Building Relationships Key to Success Says NAPSLO’s Incoming President

Polizzi Prepares to Take the Reins at Orlando Convention

Thirty years ago a small group of surplus lines professionals met in Miami Beach, Fla., to form what would be known today as the National Association of Surplus Lines Offices’ (NAPSLO). Less than a year later, in November 1975, NAPSLO held its first annual meeting in conjunction with the former National Association of Independent Insurers, now known as the Property Casualty Insurers Association of America, with an initial membership of 62.

This month, with a current membership of 800, including 500 brokers, 100 company/underwriting mangers and 200 associates, NAPSLO’s annual convention returns to Florida to celebrate the association’s 30th anniversary with the largest attendance in the history of its convention. The theme for this year’s annual convention, “30 Years of Progress—Building Relationships for the Future,” takes a look back at the history of surplus lines, its growth and progress, and what that means for tomorrow’s industry climate.

Richard Polizzi, the current vice president and convention chair of NAPSLO, will step into the role of presidency at this year’s meeting after his predecessor Jim Griffith wraps up his annual term in the position. Polizzi, who is also president of Western Security Surplus in Pasadena, Calif., served the traditional obligatory duty of leading this year’s convention planning, although he noted that most of the “real heavy lifting is done by Debbie Hill and the NAPSLO staff.”

Moving forward, his 2004-2005 term as president will be yet another challenge for Polizzi and the association as legislative issues, including the possibility of federal regulation of the industry, top their agenda.

Polizzi is no stranger to tackling tough industry issues, however, given his career spans more than three decades. He began his tenure in the insurance industry in the 1960s working in underwriting for a standard insurance carrier. He then very briefly worked in a retail agency, before discovering his true calling—the surplus lines industry.

“I thought the wholesale side was frankly the most dynamic and the most interesting and took to it right away,” Polizzi said.

He spent the next several years working for two different wholesale brokerage firms, including I-West Insurance Managers before the firm was sold to Swett & Crawford. Then the entrepreneurial bug that had lingered in Polizzi for some time, as it does for so many in the insurance industry, took hold.

“I-West was clearly going to sell at that point, and I had always thought of opening my own doors, opening my own business, and this gave me the perfect opportunity to do that,” he said.

Opening a new wholesale firm is not easy, but Polizzi had few problems attracting markets or customers thanks to something he says is the single most important attribute an insurance professional can generate—a good reputation.

“During my time with the other two wholesale firms I did generate relationships with certain companies,” Polizzi claimed. “Then when I went out on my own with my business plan, they looked at it, and a number of them said, ‘yes, we’ll support that’ and appointed us.”

Western Security Surplus opened its doors in 1981 and had its first carrier appointment with General Star. Today, the firm holds nine binding authorities and well more than 50 brokerage appointments and operates three offices in California and one in Dallas, Texas, placing them in the two largest surplus lines states in the U.S. In 2003, Texas and California combined wrote more than $6 billion of surplus lines premium in the U.S. The total U.S. surplus lines premium for 2003 was approximately $35.5 billion.

Benefits of NAPSLO
So, what are the benefits of NAPSLO, Insurance Journal asked?

“In my view, NAPSLO does a lot of functions, but the three main functions revolve around legislation, education and, of course, our annual convention,” Polizzi said. “I think legislation is going to clearly take the majority of our time and efforts this year because there’s so many things happening in the federal area that are going to need our attention.”

Under the leadership of Jim Griffith, NAPSLO has been heavily involved during the last year in discussions about the issue of state versus federal regulation. The organization joined forces with other industry trade associations to have its voice heard by legislators drafting financial services reform legislation, including House Financial Services Committee Chairman Mike Oxley (R-Ohio), and Capital Markets Subcommittee Chairman Richard Baker (R-La). While the latest version of draft legislation, nicknamed SMART after its full title, The State Modernization and Regulatory Transparency Act, deals in large part with standard company consistency and reciprocity across the states, including regulation, licensing, form approvals, etc., surplus lines issues were also addressed.

The Oxley/Baker SMART legislation aims to encourage all states to develop and coordinate a uniform system for the regulation of surplus lines insurance under which a single set of regulatory obligations will apply to each individual transaction.

It also says that the regulation of surplus lines should be streamlined and modernized by requiring all states to participate in the National Association of Insurance Commissioners’ national insurance producer database for the licensure and renewal of surplus lines broker licenses. In addition, it calls for all states to develop and adopt a uniform set of eligibility criteria for nonadmitted insurers; and that all states’ regulation of surplus lines transactions with respect to sophisticated commercial purchasers should be streamlined.

“We want to make sure that the legislators and the regulators clearly understand the benefits of surplus lines and freedom of rate and form,” Polizzi said. And it is exactly this type of “freedom” that initially attracted Polizzi, and many others like him, to enter the surplus lines profession in the first place.

“From my experience, I found it [surplus lines] to be the area where you could have the most flexibility; the area that did what I considered true underwriting in terms of looking at a unique exposure or a difficult risk,” he said. “So when many times the standard company either does not have a filing for a particular class of business or the pricing for that filing is not adequate to write the risk, that’s when we take over, those of us in the wholesale side … you’re just able to do more things.”

Polizzi said that as the months and years go by and the issue of federal regulation and modernization develops, NAPSLO would continue to be a viable force in the discussion.

Building relationships
Perhaps one of NAPSLO’s most successful elements of its annual convention is the ever-growing broker’s lounge. The broker’s lounge is quite simply a large room with countless tables and chairs to provide convention attendees with a convenient space to meet and greet with various industry partners.

“The broker’s lounge has increased in importance and capacity year after year,” Polizzi said. “It’s a great time to be able to compact a number of meetings into a relatively few days.”

According to Polizzi, building relationships not only with surplus lines carriers, but also with retailers is an ongoing issue for members of NAPSLO.

“I think there continues to be somewhat of a mystery about what we do particularly from the retailers’ point of view,” he said. “There’s always a concern about how we get things done. We’re in between that retailer who brings us the business and the wholesale company where we place the business.”

And for the “middle-man” wholesaler, building and maintaining good working relationships with both the retailer and surplus lines carrier is crucial. The broker’s lounge provides a good venue for such relationship building with the carrier side, and Polizzi said this year’s convention program provides a venue to gain some insight into the retailer side.

To address this ongoing issue, the annual meeting will hold a panel discussion titled, “Building Relationships Among the Retailer, Wholesaler & Company.”

“We thought it would be interesting to bring a representative from each part of that industry, and open up a discussion about what relationships mean to each individual member and the problems of building long term relationships,” Polizzi said. Insurance Journal’s Publisher Mark Wells will moderate the panel discussion. “We thought it would be a terrific program for the membership to participate in and thought it was a natural to bring Mark in as the moderator.”

Perhaps strong, long-term relationships will be even more crucial to wholesalers as the overall industry market takes an inevitable turn from hard to soft. Wholesalers have reaped the benefits of the current hard market cycle, including seeing premium dollar increases from $22.3 million in 2002 to more than $35.5 million in 2003. So, as the market changes from hard to soft, does the change affect relationships with the retail agent?

“I suspect it does,” Polizzi replied. “But the key to success in the wholesale side is to build a relationship with both your carriers and the retailers, where everybody in the equation recognizes the inherent benefit each of us plays in that relationship.

“You’ll find that in a hard market you have a lot of retailers come knocking on your door saying that ‘we’d certainly like to do business with you.’ At the same time, we’re working furiously trying to handle and satisfy our old clients who have supported us all those years.”

Polizzi said if he has any advice for retail agents, he would say “what you’ve got to do is match the retailer’s style of business and the kinds of business they write, with the wholesaler that has an appetite for that class of business … then build those relationships so that when the market turns in either direction that retailer will still get preferential treatment.”

Guess we’ll just have to see if the panelists at NAPSLO’s convention will agree.