AAMGA President Chaffin Stresses Need for Perpetuation; Cites Effect of Revised Catastrophe Model on E&S Business

Relationships are important to the success of any insurance business, but it’s perpetuation that matters most when it comes to survival.

R.C. Chaffin, president and CEO of Coral Gables, Fla.-based SeaCoast Underwriters Inc., and the incoming president of the American Association of Managing General Agents (AAMGA), says surviving in today’s marketplace comes back to perpetuation.

“I think perpetuation is key to surviving in this market,” Chaffin says. That includes not only perpetuation at the ownership level, but also perpetuation at each level of the organization, he says, including underwriting, accounting, claims, and all areas of the agency.

Chaffin says that while relationships with insurance companies and retail agents remain critical for the survival of MGAs, just as important is keeping up with technology.

“If you are not keeping up with technology today you are not going to survive,” he says.

Chaffin understands that smaller MGAs and retail agencies might find it difficult to invest as heavily in technology as larger entities. But failing to do so might put some of those firms at risk for failure.

“What happens with a lot of MGAs and retailers as well, if they don’t have the finances to keep up with technology it’s going to be very difficult to survive in this market.”

But Chaffin stresses that bigger is not always better in the insurance business. His firm, with just 31 employees, has fared well in the tough market conditions of the past several years.

“We’ve been very fortunate,” Chaffin says. “We’ve been able to hold our own over the last three years,” thanks in part to his commitment to “relationships,” he says.

For his MGA, which focuses primarily on Florida business but also has an office in Georgia, business appears to be heading up.

“Where we saw some of our E&S business going over to the admitted; now we are seeing some of that business come back to us,” he says.

But insurance is a regional business and every MGA is different, he says.

“If you look at our [AAMGA] members by region, we still have a lot of small to medium MGAs that are doing very, very well.”

Others may be not so well.

“You might get a different answer depending on who you are talking to. Some of the changes are regionalized,” he says.

But overall, Chaffin sees an upward tick in business, and that’s a good thing.

RMS 11

One change in the marketplace that’s leading to an uptick in business for the excess and surplus lines sector has to do with a revised hurricane model introduced last year. That model has dramatically raised certain estimates of potential hurricane losses throughout the country.

California-based modeling firm RMS’ revised hurricane model, version 11, includes updated construction and roof types, higher inland wind speeds, heightened building vulnerability, and increased losses due to storm surge. The changes have sparked an increase in wind risk for hurricane states on an industry-wide basis, even though individual portfolios differ depending on the region and line of business.

RMS 11 has also led to an increased focus on education industry-wide, Chaffin says. Not everyone understands RMS 11 and the impact the new catastrophe model is having on the industry, he says.

“We are already seeing aggregate being reduced,” he says. “We received two calls today from some of our agents that are looking for a home for some business because it no longer qualifies for the wind program.” All thanks to RMS 11, he adds.

Chaffin predicts more business moving to the E&S side as the model is used by more and more carriers.

“We are already seeing some folks using it quite a bit,” he says. But not all markets have jumped on board with RMS 11.

“Some folks are taking a wait-and-see attitude, some are saying they are going to blend it in with their other models, and some say they may not have a choice because the reinsurers are definitely going in that direction,” he says.

“It’s sort of wait and see right now,” Chaffin says. “It’s going to depend on the amount of exposure that companies have or think they have.”

Either way, RMS 11 is going to be a key factor for MGAs and retail agencies going forward.

MGAs and retailers will need to understand RMS 11, know exactly what the model is looking for, and complete applications with the most accurate information possible, he says. “I think over the next year or two that’s going to be pretty significant.”

In the end, success and survival in today’s marketplace comes back to perpetuation, education and technology at all levels of the agency, Chaffin says.

“I think those are the three key elements,” he says. “If you have those ingredients, you are probably more optimistic about where you are going.”