New entrants into the insurance industry are often triggered by the market showing signs of hardening. After all, these “newbies” have a better chance of securing a healthy rate by not having to pay for “past sins.” In addition, while some existing carriers are revising their underwriting appetites, new markets with a solid product offering could have a greater ability to grab some market share in a hard market.
For agents, the emergence of new markets also could be a positive development, providing another viable option for their clients. While much of this sounds positive, it is critical for agents to exercise a significant degree of caution before placing business with these new markets. This due diligence will hopefully give you the confidence that this new market is real and worth pursuing. It may also identify some concerns that prompt you to pass on the opportunity.
Ask Lots of Questions
When a new market emerges, it is important to totally understand its structure. Is this a brand new company, or is the new market actually some new products from one of your existing carriers? Will the new market do business on an admitted or non-admitted basis?
Because a new market probably will not have a financial rating from one of the various rating agencies, agents should try to ascertain the carrier’s financial strength. As agents look to understand the market, a strong focus should also be on the management team. Do they have the experience and expertise to have “staying power” or will they be a “flash in the pan,” essentially here today, gone tomorrow? There have been many markets over the years that made a big splash as they entered the marketplace only to fizzle out over time.
As these new carriers come knocking at your door, don’t hesitate to ask questions, and a lot of them. For example, if this new carrier indicates they will pursue professional liability, what is their experience in this line of business? Do key personnel have prior experience in professional liability? Do they know how to underwrite the business? What about their claims-handling ability? What will their claims process look like? In other words, is this class of business a good fit for the carrier or could this be a nightmare just waiting to rear its ugly head?
An appropriate question to ask the carrier’s representatives is how will the carrier attract business. Will their policy form be better than any of the carriers in the market or is pricing their niche? As the adage states, “if the premium sounds too good to be true, it probably is.”
What is their underwriting criteria? Is it conservative or fairly liberal? What is their focus on loss control? What are their expectations of you as the agent? Bottom line, by better understanding the carrier’s business model, you can better understand whether the carrier is a good fit for your agency.
An Ounce of Prevention
Reach out to other resources in performing due diligence. Contact the state agents’ association to see whether it has any information. Checking with the state insurance department might also provide some solid input.
For those agents pursuing business with these new markets, once again proceed cautiously. Is the business professionally underwritten? Is policy issuance taking forever? Are claims being handled professionally and paid promptly? Typically, there will be some signs that agents need to be alert to when dealing with a new market.
Moreover, as problems develop, what is the carrier telling you?
While much of this probably sounds somewhat negative, the reality is that new carriers enter the industry frequently, and many have been extremely successful and provided a solid alternative for your clients — and that can mean additional business for your agency.
In the 1980s, the hard market prompted the emergence of risk retention and risk purchasing groups. While many of the risk retention groups have been successful, many others didn’t make it. Because the insolvency of risk retention groups is typically excluded by the various errors and omissions (E&O) carriers, agencies must understand if this is the structure for this new market. The last thing an agent needs is to face liabilities when one of their markets becomes insolvent.
Asking key questions will better enable you to know whether this market is a good fit and worth pursuing. Without asking these questions, you are trusting that the carrier is viable, professional and will be around for the next 25 years. Trusting them is fine, but be sure to “trust and verify.”
Don’t wait until it’s too late to find out that the carrier is not what they painted themselves to be. Remember: An ounce of prevention is worth a pound of cure.