Hurricane Andrew, for all of the grief it delivered, gave wholesale broker Hull & Co. and Bruce Bowers a big opportunity.
“Prior to ’92, there wasn’t much of a need for personal lines in the excess and surplus market, it was strictly all standard business. After Andrew hit and everybody was trying to get out of the state of Florida — everybody was running as fast as they could to get out — we became pretty important in the marketplace,” says Bowers.
It was after Andrew that Bowers took over Hull’s personal lines business. Bowers first joined wholesaler Hull & Co. about 10 years before Andrew as Operations Manager. Since then he has handled roles in Administration and Production and has been a member of Hull & Co.’s Executive Team. Today he is Profit Center Leader for National Risk Solutions, a division of Hull & Co. specializing in online platforms.
Right after Andrew as carriers were heading for the exits, Bowers helped Hull put together an E&S homeowners program with AIG’s Lexington Insurance, and then one with USF&G, which is now GeoVera, and then one with Fireman’s Fund.
The business was all catastrophe-driven, from the states of Florida, Louisiana and the Carolinas. That book grew to $150 million a year in business. That personal lines success then spurred the creation eight years ago of National Risk Solutions, Hull’s totally online platform for personal lines and small commercial surplus lines business that Bowers helped engineer and now oversees.
NRS is much more than another wholesaler’s Web site. It’s a transactional platform where retail agents can get real business done, quickly, at any hour of the day.
“What we do is we specialize in online products for both personal lines and commercial lines. I’m talking rate, quote, bind and policy issuance. I’m not just talking about email systems. It’s really an online platform, amazon.com type of thing. You get in, get out, and get your insurance. As long as it fits the box, we write it. If it doesn’t fit the box, we refer you elsewhere,” Bowers says of National Risk Solutions.
In addition to working for Hull & Co., Bowers is president of the Florida Surplus Lines Association. He has been a member of the FSLA board for 14 years. He also serves on the board of the Florida Surplus Lines Service Office.
Insurance Journal’s Andy Simpson interviewed Bowers recently and came away with his insights into today’s Florida marketplace, how surplus lines agents are faring in the state, the importance of technology and more. The following is an edited version of the interview.
Florida’s Market Challenges
Surplus lines premiums and policy counts in Florida were down again in 2009. I guess that’s not so much of a surprise. But what factors you see behind this trend and do you see any sign of a turnaround?
Bowers: There’s a combination of things that caused this trend. It’s been going on since 2007, 2008, 2009. Particularly it’s been exacerbated this last year because of the economy, of course, but insureds are just not buying coverage at all in many cases, or they’re buying coverage with lower limits. Whatever they can afford to buy, or get by with, they do. They may reduce their limits from $1 million to $500,000 on liability. Or they may not even take out insurance on their home, if they don’t have a mortgage. So we’re seeing a lot of that, where the insureds are going bare.
The second issue is the economy is generally very weak, obviously. We’ve had a real catastrophe in my mind, a crisis, and the premium basis is down. So when you go to rate of risk on sales, obviously it’s going to be less than the previous year. And you go to rate of risk on payroll, it’s probably going to be less than the previous year, too. So we’re seeing a lot of that. If a person opts for insurance, usually it costs a heck of a lot less because of the premium basis.
Third issue is that the admitted markets are looking to maintain and grow market share, just like everybody else is. So in Florida, we’re seeing an intrusion of the admitted markets into what previously we considered to be our territory, or our domain, the surplus lines business. But now we find people writing things across the entire spectrum. They’re competing for market share. They’re lowering rates. They’re offering more coverages with bells and whistles that they previously didn’t offer, that is more advantageous terms and conditions. So, we’re seeing a lot of that going on, too. It doesn’t appear to be abating at all, that portion of it.
The fourth thing I can think of is that Citizens obviously is a major, major competitor of ours on both on residential and commercial. They have artificially low rates, not actuarially sound, as the press has reported timeâ€’andâ€’time again as of late. Basically, that is the competition in Florida now. If you want to play in Florida to any great degree, in any spectrum of commercial or residential, you have got to compete with Citizens. That is a difficult thing to do, given that the taxpayers of Florida really support that operation, and if there is a deficit, of course, the taxpayers make it up. So it’s kind of an unlimited surplus situation, where most of the private companies that we represent and most of the private companies in Florida don’t have that kind of luxury for unlimited accessibility.
Do you see signs of a turnaround?
Bowers: I don’t see any signs of a reversal or a turnaround in the market yet. We do see a slowing down, if you will, of the deterioration in pricing, so we see some stabilization coming into the market from that regard. They’re not going down as quick as they used to, but it is still a soft market and there is a lot of excess capacity out there. Until that excess capacity is drained out of the system, we’re going to continue to have a soft insurance market in my opinion.
What’s the timetable that you see?
Bowers: Well, in 2011, I would think, in the absence of any events and given the capacity we see out there. I just don’t see it changing before there. That is my personal opinion.
Do you think Florida is in better or worse condition than other places?
Bowers: I think it is in pretty bad shape in terms of the economy as a whole, in terms of the number of foreclosures, and the loss of jobs is continuing. You see the stock market going up, and you think things are getting better or things look better, but there still is a tail effect here, and it is particularly true in Florida. It’s a Catchâ€’22 because a lot of people are losing jobs because the houses aren’t being built. The mortgages aren’t being paid, and there is no construction, and they lose their jobs. So, it’s really an endless cycle.
The companies are attempting to hold prices steady now if they can, but they just can’t afford to lose much more market share. So you see the companies going lower and lower if they have to, but it is not as rampant as it was last year. So we’re starting to see some return of normalcy, I think.
Do you think a turnaround will come a little later to Florida than some other parts of the country?
Bowers: I do, because I think there has been some significant damage done in Florida. There is so much hangover, and so much work that needs to be done to get back to normal in Florida, as in California… [and] in Arizona. I just think it is going to be awhile before Florida gets back on its feet again.
Effects on Surplus Lines Agents
How do you see Florida surplus lines agents faring under these conditions?
Bowers: I think it is an extremely difficult environment for surplus lines agents of all sizes, whether it’s a big agent like us or a familyâ€’run domicile, a shop in Florida, not being able to grow the top line. It’s forcing a lot of these great agents to focus on reducing expenses such as compensation, which is obviously your big one, and advertising, which I’m sure you see, and then travel and entertainment and conventions. The list goes on and on.
It’s just that the soft insurance market and the general economic uncertainties that are prevalent are forcing agents to scale back on any plans for future growth and development, and that would be something like not hiring new employees. So you don’t see a lot of people being hired right now, and even the reverse is true, you see people reducing staff.
The scary part is that they are in some cases reducing some really talented people, sales people. That’s really not a good sign. They would like to retain their sales force, but because of what’s happening that’s even proving difficult. So they’re just scaling back on hiring new employees, and even in some cases, they’re letting people go, talented people.
Secondly, they are scaling back on the G&A type items, marketing and advertising, and conventions, and meetings of all sorts.
Thirdly, which is really important to me, a lot of these shops have put all of their IT projects and future development on hold. It’s luxury, I guess, to them, to develop these automated systems that take years to develop. So what they’re doing, they’re putting the projects on hold, both software and hardware. They’re not investing. If they can hang onto their computers a little bit longer, they do. If they can hang onto their old legacy software, they do. Because there is so much uncertainty out there, there really is.
You do hear of some mergers and acquisitions or consolidations. You see that going on, especially in the smaller shops where it makes sense that rather than going alone, they decide to hookup with somebody stronger than them.
When things turnaround, do you think some agencies are going to be at a disadvantage trying to get backup to speed? If they’ve lost some good sales people, or haven’t invested in IT, are they going to be able to respond like they used to?
Bowers: Most definitely, you’re right, and what you say is true. They’re going to have to play catchâ€’up. They’re going to be playing catchâ€’up when everyone else is playing catchâ€’up. So finding talent, available talent, for a reasonable price is going to be difficult, in my opinion, because everybody is going to be going after the same talent. I know we would. We would up the ante, and all of the sudden it becomes a pretty expensive proposition.
The IT, that will catch up with you. You’ve got to continually build the infrastructure. If you don’t invest in that on a continual basis, and keep up with the hardware requirements â€’â€’ because these software programs are getting more and more complicated, and they won’t run on the old stuff. They don’t support the old stuff, and all that kind of thing. You’ve got to keep up with it. I’m not saying you’ve got to invest everything you make in it, but you certainly have to be cognizant that this thing is moving along. It’s either going to move along without you, or you’re going to be with it. I would hate to play catchâ€’up is, I guess is what I’m saying.
Challenge of Technology
As the head of the advanced platform NRS, you obviously believe technology is important. Do you find that attitude shared by others in the surplus agency field?
Bowers: I don’t think that surplus lines brokers can afford not to embrace technology…. We’ve invested heavily in it, the reason being we must outperform our competition. We’ve got to make it easier to do business with us. And by easier, I also mean less expensive. The cost of acquiring new business is less for a retailer doing business with us than it might be for a retailer doing business with our competition because of our technology.
We try to make it easy. We try to make it fun. We try to make the online experience intuitive. We make the navigation of our site very easy, so you can find things quickly. I know that when I go on a Web site if I have trouble finding a phone number for the insurance company or if I have trouble finding a contact list, because they embed it somewhere deep inside in the womb of the portal, I just turn it off and go elsewhere. I won’t go back.
Do you find that as retail agencies themselves become savvier about technology, that they are gravitating towards wholesalers that are themselves tech savvy?
Bowers: Precisely. Yes. We’re finding that the good agents are the ones that are tech savvy. They’re usually the younger, more driven, more progressive, if you will, more aggressive, they’re the ones that are going after the market share and they understand technology and they understand the value of it and they gravitate to those wholesalers that can… It’s like a wholesaler trying to sell business to a retailer without email. Why would you do business with a wholesaler who didn’t have email? That’s kind of an extreme example but the same principle holds true. Email makes transacting business easier and if you can make it easier for the producer to do business with you, they will come back. It’s not necessarily all commission. It’s not necessarily all price. It’s really service in general because everybody has the same thing I do. It’s just we’ve got to provide a better mousetrap. If I can make it easier and more fun and a lower acquisition cost for the retailer, they’ll come back and see me.
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