Building an E&O powerhouse

Modern Insurance partners with Rockwood Programs to expand its reach

By Elisabeth Boone, CPCU

You’re an experienced agency owner—motivated, focused, and successful, with a solid reputation for expertise in the challenging errors and omissions market. In fact, according to the Florida Surplus Lines Association, in 2008 you were the top surplus lines agent in Florida for insurance agents E&O.

Life is good—but could it be even better?

For Mark Lann, president and chief executive officer of wholesaler Modern Insurance Consultants in Homestead, Florida, the answer turned out to be a resounding “Yes.” Last year his agency joined forces with Rockwood Programs, a full-service managing general agency, wholesale brokerage, and marketing organization that specializes in management and professional liability insurance and offers a variety of E&O programs, including coverage for insurance agents as well as MGAs and program administrators. (See “Like a Rock” in the October 2007 issue of Rough Notes.) In 2001 Rockwood founded the Target Markets Program Administrators Association (TMPAA), which now has some 300 members and each September sponsors a special section in Rough Notes.

While Lann was seeking a way to expand his access to E&O markets and prospects, Rockwood’s president, Glenn W. Clark, CPCU, was searching for experienced producers to work with his company’s contacts in two endorsed E&O programs—one for members of TMPAA and the other for members of the Strategic Independent Agents Alliance (SIAA), which has some 2,850 agency members throughout the United States and Canada.

Through the efforts of Mystic Capital Advisors Group, LLC, an insurance and financial services consulting firm, Modern Insurance and Rockwood were brought together and formed a new entity, Modern Insurance Consultants, LLC, which is jointly owned by Lann and Clark.

The “new” Modern uses the same business model as its predecessor and continues to focus on E&O for insurance agents and insurance companies as well as miscellaneous professional liability classes, Lann says.

The original Modern Insurance Consultants was established in 1993 by Lann’s father, Martin, and his partner, Ron Sammario. “It was right after Hurricane Andrew. My father had been in the business since the 1960s and had access to some property markets that were writing insurance with wind coverage in Florida right after Andrew, which was almost impossible to obtain,” Lann explains. “Ron and my father both left Modern in 1998, and my brother Gary and I were running it by then,” Lann says.

“We got into the E&O business in 1999 through Lloyd’s, and started specializing in it. By 2001 we were an all-E&O shop,” Lann says. Today, he says, some 75% of the agency’s business is insurance agents E&O. “We write agents, brokers, MGAs, insurance companies, reinsurance intermediaries. If a risk has anything to do with the insurance industry, we write it,” he says.

Now semi-retired, Martin Lann works with Gary in a local retail agency.

Pathway to partnership

By the beginning of 2008, Lann says, he knew that his agency had reached a plateau. “I realized that I needed help in growing my business to the next level, so I started looking for suitable partners based on their reputation and how they ran their business,” he explains. “That’s how I met Glenn Clark of Rockwood, and together we got Mystic Capital involved to help us explore the feasibility of joining forces.”

In structuring the transaction, Clark and Lann worked with Kevin Donoghue, managing director of Mystic Capital. “Kevin is a great guy and very sharp,” Lann says, “and Mystic did a terrific job of getting the deal done.”

The fact that Modern Insurance was a five-person shop, he comments, in no way affected the quality of service it received from Mystic Capital. “They treated us like a mega-broker,” Lann says. “Kevin visited our office and spent time getting to know us and our operation, and he did the same thing with Rockwood.

“He started the valuation process and helped us work through the particulars of the deal,” Lann continues. “I’d never been through this before, and Kevin held my hand the whole way. I felt that he was truly representing my interests and providing a high level of personal service.”

Asked to identify the qualities he was seeking in a partner for his agency, Lann says, “Character was very important. I needed to trust the people I was getting involved with, because I was handing off my ‘baby’ to someone else and trusting them to take it to the next level. I was looking for someone of good character, and someone whose business plan fit with what we wanted to do,” Lann remarks.

A natural fit

“Rockwood was a natural fit,” Lann says enthusiastically. “They have great people, and they’re going to help Modern grow, so we’re really happy. Rockwood is a large outfit,” he adds. “They have a lot of name recognition I didn’t have, and they’re a national firm whereas mine was a regional firm. They came in and immediately made us bigger and brighter. We have access to their markets and their systems, and since we closed the transaction they’ve done a lot of good things for us.

“Most of the changes they’ve made have been in our infrastructure, to make our systems more compatible with theirs,” Lann says. “I still have wide latitude to run the operation as I see fit. I’ve learned so much from the people at Rockwood; they have a whole generation of E&O experience more than I have.”

Access to Rockwood’s E&O markets, Lann says, has exponentially expanded the reach of Modern Insurance Consultants. “We can now place business with about 25 markets, yet as a small shop we can still provide personal service to our clients. In most cases we can deliver a quote the same day, and our people are usually smiling while they’re talking on the phone.”

Glenn Clark echoes Lann’s enthusiasm for the new partnership. “Rockwood sought out a partner that would give us front-line producers to assign to some of our network contacts. Mystic Capital’s Kevin Donoghue helped us find Modern and then craft a deal that would help both entities prosper,” Clark explains.

“Mark and his team give us producers to work with our contacts in Target Markets and SIAA,” he continues. “Mark is an E&O expert and has taken the lead role in contacting SIAA Master Agencies and following up with program administrators in TMPAA. We are looking for other affinity groups where we can serve as a compliance unit, ensuring that each member carries adequate E&O coverage,” Clark says.

Eye on the market

As noted earlier, Modern Insurance Consultants is the top surplus lines agency in Florida for agents E&O, according to the Florida Surplus Lines Organization. “We’ve held that position for the past several years, except for one year when most of our policies were written in the admitted market,” Lann says. “We’ve always been good in Florida, and we’re excited that we now have the opportunity to build our volume in additional states.”

Whether agents E&O is written on admitted or nonadmitted basis depends to a considerable extent on the particular state, Lann says. “Florida is a very surplus lines-oriented state, so there are not a lot of admitted markets here. I think that at least half of the policies written here are surplus lines. I think that would hold true for other surplus lines-oriented states like New York, California, and Texas. In the more rural states, there are a lot of admitted policies.”

Another factor that affects where agents E&O business is placed, Lann points out, is the state of competition in the marketplace. “The admitted markets come and go according to whether the overall market is hard or soft,” he says. “The big admitted markets like Utica and Westport write agents E&O no matter what, and they’re supported by the big associations, but when it comes to everyone else, the market is always changing.”

Today, Lann observes, the demand for agents E&O is increasing because of the downturn in the economy. “I think a lot of agents and brokers have been ignoring EPL coverage for a long time,” he says. “The way the economy is now, a lot of smaller businesses are getting hit with EPL claims, and I think that could be a problem for agents and brokers down the road.

“If the EPL situation goes bad, that could mean trouble for agents and brokers who don’t sell that coverage,” Lann says. “Agents need to be talking to their clients about EPL exposures and coverages, and documentation of those discussions and decisions has to be top notch,” Lann asserts.

Often, Lann comments, “Agents only ask us what they’re doing wrong after they’ve had a claim. One of our specialists will go through the agent’s policies and procedures to identify exposures. Nine times out of ten, the problem is a procedure,” Lann says. “There’s not a lot of E&O claims activity in most agencies, so the policies aren’t usually pulled out and tested to be sure they were written correctly.”

The experts at Modern Insurance Consultants, he says, can help educate agents and brokers about their exposures and coverage. They also can draw on the considerable resources of Rockwood Programs, their new partner in building an E&O powerhouse.

For more information:
Modern Insurance Consultants, LLC
Web site: www.modernins.com