The Go-To Guy

Depending upon which side of the fence you stand, the excess and surplus insurance market is either too expensive and too unregulated, and therefore unreliable, or the right solution for a complicated risk at a difficult time. Sure it can be pricey, but sometimes the surplus market serves as the “go-to guy” for getting done what can’t be accomplished when admitted companies turn their backs on your customer’s plight.

Agents must perform the necessary due diligence and shop the admitted market for a risk before taking it to the surplus market. But wholesalers argue that sometimes a higher rated nonadmitted market is better for the insured than a less reliable admitted market. They also maintain that while the surplus market is not specifically regulated by state departments of insurance (nonadmitted insurers are required to show financial solvency in order to be allowed to operate in a state), the quality and security of surplus insurers has increased significantly over the years.

In addition, there’s a trend toward greater regulation of nonadmitted markets by state stamping offices–like the Surplus Line Stamping Office of Texas–and new requirements imposed on the London market are far more stringent than ever before.

At the Feb. 8 Houston Insurance Day conference held by the Independent Insurance Agents of Houston, Peter Portman of London-based Agnew Higgins Pickering and Company Ltd. discussed at length regulation of the London market by the United Kingdom’s Financial Services Authority, a quasi-governmental entity. Portman stressed that while the FSA’s oversight could be somewhat “draconian,” the newer, stricter regulations that require more information are designed to maintain confidence in the market and protect customers.

In a presentation entitled, “Getting the Better of London,” Portman explained that the trend at Lloyd’s was toward reducing the number of syndicates while encouraging their growth and quality. He said at its peak, Lloyd’s had some 400-odd syndicates, while today there are only 62. Portman pointed out that increased oversight makes it less likely that a syndicate will have bad results, as poor performers will come under fire. Underwriters have become more technical he said, and are less willing to make quick decisions about difficult risks.

Ron Balcar with the Houston-based MGA Myron Steves, taking part in a Feb. 1 panel discussion at the Independent Insurance Agents of Texas’ Joe Vincent Seminar, affirmed Portman’s assessment of the stringent regulations driving the London market. He said the market requires “more information [about the risk] than you have to send to admitted market.”

Both retail and wholesale agents are responsible for placing their customers’ business in a safe and reliable market. However, due to the ups and downs of the insurance cycle, the surplus market remains relevant as the “go-to guy” for many risks.