After a panel of excess-and-surplus lines industry leaders recently expressed concerns about insurers abandoning the wholesale-distribution channel, two E&S carrier executives reiterated their commitment to both wholesaler brokers and surplus-lines business.

Richard Schmitzer, president and CEO of Richmond, Va.-based James River Insurance Company, told NU, “We are dedicated to the wholesale platform.”

“This remains a relationship business,” he added, noting that it is easier to retain relationships with 3,000 wholesale-broker clients rather than 10,000 retailers.

The degree of specialization among wholesalers matches up well with James River’s specialty divisions as well, Mr. Schmitzer said.

He said the only time James River would consider risks from retailers is if they brought “something to the table we wouldn’t see through wholesalers,” and that nothing specific comes to mind as an example.

Chris Timm, president of Century Insurance Group in Westerville, Ohio, said wholesalers serve as a “wonderful resource” to retailers for one-off type risks.

For example, he said in the event of cleaning up a Superfund site, a standard carrier may not write that risk, and a retail agent or broker will have to go to a wholesaler who is savvy enough to place the risk.

Wholesalers are “very good at that,” Mr. Timm said.

Last month, Kevin Westrope, president and CEO of Kansas City, Mo.-based wholesale brokerage Westrope, speaking at the executive session of the National Association of Professional Surplus Lines Offices Ltd.’s Mid-Year Leadership Forum held in Naples, Fla., last month, said the erosion of the wholesale-distribution system is a concern for him.

He noted that some E&S and specialty companies have expanded recently and have decided to deal directly with retail outlets rather than wholesalers.

“I’m not sure if that’s a good thing,” Mr. Westrope said.

He also talked about the growth of the E&S insurance business over the last 25 years. He said that when he got started in the industry, wholesalers accounted for 3 percent of the commercial marketplace. Recently that number climbed as high as 13 percent before falling off again in the soft market and economic downturn.

“Somewhere along the line we became ‘big business,’” Mr. Westrope said. Wholesalers have become financial-services people and have moved away from the entrepreneurial spirit that defines the distribution channel. He characterized the drastic shift in the business as being “a little scary.”

The shift, he added, is creating barriers of entry. Mr. Westrope said he does not know if he could create a company today the way he did in the 1990s.

Anthony Markel, vice chairman, Markel Corp., who was also on the panel, said consolidation among retail agencies means wholesalers and E&S and specialty insurers must jointly adjust to find out how to add value to much more sophisticated and leveraged channel partners below the wholesalers. The business is still out there, Mr. Markel noted, but it is concentrated in less personal and more process-oriented, larger retail agencies.

He said that the estimated number of retail agencies in the United States has dropped from 39,000 in 2000 to 19,000 in 2010. Further consolidation is expected by 2015, Mr. Markel said, with an estimated 7,000 to 8,000 additional agencies being acquired or going out of business.

But Mr. Markel said Markel Corp. is committed to its wholesaler relationships and guards those relationships “zealously.”

He said Markel recognizes the value of wholesalers—“contrary to some competitors that openly deal in both distribution systems,” wholesale and retail.

He singled out a large national carrier and a small-business specialist, while defending his own company, stating that Markel inherited a “retail platform of sorts, but it’s the tail of the dog.”

After the NAPSLO meeting, Mr. Schmitzer addressed Mr. Westrope’s concerns about changes in the wholesale model. “There’s certainly been consolidation among wholesalers,” Mr. Schmitzer said. But there is space in the marketplace for, if not “mega-wholesalers,” the next level of large wholesalers.

Mr. Timm noted that wholesalers, like many players in the industry, have their challenges to overcome. “Wholesalers have to be better every year at what they do just like we have to be better at what we do,” he said.

Panelists at the NAPSLO conference echoed that sentiment.

Mr. Markel said specialty insurers and wholesalers have to work together to look for coverages and approaches that answer societal needs. Key to this, he said, is relying on wholesalers to inform insurers about clients’ needs.

Joel Cavaness, president of national wholesale brokerage Risk Placement Services of Itasca, Ill., said, “For us to continue to be a factor, we must continue to innovate new products.” As an example, he noted that 15 years ago, no one had ever heard of cyber-liability products. Rolling out such products that serve critical needs will be how wholesalers “continue to be a force,” he said.

“If I own an idea or a product, I’ll get my fair share,” Mr. Cavaness said.

Mr. Markel also warned the industry about moving away from the surplus-lines space and to the admitted market too readily. He said the need to provide admitted products is growing, and those in the E&S space have to act.

“But we should be more grudging to give up the surplus-lines space,” he said. Surplus lines, he noted, allow for more flexibility. He said insurers can move faster to respond to market needs on the nonadmitted side compared to admitted.

Mr. Timm noted that his company is writing more of its marine business in the admitted market than it has in the past, and that some products just don’t sell unless they’re in the admitted market.

But he said “surplus lines is always the preferred way to go.”

He said regulators probably want as much business as possible in the admitted market, but he has explained to them in the past that it is more expensive for carriers to do business on the admitted side, and companies have to charge more to compensate in many cases.

Mr. Schmitzer said James River does not have admitted paper and has no plans to change that. “We’re comfortable where we are,” he said, noting that customizing and creating solutions is easier in the E&S space, and he also likes the flexibility in pricing and coverage that E&S provides.

Special Reports /

E&S Carriers Staying Put With Wholesale Distribution

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