USING AND ABUSING WHOLESALERS
Most of us have one or many wholesalers (brokers and MGA’s) that we use for business that we need to write outside of our contracted companies. So we “whip up” a submission and send it to our E&S markets. Many agents want to have as many relationships with these markets as possible because we don’t know what each writes. But that’s not the way the E&S houses see their relationships with the retail agents and brokers. If we looked at our submissions and relationship with the wholesalers through their eyes we would end up with much better and stronger relationships and would get much better service (and more receptive consideration) than we have in the past.
Jonathan Brown, of MGA Consulting, a foremost consultant for insurance companies in the conduct of Wholesale brokers and MGA’s, has written an excellent primer on the E&S market relationship of independent agents with E&S wholesalers and MGA’s (THE TWO-WAY BEAUTY CONTEST. What I would like to add is the adversarial relationship that is forced to exist because of the way we treat the wholesalers and their responsive treatment of our submissions. Instead of a trust relationship generating a needed market for our unusual risks and a source of income for both the agents and the wholesalers, we find an even more stressed relationships with the wholesalers than we have with our primary markets!
Imagine your response when a client that has dozens of insurable exposures insures only one with you and, on those rare occasions he calls for your assistance, he is asking for exceptions and immediate coverage for unusual risks. How would you feel if they gave you skimpy or partial information about the risk or didn’t divulge all facts and sent the same request to several agents at the same time that they asked you for a quote?
That’s how most wholesalers feel about your submissions. Some wholesalers have even changed their methods of operations and now “invite” one-off risks. They do so because they have tired of ‘fighting the tide.’ They know that you will use your standard markets for standard business and they want to be your wholesaler-of-choice when you encounter a risk that fits their mold. But there are a couple of problems with their concept. Wholesalers are as different as shirts on a department store rack. They are all called “shirts,” but they come in every color, design and combination of benefits. And so do wholesalers. They have different specialties. They have different markets. There is every combination from a single-market wholesaler-MGA to ‘catch-all’ wholesaler brokers who will handle everything with a wide variety of specialty companies. If you get as many e-mails as I, we are solicited by between 20 and 40 A DAY with their special products and programs or the reasons that we should use them instead of anyone else for all of our special needs. Frankly it would be impossible to remember them all.
So the answer is the same as the answer to the age-old question of, “How many standard markets should we have contracted?” Many agents don’t like the correct answer. YOU SHOULD HAVE AS MANY STANDARD MARKETS AS NEEDED TO SUPPORT 80% OF THE PRODUCTS NEEDED BY YOUR MARKET WITH THE CAVEAT THAT YOU NEED A CONTINUOUS FLOW AND GROWTH OF BUSINESS WITH EVERY MARKET YOU CONTRACT. You should have no standard markets with stagnant or stable books of business under $250,000 or $500,000 premiums. You don’t keep them busy enough to treat you as a preferred agent and, more importantly, one loss with any of these markets will ruin your loss ratio and put your appointment at risk.
While you don’t have to worry about mandated growth or loss ratio issues in your wholesale relationships with some exceptions, of course, where profit sharing is offered, the way you are treated by your wholesale brokers or MGAs will often depend on how much business you give them and how consistently you communicate with them. Just as with our example above, the better and more consistent the relationship, the better you will be treated when that “urgent” need arises. And the more complete your submissions and more close the relationship between yourself and the underwriter at the wholesale broker/MGA, the quicker the response.
Our advice is to form singular relationships with two wholesale brokers who have access to many markets. If you use them every time you have a need, they will treat you better. The reason for having two is that redundancy is needed in this unusual marketplace is because they will do business with different markets. Use MGA’s when you have a specific niche need that you know is best done by that MGA and their carrier relationship. Never try to access the same markets with different brokers – they won’t appreciate that embarrassment (their market telling them they received the same submission from another broker) and that will reflect on your long-term relationship. Just as you don’t burn your bridges with underwriters at your contracted carriers, you must remember that one risk is just that – ONE RISK – and the relationship with a good broker/MGA can span decades and provide you with an outlet for hundreds of unusual risks.
Take a look at the article in this issue, THE TWO-WAY BEAUTY CONTEST to see how a specialist in the Wholesale and MGA market who has worked from the inside of the industry and as a producer describes the use of wholesalers and MGA’s.