By the time you read this, the first quarter of 2008 will be almost over. Most agents, brokers, and underwriters working on commercial, surplus line accounts in Florida are at once attempting to get a grip on what happened in 2007 while contemplating the future of the market. There are a number of important trends that suggest the market is improving and that rates have moderated or are falling, which is good news for consumers.

To gain some perspective on the state of the market, I've enlisted the help of four individuals from wholesale brokers who are successfully writing surplus lines business across the state of Florida: Larry Beller, vice president and branch manager of Hull & Company in Tampa Bay; Joe Anderton, executive vice president of Bass Underwriters in Plantation; Kathy Colangelo, president of Roehrig, MacDuff in St. Petersburg; and Dave Rucker, senior vice president of All Risks in Ft. Lauderdale. Since property is still a major concern in Florida, questions concerning this topic dominate the issues.

Florida Underwriter: How would you characterize the changes the surplus lines property market in Florida has experienced in the past six-12 months?

Beller: During most of 2007, rates were dropping gradually, but the changes that occurred in the last quarter of 2007 were dramatic, and those changes have continued into 2008. Brokerage property rates have reduced by 50 percent or so in most areas of the state. Without a doubt it's due in large part to the lack of major storms in Florida and the competition to retain business. What we're seeing now is that rates in Florida are consistent with rates for similar risks in other parts of the country.

Colangelo: Rates dropped significantly in the third quarter of 2007 and competition is intense. It's a time like no other, and I've heard that from professionals who have been in this business a lot longer than I have, some with as much as 40 years of experience. There are a number of factors involved, including a lack of catastrophic events, new capital and the willingness/ability of standard markets to write business previously left to the surplus lines market.

Rucker: New capital has made some impact, but not on the business we're seeing. Primarily, it's the same players trying to protect their hands and, of course, to a great degree that is what is driving the pricing we're seeing now. I just had a meeting very recently with an underwriter to talk about one of our contracts for 2008. About 90 days prior to the meeting, we looked at rates to present to the carrier, and then we adjusted the rates again about 10 days before the meeting. When the underwriter asked if these rates will do the job going forward, I had to tell them probably not. That's just one example of the “speed” at which things have been changing.

Anderton: From our experience, just about everything has changed or is changing, not just rates. What's available now compared to a year ago would include more coverage, lower deductibles (especially wind), and acceptability or qualification of accounts. New capital has been a factor but perhaps more so on the reinsurance side of the transaction. I think that many carriers are simply recognizing an opportunity and trying to respond aggressively.

Florida Underwriter: Based on your experience, how are the carriers reacting to these conditions?

Beller: Competition on middle market accounts is intense and is coming from standard carriers as much as it is surplus lines companies. Depending on the account, it may be that the standard companies are the competition. Carriers may get a little less aggressive as we approach hurricane season — that's been the trend in the past few years.

Anderton: Carriers have further segmented the market and have made a greater distinction based on construction on both coasts. The only area that remains very difficult is the Panhandle due to construction codes and other issues unique to that geographic area. Rates have not yet bottomed out and, of course, that should be good news for the majority of commercial insurance buyers.

Colangelo: Mitigation is being recognized and considered by many of our carriers, and it can make a difference if it brings the building up to code and/or if it involves required improvements to the roof. With proper mitigation more carriers are willing to look at a risk and at a more competitive price, and it may also be possible to lower the wind deductibles.

Rucker: Those carriers that intend to keep market share are competing any way they can, which certainly includes the possibility of negotiating coverage and deductibles as well as rates. I still believe for the best accounts it's going to be hard for a broker or agent to “win” without a very competitive rate.

Florida Underwriter: Besides staying in the game on rate, what other challenges do you face?

Rucker: Searching the market for the best terms is what we're here for, and in this market our customers want/need just about every account shopped. That's understandable given the possible problems if they fail to do so. The challenge for us is to deliver the best possible product but, at the same time, protect our relationships with our carrier partners. The more we “shop” the market the more it could (negatively) impact our hit ratios. We're constantly trying to balance those elements.

Colangelo: We're lucky in that our retail agents are pretty savvy and understand what's going on in the marketplace. One of the results of this market is that our customers have to treat almost every renewal as “new” business, so aggressively re-marketing renewal business is now the norm, not the exception. The reality is that we're all working harder.

Beller: Lack of detailed information. Everyone wants to get a submission out to their brokers as quickly as possible, and of course getting to the market first is important, but getting there with good information is just as important. With property business as an example, we're emphasizing to our customers to provide us with accurate building construction information and building updates on older properties. The more information and the better the format, the more favorably received it will be by the carrier.

Anderton: Certainly the volume of business is a challenge but one we're capable of meeting. In addition to marketing the accounts properly and professionally, keeping up with the aggregate property exposures is also vital. Many of our carriers require that we monitor our allotted wind aggregate very closely and we track it constantly.

All the experts agreed that short of a major storm or other catastrophic event, this very competitive and “soft” market won't change anytime soon. When asked what property business is a still exclusively surplus lines, they list frame and/or older construction (usually more than 10 years). Some also indicated property within a mile of the water, and property located in the Panhandle.

As for what a retail agent can do with the help of their wholesale markets, all emphasized that working with wholesalers where the retailer has a relationship is important. The better your relationship with your wholesaler, the better service and more help you will likely receive. (From one who has been there, that's not a knock on new production sources, it's simply a reality in an environment that requires more work for potentially less revenue.) Also, if it makes sense for the class of business or size of the account, check to see if an online rating tool is available to expedite the quote process. Make sure you are working with wholesalers that have a diverse group of carriers so they are constantly acquiring crucial market information, as well as the ability to provide you with the most competitive terms.

Special Reports /

Surplus Lines Brokers Optimistic About Market

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