The National Association of Professional Surplus Lines Offices Ltd. (NAPSLO) began serving the surplus lines industry and its wholesale broker members in 1975. Just six years into the association’s history a young attorney joined the ranks of NAPLSO to help further its mission.
That attorney was Richard Bouhan, the face of NAPSLO for the past three decades.
Bouhan joined NAPSLO on Sept. 8, 1981, as the association’s government relations director. He was tasked with heading up NAPSLO’s legislative outreach efforts. At the time, the surplus lines industry was a small, and misunderstood, part of the market, and Bouhan set forth to expand the industry’s influence and reputation. And that’s just what he helped do.
This year, Bouhan retired as the executive director of NAPSLO after serving the association and the surplus lines industry for 30 years. He became the association’s executive director in 1988, a position he held until September 2011, when Brady Kelley, the former chief financial and business strategy officer for the National Association of Insurance Commissioners, was named as the new executive director of the association. But Bouhan is not done with NAPSLO, or the insurance industry, just yet.
In this interview with Insurance Journal‘s Andrea Ortega-Wells, Bouhan shares his views on the surplus lines industry’s transformation throughout the past 30 years, his efforts to help the industry achieve its status today and his plans for the future.
Insurance Journal: How has the surplus lines industry changed in the last 30years? And what role did you play in those changes?
Richard Bouhan: When I joined NAPSLO, the direction I was given was to try to help the association burnish its image, particularly both in the marketplace and with the regulatory community. Back in the ’70s and into the ’80s there was a sense that the surplus lines market was a questionable marketplace, which was not really the case. We put out pamphlets called “The Misunderstood Market” to try to overcome the stigma that had been created that surplus lines was a difficult industry, it had questionable companies, etc., etc.
During my tenure here, I think the association has done a great job in accomplishing what they wanted us to accomplish. I think it’s become a mainstream business. I think it’s accepted. I think it’s respected. … I feel gratified that we were able to help create a positive image and tell the story, in a positive way, of the excess and surplus lines industry. I think, over 30 years, the association’s done that, and I hope I played a part in getting that done. That’s one thing.
I think, too, every year there is somewhere, someplace a threat to the freedom of rate and form in surplus lines. Over the years we have been very successful explaining what the marketplace does. It’s now seen as a legitimate, positive contributor to the overall insurance picture. We have been very successful beating-back some of the challenges to the freedom of rate and form in surplus lines.
IJ: You have seen a number of challenges facing the surplus lines industry and wholesale brokers. What were some of the challenges you helped address over the years?
Bouhan: Early in the game, there were some concerns over guarantee funds. As a commercial lines marketplace, many of the buyers thought it was important to be part of the guarantee funds. Our view is that the surplus lines market is a solid, well-managed market — which goes a long way. And that is what we are trying to accomplish with these companies — maintaining the freedom of rate and form over the years.
Also, at one point, broker liability issues were an issue. There were some states that wanted to input strict liability on surplus lines brokers and we didn’t think that was quite the way that states should impose that liability.
Those are some of the issues in the early part of my tenure that we dealt with — the first two decades.
Then we had this tax problem. Payment of taxes was always an issue and that became a major problem. The bigger the market, and the more multistate risks in particular became a part of surplus lines, the more the issue of how taxes got paid, how taxes were allocated, getting that done with certainty and clarity, and trying to figure out what the rules were — that became a bigger and bigger issue. We worked on that issue which culminated in the Nonadmitted Reinsurance Reform Act, which passed a year ago. For the last seven or eight years, we’ve been focused on that.
In addition, in 1999, the Gramm-Leach-Bliley act was passed, which created reciprocity requirements for surplus lines licenses. And that actually created a problem for us, because up until then few states had non-resident surplus lines licenses. GLB virtually forced the states into creating non-resident surplus lines licenses in every state. …
That, in the early part of this decade, was a big problem, trying to deal with these multiple state compliance problems that the multiple licensing created.
IJ: Despite the soft market, the surplus lines industry continues to outperform the overall property/casualty industry in terms of profitability. Why do you think that is?
Bouhan: First of all, it does have the freedom of rate reform, so it can price the products and design the products in a way that allows the company to manage its book of business a lot better than admitted companies can. Because it does have that freedom, it requires a much greater degree of underwriting than the admitted market. That is the way the companies exercise that freedom of rate and form by focusing on the underwriting. As a consequence, at the same time they have a lot of risks that are difficult to price, but with good underwriting, good talent, and smart management they are able to come up with good numbers every year. That’s where the difference lies and why it’s been so successful over the years.
IJ: I know that you’re helping the new executive director, Brady Kelley, with the transition through June 2012. But what are your plans for the future, after that transition?
Bouhan: I hope to keep my hands in the industry, perhaps in government relations, or the regulatory arena. I might do that. There are a lot of mergers and acquisitions going on within this business, both on the company side and on the broker side. And I do know a lot about how these entities operate. I think I could make a contribution … I think there will be many things I can find to do, as we go forward.
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