Swett & Crawford chairman David Hartoch has seen a number of changes in the excess and surplus industry during his decades in the business. As he approaches retirement in December, Hartoch took time out to talk with Insurance Journal and offer his thoughts on the industry and where it is headed. Following are excerpts from that discussion.
IJ – What are some trends in surplus lines now?
Hartoch – Well, the market is obviously constricting every day and what I see is that the surplus lines arena is growing because the standard market’s appetite is diminishing on a day-to-day basis.
IJ – How much of an impact did 9/11 have on surplus lines?
Hartoch – It is difficult to measure. I don’t think too many of the pure surplus lines’ carriers were too affected by 9/11 as seriously as the larger standard companies.
IJ – What do you look at as major changes in the E&S industry from when you started to today?
Hartoch – There’s been much more consolidation on both the retail and company sides, and now the wholesale side. There wasn’t too much of that wholesale consolidation 10-20 years ago. As far as the marketplace goes compared to ’84, there was a very steep decline or upclimb whatever you want to call it, as far as the hard market and then a quick return to a soft market. I don’t see that happening here. I see a steady tightening and lasting for a couple of years. There is a lot less capacity now then in ’84. Generally speaking, both coasts are impacted first, then it moves toward the middle of the country. In this current market, anything with wheels, beds or nails is difficult. Our biggest challenge today is the people and fighting the stress they’re going through. They’re busy as they can possibly be. One of the benefits we have now that we didn’t have in ’84 is the sophisticated computer system. We have a knowledge base in our company where we have 48 offices and 1,000 employees and if we get a risk in and the broker doesn’t know where to go or what the market is for, they post it on the knowledge base and they have five or six answers back within a day. Then they can place a California risk in a company in Kansas they never heard of.
IJ – What is surplus lines’ importance to the insurance industry?
Hartoch – I think the innovation of the surplus lines’ arena is the most valuable. You look at some of the products common place today in the standard market, were originated in the surplus lines marketplace. I think you’ll find that to continue.
IJ – How can agents best use the surplus lines market to their benefit?
Hartoch – Pick a wholesaler you want to deal with and deal with one or two exclusively.
IJ – We’ve seen a lot mergers in the last year. Do we expect to continue seeing that?
Hartoch – I think so. That’s what has created a lot of the problems for the independent agent…far fewer points of entry as far as markets are concerned.
IJ – Do you have one main goal between now and December when you retire?
Hartoch – We’re going to try and hit the $3 billion mark and that will be unprecedented. I’m very proud that we were the first wholesaler to reach $1 billion in premiums and how we survived the aftermath of 9/11 where we lost two terrific guys—Gary Albero and Michael Ferugio (worked in New York office and were in the WTC meeting with a client)—and how we came together as a firm and survived that. Those were two terrific people and those were tough times. I never thought I’d see the kind of volume wholesalers are doing today. I certainly thought I’d never see a wholesaler approaching $3 billion in premiums.
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