A June webinar provided an excellent opportunity for a panel of excess and surplus insurance lines experts to weigh in on market cycles, workers' comp and professional lines
to name a few. Hosted by A.M. Best and the National Association of Professional Surplus Lines Offices, participants included Lee McDonald and Duncan McColl of A.M. Best, Richard Kerr of MarketScout, Kevin Westrope of Westrope, Marla Donovan of Burns & Wilcox and Paul Springman of Markel Corp. The panel was moderated by McDonald. The original transcript was edited by Dan Reynolds, senior editor, Risk & Insurance®.
MCDONALD: Marla, on the state and future of the wholesaling market, what do you see in that?
DONOVAN: I definitely agree with Kevin that we'll see some shifting with many of the wholesalers that do have private-equity money behind them. The reality of the last nine months is some of these smaller players have struggled with some of the day-to-day issues that you face in running a small business. So I do think there will be some consolidation.
With that said, the largest growing area of our economy is always the small entrepreneurial business in this country. And one of the things that wholesalers and MGAs do very well is meet those needs. There will be some consolidation, and I think a bit of a financial flight to quality--not flight to quality, that sounds desperate--in movement to economies of scale.
MCDONALD: And Richard, we have quite a number of agents registered for this webcast, and that's your primary audience and everybody here ultimately.
What do they need to know about where the opportunities are in playing in this market and this point, and what should they be paying attention to?
KERR: If you're in the wholesale business, the world is definitely changing. There absolutely is a bright future for the wholesale broker. But our determination is that it's going to be broken down into three somewhat new categories--your traditional wholesale broker that you have today, which will assist these retail agents in placing the large, difficult accounts; and then there's a new element that I will call the aggregators.
And they are aggregating smaller opportunities and putting them into program situations. So, aggregators are doing commodity products that largely will be done in an electronic online fashion because that's the only way you can make any money at it.
And then lastly, sort of a combination of everything will be the exchanges. So that a retailer can join in an exchange and literally get access to everything they need, and no one company can do that. So, there will be assimilations of companies in exchange No. 1, 2 or 3. Exchange No. 1 might be populated by specialty companies such as Markel and others; and Westrope would be the anchor tenant, so to speak, for wholesaling; and maybe for the commodities stuff ... someone else.
MCDONALD: Paul, you meet with a lot of agents, we're talking mainstream agents here, not necessarily wholesalers or MGAs. What do they need to know about today's E&S market and particularly how to profit and take advantage of opportunities?
SPRINGMAN: I think in terms of specific opportunities, three classes and we've talked about two of those--allied medical because of its growth, because of the new and emerging technologies that are associated with that, clearly one of Markel's top initiatives. We've also talked about environmental opportunities because of some of the growth in that particular field.
We're also very high on all sorts of IT-related E&O, be it cyberspace liability or data-breach liability, anything related to that and IT consultants. Those are areas that are really growing in this economy.
But I think in general, if I was just to draw a box for a retail agent or one of our wholesale partners and say, anything that's new, anything that's different, anything that's not in the book is where we can do our best work.
MCDONALD: Kevin, where are the agent opportunities right now in E&S?
WESTROPE: You know I think the real agent opportunities in E&S are properly learning how to utilize what a wholesale broker brings to the table. You know I categorize most agents--and this is not a bad thing and not pejorative at all--most agents are like your general practitioner. We all need a general practitioner. Most agents are doing all lines of coverage.
You get into certain situations where you can afford to have a property expert on your staff like myself. Not that you couldn't if you chose to, but you don't write enough business where you need to utilize my services.
It makes far more sense for you to outsource that to somebody like me and bring significantly more opportunity to you and responses for your insured.
OK. Richard, any particular opportunities that agents need to be thinking about in E&S right now?
KERR: Well, I think the market is going to come back, and a lot of these agents have migrated over and many of them you talk to--and we deal with thousands and thousands of them all across America--basically over the past two or three years, they've said, "Well, we don't really have an E&S business."
Well, that's about to change. So as it changes, they need to start aligning with the appropriate wholesale sources because they can get to those appropriate-type markets. And I think that just as Paul mentioned, there's a lot of specialty arena areas that they can come into, and as they get access to those it'll be very good for them to have a good wholesale partner. So that's going to be the future. In the next two or three years, the retail agents across America, their book of business will go from maybe 95 percent admitted down to 70 percent.
MCDONALD: OK. Marla, we'll give you the last word. Where should agents be thinking E&S?
DONOVAN: Agents should definitely be thinking E&S because the traditional coverages--the straight property/casualty and what have you have always been what their customers need--but their customers, the small business person, the entrepreneur, they too are having exposures now that will require some of these E&S products that we've all talked about.
Anybody who handles data on a customer or a patient, for example, has an exposure to data breach. EPLI is not just for the Fortune 500 anymore. We have a very active and robust EEOC right now. ... Environmental concerns that weren't necessarily on everybody's minds a few years ago.
All of these kinds of exposures that are historically associated with large multinational companies really have come to Main Street, and our retail agents need to service those needs and they need to be talking to their customers about those exposures and educating them about those exposures.
Buying higher limits of liability--we're entering a very litigious age in my view. So that's where the value add is for the retailer is to make sure they're partnering with wholesalers and their suppliers to bring these products that really are going to be very necessary for the average business person in the next decade.
October 1, 2009
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