Managing general agents have a positive attitude about the soft market and recession, figuring what went down must come up again, according to Curtis Anderson, incoming president of the Association of Managing General Agencies (AAMGA).
Most MGAs are doing fine because they are accustomed to dealing with market swings, he said.
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As AAMGA members gathered in Boca Raton, Fla., this week for the AAMGA’s annual convention, AAMGA’s Anderson, who is also president of national binding/programs for Risk Placement Services Inc., discussed with Insurance Journal’s Andrea Wells how MGAs are faring in the tough economy, lingering soft market and relationships with their carriers and retail agents.
IJ: The insurance industry has been hit with a double-whammy – the soft market and an ongoing economic recession. How would you say this is impacting managing general agencies (MGAs) and your members?
Anderson: Well, it’s a combination of two things, the soft market that’s been going now for more than a couple of years, and then at the same time, the economy. You’ve got customers or potential insureds that have gone out of business, so that eliminates both new business and renewal opportunities. Those that are in business aren’t creating the same revenues and aren’t spending the same amount of money, and since most rates are based on either payroll or revenue, that’s the double whammy that you referred to.
First of all, you had a soft market with rates being reduced, and business going out of the surplus lines marketplace back into the standard marketplace.
Now you’ve got the economic woes, so that even businesses that still belong in the surplus lines marketplace if a year ago, their receipts were $1 million, and this year, their receipts are only going to be $500,000 – that’s obviously half the premium.
In many cases, the market is starting to turn a little bit because carriers are reporting numbers that are dramatically up. They have no investment income, and their losses are dramatically up from where they were.
So, yes. It’s affecting our membership in many ways. But there is light at the end of the tunnel. I think they say, “what goes up must come down.” Well, in this case, what went down must come back up.
IJ: Given the recession combined with the soft market, how would you describe the financial health of MGAs today?
Anderson: I think the market going up or the market going down is not something new to the MGA and the surplus line broker. It is a very resourceful part of the business, and because of the swings, up and down, these folks are always fast on their feet to move, make adjustments and changes, so that they can survive and move forward. There are always new opportunities, no matter what market, for the MGA via new product, via service, technology — just being able to move faster than the bigger ships, I guess, of the standard market. You’d have to look at us as maybe a jet boat or a nice yacht, I suppose.
You can turn that a whole lot faster than you can the very large standard lines carriers, where it takes a little while for the message to get through the whole company and get the ship turned in another direction.
These guys, the MGAs, have made all the changes they need to make. They were doing very well the last few years. So most of them obviously, I can’t speak for every MGA but most of those MGAs are still making good money. They just aren’t making as much money as they were in the hard market a few years ago.
IJ: Does today’s environment affect your relationship with your agents or your carriers in one way or the other? Are relationships more important in more difficult times like this?
Anderson: Yes, relationships are more important than ever. As people are struggling to find that new piece of business, or to find that new area to keep their revenue up or increase their revenue, it’s all about ethics, relationships, professionalism and service. The retail agents that are our customers are trying to find ways to consolidate their wholesalers, and be sure that their wholesalers are strong, and are going to be there for the long term, and don’t create problems for them. They create solutions.
Companies, on the other hand, we need to partner with. I think in the surplus lines marketplace, our companies and wholesalers partner way better than, unfortunately, on the retail side between a retail agent and their companies.
Our companies are now looking at who’s got a future, who is investing in technology, who is going to an AAMGA convention, who’s the best partner, and who can actually bring the business to us. So, yes, it affects on both sides of the equation.
IJ: What do you think are going to be the major topics of conversation at the AAMGA conference this week?
Anderson: Well, legislatively, federal activity, taxation issues, health-related insurance issues, although that doesn’t impact our membership so much. It does impact our industry. And then, just the economy in general. Those will probably be the key issues. Our convention’s in Florida, so people will be talking about the current marketplace. Is it hardening any? And about the hurricane season coming up.
For updates from the AAMGA, go to Insurance Journal’s live AAMGA page.
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