AAMGA helps members by investigating E&O markets
During soft market years, insurance companies have voracious appetites for almost all types of exposures. But when the losses start rolling in and investment income dwindles, insurers tend to go on strict diets ... That is the nature of the cyclicality of the insurance business. The trick is to determine which companies still have appetites for what particular exposures.
Whenever a hard market hits the property and casualty insurance business--and currently we're in the midst of the hardest market the industry has ever seen--certain segments of the insurance buying public are affected more than others. During soft market years, insurance companies have voracious appetites for almost all types of exposures. But when the losses start rolling in and investment income dwindles, insurers tend to go on strict diets, not starvation diets, but strict diets nonetheless. That is the nature of the cyclicality of the insurance business. The trick is to determine which companies still have appetites for what particular exposures.
Tony Glotzbach, chairman of the AAMGA's Members' Benefits Committee, has been canvassing the insurance company arena for the last year to determine which companies still have an appetite for errors and omissions exposures, particularly for MGAs. "What we're endeavoring to do is provide our members with a list of insurance companies that are interested in writing E&O for MGAs," says Glotzbach. "Many of our members have expressed understandable concern over the extent to which insurers are increasing prices for E&O coverage. In some cases, they have said that there are companies that will not write the business at all. Therefore, we have spoken to companies to find out: a) whether they are willing to write the business; b) whether their pricing structure is competitive; and c) whether the terms and conditions of coverage are beneficial to MGAs."
Glotzbach says that the AAMGA is not looking for one particular company to which the association would provide an endorsement. "In the past, we've considered that approach, but we found that we couldn't put together the necessary numbers. Our members represent a broad cross-section of the property and casualty insurance industry. MGAs often specialize in particular types of programs. We feel the best way to go is to thoroughly investigate the E&O market, find out which companies are writing particular types of exposures and then inform our members through our newsletter so that they can approach the companies we have recommended themselves."
The reasons that MGAs are having difficulties obtaining E&O coverage at affordable prices are many and varied, according to Glotzbach. "Certainly, exposures in the property and casualty industry are changing. And, MGAs are being asked to perform certain functions that differ from those previously carried out. For example, there is the effect of the new terrorism act. While the act has not had a direct effect on most MGAs, it has placed requirements on them in terms of client notification and disclosure that differ from what MGAs had to do previously. It's not that MGAs are incapable of performing these functions. Rather, it is that the act is so new and it takes a bit of getting used to. And, there needs to be better communication between MGAs and the companies they represent."
Glotzbach says that what has had a direct effect on the E&O market for MGAs is an overall shift on the part of insurance companies to focus on underwriting profitability. The E&O market is a long-tail line, and it is one that is abstract. During soft market years, especially when investment income is attractive, insurance companies are less severe in their underwriting judgment. Under hard market conditions, companies become more selective.
Nevertheless, Glotzbach says that his committee has been successful in ferreting out companies that are interested in the MGA market. Merkel is one, and Scottsdale is another, he says. "These are companies that understand the excess and surplus lines market and that are willing to examine particular risks based on their experience, rather than on overall line performance.
"Moreover," concludes Glotzbach, "these are companies that are familiar with the AAMGA and its membership and recognize that our members satisfy the association's high standards for performance." *