One-on-One with NAPSLO’s Outgoing President

When the outgoing president of the National Association of Surplus Lines Offices (NAPSLO), Jim Griffith, founded Princeton Risk Managers in 1974, organizers of the surplus lines association were convening in Florida to form the first industry-wide national surplus lines association. This year, both NAPSLO and Princeton Risk Managers celebrate their 30th anniversary in the surplus lines industry.

But Griffith’s insurance career spans far beyond his agency’s 30th anniversary. Prior to entering the wholesale industry, he spent about 10 years working in a retail insurance agency. Then, that entrepreneurial spirit that affects countless individuals in the insurance world kicked in and Princeton, N.J.-based Princeton Risk Managers was born.

Griffith, who has been a member of NAPSLO since the year following its inception, spent some time talking with Insurance Journal about many of the issues affecting the surplus lines industry today and his tenure as president, which concludes at this year’s annual convention.

Insurance Journal: Please tell us a little about the history of Princeton Risk Managers and your personal experience as a wholesale broker?

Jim Griffith: It seemed to me that getting involved in the wholesale distribution area would be wise because I was fairly well known to other independent agents because I had been very active with the Big “I,” both locally in New Jersey and in Washington, D.C. I thought if I went into a service element of the industry such as surplus lines, I’d get some following. And in fact I did. I was on my feet within a matter of months starting from zero volume to writing a fairly incredible volume. Now, 30 years later, I’m sort of winding down, although I’ve probably been more active this year both because of the market challenges that exist as well as the presidency of NAPSLO. I’ve probably had one of the busiest years that I could recall in my career.

IJ: Was it a challenge moving from the retail side to the wholesale side?

Griffith: Well it was because obviously I had to establish markets with companies that I basically had very little experience with because as a retail agent I had typically been dealing with just standard carriers. Over those early years, I was able to establish relationships with a number of surplus lines companies in addition to Lloyd’s of London. I became a Lloyd’s correspondent in 1976, enabling me to deal in the Lloyd’s market through a Lloyd’s registered broker in London.

IJ: What role should the federal government have in the regulation of surplus lines, if any?

Griffith: If you recall, when financial services reform first began, there was some pressure on the states to adopt a more consistent regulatory system over the industry. I think at that time, it was a recommendation that the states adopt the model law that the National Association of Insurance Commissioners had proposed, and many did. But in addition, quite a number of the larger states, particularly those running a lot of surplus lines in addition to admitted, commercial business, did not necessarily adopt all of the model law provisions. Therefore, it then became in the interest of some parties in Washington to consider making those standards that had to be adhered to.

And that is one of the forms of legislation that has seen light in Washington (Oxley/Baker SMART legislation). That seems to be the one that is the most favored by the industry at the moment. A number of companies were interested in federal chartering because that would sort of mirror what the banking industry has. We were somewhat fearful of how that might take form. It would certainly create a dramatic change for insurance regulation and possibly would involve actual federal regulation. So, we weren’t sure the impact that might have on surplus lines. We have thus far been supporting the concept of federal standards versus federal chartering.

IJ: Have lobbying efforts been one of the areas where NAPSLO and other associations have partnered?

Griffith: Partnering was a theme that I adapted for my presidency and it really began just months before I took office when I was still president-elect. I proposed to our board that we become a sponsor at the Big I’s (Independent Insurance Agents and Brokers of America) legislative conference. It was certainly an opportunity to meet with members of Congress, the Big I’s legislative people, and other interested parties to talk about the legislation before Congress. It was quite evident even in June 2003, that something was going to happen federally and we needed to know what it was and gain some ability to direct it.

IJ: Why was partnering an important issue for you as NAPSLO’s president?

Griffith: I felt that NAPSLO really deserved better recognition in the industry at large. I felt that if we became better know to other associations in the industry, both those that represented insurers and those that represented producers, that it would give us a better opportunity to express our interests and matters going forward. And I believe that that has actually born some fruit here. We’ve had communications with the Property Casualty Insurers Association of America, with the Big I, the Council of Insurance Agents & Brokers, the American Insurance Association and the American Association of Managing General Agents (AAMGA). It’s been quite lively … we’ve had good dialogue and I think it’s been constructive and beneficial, not only for NAPSLO but for the industry at large that we do have a greater voice and a greater presence today.

IJ: Were there any challenges presented by partnering?

Griffith: There were probably going to be points along the path where we may differ somewhat … beliefs and our positions regarding legislation. I think we all knew that, but I think we also recognized that substantially we were pretty much in lock step in some of the broad areas of legislation. We believed that “federal standards” was probably a practical and proper way to go. It certainly would have been more comfortable to deal with than something as dramatic as changing regulation totally and going to federal chartering. And I think a number of organizations saw that and had now thrown their support behind the concept of Chairman Oxley’s roadmap, which is also referred to as “federal standards.”

The differences may become more apparent as the final draft of the legislation is done, which I believe this may be (SMART legislation). And when it is finally introduced in hearings, those hearings will give all of us, including NAPSLO a chance to sit before Congress and express our interests, concerns and recommendations. At that stage we may see that the partners have slightly different views of how they might like to see things come to pass. But that’s what we need to do. We need to have at least that opportunity to represent NAPSLO’s interest.

IJ: What role will the surplus lines market take on as the market softens?

Griffith: The surplus lines market typically will not follow the pricing in the downward style to the dramatic extent of trying to compete with the standard carrier. Within our own realm as we compete amongst ourselves in surplus lines you might see a reduction of 5 percent or 10 percent, maybe as much as 15 percent, on a better risk that’s had a very good loss record. But if you see a standard company that’s coming in and discounting it, 40 percent it’s not likely you’re going to find a surplus lines insurer willing to compete at that level of pricing.

And so, you freely let the business go back to the standard market. That’s where it came from and it’s going back there, and whether the pricing in our mind is correct or not, you know if the insured is getting a good offer with comparable or improved coverage terms, you certainly can’t argue with that.

You’ll see some transition, certainly a loss of premium volume. We’ll probably have to tighten our belts a bit. As the years go along the market gets softer and softer, which typically it does, until it reaches a point where you have another crisis … but hopefully the companies have learned this time. If history tells it, they don’t usually learn and often pricing gets much too thin just for purposes of keeping their premium income levels high. Then they begin to suffer losses, you end up going to a hard market again.

IJ: Is there a balance where you might find a happy medium between standard and surplus lines markets?

Griffith: We may be sort of in that area now, or approaching it. I think we are probably getting to a point where a lot of surplus lines insurers try to remain resistant to reducing their rates to a point where obviously they cannot enjoy an underwriting profit. So, we would probably allow business to go back to the standard market without competition from us. And we may be reaching that level in certain types of risks. Right now we see a lot of commercial property risks and commercial umbrella risks going back to the standard companies because of pricing issues and surplus lines insurers just are not prepared to reduce their pricing to that level. They would rather move on to further opportunities.

IJ: What accomplishments are you most proud of in your term as president of NAPSLO?

Griffith: I think this whole partnering exercise has been beneficial to NAPSLO and to those that we have opened our doors to. We have enjoyed some good communication with them. Certainly in the legislative area we have opened ourselves to talk to a number of organizations that I mentioned earlier. In the field of education, we have certainly continued to share in that area, not only with AAMGA but we’ve done a bit of partnering with the Big I. NAPSLO is making a presentation at the Big I’s Info Exchange in Orlando, called “Preparing a Risk for Success to a Surplus Lines Broker.” We think that’s important because a lot of retailers haven’t had experience dealing in a hard market and perhaps are not completing their submissions completely enough for our underwriter’s requirements, and how to negotiate for success with us.