Len LoVullo
Veterans of insurance cycles are finding this particular hard market a little different from the last downturn and are wondering what to expect. In the mid-1980s, the hard market "was almost immediate," says Leonard T. LoVullo, CIW, the 2000-01 president of the American Association of Managing General Agents. LoVullo, president of LoVullo Associates, Inc., CMGA, Buffalo, New York, remembers 1985 and 1986 as extreme.
"We literally had nowhere to go for some coverages," he recalls. "My dad knew about cycles, but that one was unusual." The hard market that began in 2000 and continues today "is much different," LoVullo says. "It's not affecting everyone. The problem has emerged because pricing has been inadequate for so long that companies have reached their pain threshold."
As a result, there's not a complete bail out by insurers, he says. "You can still find most coverages with one exception: Nursing home coverage is probably the only industry that has a real problem."
LoVullo says most members of AAMGA have not been taken by surprise by this market. "We've done our homework and are prepared for this market," he says.
Further, there are reasons to suspect that this hard market will not be as severe as the 1980s. "The capacity is far from dried up," LoVullo notes. "There have been no major insolvencies thus far. And, most important, the mentality of the market is so different from back then. Reinsurers have cut some deals back and raised some rates and this certainly has had an impact on the marketplace, but no one is running scared.
"In fact," he continues, "some markets aren't hard. It's strange. In the same territory, you find wholesalers who are doing well, while others are having difficulty."
He says that the most serious problem is that many insurance professionals are so young that they have never experienced any kind of hard market. "A 10-year veteran really has no idea what he or she is expected to do in this kind of market," LoVullo says. "Underwriting is back, but they've pretty much been trained to cut prices rather than underwrite. The standards now are completely different, and it takes a lot of discipline."
The return to underwriting has affected the mentality of MGAs and forced a shift in posture. In a soft market, MGAs take that approach that "I want to do everything for you," LoVullo says. "It's tough for us to have to turn around to our agents clients and say 'no.'" Also, "everything takes longer now. We have to say 'no, I can't quote in 24 hours.' That's because our companies are demanding more information and taking longer to quote on business. And, there are fewer market to choose from."
LoVullo says his agency spent the last decade building discipline with retail agent producers and clients, including a lot of face-to-face contact. When the hard market came, the decade of relationship building served both the MGA and the retail agent well. "There was no question about where they would go," he says. "We have a good relationship with our agents, and price is not a big factor."
As for retail agents who don't have a relationship with an MGA, LoVullo advises: "There are enough MGAs to accommodate those that don't have relationship, but they have to recognize that they need do be disciplined. We're still willing to look at new retail agents with a commitment. We look at how they do business. In essence, we underwrite the retailer well before we look at the account they're bringing to us. That's the best way to protect the insurance companies we represent."
Turning to a more pleasant topic, LoVullo says he has enjoyed his tenure at the helm of AAMGA. He turns the gavel over to his successor, Baron Garcia, president of Oklahoma General Agency, during the annual meeting this month in Palm Desert, California.
"It's been a busy year and I've traveled a lot, but I will miss it," LoVullo says. "My efforts to increase participation by young people have been excellent. We have young people that have been on committees for the first time. They've learned a lot and have been exposed to a lot. I think this will be great for them. I think we have to try to remember that the young people look up to us and really get a charge out of the older guys paying attention to them. I know Baron intends to continue this effort and I will do everything I can to help him with this and anything else." *