Wholesaler Value is a Story That Needs to Be Told
There is an old saying in the insurance industry that goes something like this: “Please, God, give me one more hard market and I won’t let it slip away.”
Of course, in today’s soft market, few of us in the excess and surplus lines (E&S) industry are joking about the impact of the market cycle on our business.
During my year as president of the National Association of Professional Surplus Lines Offices (NAPSLO), we have seen the market move from soft to softer. There are more players in many different lines, and standard markets are writing some business that was being written through wholesale brokers and surplus lines insurers just a year or two ago. Non-catastrophic property, directors and officers and errors and omissions are just some of the lines that are increasingly competitive.
In fact, surplus lines premiums reported to the 14 U.S. surplus lines stamping offices dropped by 7.6 percent in the first six months of 2008, according to statistics recently released by the Surplus Lines Stamping Office of Texas (see page N8). Overall premiums reported dropped from $12.307 billion in the first six months of 2007 to $11.373 billion in 2008.
The numbers of items processed by surplus lines offices also dropped, from 1,716,626 in the first six months of 2007 to 1,673,453 in 2008, or a 2.5 percent decrease.
What Agents Think
Given these changes, about a year ago some members of the E&S community asked whether the soft market had caused retail agents and their customers to lose perspective on the essential contribution that wholesale brokers offer in placing specialty insurance. To measure these perceptions of wholesalers, NAPSLO conducted a survey of retail agents early this year.
The results were very positive, even in the soft market. Agents rated wholesale brokers positively. In fact, 82 percent rated wholesalers a 7 or above on a scale of 1 to 10. And 86 percent reported a very high likelihood of working with wholesalers in 2008. These results were largely confirmed by a similar survey conducted by Insurance Journal this spring (see IJ’s May 5 issue). We all know that retailers look to wholesalers for access to markets and coverage they cannot find anywhere else, but in this survey, retailers said they would work with wholesalers when placing specialty insurance because they value the expertise, experience and knowledge that we bring to the transaction.
Real Value
That value goes beyond just being aggregators who can streamline the process and find a market for a hard-to-place risk. It involves using our expertise to solve problems and find the right coverage in the right market. I know wholesalers who are providing valuable knowledge about markets that retailers don’t work with every day. I know wholesalers who are involved in the claims process, and I know others who are providing cat modeling. Each of these services is a real value to agents.
This is a story that needs to be told, so NAPSLO launched an education and awareness campaign this summer. We recognize that there will be shifts in business volume during the market cycles, but price is just one factor in the equation. Each of us needs to educate agents about our role in the insurance transaction, and agents need to look to us for this type of value.
Service and Relationships
The NAPSLO survey of retail agents conducted earlier this year also pointed out that retail agents value service and long-term relationships with wholesalers. I believe that in a soft market wholesalers must step up their service. What does this mean? Personally, I’m out more than ever seeing agents and discussing their needs and how we can meet them. We need to pick up the phone rather than always sending e-mail, and make those visits. Service is a constant that should transcend market cycles and we need to make sure we are there in good times and bad times.
We are seeing indications in some lines that the market bottom may be near. We have seen some rates flattening in standard markets. But we’re not there yet. As we usually experience at this point in the market cycle, we’re hopeful, but we really don’t know when the market will turn. Wholesale brokers can’t wait. We need to provide superior service, continue to add value to our business and communicate the value we bring to placement of specialty insurance.