Are wholesale brokers a necessary evil, or are they valued partners for retail insurance agents that need to deliver solutions from the excess and surplus lines insurance market to their customers?

Although members of the National Association of Surplus Lines Offices Ltd. didn't pose that exact question on a survey they sent to nearly 20,000 agents last month, that's essentially what they wanted to find out, according to Letha Heaton, a member of NAPSLO's board.

Ms. Heaton–who also co-chairs the Communications and Technology Committee of NAPSLO, which developed the 17-question survey–discussed the motivations behind it with NU recently.

One underlying question, she said, arises from current soft market conditions, noting that wholesale broker members of NAPSLO are seeking to find out whether business declines they're experiencing are just a function of compressed pricing and increased capacity, or whether there are some issues with their role in distribution.

To date, she said, “there hasn't been any real research done to determine what it is that triggers good value for the agents that go through wholesale brokers. There's nothing scientific that says, here's why retailers choose to use wholesalers, or here's why retailers choose not to [use them] in the placement of specialty insurance.”

“A lot of it is just subjective,” she said. “They don't use us as much. We're not really sure why not.”

In addition to trying to develop a profile of retailers inclined to use wholesalers for access to specialty markets, the new survey was also sent to roughly 2,200 risk managers–even though the ultimate buyers of coverage don't normally deal with wholesale brokers directly.

Ms. Heaton said that many NAPSLO wholesale broker members have a perception that risk managers don't understand the role of the wholesaler on a specialty insurance transaction. “In fact, their fear is that retailers don't communicate that, and that they may communicate the wrong message,” he noted.

Such concerns are heightened by regulatory changes requiring retailers to be transparent about fees and commissions–including the compensation to wholesalers for their role in the placement of coverage.

Wholesalers “clearly have an interest in making sure that the risk manager knows that they're getting some value for what they're paying for” when their compensation becomes clear to the risk managers. “They don't want risk managers to see them as nothing more than a fee,” Ms. Heaton said.

“There seems to be a concern that the value of wholesalers is not well understood,” she added, referring to the value of consultative advice provided by wholesalers, their unique access to specialty insurance companies, and their abilities in customizing coverage.

Mike Ardis, director of communications for NAPSLO, agreed. “A wholesaler is often viewed as the middleman,” he said.

To get a read on current retailer and risk manager perceptions of the value of wholesale brokers, the survey asks respondents to rate wholesalers on 11 value measures, including expertise, integrity, market access and responsiveness. (See related text box, “Survey Says?” for the complete list.)

In addition to simply rating their performance on these measures–from excellent to extremely poor–the survey asks whether performance on each measure makes it more or less likely that the responding agent or risk manager will use a wholesaler to place specialty insurance in the future.

“Your input will help NAPSLO members improve their professionalism and responsiveness to your needs,” an introductory sentence on the survey says, underscoring one goal of the exercise–to guide improvements in service quality where they're needed.

The questions about attitudes and perceptions, found in the middle of the survey, are preceded by questions asking how often the respondents placed specialty insurance in the past year and how often they used wholesalers. The survey ends with a series of questions aimed at giving a demographic profile of the respondents.

Ms. Heaton–who is a senior vice president of marketing for Deerfield, Ill.-based Shand Morahan & Company Inc., a unit of Markel Corp.–noted that the survey was sent to commercial insurance agents who were either included in a database maintained by Markel or were listed on one of 10 databases supplied by wholesale broker members.

The Markel database, she said, has been maintained over the years as a result of continuing education seminars and webcasts that the specialty insurance carrier presents. The lists provided by the wholesale broker members of NAPSLO are their individual customer databases.

Wholesalers who made such customer databases available to NAPSLO for the survey include large national wholesale brokers as well as smaller regional brokers, according to Ms. Heaton said.

“It's proprietary who submitted and what their results are, but we did want to get a mix across all of the types of members we have–geographically and demographically, she said.

When the results are tallied, she said, not only will NAPSLO be able to compile an aggregate report for all its members to gain perceptional information, but in addition, those individual members who provided their own databases will get their own confidential set of information–allowing them to compare those responses to overall response rates.

Ms. Heaton said NAPSLO expects survey results to be tallied during the first week of February, and then a webcast of the results is planned, she said, adding that all members will be invited to participate.

Final aggregate results will also be distributed at NAPSLO's midyear education conference, which is being held Feb. 20-23 in Scottsdale, Ariz.

In addition to helping to guide members in managing their individual businesses, Ms. Heaton said NAPSLO hopes to use the survey responses to set the platform for a public relations campaign the association plans to undertake advocating the value of wholesale brokers.

“We really wanted to validate before we launched creative and communication devices that we understood how we are perceived–what our strengths and weaknesses were,” she said, referring to a planned marketing campaign that is being developed partly in response to an internal survey of NAPSLO's members completed last year. (See related text box, “Off The Charts.”)

More than 900 NAPSLO members responding to last year's inward-looking survey gave the organization extremely high marks for its solid reputation within the surplus lines industry and for its internal networking opportunities. Lower scores and write-in comments to questions about customer perceptions suggested that the value of wholesalers needed to be trumpeted to a wider audience, said Ms. Heaton.

“'Very few retailers or customers know about NAPSLO. They don't ask,'” one broker member wrote in a comment on the 2007 internal survey, Ms. Heaton reported.

A carrier representative wrote: “Most insureds have never heard of NAPSLO or wholesale brokers,” she said.

Like the new survey, the proposed marketing campaign will target the retail agent customers of wholesaler brokers and risk managers. “We want to reach the sophisticated insurance buyer,” she said, through organizations such as the Risk and Insurance Management Society.

For NAPSLO, this year's survey of agents and buyers is essentially “a continuation of a process [to] try to deliver more value to the membership,” she said.

The need to tout the value of wholesale brokers to customers is something members identified as important, both through the prior internal survey results and through direct unsolicited input that some large national wholesale broker members gave to NAPSLO's board last year, she said.

Mr. Ardis noted that while the new survey and marketing campaign are aimed at addressing wholesale broker members' concerns, NAPSLO has a history of responding to the needs of all its members.

He drew a parallel between the current efforts and NAPSLO's decision to have rating agency A.M. Best put together the solvency study of the E&S insurance market back in 1994.

The surplus lines segment is such a small part of the market that “there's not a lot of data out there about us,” he said, noting that at the time there was a perception that surplus lines companies were not as financially solvent as the standard markets.

Since then, the annual survey has continued to demonstrate the solvency record of the E&S market, he added.

Tease Reverse Bar, on page 10:

For more NAPSLO Preview stories, see pages 16, 17 and 27.

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