Insurance agents and brokers continually look for ways to expand their books of business. Many consider moving into Excess and Surplus (E&S) lines, but they may not be sure how to go about it.
National Uderwriter recently spoke with Bernd G. Heinze, Esq., president and CEO of Heinze Group LLC, an international insurance and legal consulting company. From 2000 to 2017, Heinze served as executive director of the American Association of Managing General Agents, and has extensive experience in working with E&S carriers.
NU: How do independent agents or brokers get into E&S lines if they aren’t yet?
BH: There are two main ways for the independent insurance agent or broker to get into the E&S marketplace. The first is to partner with managing general agents (MGAs) or wholesale brokers, program managers or administrators who are state licensed to transact business in the domestic surplus lines market or who are approved as coverholders to access the underwriters within the Lloyd’s market. The other way to actually become a resident surplus lines producer is by passing a written examination approved by the state insurance department in which the agent or broker resides and obtain a surplus lines license.
NU: What are the top three things independent agents and brokers need to know about finding the “right” E&S carrier to work with?
BH: First, the most important aspect is to ensure that the E&S carrier is adequately capitalized and has a strong financial reputation and A.M. Best rating, so that when a covered claim occurs the carrier will be there to provide the contracted defense or indemnification.
Second, the E&S carrier’s history, leadership in and management of the classes of business being written are also important. This provides an indication of the carrier’s experience and bench strength in the line of business, and helps in marketing the scope and nature of coverage and the carrier’s reputational brand to the policyholder.
Third, the agent and broker should determine the manner in which the E&S carrier manages any claims and lawsuits and who is responsible for them. This generally is undertaken by the carrier’s internal claims department, or outsourced to a third-party administrator (TPA). Some MGAs, wholesale brokers, and program professionals also have their own internal claims operations.
…E&S carriers want to be assured that the wholesaler has conducted its due diligence in selecting experienced and educated independent agents and brokers with which to transact business and that the retail producer knows the business and risk level data as well as they know their own name.
Data and the analytical modeling of books of business are key to ascertaining the profitability of the business, establishing the proper premium, and the terms and conditions of coverage requested by the policyholder. The legacy system, a well-developed business plan, the organizational structure, business continuity and succession plans are also of interest.
NU: How do you know the relationship is working?
BH: The single most important guiding principle of the E&S market is built on the foundation of trust among each of the business partners in the insurance transaction. Regular and consistent communications, a commitment to transparency, and the exchange of information are also essential to ensure the relationship remains a mutually beneficial one. The business of risk and the management of issues and claims as they arise are not always filled with “good” news.
But that’s the nature of the business. The relationship will work when there is trust and the ability to candidly share developments that arise out of that relationship when they’re good and, equally, when they’re not so good. It works when both parties are aligned and work toward a common objective by which each can achieve positive returns.
NU: What are some red flags that the relationship is not working?
BH: Examples of red flags to look for are emblematic of the famous quote from the 1967 movie “Cool Hand Luke:” “What we’ve got here is a failure to communicate.”
Communications that become less frequent or more adversarial are frequently the first indicator that the relationship is drifting away. Some other examples include a discerned strain in the relationship or the exchange of risk level, claims data, information and ideas becomes less frequent. The biggest red flag is when results deteriorate or a difficult situation has developed and the other party is not interested in working toward a resolution.
NU: What is the most important thing for agents and brokers to know about working with E&S carriers?
BH: This is absolutely one of the best times in history to become actively engaged in the dynamic excess & surplus lines market. The industry continues to expand and operate under the beneficial freedom of rate and form, allowing policyholders looking for unique and tailor-made solutions for their risk exposures, which the standard markets are unable or unwilling to address, to find a receptive home in the E&S marketplace.
Further, E&S carriers and underwriters at Lloyd’s continue to have a desire to partner with the wholesale professionals and their retail producers in developing a trusting relationship in which to transact business.
While market pricing is what it is, carriers are open for business and anxious to foster or develop a mutually beneficial partnership with experienced, passionate insurance professionals who understand and take ownership of the business they are looking to place.