Industry the July/August 2011 issue

Inside Conversation

Markets hardening? Maybe. Retailers misunderstanding the cost of wholesalers? Absolutely. Some things never change. Others, always.
By Kevin Amrhein Posted on July 1, 2011

Each May, The Council hosts the Wholesale Insurance Leadership Forum, a gathering designed to bring wholesale, carrier and other industry leaders together for a few days to mull over intimate details of business relationships. Outside of the sessions, participants meet in private gatherings to hash over projections, conditions and other factors, many of which directly affect the wholesaler relationship with retail partners and insureds. Some members allowed me to join in their discussions to learn more about the happenings and concerns.

Updated windstorm models and the recent barrage of catastrophic earthquake, flood and tornado damage already led to some reduction in capacity and may result in the property market hardening over the next 12 months. Other wholesale brokers took it a step further, telling me the windstorm model alone has already resulted in reduced capacity and higher premium on some accounts.

The recent barrage of catastrophic earthquake, flood and tornado damage already led to some reduction in capacity and may result in the property market hardening over the next 12 months.


There was much discussion about impending implementation of the Nonadmitted and Reinsurance Reform Act (surplus lines reform), scheduled to take effect July 21. There’s concern that full compliance with federal law is slow-developing in some states, potentially hindering the ability of wholesalers to function efficiently in certain individual states. The Council and other organizations that supported surplus lines reform have resources available to assist members during the transition to make the process more efficient, which, after all, was the purpose of the law. And while many retailers with multi-state placements also celebrated the improvements promised by the reform law, those same retailers may wish to communicate with wholesale partners concerning developments that could hinder its implementation.

Many wholesalers reveal their importance when securing access to important products that retailer agents may not be able to secure directly, particularly for higher-risk accounts. Wholesalers with their ears to the ground want to answer the call when the need arises. One example that became apparent during the forum is growing concern about insuring against losses due to supply chain problems. Several wholesalers say they plan to speak with carriers about capacity for business interruption with a focus on supply chain interruption inspired by the Japanese earthquake and tsunami in March.

These wholesalers talked about the importance of not just offering market access but also serving as a resource in response to retailers concerned with the international exposure as well as a general lack of coverage expertise. 

Others told me they are not letting current events overshadow important discussions on unresolved issues: “My greatest concern is that there remains a misunderstanding about the cost of bringing a wholesaler into the transaction,” says Jerry Sullivan, chairman of The Sullivan Group. He still frequently engages in discussions with people who believe that use of a broker is a major factor in the increased cost of securing coverage. He has developed resources to help explain that the cost of distributing through a wholesaler is often absorbed by the carrier. Carriers choosing to distribute through wholesalers simply absorb the cost due to savings they experience by relying on wholesalers.

Another big issue is the movement of personnel within the wholesale segment over the past two years. Most say it is unprecedented to see teams of people move from one firm to the next on a regular basis. Also new to center stage is the issue of succession, according to Adam Kagan, chief market relations officer for Crump Insurance.

“It’s huge right now, and the sense of urgency is growing rapidly,” he says. Specifically, the industry is going gray at a rate that could cause serious harm to insureds over the next 10 years. “Wholesalers that actively recruit young staff should want their retailers to know their efforts,” he says. “Look around this business. In 10 years, a lot of the people you see won’t be there. When that experience goes, how can a retailer or insured be confident working with a wholesaler whose model is built on expertise?”

Kagan talked of his firm’s efforts to bring new people in on various sides of the business, not just brokers. Wholesalers who bring in new business by acquiring teams from competitors, he said, need “to remind retailers that there’s a plan for organic growth as well.”

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