. As capacity enters the marketplace, the larger-premium accounts flow to the admitted companies first since their premium size is more attractive; they meet the need of admitted companies to use their financial capacity more quickly.

Surplus lines brokers rather than MGAs lose accounts faster because they typically place the larger accounts that are written in the specialty market. Accounts that have been in the surplus lines market for a few years–that are priced higher with restrictive terms–allow the retailers' admitted markets to offer competitive prices and better terms.

The further along a softening market continues, the more likely will be competition for smaller-premiums risks. They are typically written by MGAs in the non-admitted market, and they also can flow to the admitted companies.

This is usually seen in classes or lines of business rather than individual risks. An example of a class would be inner-city habitational business. An example of a line of business might be employment practices liability.

Program managers will also expand their offerings as companies seek premium and are willing to offer competitive terms and pricing to either maintain or increase their premium writings.

WHAT DO YOU NEED?

To understand whether to work with an MGA or surplus lines broker, retail producers should spend the time deciding first what their own needs are.

If you are a retail agent located near coastal properties, for example, your needs are different than the inner-city producer with limited market access.

The number-one reason to use any of the available types of wholesalers is market access. Surveys indicate that market access is closely followed by service, after which competitive pricing and retained revenue follow.

Once a retailer knows their needs, the retailer should then decide what MGA or surplus lines broker fills them. With the speed-to-market improving each month because of technology, there shouldn't be a necessity to use more than two or three wholesalers that can service the retailer's needs.

Relationship is vital to both parties, and once an interview and research process is completed, both parties need to make an effort to know the reasons for doing business together.

Consistency between retailer and wholesaler gets the accounts placed for the ultimate customer–the insured whose needs must be served by both parties.

THE BOTTOM LINE

Risks get placed more quickly and efficiently when both the retailer and wholesaler generate a profit from the relationship. There may be times when a product manager or managing general underwriter has the best available market, and if a strong relationship exists, the wholesaler will likely assist the retailer by referring the account to those markets.

Today more than ever, with the increasing number of online capabilities and competition facing the retail agent and wholesaler communities, communication is by far the key component to any successful relationship.

When agents communicate their needs quickly, concisely and accurately to the wholesaler, and the wholesaler, in turn, communicates to the agent what they can and cannot do, both parties will be more effective, efficient and profitable with their time and the bottom line.

PROFESSIONAL STANDARDS

While this article has highlighted some differences between the players in the E&S distribution system, members of two wholesaler trade associations share a dedication to professionalism and integrity.

The American Association of Managing General Agents and the National Association of Professional Surplus Lines Offices are two trade associations through which retail agents can locate active members in their area.

These associations only accept members who meet specific criteria. They offer continuing education, exchange of ideas during meetings, follow governmental changes and disseminate relevant information to their members.

Membership in these two trade associations means that the wholesaler/MGA subscribes to a code of ethics and demonstrates high standards of professionalism, excellence and integrity.

Special Reports /

Specialists Help Retail Agents Keep From Getting Lost In The Cycles

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