Two developments in the marine market have combined to create a tantalizing opportunity for wholesale brokers and managing general agents (MGAs) to serve the marine marketplace. While marine revenues remain fairly flat, many carriers have pared the number of offices serving their marine segments in the United States. Simultaneously, many senior marine insurance company executives are approaching retirement. As these two trends merge a dire need to fill the ranks of marine experts is forming quickly.
While there remain insurers with in-house marine expertise, an opportunity has arisen for intermediaries to develop internal infrastructures and in-house expertise in the technical aspects of the marine business. Assuming these developments, they could then partner with insurers to provide their marine products. The potential rewards may be well worth the effort.
Indeed, by intermediating between carriers and clients, wholesalers and MGAs can boost their account placements and possibly generate additional income from such value-added services such as engineering, claims administration and loss prevention. Since these intermediaries are in a prime position to gather information from both sides of the transaction, they can guide a superior match between the client and carrier. This, in turn, may lead to better product offerings, thereby breeding greater customer satisfaction and higher revenues.
That’s the promise for the excess and surplus lines marketplace. And it is certainly within the realm of the possible, if for no other reason than some insurance carriers are likely to invest less of their resources in their marine segments and more in other property/casualty lines of business.
These insurers are either reducing their marine engineering, loss prevention and claims administration staffs, retracting their placements, or exiting the business. In their stead, wholesalers and MGAs are well positioned to provide needed infrastructure and intellectual specialization.
Thirty to forty years ago, the marine market attracted many bright, young and talented executives who, through the decades, eventually climbed into senior management ranks. This intellectual capital is now nearing an age of retirement. Unfortunately for some carriers, there is not a substantial group of executives waiting in the wings to step up when this anticipated void occurs.
There’s a reason for this. Over the past decade, several property/casualty lines of insurance like directors and officers liability (D&O) insurance and employment practices liability (EPLI) insurance burgeoned. Younger insurance professionals were drawn to these insurance segments for the sheer premium growth potential they represented, and the positive impact this would have on their careers and income.
At the same time, many property/casualty insurance carriers migrated in the direction of a general sales and service culture, and toward volume-based strategies. The carriers’ rationale was largely financial: When compared to fast-growing lines like D&O and EPLI, niche products like marine did not offer the same return on capital.
Significant Resource Investment
The marine business commands significant resources, such as expensive, integrated engineering and claims services, and the commensurate skills to provide these services. Marine underwriters, claims specialists, engineers and loss prevention staff must be cognizant and conversant about the building and repairing of different types of ships, anticipated changes in global trade patterns, constant changes in maritime laws and regulations, and the nuances of shifting marine liability regulations worldwide, among other considerations.
The marine marketplace also is a hand-touch enterprise, meaning that it is much more client-involved than most other lines of property/casualty insurance. The business is of a highly transactional nature, and there are many small to medium-sized companies involved in the maritime industry.
Finally, there is the economics of the marine insurance business. Although the marine market globally is estimated at a robust $23 billion, it is not growing and has, in fact, been dormant for more than a decade. Global GDP is sluggish, imports and exports are flat, and there is a paucity of ships and shipping terminals being built worldwide. No one expects the business to break out of its slump any time soon.
In a soft insurance market, the challenge of underlying investments by carriers in all specialty product lines is the risk-adjusted return on capital, and with marine the numbers don’t add up to advise expanded investments, at present. Consequently, a primary casualty lines manager with a plan to grow the business from $50 million to $100 million likely will get more attention than a marine manager’s strategy to grow that market from $50 million to $70 million. When one notes the wide difference in profit margins between the casualty and marine segments, and takes into account the finite nature of insurer resources, there is little question who will receive the go-ahead.
The sum of these myriad developments explains why the industry needs wholesalers and MGAs to step to the plate in a strategic alliance capacity. Insurers have no plans to restrict the provision of marine insurance products. It has just become too costly and time-consuming for some carriers to build infrastructures and skill sets to serve what is essentially a lower-margin, middle market business, when other segments seemingly offer a greater return on invested capital.
Not all carriers fit this paradigm, of course. Many carriers, reinsurers and syndicates have solid marine segments and continue to invest in building the business. Indeed, these are the very players who would benefit most from wholesalers and MGAs that are willing to partner with them to access the small and medium sized importer, exporter or marine-related operator.
Of course, this scenario is hinged in good part on the desire among MGAs and wholesale brokers to develop the skills and expertise required to become a marine specialist. While there are distinct opportunities for wholesalers and MGAs to fill the expected void in the marine segment, carriers will be reluctant to hand over the underwriting pen to such intermediaries unless they demonstrate the technical expertise, infrastructure, and underwriting culture and controls to serve the segment. Furthermore, they must have access to broad distribution.
The desire among carriers to partner with the intermediaries is relatively assured. Should a wholesaler or MGA to become an early mover in this new direction, doing what it takes to brand itself as a marine subject matter expert, financial benefits almost certainly will accrue. As always, the toughest part is taking the first step.