SPECIALTY LINES MARKETS
By Larry G. France
In today's medical environment, almost every ailment requires a specialist to provide treatment. Today's insurance industry environment is like the medical industry in that many classes of business have evolved to the point where simple shelf products cannot respond to coverage requirements. Carriers needing to reduce their back room cost have opted to place responsibility of securing business with MGAs that have a track record of expertise in specialized areas. A person suffering from back pains would not seek out a dentist. Similarly, it makes good business sense to work with markets that can respond to your clients' specialized needs.
Seek specialists
Find markets that not only provide a quote but also understand the class of business in question. Other extras may be offered. Loss control and claims services are among ones to look for.
What is your ROE (return on effort) in terms of working with a specialist? If it is a class that you only place occasionally, the support and guidance obtained can be the difference between getting the business and losing it to a competitor. A specialist can give you direction regarding future risks.
Never stop learning
Make an effort to attend one of the many seminars and meetings provided by professional specialists throughout the year. Many are offered free of charge or at little expense. Not only will you achieve a broader knowledge of available products and services but you will have an excellent opportunity to network with other agents and markets.
If you work in an office with several other people, after a point in time a vast amount of your information and knowledge is limited to what the other people possess. This can limit your ability to respond to changing market situations. Many times that risk for which you could not find a home can be placed with contacts met at outside events. The agents who are successful in being flexible when market trends change are the ones who have stayed in the loop within the industry.
What is your ROE in terms of continuing to learn and keeping current?
Build relationships
One of the main factors that are mentioned by successful individuals, regardless of their industry, is relationships--which grow out of long-term respect and trust. In good relationships, both parties cooperate and work toward each of their professional interests. Three main factors must be present in a good business transaction; the client, company and agent should all be served equally. If you are not providing good underwriting information to the company, the insured can suffer uninsured future claims. A client who is placed with a financially inferior carrier can sustain unpaid losses. Finally, you will have difficulty in the future obtaining carrier support and your relationship with your client will deteriorate.
What is your ROE by forming relationships? When you have good relationships with your clients and carriers, they will perceive you as a professional, not just an order taker. Your opportunity to obtain future carriers and clients is greatly enhanced.
Correct pricing
Price is important to everyone when making a purchase, but not at the expense of quality. When the market loses some of its rigid pricing, other markets that had seemingly vanished during the past few years will reappear. Not all of these markets will be of sound financial nature. Pay attention to the ratings of all carriers since your E&O coverage could be threatened if the carriers fall below the required standards. The right price for the value and security of the product is what should drive the placement. Anyone can come up with a cheap price but it will take a professional to explain why the product is priced as it is.
The ROE will pay off in the long run with more stable markets and satisfied clients.
Listen to the professionals
When looking at the specialty market's outlook let's follow our own advice (seek specialists) and talk to the professionals. More than 260 MGAs are active members of the AAMGA (American Association of Managing General Agents), an organization that has served the industry for 78 years. The members produce in excess of $13 billion in annual written premium.
Commenting on the future of market conditions, Bob Schneider of Robert A. Schneider Agency, says: "It should not matter what the market does--soft or hard--MGAs should focus on running their agencies as a business rather than relying on market conditions. Agents who were not prepared for the looming hard market missed out on what was for many a once in a lifetime opportunity. If agents now only focus on the short term--what rates will do in 2004 or 2005--they will struggle after the market slowly returns to something of a bit more stable condition.
"I foresee a very different insurance environment in the years to come. Agents who do not see and plan for it will walk out of the hard market and start looking around wondering where they are and what they are going to do to survive," Bob continues. "The ingredients to running a successful business are pretty basic--people, relationships and automation. Insurance, and business in general, is getting more sophisticated and demanding. We will all face a great deal more accountability to our employees, customers and markets. In 2004, hard market, soft market, it does not matter to us."
Frank Mastowski, Jimcor Agencies, believes that 2004 will see a slippage of prices rather than dramatic rate changes.
"I recently heard a company president describe the marketplace as 'fragile.' Should an Isabel storm go across Florida as a Cat 5, a terrorist attack occur or a large company drop out, then everything changes and prices again head north. With the entry of more and more markets seeking the same business, rates must inevitably become competitive. Lloyd's is adding more capacity into the MGA arena in 2004, which ultimately will affect the price of insurance. The laws of supply and demand do not change."
Milton Johnston of Milton O. Johnston & Company believes that the pricing on most lines will be lowered in 2004; the exceptions being D&O, hospital professional, and medical malpractice. "There have already been some downward trends in property and general liability, with lowering of excess pricing as well." Johnston says the domestic reinsurance count has continued to dwindle, and increased pressure from stockholders to make a profit will push some to increase their written to surplus ratios as they need more cash flow to generate the required profits to maintain investors interest.
"We are already beginning to see some softening in the property lines, especially on larger properties, habitational and larger retail properties," says Jim Flitt, VP of operations for Market Finders Insurance Corporation. "It appears that the standard markets are now softening some of their pricing in the lines of business that they prefer. Unlike other years where the market went down from hard to soft almost over night, this time the standards are picking and choosing what they want to write, but when they want it they go after it full force. The economy still hasn't made the total turnaround that everyone has wanted and needed. Consequently, this may keep the market in a stable or a flattening position for 2004."
One other point Flitt made was to consider the fact that the number of Lloyd's syndicates is shrinking and their approach to writing business is more akin to the United States domestic companies. "The London syndicates seem to be more controlled by financial and business entities rather than leaving decisions in the hands of the underwriters. Consequently the ability to write tougher and more creative risks is declining. Also, liability, never a Lloyd's favorite, is now more difficult to place than ever."
"There is currently a wide range of pricing for accounts that were forced to find new homes," explains Euclid Black of Black/White & Associates. "This is reflective of the opportunistic pricing enjoyed by E&S underwriters. As such, the first accounts to see price reduction will be those very same accounts which were forced to accept overly hard terms, if you will, the low hanging fruit on the pricing tree. Mismatches arising from lack of underwriters at E&S facilities have lessened as these facilities have ramped up staff."
Black says the most important component of the upward pressure on prices is that over the last two to three years standard carriers have been engaging in a major re-underwriting of their books of business. For the most part that is over. During 2004, pressures will lessen on retailers to move business since most accounts have been through two years of purges. For those that moved and found a new home, the flight to quality has been completed with few exceptions. Price levels for most carriers seem to be adequate. "In fact, most of my markets are looking for more business as long as they can get their price, if that means the insured pays less--so what--they got their price."
Black says there is little talk among standard carriers of thinning out the ranks of producers for 2004, so the biggest contributors to the hard market--the lack of access and capacity--have corrected themselves. Excessively priced accounts from the market's standpoint will move to more appropriate carriers. "Barring any new shocks to the industry, competition will return within two years and the cycle will go on," forecasts Black.
There are some bright spots on the horizon; prepare for varying market conditions, learn to be flexible, and you will see many returns on effort. *
