Why independent agents like backyard brokers

In today’s business world, it’s rare to hear a live voice on the other end of a phone call. Most companies, small and large, have succumbed to answering customer calls via electronic means. Customers, frustrated and confused, press one, two, maybe even four options before a real person answers the call.

The insurance world, with the growing use of online rating and policy issuance tools, is no different. But even with advanced technology tools, the insurance sector remains a “people business,” especially to Main Street wholesalers and their Main Street retail agent customers. These wholesalers say “people” relationships are the key to their success, whether they are facing off against a giant national competitor or winning accounts over another local wholesaler down the road.

“By and large, retailers like to deal locally,” said Richard Polizzi, president of Pasadena, Calif.-based Western Security Surplus, an independent wholesale firm that writes business in California and Texas. “If they can find someone in their backyard, they would prefer to deal with them. This business is still a people business and the way you develop those client relationships is in person.”

That’s the way Main Street agents prefer to do business whenever they can, agrees Terry Ryan, CEO and president of Totowa, N.J.-based Hanson & Ryan, an independent agency founded in 1876.

“We are relationship people,” Ryan said. “The way most local agencies handle business is still on the lines where ‘I know this person, I know where they live, I know where they shop, I know the kinds of exposures they deal with,'” he said. That ultimately translates into the way most local retail agents prefer to deal with their wholesalers, he added.

“There’s a sense of accountability and a sense of understanding when you are dealing with someone locally,” Ryan noted. Working with a local wholesaler has its advantages, he advised. “They know the territories; they know the exposure and the risks, and they know the problems,” he said.

“We always joke that wouldn’t you rather do business with an agent you run into in a restaurant on a Friday night? Where are you going to hide? If you mess it up, under the table is not an option.”

Regional wholesale firms depend heavily on their reputations and relationships. “In a firm like Western Security Surplus, we have to go out and fight for every account that comes through our door,” Polizzi said, as opposed to large national or international firms where business flows due to their name recognition.

“In a local or regional firm, that’s the opposite,” he said. “The bulk of our business is to an individual because they have developed a relationship.”

Bigger not always better
In a world where bigger is often perceived as better, how much competition do Main Street wholesalers face from large super regional or national wholesalers?

“We really don’t compete with the large national brokers,” said Francis J. Mastowski, president of Montvale, N.J.-based Jimcor Agencies, an excess and surplus lines wholesaler with a regional focus on the Northeastern states.

Mastowski and other Main Street wholesalers say they really don’t compete with national brokers because their customer focus simply doesn’t match up. The accounts that are best suited for the large national brokers tend to be Fortune 500-type companies whereas today’s Main Street wholesaler generally zeros in on the small to medium sized Main Street business.

“I don’t feel I’m competing,” Mastowski said. “As a large regional MGA, we have the markets and continue to be able to service and process the smaller accounts–what I call distress business–inner city, windstorm. That’s where most of the Main Street wholesalers tend to survive very well.”

Independent Insurance Wholesalers, based in Portland, Ore., takes a slightly different approach. Its target customer is primarily larger premium accounts. IIW generates most of its premium volume writing tough general liability, professional liability and property business in Oregon and Washington. “The tougher the better,” said Bob Stahl, president and CEO of IIW. “We’re not equipped to write the smaller stuff.”

Stahl maintains that while large national wholesalers may be best suited to handle Fortune 500-type accounts, there isn’t any reason that a regional wholesaler such as IIW couldn’t handle them.

“We have access to the same markets and we could do the same thing,” Stahl said. “Everybody does business with AIG, Chubb but those are the markets we don’t want to focus on because of the fact that they’ll do business both ways, retail and wholesale,” he added. “If you want to be a successful independent wholesaler you want to go to the markets that are wholesale only, exclusively. That’s where our efforts should be centered–producing business for those companies.”

Serving the local community
To serve Main Street retail agencies, wholesale firms must understand the issues and exposures of the local community, just as the retail agents do, said Chris Treanor, president and CEO of the newly formed independent wholesale broker, Mercator Risk Services. Mercator, which opened its doors for business in January 2006, has offices in Atlanta, Chicago, New York and San Francisco.

“You have to be local and understand their needs, market and customer base,” Treanor advised. “It’s very difficult for a big wholesale broker to do an effective job to deliver the types of products and services the local agent is looking for.”

“Convincing that retailer that we have the buying power and markets to compete on the kinds of business we like and that we can compete with anybody, even the majors,” is a huge challenge, Western’s Polizzi said. “Part of that process is to explain to the retailer, why they should send it (business) to you rather than the larger guy.”

Often times the regional broker can get the job done more quickly and more efficiently, Polizzi stressed. Sometimes low name recognition gets in the way. “Regional firms are clearly not as well known as the national firms,” Polizzi added.

Choosing a broker
The decision to market an account to a local or regional wholesaler instead of a national wholesaler depends in great measure on the risk at hand, according to Donald LaPenna Jr. of the Donald F. LaPenna Associates, an independent agency in Clark, N.J.

“If it’s a smaller, local type account, we primarily go with the local/regional E&S houses,” LaPenna said. “If it’s a large property that’s multi-estate risk, or a large general liability exposure, which includes heavy products, we’ll probably go with the larger wholesaler that has connections throughout the country.”

But if the account is one that does not require a large or national broker, agents are happy to stay local.

Working with a local or regional wholesaler offers a level of comfort that is sometimes lacking when dealing with larger, national firms, according to LaPenna. “I find in the larger E&S houses, there’s a larger turnover ratio, so you may not be dealing with the same person, whereas in the regional wholesaler the employees are much more stable.”

Independent agent Ryan adds that a good local or regional wholesaler has people who understand the local and regional markets.

“With local wholesalers, we’re looking for access to a broadband of market resources, but critically the issue is people who behave as professionals, who give us the best quality product,” he said. “When you are dealing with a good local wholesaler who’s got your best interest at heart they are doing a lot of homework for you; they know the companies they are dealing with and know exactly what kind of product is going to be the result from that,” Ryan said.

When they are choosing one wholesaler over another, independent agents value certain elements in addition to relationships, whether the wholesale firm is small or large.

“Certainly a big issue is time,” Ryan said. “Responsiveness is absolutely critical. Typically it’s a situation of who is going to be able to respond quickly with a decent number and coverage.”

LaPenna looks to the wholesaler’s ability to provide ease of doing business, reputation by word of mouth, and capabilities for processing policies and endorsements.

Even so, “it’s still a people business,” he added. “When you have a relationship with someone, when you call them, they will get the job done for you.”

More than friendly
Wholesalers themselves realize they have to offer more than a friendly face or voice.

“The number one thing we offer the producer besides service and relationship is market availability,” Jimcor’s Mastowski added. “If it’s an inner city producer trying to place the business, if they go to one of these nationals … they are not geared to binding authority type business. If you are a large national organization, it’s difficult to make money processing accounts generating small revenue.”

Mercator’s Treanor believes retail brokers also value a wholesaler’s expertise and customer service. “While relationship is critical and important, if you are not able to solve the problem and bring expertise to the table, it doesn’t matter how much they know you or trust you,” Treanor said. “At the local level, whether you are a small agent or not, what they are really looking for is to solve the problem.”

Technology driven
Concerns over time and ease of doing business can be addressed by technology, an area where surplus carriers and brokers have lagged. But the pressure for Main Street wholesalers to catch up with online capabilities is increasing.

Ryan says technology plays a definite role in his decision on which wholesale firm to use. “Wholesalers haven’t had to deal with that (computerization) in the past; it’s still been a paper driven business,” he said. “But that’s coming to the forefront now.”

LaPenna agrees that technology is a big reason he would chose one wholesaler broker over another. “In the smaller business areas, some have online rating capabilities so we can rate and send electronically and have it issued,” he added.

But Mercator’s Treanor worries that while technology certainly has its place in the wholesale delivery system, trying to streamline most types of risks into a straight Internet portal misses why retailers come to the wholesaler in the first place.

“The very nature of wholesale and specialty brokers is about expertise and solving tough problems,” Treanor said. “It’s one thing to buy a BOP policy or a term life policy over the Internet but to offer more complex solutions to tougher problems is very difficult.”

IIW’s Stahl agrees and says the Internet has not been a competitive factor in his firm, which deals with difficult accounts.

“The tougher stuff that we see requires a higher degree of skill beyond a basic program. … It may be a source to find a broker that specializes in a certain class but it doesn’t eat any of our business,” maintains Stahl.

Some see technology playing a role in determining which local wholesalers survive.

“If you don’t keep up, I think it will hurt eventually,” Jimcor’s Mastowski said. “It’s definitely going to have an impact. It’s going to be very difficult for the small wholesaler to keep up because technology is not cheap.”

Topics Agencies Excess Surplus Tech