In today's world of complex and ever-changing exposures, one of your most important allies is an Excess and Surplus (E&S) lines broker you can depend on to obtain coverage quickly for difficult exposures and risks. This broker should be considered an extension of your marketing department and a partner in risk placement.
Utilizing this wholesaler properly will result in better service for your customers because they'll be offered products that may not be available in the standard market. At the same time, your bottom line should show healthier revenues from accounts you might not otherwise write.
In the following article, we will discuss how to deal with a wholesaler effectively. We will cover what wholesalers are, why and how to utilize them, and criteria to select those wholesalers with whom you choose to do business.
What Is A Wholesaler?
First of all, let's discuss terminology. E&S brokers also are referred to as wholesalers, managing general agents (MGAs), or a host of other things depending on the job they did on your last account. Regardless of the term used, the job is basically the same: to find difficult-to-obtain coverages at the best terms and conditions currently available in the marketplace.
A wholesale broker can operate as a broker and an MGA. When operating as a broker, the wholesaler performs the same functions you would when marketing an account. After gathering information, an application is completed and presented to a number of markets to find the most favorable terms and conditions. When operating as an MGA, the broker has binding authority with one or more carriers and thus acts in an underwriting capacity. He or she can accept and bind risks on behalf of the insurance company based on the company's predetermined underwriting guidelines.
In some cases, an E&S broker can operate as both broker and MGA simultaneously on the same risk. For example, the broker may underwrite, quote, and bind the primary General Liability for a specific account in one of his or her contract markets and then broker the Umbrella portion of the account with their brokerage markets.
Why Use A Wholesaler?
Dealing with a wholesaler has several advantages, including:
1. Time and money savings. Allowing wholesalers to market your accounts gives you an extended marketing department, saving the time normally spent seeking markets and securing coverage. Marketing a sophisticated and complex account, particularly one involving tough Product Liability, poor claims experience, or manuscripted wording, can be a very time-consuming and frustrating experience.
2. Buying power. Even if you can approach a market on a direct basis, you still may prefer to utilize a wholesaler to take advantage of its leverage and marketplace clout. Because brokers normally do large volumes of business with some markets, they may be in a much better position to be more effective, efficient, and profitable. They literally deal with these markets on a daily basis and, as a result, know how to position an account with an underwriter in order to obtain a favorable outcome.
3. Knowledge of marketplace. Because wholesalers are in the E&S market on a daily basis, they are aware of the types, classes, or risks that various carriers and individual underwriters prefer. They also are aware of potential changes in the reinsurance and
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markets that can affect the placement of your accounts.
4. Market access. Sometimes the only way to access a particular market is through a wholesaler. Also, when dealing with nonadmitted markets, you must have a special Surplus Lines license to conduct business and make the appropriate state filings.
5. Specialization. Many wholesalers are moving away from the 'jack of all trades' philosophy and are hiring specialists in niche areas of the marketplace. Once it was quite common to deal with the same E&S broker on Aviation, Marine, and Products Liability accounts. In today's marketplace, you generally find people who specialize in such narrow segments of the industry as Environmental Impairment, Public Officials Errors & Omissions, Motor Truck Cargo, and Railroad Protective.
These people are considered experts in their field and can assist you in putting together the most effective insurance (or noninsurance) program for your client.
6. Technical expertise. Many E&S brokers have strong underwriting backgrounds and are good technicians. They have an in-depth understanding of coverages and can assist in the interpretation of policy terms and conditions, as well as assist in the preparation of manuscripted policies and endorsements. Their expertise can assist in the sale of your products and help differentiate you from the competition.
Some retailers argue that because of the current soft market coupled with the standard markets' willingness to entertain risks they wouldn't look at five years ago, getting to know a wholesaler well is not necessary. However, in light of the impact of uncertain economic conditions on markets, a declining rate of return on investments, and an increase in catastrophic losses, an argument could be made that the near future holds changes in the marketplace.
If this is the case, now would be an excellent time to begin to establish and build or rebuild relationships. Because we are in a soft market, wholesalers have the time for in-depth explanations of their products. If you wait until the market has actually hardened to build relationships, it may be too late. The E&S brokers will then be inundated with applications and likely will work on risks for retail agents with whom they have past business relationships.
Basically, the success of a wholesaler working on your behalf is based on the markets they represent, the relationships they have with those markets, and the level of experience of the key personnel who are involved in account placement.
A good wholesaler is experienced in utilizing both insurance and self-insured retentions to tailor policies fitting the buyers' needs. This is all part of the wholesaler's 'value-added' status.
Selecting And Using A Wholesaler
Perhaps the most critical part of dealing with a wholesaler involves deciding which E&S brokers to use. As with qualifying any firm you do business with, always assure yourself of a brokers' financial integrity, stability, and ability to deliver products and services. Here are four categories of questions to facilitate this decision:
I. Markets
A. Which markets do they represent?
B. Will these markets benefit the types of accounts that you write?
C. Are these markets financially stable?
D. What are their ratings?
E. How much business do they write with these markets?
F. What is their relationship with these markets?
G. What is their loss ratio with these markets?
H. Will these markets provide affordable coverage in both soft and hard market conditions?
I. Who is providing reinsurance for these markets, and are they financially stable?
J. If these are niche markets specializing in a narrow range of products, how long have they been providing these products, and how likely are they to continue doing so?
II. Reputation
A. What is the wholesaler's reputation in the industry?
B. What has been your experience with them in the past?
C. What have other people's experiences been?
D. How long have they been in business?
E. Do they publish a financial statement? Will they provide you with a copy?
F. Will they provide you with a brief history of the firm?
G. Do they carry E&O insurance? What limits? What is their deductible?
H. Who are they owned by?
I. Are they local?
J. If they have more than one location, is that of benefit to you when marketing an account?
III. Ease Of Doing Business
A. Do they return telephone calls?
B. Do they respond within a reasonable amount of time when you submit an application?
C. Do they have a high turnover rate?
D. If not local, do they have a toll-free line?
E. Do they have more than one individual that you can depend upon to answer your questions?
F. Can you normally get through to these individuals?
G. Do they require an agency contract? If so, is it restrictive? Do they have volume requirements?
H. Do they process endorsements and issue policies on a timely basis?
I. What are their payment terms?
J. How often do they visit your office and spend time with your sales staff?
IV. Expertise
A. Do they offer a broad range of products?
B. Do they have a thorough understanding of these products?
C. Are they capable of explaining the benefits of these products?
D. On large and sophisticated accounts, are they willing to make joint calls with you to explain coverage terms and conditions to your customers?
E. Do they have an understanding of the
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marketplace?
F. Do they have an understanding of the reinsurance marketplace?
G. Are they able to arrive at creative solutions to your marketing problems?
H. Do they have specialists on staff who can assist you in a timely manner?
I. Do they have enough knowledge about the marketplace to give indications of pricing on a risk? If so, do they generally come through?
J. Can they handle placements involving large self-insured retentions?
These are just some of the questions that should be answered when selecting wholesalers. It also may be useful to explore the broker's experience at handling the types of accounts that you anticipate submitting. Discuss the brokerage's philosophy on marketing business - you might be interested in knowing:
1. How do they handle broker-of-record letters involving other retail agents?
2. How many markets do they normally contact when marketing an average-size risk?
3. Do they have in-house specialists? If so, how are they used?
4. If they receive the same submission from more than one retail agent, how is it determined which agent receives the quote?
5. Do they need a deposit to bind?
6. What commission level do they normally pay? Is it negotiable? Do they charge brokerage fees?
An often-asked question is, 'Should I develop relationships with more than one wholesaler?' This generally is a good idea. Most E&S brokers now specialize in specific niche areas. While they are effective within these areas, they may not be effective outside of them. Furthermore, some wholesalers are more effective handling general agency business under their binding contracts than they are brokering accounts in the open market. The reverse also can be true.
Develop relationships with a number of wholesalers who offer different services, products, and markets. Try to avoid duplicating markets; choose a wholesaler who can deliver something that the others don't offer.
A more difficult question is, 'How many wholesalers do I contact on a risk?' On a relatively small and uncomplicated risk, you probably could use only one E&S broker. As the risk becomes more complicated and involved and the need for creativity increases, more than one wholesaler may become necessary.
While you certainly want to contact as many markets as possible on larger risks, there are dangers involved in going to more than one wholesaler. If a market underwriter receives the same submission from more than one source, he or she may feel that the risk is being 'shotgunned' in the marketplace and that his or her chances of writing the risk are slim to none.
The underwriters may lose interest in giving any of the submissions serious consideration and will move on to a submission that seems more likely to be given to them. In essence, multiple submissions to the same underwriter can neutralize a market which, under other circumstances, could have provided the best terms and conditions for your client.
If you choose to approach more than one wholesaler on the same risk, you may want to ask each broker which markets they will be contacting and advise your brokers of the markets contacted in order to avoid any unnecessary duplication. On large accounts, you may even wish to consider assigning markets to the wholesalers you want working on the risk.
While some wholesalers may not like this method because it limits them on the number of markets they can approach, it nonetheless gives you a certain amount of control over the marketing of an account and decreases the chances of an underwriter receiving a duplicate submission.
It is critical to recognize and treat a wholesaler as a partner in the placement of the account. Work together to meet your customer's needs. Another vital step is to share all pertinent information with your E&S broker so that he/she can market the risk effectively. This includes all information considered confidential or privileged that will affect underwriting the account.
If you have reason to believe that you can't trust your E&S broker with such sensitive information, then it's probably wise to reassess the strength of your relationship with this individual and your reasons for doing future business.
Preparing Submissions
The quality of your submission is very important to gain the underwriter's attention and for you to receive the most favorable terms and conditions possible for your client. Applications that are typed, completed in their entirety, and backed by supplemental information such as brochures, financial statements, newspaper and magazine articles, annual reports, and currently valued claims information are more likely to be well-received by the underwriter.
Illegible and partially completed applications with no attachments receive much less attention. Often the application is insufficient to describe your account accurately. Rather than attempting to manipulate the risk to fit the application, feel free to add supplemental information and narrative descriptions in order to explain your account better. Put yourself in the underwriter's position and ask yourself the following:
1. Does this application adequately explain my client's business?
2. Is the application complete?
3. Is it accurate?
4. Is it legible?
5. Is there anything else that I can include that would help clarify this risk?
6. Is it clear what I'm looking for or trying to accomplish?
When marketing a risk in the Surplus Lines market, it's important not to ask for a dozen alternative quotes with varying limits and deductibles. This kind of request tells the underwriter that there is little direction in the marketing of the account. Secondly, if you have a target premium in mind, let the wholesaler know. This saves time and adds credibility to the submission by letting the underwriter know what it will take to get an order. However, once a target premium is given and met, be prepared to deliver an order.
Nothing can destroy a relationship faster than having an underwriter meet or exceed your request and then not receive an order. Last of all, as mentioned previously, do not shotgun the market. The natural tendency when marketing a large account is to flood the market with submissions. While this may appear to be an effective way of penetrating the market, in reality it tells the market that this risk is being well-shopped and not to be taken seriously.
As the insurance marketplace continues to change as a result of both political and economic forces, more than likely your involvement with wholesalers will increase if you want to compete successfully on large or different accounts. Now is a good time to determine which E&S brokers will best fill your needs and the current and future needs of your customers.
Establishing and building relationships will prove to be rewarding in the long run for you, your clients, and your agency.