What’s Ahead for the E&S Wholesaler?

State issues and potential federal legislation impacting the industry, along with the prospects for the surplus lines industry, were among the topics discussed by a panel of industry leaders at the recent NAPSLO Annual Convention.

The program entitled:  Changing Markets, Changing Laws:  What’s Ahead for the E & S Wholesaler? featured industry leaders.  Moderating the panel was NAPSLO Executive Director Richard Bouhan and wholesale brokerage firms representives were: Neal Abernathy, Swett & Crawford; Steve DeCarlo, AmWins Group, Inc.; Ron Gabor, Gabor Insurance Services, Inc.; and Marshall Kath, Colemont Brokerage Group.

Company firm representatives were: Dennis Crosby, ACE Westchester Specialty; David Leonard, RSUI Group; Tom Mulligan, Western World Insurance Group; and Dale Pilkington, Colony Insurance Company.

One of the issues facing the industry and Florida is the impact of the state organized Citizens Property Insurance Corporation, set up to write homeowners insurance following hurricanes in 2004.

“We really don’t know what the impact is going to be because we don’t know what the rates are going to be,” said Mr. Gabor, whose firm is based in Florida. “The belief generally is that they are going to be low because it is designed to take all comers and there isn’t a lot of underwriting done on it. If that is true, we are going to see a major impact on surplus lines and also an impact on the admitted market.”In addition, panelists questioned whether any surpluses Citizens builds up will be available for future claims.

“If it builds a surplus in the next 2-3 years, will the government take that money and build roads and bridges?” asked Mr. DeCarlo. “Because they are not going to leave the money alone. When they pull it out, and a storm occurs, they’ve just taken the money and it will be just another tax assessment.”

 If larger future assessments are required, panelists said the surplus lines market would be impacted immediately because while admitted companies can recoup assessments later, the non-admitted market would have to collect immediately.

“If you are a non-admitted company on the surplus lines side we are going to look at our surplus lines brokers and say you need to go out and get that assessment for us,” said Mr. Crosby. “That will not be a pleasant time in Florida when that occurs.”

Overall, panelists thought Florida’s reaction was an overreaction to the liability crisis. “I think the idea was to help with a crisis, unfortunately instead of waiting for the private sector to come back to equilibrium, which it has done, the turn they took was the wrong one,” said Mr. Leonard.

Mr. Pilkington agreed, saying “I think the private industry has responded properly and effectively but that short term, extraordinary event drives this perception that everything is wrong, everything is broken.”

While Citizens is a state program, panelists discussed the merits of a federal catastrophe fund proposal working through Congress.

“I’m not real in favor or it,” said Mr. Abernathy. ”A lot of it will depend on how it is structured and how it is enacted. If you look at TRIA, it could work, we don’t really know will if it will work and hopefully we will never find out.”

While the industry is keeping a close eye on the process, the general public doesn’t follow it as much.

“People want to be protected from outcomes,” said Mr. Kath. “Whether it’s TRIA or flood. We are going to see this on the health care side. The health care issue for us is not going to go away. This will drive more of the feelings that the government takes care of us.”

One of the continual regulatory problems is the request for information from the states.

“Because we have freedom of rate and form we don’t keep our statistics, our information in the fashion the department of insurance is used to,” said Mr. Mulligan. “They often request information that simply can’t be provided. That what leads to the problems. When there is an emergency the states will often force regulations to apply to surplus lines companies.”

One of the areas of disagreement among panelists was concerning the Non-Admitted & Reinsurance Reform Act of 2007, which has been passed by the House as H.R. 1065 and has been introduced in the Senate as S. 929. 

“1065 is no different to me than what countersignatures were three, four years ago,” said Mr. DeCarlo. “Things are changing. Counter signatures went away and people pushed that button saying this doesn’t make sense. 1065 attempts to streamline that process and make it better. Is it perfect, of course not, but we can make it better.”

Mr. Gabor disagreed, saying that the bill had a lot of flaws. “I don’t disagree with the concept that we need to make it easier to file multistate policy and we need to do that,” he said. “From the surface it looks good but when you get down in to looking at the details it is full of flaws and it has some things that can be fixed and I think absolutely 1065 can be fixed and work but first you have to look at the components.”