Carriers, GAs Stick Together For The Long Haul

"The key thing is having some first-hand relationship or knowledge of the firm," he said, when asked how a general agency gets included in the elite group of Scottsdale appointees. "This business really is all about relationships–support, respect and trust in one another."

The story is very much the same at Nautilus Insurance Group, also in Scottsdale, where Bonnie McKrill, assistant vice president of marketing and agency relations, reported that a recent change in her job title reflects her firm's emphasis, as well as her role, on cultivating existing relationships rather than having a primary focus on seeking new ones.

Explaining her request to drop the words "business development" from the job title in favor of "agency relations," she said: "The heart and soul of the matter is that's what we do: build agency relations. It's knowing our customers, picking up the phone, having a dialogue with them, having a two-way street, understanding their businesses"

"We're not looking to appoint 100 more agents," she said, noting that Nautilus has historically been "extremely selective" in making appointments, which number around 100. While Nautilus has made some new appointments in recent years, typically these have been minimal. "We try not to oversaturate any one area," she said.

General agents say they like the customized attention they get from carriers that limit appointments and look to maintain relationships for the long haul.

"One thing that's big on my list is franchise value," said John Wood, president of Specialty Risk Associates in Shreveport, La. "You don't want a company that has [an agency] plant with everybody in the state. There needs to be some element of exclusivity to it, so you bring something to your client that not everyone can."

"You want the opportunity for the company personnel and the agents to form relationships; either that's at underwriting seminars, or the carrier comes to the MGA's office and gets to know everyone them on a personal basis," he continued.

Ms. McKrill explained, "When you're doing business with fewer people, it's much easier to be able to have those kinds of relationships and to be able to manage them to that kind of level."

Mr. Wood said that at least half of his firm's 10 carrier relationships have been in place for more than a decade, while Robert Schacher, president of Continental Special Risks in Roswell, Ga., said the average length of his firm's relationships with carriers is close to 20 years.

"They are long-term relationships, and that makes it good," Mr. Schacher said. "You can go to [the American Association of Managing General Agents conference] and sit down [with a carrier] and say, 'Here's my problem with coastal underwriting,' or, 'Here's a problem I'm seeing on pricing.' They can be flexible individually with a GA because they understand who you are and what kind of job you do."

Recently, Continental did team up with one relatively new E&S carrier, Mr. Schacher said, explaining that the move was a reaction to internal changes taking place at a longer-term carrier partner.

"They've had huge turnover, particularly at the executive level. This is a relationship business, and a lot of people we had relationships with are gone," he said, noting that the new carrier relationship was sought out to protect his firm's future. "When the market gets hard and capacity's tough, you need back-up so you can write the business that's available."

Like other insurance company representatives, Thomas Rossi, underwriting vice president for Century Insurance Group in Westerville, Ohio, said his company, which contracts with about 119 general agents, looks to do business with the right number of agents, which usually means a limited number of agents in any given territory –"to put value in the contract."

"We're always looking to expand, but only where it makes sense," he said, explaining that while it would be difficult for Century to add additional representation in its three top states–California, Texas and Florida–"we would love to have additional representation in states where we believe we have untapped opportunities."

REBUILDING RELATIONSHIPS

In contrast to the others who pride themselves on relationships that date back to inception, Century underwent a contraction in its agency force, followed by a major expansion in concert with a corporate reorganization effort that began in 2000.

Century significantly reduced its general agency force from over 200 down to about 68 producers after 2001, "because we wanted to be important our partner agents," Mr. Rossi reported. "Our goal is to be one of their top three binding contracts in their office."

As the company started growing its business, it began to add producers back where representation was needed. "We rebuilt the entire agency force," he said.

Mr. Rossi recalled the typical message he delivered during those difficult phone calls to agents. "You know you only wrote $50,000 of premium with us. You really don't need us. You have other companies you're going to. There's not really a good fit here," he'd say, which would lead to an amicable parting and agreement to reconnect when Century's products did fit an agent's needs.

In the last two years, "we've had 15 agents come back to us," he said, noting that those agents have witnessed significant changes at the carrier.

What convinced Century to give these agents a second look? Mr. Rossi's answer suggests this isn't an entirely appropriate question, because the problem might have been from the company's side, not necessarily the agent's.

"These are all quality agents. They're well-represented and well-respected in the non-admitted marketplace," he said. "They have memberships in AAMGA and [the National Association of Professional Surplus Lines Offices]. We didn't have a good fit back in 1999 and 2000 because we either didn't have the right products or adequate service capabilities that agents expected."

At a meeting with investment analysts earlier this year, Century's chief executive officer, Edward Feighan, described the company back then–which was purchased by management in 2000–as "a troubled asset," noting that some troubles related to legacy issues like construction defect claims.

Beyond that, Mr. Rossi said, "our service wasn't that good at that time. Our distribution force was broken because we had too many agents for the amount of premium we were writing."

He added, "Things are totally different at this company than they were seven years ago. We went back to our core products." He noted that the carrier started focusing on the short-tail casualty lines, while getting out of contracting business, workers' compensation and large accounts that it didn't do well.

At the analysts' conference in February, Mr. Feighan and Executive Vice President Chris Timm also highlighted a renewed focus on underwriting discipline and efforts to manage the company's distribution network.

Roughly 60 percent of Century's business "comes to us bound by their judgment," Mr. Feighan said. "Within a short time, we re-underwrite at the home office every one of those policies, whether the premium is $600 or $140,000," he said.

Although Mr. Timm said this makes the company "an acquired taste" for agents who don't like someone looking over their shoulder, he also suggested that it makes Century a valuable partner to GAs in the long run.

"We know who makes mistakes and who doesn't. We have different levels of authority for virtually every agent, and we can give more authority to agents who perform [their duties] religiously and correctly," he said. "Because of that, if our agents need to get back to that retail agent that day, that hour or that minute, they can with us," he said.

MAKING THE CUT

Mr. Rossi said Century does extensive background checks on agencies seeking contracts, noting the evaluation can take as little as a week or as long as a month. Ms. McKrill also described a several-month process, including a phase during which a group called Business Operations Audit & Analysis reviews an agency's business profile to confirm underwriting integrity and risk appetite.

"Once we've agreed that we're going to do business, someone from their office comes to ours as a last step before the final contract is signed," she said. "So much of what our GAs do is within their authority. That's why it's so important that…they understand our philosophy."

"We're not the least expensive company on the street. Underwriting profit is what we do," she said. "We've underwritten to a profit for 17 out of 20 years. So we're looking for agents who want to grow with us–the right kind of business–and do it profitably."

"We need to be loyal and understand that our main function is to provide an underwriting function" for E&S insurers, Mr. Schacher explained. "So if you have a retailer that has a large but questionable risk, you turn it down because you need to protect that carrier," he said, noting that his agency actually cancelled a $1 million book of coastal property business when it found that a retailer was lying about the distance of risks from the shore.

"That's what they pay me for," he said, noting that suspicions about a few risks prompted extra inspections. "We found out almost all of it was wrong. Then you say, 'We just don't need this guy.' No matter how much we're making commission-wise, we're messing up our carrier relationships."

Mr. Wood agreed. "I can't always do what's right for me. I have to think about my partner: the company. Not just write business, but profitable business, which involves using underwriting discipline."

MGAs say they're as choosy about their company partners as the risks they bind.

"We're looking for quality and commitment from carriers," Mr. Wood said, explaining the need for "seasoned, knowledgeable staff in the company ranks, so that they have the ability to look at the risks we bring to them, and they're able to solve puzzles for us."

"We're looking for contemporary products," he continued. "And then obviously, in the event of a claim, you want a thorough and quick settlement."

Beyond that, MGAs want carriers to show discipline in pricing "while being able to take advantage of the opportunities, wherever they are." In short, to deliver "responsible pricing," he said.

Mr. Wood and Mr. Schacher said MGAs also look for stability, leadership and financial strength in a company.

Thomas Albrecht, president of Barclay/SIU Agency in Montgomery, Ala., and incoming president of AAMGA, agreed, noting that 92 percent of the markets AAMGA members do business with are A-minus or better.

"All of us keep in close contact with the senior-level management of the companies we represent. We're always talking with them, finding out what's going on in their offices, so we can detect if they're having problems," he said, adding that this also keeps MGAs abreast of new products as they become available.

"Senior managers of our MGAs are in constant touch with senior managers of our carriers," Mr. Albrecht noted. "Owners of our MGAs participate almost to a person on key agent advisory boards" that the insurers set up, allowing select agents to give input "on what's going on in the marketplace and within our own MGAs," he said.

All three MGAs said they expect from carriers what they strive to deliver to their retail customers: continued improvements in customer service, agreeing that carrier and MGA investments in technology are critical.

"We're looking for more efficient delivery of the policies as well as flexible access to data," such as past account histories or data that reveals what's going on in a particular area, said Mr. Wood.

"We won't even talk to a company that can't let us issue policies electronically anymore," Mr. Schacher said, noting that a recent NAPSLO survey revealed that the majority of members use Docucorp (now Skywire) for policy issuance. "When a company comes in and says, 'No, I don't have anything there,' you think twice about whether you want to use them," he added.

Mr. Schacher looks for carriers to have online rating tools that link to his Web site, giving retailers access 24/7. "It used to be someone would call in and you'd say, 'We'll have that quote back to you in a week. Now, if you don't have it on the same day, you're probably not going to get it–and there are some, on smaller accounts, if you don't have it in the next hour," he said, noting that a retailer quoting a $750 account for a mobile home or quoting a small artisan contractor's account can't afford to spend a lot of time.

Mr. Schacher reported that some carriers, like Scottsdale, have even moved beyond simply creating rating/policy issuance systems. "They're creating an interface between their system and my agency management package," he said, noting that such links not only eliminate double entry, they also can make carriers and MGAs more competitive. "We can afford to lower pricing more because we've eliminated a chunk of expenses."

At Century Insurance–where business is mainly short-tail casualty, with an average policy premium of $3,800–Century Online, a Web-based rating, quoting, binding and policy issuance system, has been in place since last April.

"Our general agent receives a password and they can log in," Mr. Rossi said, noting that prior to the release of the online system, an electronic underwriting manual was sent out to agents on a CD-ROM.

"Anytime there was a change in our underwriting philosophy, we would have to go burn a new CD and send it to them, and they'd have to reinstall it," he said, noting that an online delivery system allows the carrier "to react with the market quickly."

Ms. McKrill said that Nautilus just recently deployed an online quote-bind-issue program for certain select agents–those who do not have their own online technology and instead choose to use this new tool.

"We want to do business with our agents on a customized basis. Not all of our GAs are the same," she said, noting that technologically-savvy GAs continue to work with Nautilus through their own systems. "We don't force people into certain boxes."

But not all customization is welcomed, according to Mr. Schacher, who reported that some carriers give a specific GA a product that's different than what they gave to their other agents. "That makes it difficult to compete, because your retailers don't understand why [another GA] has a quote from the carrier, and when they come to me, I can't give them anywhere near that."

On the plus side, MGAs give high marks to carrier outreach efforts, including annual owners meetings, underwriters meetings and educational sessions. Beyond underwriting classes and sessions about carrier achievements and risk appetites, such meetings simply help participants reinforce personal bonds, exchange ideas and deliver feedback about what's working and what's not, MGAs say.

"The key to all this is the relationship–the trust between both organizations–because at the end of the day, [MGAs] operate as branch offices of ours," said Scottsdale's Mr. Tiepelman. "We've obviously got to have faith and confidence in one another to accomplish that."