An Interview with Francis Johnson, AAMGA President-Elect
Francis Johnson, president of Johnson and Johnson Inc., of Charleston, South Carolina, becomes president of the American Association of Managing General Agents in May. He recently talked to Insurance Journal about the industry in general and managing general agents in particular.
J&J was founded by Johnson’s grandfather in 1930 and the firm is one of the oldest members of the AAMGA. His father and uncle joined the business, and he and his two brothers currently run it.
The following is an edited version of the interview. The complete interview is available in audio format at www.insurancejournal. com.
IJ:Managing general agents occupy a pretty important niche in the insurance industry. Could you tell us a bit about your business?
Johnson: Well, there are 257 AAMGA members who do around $16 billion in business, so we’re a pretty big slice of the pie.
IJ:The industry is currently facing investigations from [New York Attorney General] Eliot Spitzer, the SEC and the states. What’s your reaction?
Johnson: First off, I’m sad that the industry is going to be tarnished by a few bad apples. I think that in just about every industry there are some, and that’s definitely the negative side of it. But on the positive side the insurance industry is very resolute, very professional, and we’re going to show everybody through our industry and our practices that we do the right thing, and that will come out positively in the end.
IJ:This seems to just keep getting bigger and bigger, where do you see it going?
Johnson: I see most of the bigger companies being affected by it — bigger business, where business was being brokered for a fee, are the things that are being attacked right now. I think from an MGA’s standpoint most of us do smaller types of business, and we show our professionalism in that we don’t do it for a fee.
IJ:For general information, what sort of business mix do MGAs handle?
Johnson: Well it varies depending on the company. The MGA world is very entrepreneurial; we fill niches in the marketplace, basically to aggregate different types of products to fill niches and needs, so I think it goes from health, to some life products, to commercial to personal. For instance in my business we do both personal and commercial — admitted and non-admitted.
IJ:What about the problems some of the big carriers are having, particularly AIG?
Johnson: I never like to see a company have to go back and restate, and tell people they were doing it wrong. I think they should investigate themselves; do it diligently and get it straight. I think they will straighten it out and will show that they do the right thing, and the industry does, too.
IJ:Let’s talk a bit about the Terrorism Risk Insurance Act, TRIA. As an MGA do you get clients or groups of clients that are worried about terrorist insurance?
Johnson: We’ve seen very little activity on terrorism, very few people requesting any terrorism cover, maybe a few on some larger value buildings, but in Charleston, besides the harbor, there’s very little that seems to be under any threat of a terrorist attack. From an AAMGA member standpoint, there’s been very little activity on it.
IJ:As you mentioned, what about international business? Have you seen much growth there?
Johnson: Really very little, as I think most of us are concentrated on our own territories; however what we are seeing — for example in Bermuda — is more capacity coming from international companies into the U.S., which is nice to have.
What we also see is more companies coming into the U.S., rather than us writing business outside of it. We mostly stick to territories in the U.S., which, as managing general agents, makes a lot of sense, as our specialty is knowing the territory that we’re writing in.
IJ:South Carolina isn’t Florida, but you’ve certainly had your share of hurricanes. What have you seen developing in natural catastrophe coverage?
Johnson: Well, last year was certainly very active, with four storms, but so far we haven’t seen any capacity limits; prices are actually down. I think the companies have done a much better job of modeling and using different models. They’re seemingly more and more comfortable that their models are accurate, and they’re getting their hands around what their actual exposure is, so they can mitigate it.
It’s just expensive to insure a home or a business on the coast, and I think that’s going to be the norm from now on. The growth along the coast of South Carolina has been incredible. This could present a capacity issue, but as the models get better every year, it enables us to get our hands around the situation and deal with it using, reinsurance, spread of risk, etc. The insurance industry is very resilient, and I’m sure we’ll handle it, especially through excess and surplus lines.
IJ:What about building codes and their enforcement in order to control some of the environmental problems?
Johnson: Each state is handling it on its own. I know Florida has adopted international codes and so has South Carolina. There are two aspects: First: you need people out there to enforce the regulations, so that the builders realize they’re not only there to make a profit, but also to protect their clients. Then you need to make sure that we’re conserving some of our green space.
IJ:In the wake of all the accounting scandals and the passage of Sarbanes-Oxley, there have been increasing calls for some form of federal regulation of the insurance industry. What is the AAMGA’s position on this issue?<$>
Johnson: From the AAMGA’s position it should remain with the states. Regulation should be close to the state it’s in. [Regulatory authorities] understand the nuances of each individual state, and that’s the way to go.
We do feel, however, that there should be reciprocity for licensing, and we should continue to look at increasing the ability to bring products to market faster by electronic filing, etc.
IJ:What about some of the proposals that are currently being debated by the National Association of Insurance Commissioners?
Johnson: I’m not sure about some of the changes, but I think they should continue to work with all the trade organizations. They’ve done a great job, and I think Diane Koken (NAIC president) listens very well, and I know at the AAMGA Bernie Hines, our executive director, is testifying in front of the NAIC all the time, and he feels very good about the relationship we have with them.
IJ:You mentioned earlier the use of technology. What changes have you seen as a result of recent advances – Internet, e-mails, etc.?
Johnson: For the industry overall, our production has gotten tremendously higher and faster. On the tough side it makes everything so fast; everything is expected instantly. E-mails aren’t treated as mail, but as urgent requests. From an MGA’s standpoint, I don’t get anything in just one way now; I get it in five ways! So how do I take it in, process it, decide what’s important, what’s not?
Basically IT is great. The innovations we have are fantastic, but it does create some headaches in how your operations are handled. You can now do things instantly, but that also means that it’s wanted instantly. For consumers it’s great, as we do a lot of things online. We can issue a policy instantly, and he has it in his hands.
IJ:Do you see this being used increasingly?<$>
Johnson: Absolutely! All of our personal lines in our office are done online through independent agents, and we can issue policies the same day, with electronic billing, and payments over the phone. That’s something great that we can bring to the consumer.
IJ:You are a leader in using IT; not everyone is as advanced. Does this create problems?
Johnson: Well, the technology gets better and better. Sometimes it’s great to be first, and sometimes it’s not, because the next technology is that much better and then you have to switch. That’s probably one of the biggest concerns for an MGA — the cost of keeping up with IT. We’ve gone from no IT people to having five programmers on staff.
IJ:What are some of the other major concerns for MGAs?
Johnson: When we go to meetings, the number one subject is human resources. How do we find underwriters, assistant underwriters, and processors? I’ve always found it interesting that you could go through college, and insurance is always something that you will touch in life, but it’s not something that you look at or see anything about in college. We need to make sure that universities and colleges are teaching insurance and have insurance courses.
The other issue would be technology. How do we afford it, and how do we continue to upgrade technology to bring products to market faster? — That’s a huge issue.
From a managing general agency standpoint, I think we all need to benchmark with each other to see who’s the best of the best — to make ourselves better. That involves gathering the most data we can.
Another issue would be consolidations and mergers of companies and/or MGAs, and where that’s going to take us in the future. I think we’ll see more in the industry, and [we need to know] how does that effect us as MGAs? Does it cut down the number of companies we actually have access to? How do we broaden our product base then?
IJ: Do you see a trend towards more mergers and acquisitions among MGAs?<$>
Johnson: I think there’ll be more this year, but there will always be those that maintain their independence. They started in the business because of that, because they had an entrepreneurial spirit, and they’ll maintain that independence. But bigger brokers will continue to find niches; they’ll buy managing general agents, possibly those that don’t have perpetuation plans in place. That’s one of the issues we at the AAMGA address: How to perpetuate your business either from a family or an independent side – How do you keep that business alive without being forced to sell it?
IJ:Do you think that at some point things just get too big? The MarshMac problem?
Johnson: I sometimes look at it like the banking industry. The big guys swallow up all the little guys, and then the consumer decides he doesn’t want to deal with the big guys, so the little ones start up again. So, sometimes when they just get too big, it gives us an opportunity, as independent MGAs, to come in and do more business.
IJ:What do you think the future is for MGAs? What do you see for your company?
Johnson: For me the future’s bright. I’m very excited about the direction specifically that we’re headed, but also for managing general agents. I think we provide an incredible service with a very professional attitude. The AAMGA is really pushing that also, and to be a member means that you belong to a highly professional organization that is committed to education because of our University.
I think there’s lots of opportunity out there for us to create new products and new niches. I think our entrepreneurial spirit will always guide us into finding those niches, and providing our service to the independent agents and consumers.
IJ:How are relations between MGAs and the independent agents and brokers you work with?
Johnson: Well, the epitome of how we do business is relationships. I think relationships are built on trust, and I think our independent agents trust that we are professional, that we know our products, and that we can advise them on coverages.
We do everything within our power to place it with the best company for the insured. Plus we communicate. We try to do everything in a timely fashion, producing policies quickly, because the only thing we’re giving is really a promise, and we must provide that promise in a timely fashion and professionally.
For the companies, it’s the marketing side of it. How do we effectively get that product to the market quickly and efficiently?
Therefore the relationships we create as managing general agents defines how we distinguish ourselves from each other. The relationships are of the utmost importance to us at J&J — building that trust and confidence with the agents is what we do.
IJ:What about the brokers?
Johnson: It’s about the same thing, but then defining what a broker actually is, is tough. For instance, if I don’t have binding authority does it make me a broker?
But looking at the MarshMac scenario and what happened, you’d better get that trust back. If somebody’s going to pay you a fee, you’d better place it with the best company possible, and you should disclose to them, if there’s any other compensation for that.
IJ:What are you seeing in terms of hard and soft markets?
Johnson: I see the market stabilizing at best — rates being flat. That depends also on the line of business. I see property lines reducing 10 to 20 percent. If it’s a large account it could be even greater. I see smaller business mostly flat with larger businesses getting softer. On GL, from our business, I think it’s pretty flat, and I’d love to see the companies maintain that – mainly because of the tail on the liability. Again in larger accounts I think you’ll see some easing in rates.
As for professional lines, they seem to be pretty much holding their own right now — maybe in some cases getting a little bit of an increase; depends on the size of the E&O and D&O exposure.
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