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By MATTHEW BRODSKY, senior editor/Web editor of Risk & Insurance®

Ask James Drinkwine, president of the brokerage division at AmWINS, what issues he thinks are top of mind for wholesale insurance brokers, and he'll volunteer disintermediation. That's when retail brokers and surplus-lines carriers (markets who traditionally do business through wholesalers) do business directly with each other.

In the current soft state of the commercial property/casualty market, according to Drinkwine, "carriers are analyzing their diet every single day." How can they write as much business as possible?

"These types of things happen," said Gerry Albanese, chief underwriting officer at Markel Corp., about disintermediation when the market becomes more competitive. Albanese wasn't saying whether more or less disintermediation is happening in the current competitive market, though he did add he knew of one large carrier that's caused "turmoil" by changing its distribution method.

Turmoil? David Pagoumian, CEO of property-catastrophe specialist NAPCO LLC, isn't fazed.

"I think the wholesale distribution channel is very alive. It's a distribution channel that in the right now, 10-year long term, is here to stay, as long as you deliver value," he said.

Retailers brokers are either going to go direct or use a wholesaler based on whether they'll be better served by that wholesaler, he explained.

It's also a matter of loyalty too. Pagoumian sees "discipline" in the surplus-lines marketplace with carriers being "committed" to and sticking the "flag in the ground" for the wholesale distribution--at least when it comes to the property-catastrophe niche. Again, it comes down to the underwriters appreciating the value wholesale brokers bring to the table.

And what about disloyal carriers? At least they don't have to fear a call from Pagoumian yelling at them about disintermediation. He isn't a "wholesale militant," he said.

SURPLUS-LINES LEGISLATION

What's another topic that could cause uproar among the wholesale world? Regulation.

But alas, all of the negative emotions have been appeased

For the longest time, wholesale brokers have had to put up with a state-based system that forced them to license and report taxes in every jurisdiction where an account involved. A bill to change the system to one-state compact, whereby the state of domicile would determine taxation and licensing for the agent, had passed the House of Representative four times, according to Letha Heaton's estimates. But the bill could never make it through the Senate.

But joy to the world, what essential is the Nonadmitted and Reinsurance Reform Act (NRRA) passed as part of the otherwise dreaded Dodd-Frank Wall Street Reform and Consumer Protection Act, the so-called Wall St. Reform Bill. Heaton, vice president of marketing for Admiral Insurance Co. and secretary of the National Association of Professional Lines Offices (NAPSLO), called the development a "huge upside for our wholesalers" that could fuel growth and take out some of the costs of transactions.

As Pagoumian explained, the new regulations allow wholesale brokers to focus on critical issues instead of focusing on whether someone "gets a special type of envelope," referring to filings to the various jurisdictions.

"It's going to be better for everyone," he said--the brokers obviously but also the states themselves and the carriers too.

October 1, 2010

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