The purpose of this article is to look at the situation where the agent needs to approach the excess and surplus lines market on a particular risk – and I am assuming here the approach will be through a wholesaler – and the dynamics and expectations that pertain on both side of this relationship.
The E & S market is basically the safety valve to the admitted market, providing capacity and expertise in areas where the admitted market’s “box” does not fit. Whilst you should always be aware of the Best’s rating and security of an E & S carrier – as it is not regulated directly by your State – in general the rate of failure of E & S carriers in any one year is usually no better or worse than that of admitted carriers.
However, to get to this carrier, or indeed to this market, the Independent Agent is usually going to have to deal with a wholesaler. That wholesaler is then either going to have authority from a carrier to quote and bind the business in-house (e.g. a small vacant dwelling) – when they act as what is known as an MGA or Managing General Agent, or is going to act purely as a broker and send your risk on to the carrier directly (e.g. a large products liability risk).
What I want to look at here is the nature of the relationship that comes about when this business is submitted. I describe it as a two way beauty contest and will look at what will attract and repel each party in turn.
Let’s look at what the parties want.
You, the agent, want a quote, and probably a quick quote, as a declinature may have been received late from the admitted markets and so you have to rush this. So, is quick, effective service the most attractive feature?
In most studies of what agents want from wholesalers, service – specifically speed of quote – always comes top by a long way. Why? Often because this is a rush item, it is an oddball for some reason and you need to get it taken care of as quickly as possible. Whilst E & S business may only be 10% or so of the agency’s book (especially in non cat-prone states) and so is probably not a huge revenue generator, it is business that is the proverbial “squeaky wheel” and can take more work to place than the average account.
As an aside (and contrary to what many agents tell wholesalers), most studies suggest that commission is not a huge factor here, provided it is “reasonable” – it is speed and quality of service that matter. To an extent also the relationship, usually with the individual underwriter at the wholesaler rather than the company as a whole, also enters the picture as probably the second most attractive feature.
So, if prompt service from a responsive, friendly and professional underwriter giving good terms and reasonable commission is what you are looking for, then obviously the reverse is true. An underwriter who does not respond with terms or questions, or does not return calls is unlikely to see much more business. On top of that irritants can arise from tardy policy or endorsement issuance or accounting issues (though often poor service in one area will mean poor in most areas). These are the “ugly” aspects that will drive business away.
However, you may also want options, so may send the risk to more than one wholesaler. Now here is where problems can begin. If you are going to do that, then you should make sure you know which markets the wholesaler uses, since when the market tells the wholesaler they are blocked by a submission from the same agent through another wholesaler, then the wholesaler’s keenness to do business with that agent is now adversely affected. Wholesalers are busy too – even in a good year they may only bind 25% of what they quote -, so spinning their wheels will just annoy them and mean your next quote may not get the same attention.
This leads on to managing the relationships. If the agency knows its wholesalers, what markets they have and where authority is held, so business can be turned around quickly, and sets out to build strong contacts with their underwriters, then they will get better service and take care of this business more quickly. This does require some strategic and tactical planning though, and any new wholesaler soliciting business should be able to show clear superiority to existing markets to get a chance. So often, it seems, agents jump from wholesaler to wholesaler, depending on who was last to come visit.
It often seems that agents, especially in this market, send business (including renewals) everywhere, desperate to avoid being out bid, only to find that really they have no solid relationship to fall back on when they need a favor or something done quickly. This mindset leads to the wholesaler regarding the agent as unreliable and fickle – and any agent will know how they feel about a client who exhibits this behavior.
Furthermore, with the lack of a good relationship base, the agent may feel all wholesalers are the same (I’ve heard that many times) and in granting no respect, gets none in return. So, if you want to stand out from your peers, deciding who to do business with and developing and nurturing that relationship is likely to be more productive in the medium term.
From the wholesaler’s point of view, how does an agent become attractive? Firstly – get the submission right. A fully completed (current!) application with any needed supplemental applications and a brief narrative will get attention. These are not “in the box” risks so will often need more information than the standard accord application will provide. If you don’t have the supplemental application, usually the wholesaler’s web site will have it, or they can e-mail it to you quickly.
The rise of on-line quoting has perhaps shifted attention from “normal” applications, but they are still needed and your risk goes to the top of the pile if all the information is there, with the supplemental completed, a loss run and a target price. In doing this simple thing you have just separated yourself from about 85% of the agents out there who typically provide partially completed (some still illegibly handwritten!) applications, no supplemental and no loss runs and a terse “quote please” on a fax or e-mail. I once saw an umbrella application that just consisted of the name of the insured (it was a rush)! The underwriter wants to quote the business but also knows that if he asks the questions he needs to then chances are that very often he won’t hear back.
Consider this. When submitting a risk to a wholesaler, that maybe another agent is also working on, you are not initially at least competing with that other agent. What you are doing is competing with every other agent who has sent a risk to your underwriter that day. That first impression – the way you present the risk in the first place can determine how things go. A good submission, on which the underwriter now knows he can compete, will get attention and be first out of the door. The poor, scruffy submission goes to the bottom of the pile for after lunch when they can get round to listing out all the things they still need, because they know that when information has to be painfully extracted then usually those risks don’t bind. If you habitually submit in this way, don’t be surprised if eventually your risks are simply ignored.
Some MGAs and wholesalers do quote on horribly incomplete information. Of course this is a short term thing. At a risk level, the inspection will show up the problem and possibly lead to cancellation – so you are back to square one. Or there will be numerous recommendations and requirements which will tie up your time and use up your commission dollars. At a market level, they will eventually lose their authority once their procedures are audited, so you will have to re-market next year – again more effort. If it is almost too good to be true how little information they need (so how little work you have to do to get a quote), then it likely is too good to be true and very unlikely to last.
So, back to the beauty contest theme. You want a good wholesaler, a knight in shining armor who will rush you a quote at the last minute, saving your face with the client and then issuing the binder and policy promptly and handling endorsements and inspections efficiently. That’s your dream – but now looks in the mirror. Are you worth it? Are you an unreliable deadbeat, charming but inefficient, dealing with anyone who will listen, then moving on, or do you bring value and stability to the relationship, giving your business partner what they need to do their job and rewarding them with the order. Are you a flirt or a steady date?
The wholesaler wants an attractive agent, one who supplies the correct information in a timely manner and who binds business that does not then cancel. The best wholesalers keep detailed records, including submissions, binds, cancellations, premium volume, types of business and rank agents accordingly. But if you are supplying all this good information and binding business and still cannot get same day turnaround, returned phone calls or e-mails, prompt policy or endorsement issuance, then you have an ugly wholesaler and it’s time to look elsewhere.
All this may seem blindingly obvious and the analogy may be perceived as facile, yet dysfunctional or only partly functional relationships are all too common between agents and wholesalers. Given that good relationships should bring increased prosperity to both parties, fewer disputes and fewer E & O situations, it is surely worth it to put your most attractive side forward in the hope of meeting a retailer (or wholesaler) of like disposition.
Jonathan Brown, MGA Consulting, LLC.
Jonathan Brown FCII RPLU is President of MGA Consulting LLC based in Farmington MI. He is a former Lloyd’s underwriter and broker who has thirty two years business experience including ten plus years’ experience in senior roles at two national MGAs. His company provides various services within the MGA community including auditing for insurance carriers including Lloyd’s syndicates, program development and marketing, initiating access to the Lloyd’s market and assisting MGAs in improving profitability. He can be reached at email@example.com.