Brendan Brownyard points out that because The Brownyard Group has been on the scene for more than 50 years, it is well prepared to thrive in a hard market.
The last really hard market experienced by United States property/casualty insurance companies was during the years 1984-85, more than 15 years ago. Since those crisis years, the P-C industry has endured prolonged soft market conditions, with insurance coverages in the overall available at bargain prices and with very few policy restrictions. Yet even with the underpricing of insurance products and services that has dominated the business of insurance for the last decade and a half, insurers have been able to prosper because of a booming economy and healthy stock market performance. "Cash flow underwriting" is the phrase that is used to describe periods when insurers sacrifice underwriting judgment for the sake of investment earnings.
But now the situation appears to be changing. The economy is no longer booming, and the stock market is not performing well. In times such as these, insurers begin to remember that they are, in fact, in the business of insurance; and underwriting expertise takes on greater importance than investment yields. But is the insurance industry currently able to practice sound underwriting?
The soft market brought with it many new players into the insurance business, adding to the already strong competitive market. Those new players have never really seen a hard insurance industry market. The question is whether these new players will be able to survive in a market unknown to them.
It's a dicey situation. However, the current scenario might just bode well for the seasoned professionals--those who have been in the business for a long enough period of time to remember when there were hard times and who know how to deal with them.
"Our niche markets are service industries. ... With all the exposures ... [they] encounter, it is important that they be offered custom-designed policies that fit their needs and that protect them against exposures not covered by standard policies."
--Bryan Brownyard
The Brownyard Group, for example, has been an insurance agency doing program administration business since 1950. The agency was started up that year by William H. Brownyard who died just a couple of years ago, but it remains a growing concern now under the leadership of Bryan and Brendan Brownyard, both sons of the founder. And, now the firm has moved into the third generation of Brownyards. Bryan's son has joined the firm as has Brendan's daughter, who did her apprenticeship in the London market, having worked for a prominent Lloyd's broker. Therefore, it's clear that the Brownyard name is well known in the business.
"Our niche markets are service industries," says Bryan. "My father began the agency by writing workers compensation for an industrial trade group. In the early '60s, we moved into the security guard business and we wrote our first major program in 1962. Fifteen years ago, we began writing pest control and janitorial services."
Under The Brownyard Group's security guard program, called "Brownguard," the agency offers general liability, excess and/or umbrella coverages, employment related practices liability, workers compensation, third-party fidelity bonds and business auto. "We are the largest U.S. insurer of security guard firms and private investigators," says Brendan. "We are also a major provider for other service industries requiring coverage for unique exposures such as pest control operators and the cleaning and maintenance service industries."
The brothers Brownyard say that their focus on security guards was really the result of an accident. "Some years ago, we were asked to speak before the National Association of Licensed Detectives," says Bryan. "In the course of the meeting, we discovered that members of the association did not have adequate insurance coverage. That's how we began specializing in the area."
As for their expansion into other areas, well, buildings that have security guards also have pest control operators and maintenance employees. "It was a natural outgrowth of what we were doing in the first place," says Brendan.
However, their recent expansion may not seem like a perfect fit to some. The Brownyard Group recently acquired the Hairdressers Agency, specialists in professional liability for the beauty industry. "It's not really a departure for us," says Bryan. "As a managing general agency specializing in service industries, we saw this acquisition as a perfect fit. These are beauty schools, salons and cosmetic manufacturers that are providing a service. As part of the agreement, we took on the entire staff of the agency including Bill Peete and the rest of the Hairdressers Agency staff onto our team. So, the expertise to deal with the market is already there.
"The Brownyard Group also owns Brownyard Claims Management (BCM), its own in-house loss prevention and claim facility, so that all its insureds have the advantage of prompt claims handling as well as all of the tools necessary to reduce losses and insurance premiums, continues Bryan.
"With all the exposures our service industry insureds encounter, it is important that they be offered custom-designed policies that fit their needs and that protect them against exposures not covered by standard policies."
The Brownyards believe the expertise that they and their agency staff have developed over the years position them well to deal with what many believe is the coming hard market. "Standard and Poor's recently reported that some 56 insurance companies failed last year, 31 of them property and casualty insurers," says Brendan. "There could be more falling by the wayside this year. That fact, coupled with the fact that companies are beginning to realize that there is a definite need to return to sound underwriting, could mean that the coming hard market will be more severe than the industry had previously anticipated. I'm not saying that we will see a situation resembling 1984-85 again. But classes such as the security guards industry have been underpriced for some time. There will most probably be serious market corrections."
Bryan takes a somewhat stronger view. "When you consider that the hard market of 1984-85 was in great part the result of a faltering stock market, which is what appears to be happening today, it is not out of the realm of possibility that we will see a similar scenario over the next year or so."
Another problem, according to Bryan, is that newer, less experienced MGAs have been given latitude by the insurance companies they represent. "Some insurers have not been monitoring their MGAs to keep track of the business they're taking on. Those insurers could be in for a big surprise. The people in the business who have been around for more than one underwriting cycle will survive. Others won't be so lucky."
The Brownyards see as one of the strengths of their organization their close ties with the Lloyd's of London marketplace. In our experience with Lloyd's, we have seen that it is a marketplace of innovation. While some traditional companies walk away from troublesome business when the numbers look bad, Lloyd's has always found a way to work with producers. When there are bumps in the road, Lloyd's underwriters prefer to fix things rather than turn around and retreat.
"We do business through A.M. Best A rated companies that are secure markets, and our reinsurance programs are in Lloyd's," says Bryan. "And we have been around for a long time. We're ready for the changing marketplace." *