Marketplace Blues
September 2005
Robert Johnson, one of America's better blues
men from the 1930s, wrote a song, "Cross Roads," which more or less epitomizes
the marketplace and those professional brokers and agents who find themselves
dealing in it.
by Peter
M. Polstein
Went down to the cross roads, fell down on my knees;
Yeah, went down to the cross roads, fell right down on my knees; I asked the
Lord above, have mercy on poor Robert please.
I wrote an article some months ago, It’s 2005,
Do You Know Where Your Market Is? Where is it? It’s more or not less back
to the good old days of competition, market share underwriting, let’s earn as
much premium income as we can put on the books. Don’t mind that we’re sort of
short on reserves, yeah Fitch said so, Moody’s said so, but, as old Senator
Estes Kefauver once so brilliantly stated, "A billion here and a billion there,
and pretty soon, you’re starting to talk about real money."
Okay, so the market has turned south, or maybe it’s north, or perhaps they
don’t really have a clue in which direction is turning. Premiums were starting
to show some serious signs of dramatic decline (some saying that 15 to 25 percent
was not necessarily difficult to obtain on reasonably—the key word "reasonably"—good
business), but that was before the hurricanes. Frankly, and despite the potential
insured loss, I don't think the market is going to change much. As a matter
of fact, rather than harden, I believe it is going to simply attempt to underwrite
itself out of the loss potential.
The umbrella/excess market has found some interesting ways to re-price business.
For example, a friend of mine who is a substantial real estate owner, with moderate
risk, just had his agent place a $50 million umbrella for $26,000 annually,
over a $2 million primary. One of my chemical friends just reduced their $100
million follow form excess by over 30 percent. We having fun yet?
All of this on top of the ongoing industry problems of many broker/agent
entities finding themselves without contingent commissions, or, if they are
being replaced by some other more "legitimate" form of remuneration, the level
is far less than in 2003 and 2004. This does pose some interesting challenges
to those of you providing your client base with coverage.
I have previously written, perhaps ad nauseum, that the key to success in
this industry is the ability to think outside of the box in finding more than
traditional ways to "skin the cat" while being extremely careful in ascertaining
your clients’ true risk, and their capacity to assume portions of it that make
fiscal sense. Lastly on this subject, please, when broking medium to large risks,
don’t ask for quotes; tell the underwriter what you want, and be sure to be
able to back it up with solid loss content rating. While this may not do much
in the way of creating additional income, it goes a long way toward keeping
the business that you have worked so hard to attract, and does provide some
potential talking points for new clients.
Tripartite Trust
There is one area I have not touched on throughout the past few years, and
that is the relationship between agents and brokers and their underwriters.
For those of you who have been in this profession since, say, the late 1950s,
many can remember fondly your relationships with underwriters, many of whom
had the ability to put pen to paper, binding your risks. In any number of instances,
they were more or less halcyon days of trust and integrity between broker/agent
and underwriter. Deals were consummated, sometimes on Fridays on cocktail napkins,
or a piece of a tablecloth, or late in the afternoon on the telephone, and should
a loss have occurred over a weekend, there was no question of coverage.
Without a doubt, the world of insurance has changed, we are far more formal
than we were some 25 years ago, and yet, there exists one common denominator:
trust.
It should really make no difference if the relationship between the broker/agent
and underwriter is one of friendship. One of my best friends, who unfortunately
passed away at a far too early age, was a senior Chubb underwriter. He was my
friend, but he was also one tough underwriter, and perhaps more so in my case.
Irrespective of the year, trust is more than a virtue, it is a necessity. It
is what this profession is based on.
Professionalism is different than trust. You can put together the most professional
submission, with underwriters reduced to only having to make a decision predicated
on risk and adequate pricing, but trust is the critical factor which will always
play the role of spoiler.
Then there is the relationship between agents/brokers, insureds, and the
underwriter. It has always been my opinion, in most circumstances, that there
is no valid reason for not including insureds in the face-to-face meetings and
at times of negotiations with the underwriter. We are in a business of knowledge;
we are in a business which demands our professionalism; we are in a business
which has little or no humor; we are in a business where we are given the potential
to work with, and find methods of protecting, the assets of others. We need
not dwell on the seriousness of this. Yet, here we have the capacity to bring
into the equation of broker/agent, underwriter relationship, the insured. How
many of us utilize that potential to gain trust within the tripartite of this
critical group?
Conclusion
In the next year or two, this marketplace is going to be one of the more
challenging ones we've ever faced. I’ve been in this business for literally
50 years. I’ve lived through four major market changes, and each has been as
challenging as the past, yet each has challenged our profession to adapt to
what have been some critical differences.
Despite the analysts, despite our own gut feelings, no one of us can predict
how long this latest fiasco will last. All that any of us can do is find legitimate
ways to "skin the cat."
Opinions expressed in Expert Commentary articles are those of the author and are
not necessarily held by the author's employer or IRMI. Expert Commentary articles
and other IRMI Online content do not purport to provide legal, accounting, or other
professional advice or opinion. If such advice is needed, consult with your attorney,
accountant, or other qualified adviser.