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Education, legislation top NAPSLO leader's goals
Published February 26, 2007
Mr. Newton spoke to Business Insurance Senior Editor Roberto Ceniceros about the surplus lines industry's role in helping large risk management accounts obtain coverage as well as Mr. Newton's goals for NAPSLO.
Q: Observers often associate the surplus lines industry with insuring specialty, hard-to-place risks such as bars and taverns, nursing homes or trucking operations. Does it play a role in placing coverage for large risks?
A: I would be surprised if there are many large risks that do not utilize the surplus lines market. One example is wind coverage. So many risk management accounts have properties that are located somewhere in wind zones, and it is next to impossible for them to get their property insurance needs met without tapping the surplus lines market.
Q: Is that also the case for California property/earthquake risks?
A: You can say the same thing for California earthquake, absolutely.
You would also see it on the directors and officers liability side where accounts are building high limits and on the umbrella side for liability. Large risk management accounts that are building multi, hundred-million-dollar layers, they are going to have to tap into the surplus lines marketplace to provide that capacity.
Q: Will wholesale brokers always remain invisible to most insurance buyers without getting credit for their role, or might that ever change?
A: There is controversy within the industry as to whether or not we should become more visible. Some wholesalers say, "Let's do it." Others say, "I think even NAPSLO should take a role and educate the buyer as to the real role of the wholesaler." Then there are other members of our industry that say, "Wait a second. We have always been in the background. Let us stay in the background and not steal the retailer's thunder."
Q: What would be the advantage of getting wholesalers known more among insurance buyers?
A: The advantage is that there are probably some buyers that are prejudiced against using a wholesaler. They may look upon it as a weakness if the retail broker has to use a wholesaler (and think), "Gee, why can't you get to all the markets yourself?"
It could help us eliminate that thinking having them know a wholesale broker is more than just someone who is swapping paper to a market so a market can provide some capacity. Too many buyers may look upon us in that simplistic fashion. I think what a good wholesale broker brings to the table--and perhaps buyers don't know enough about--is market knowledge and relationships with these markets to get the job done, and product knowledge. Insurance has gotten so sophisticated and there are so many products out there it is very difficult for one person to know them all on a very intricate level. And wholesale brokers who are specializing in some of these tougher lines of business really understand and know forms and how carriers can fit together, and they bring a lot of value to a transaction. I think sometimes that value is not understood by the buyer.
Q: Is it not understood because wholesalers stay in the background and remain invisible to the buyer?
A: Because we are invisible and they think we are just this extra expense that is thrown into the transaction to copy whatever the retail broker sends them and gives access to a special company.
Q: Is that a frustration or just the way the market has always worked?
A: Yes, I think it is a frustration. Too many people don't really know what a professional wholesaler does. I rarely take what is sent to me and send it to a market. There is a way of packaging a submission I get from a retail broker. Most professional wholesale brokers have a way of making the risk sound better by bringing the pertinent information to the underwriter in a more concise fashion so they can make a quicker...more intelligent decision.
Q: Wholesalers have to know what specialty underwriters look for.
A: Right. If I just send them a pile of paper, they are never going to understand the risk. But I can take that pile of paper and create a two-page document that summarizes everything so they are in a much better position to respond to the insured's needs.
Q: What do you hope to accomplish as president of NAPSLO?
A: We started a political action committee last year and we are in the process of trying to get that funded. We need to build that up substantially because one thing that has changed in our world is that federal regulation of the entire property casualty insurance industry is looming. That is going to have tremendous impact on the surplus lines industry.
In order for us to have any influence in the legislative process, we are going to need a fully funded PAC in order to get a seat at the table.
Secondly, our main legislative priority is to get a bill like H.R. 5637. It passed by unanimous vote in the House last year and was called the Nonadmitted and Reinsurance Reform Act.
While it passed the House, we were not able to find a sponsor in the Senate. So it died. Now, we have set this as our legislative priority for 2007, to get similar legislation passed. It simplifies the very arcane and paper-intensive way of making multistate surplus lines filings, which is now a complete mess. H.R. 5637 said you can do the surplus lines filing and pay the tax in just one state.
Q: What are NAPSLO's other goals?
A: NAPSLO has always been known for education. Ten years ago, we had one school where we educated maybe 50 or 60 students, and we moved it up to two schools, and then we moved it up to three schools. Now we are thinking of expanding that. There is a tremendous need from our members to educate the younger people coming into the business.
We are also mounting a public relations campaign to try to reach young college students and acquaint them with the surplus lines industry. That is to meet the growing demand for surplus lines products.
Ten years ago, we used to talk about surplus lines being 5% of the commercial lines marketplace. We now talk about it being 15% of the commercial lines marketplace. Part of it has to do with the hard market--particularly in casualty that we have had over the past five years. But it also shows a tremendous maturing of the surplus lines segment of the insurance industry.