Brokers See Changing Relationships, Expanding Technology

October 3, 2011

At the same time they are trying to figure out what their customers, markets and the economy are going to do, today’s intermediaries are also having to navigate changing relationships among carriers, wholesalers and retailers, according to the 2011 U.S. Surplus Lines Market Review by A.M. Best.

For its 2011 review, A.M. Best interviewed intermediaries to get their sense of the market and relationships with carriers. They said that some carriers are cutting back on the number of wholesalers they use, while some intermediaries are doing the same thing with retail agents. Also, some larger retailers have been sold to national firms that do not deal with smaller wholesalers.

In addition, some retailers also are forming exclusive relationships with a limited number of wholesalers that agree to give them more commission, according to the report. It cites as an example Aon Corp.’s exclusive deals with AmWins Group and Ryan Specialty, both of which reportedly agreed to pay Aon a minimum commission that is a bit higher than the industry standard for the business.

Last year two surplus lines carriers decided to deal directly with retail agents. This trend doesn’t appear to have spread but the intermediaries suggest it could in the future, especially on smaller classes of business that can be automated. Almost 43 percent of mid-sized insurers received 20 percent to 30 percent of their business directly from retail agents in 2010, according to an A.M. Best survey.

The changing nature of relationships has some agents and brokers ramping up their marketing efforts.

“As a result of these shifting relationships, intermediaries are spending more time and resources keeping in touch with their customers (retailers), making more detailed presentations and doing more personalized marketing. Some intermediaries went so far as to say there was a skill-set shift from underwriting to learning how to get out and sell. Others say that wholesale always has had a sales component — staying in front of people is a large part of the business — but that the intermediaries’ primary role is to provide intelligent, creative solutions,” said the report.

A.M. Best said it found intermediaries skeptical about the promise of recent rate hardening. “[F]ew intermediaries see a hard market arriving any time in the next 12 months, but many are preparing for better times,” said the report.

Wholesalers are hiring in areas like underwriting while scaling back in others as a result of technology.

“Technology expenditures have been paying off in terms of productivity and operational gains that are helping to offset decreases in premium income. Savings are accruing, especially on repetitive transactions, cross-selling and data mining of customer information,” said the report.

A.M. Best said technology is becoming “requisite for customer and carrier communications and marketing as well” but there is more behind the focus on technology. “Also driving the continual technology expenditures is that commission structures are being based on the entity doing the most servicing — the carriers or the intermediaries. As a result, intermediaries say they need to continually stay ahead of competitors,” the report said.

Topics Carriers Agencies Tech AM Best

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Insurance Journal West October 3, 2011
October 3, 2011
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