Know Thy Risk; Know Thy Wholesaler

An example is the retail agent "who can call you up and say, 'I've got this restaurant, Giovanni's, and I know the owner. He's a nice guy and he makes great spaghetti.' That sets the tone for the risk, better than an ACORD application or an e-mail. That doesn't mean much to me," he said.

In stark contrast is an agent he recently worked with who obviously hadn't ever set foot in a restaurant for which he was trying to find general liability coverage.

"Restaurant/No Alcohol/No Dance Floor," said the application for a restaurant–which Burns & Wilcox found on inspection had both a bar and a dance floor. "There's a very low rate on a restaurant with no bar and no dance floor," he said with some irritation. "But the other one gets the highest rate."

The agent "probably just copied what the policy was before," he said. "The agent didn't do it from the standpoint of trying to fool us," he speculated. "But obviously, he had no relationship with the insured."

Relationships with managing general agents and wholesalers are just as important, according to Mr. Price and Mac Wesson, president and chief operating officer of U.S. Risk Insurance Group in Dallas, which has both wholesale brokerage and underwriting operations, along with a host of other insurance-related operations.

Mr. Wesson, who is also vice president of the Kansas City, Mo.-based National Association of Professional Surplus Lines Offices, explained that, to his mind, there are various levels of the relationship, referring to the levels as Stages 1, 2 and 3.

"A Stage 3 producer is someone that understands our capabilities, and we understand their needs. They come to us first because we are the preferred source when they have a need," he said.

A Stage 2 producer, he said, is one that the wholesaler knows has the kind of business that it wants. "We know that we have the capability to meet their needs, but we're not getting the kind of business flow from them we think we should," he added. "Many times it's because they simply don't know us well enough to understand what our capabilities are. It's up to us to educate them."

There are also producers that remain at Stage 2, he said, "because they have a Stage 3 relationship with another wholesaler that's working well." In those cases, he said, "we stay in touch, but we don't force the issue."

Mr. Wesson said that the final stage–a Stage 1 producer–is one that probably doesn't have any need for his firm at all.

Summarizing the overall concept of the stages, he said: "It's really getting to know the producers from the point of view of what kind of business they have. Do we have the kind of facilities and talent that can fill a need if they have one? And can we develop the kind of trust relationship to make it work when we are hitting on all cylinders?"

"There has to be a good fit," Mr. Wesson concluded.

For Mr. Price, a good fit goes a level deeper than having the right insurance company markets to meet a retailer's needs, although that's certainly part of making relationships work. There's a personal comfort level involved, he suggested.

"You need to find somebody within the MGA you can form a relationship with," he said, offering advice to retailers. "You need to be able to call them up and talk about risks–and know that you're getting the best possible reaction."

On the other hand, retailers will get the worst possible reactions from MGAs if they "use a lot of MGAs on a scatter-gun basis," he said. In that situation, "our hit ratio goes down even though we may have the best quote. We want to service agents that try to give us as much business as they can."

Beyond looking for the type of fit that characterizes what Mr. Wesson describes as a Stage 3, Mr. Price had a few other specific tips for retailers seeking to find wholesale and MGA partners to work with.

Look at what kind of reputation the wholesaler has within the retail marketplace, he said, adding that the retailer should also check into whether the wholesaler is financially secure.

"Who is going to service the files if the wholesaler goes out of business?" he said, giving one reason why a wholesaler's financial strength is important. "And if the companies don't get paid, they'll cancel policies," he added. "It's an unstable relationship, and it's not good for your individual insureds. An unstable MGA is not going to have good relationships with the markets they have."

Finally, retailers should make sure that the MGA has an errors and omissions policy, he counseled. "The really good agents ask for all this information, and we're glad to give it to them."