In last year’s Specialty Lines outlook article, Euclid Black of Black/White Associates described marketplace pricing as soft. “Admitted markets are still coming into the specialty arena and taking business away,” he said. A tough economy had led to lower payrolls and sales. “There is a lack of demand for insurance products, plain and simple,” Black noted.

In 2011, little change is expected. “We expect competition to continue in 2011,” says Dean Mortilla, president of NIP Group’s Specialty Division. “There is no doubt about it. Rates and competition will likely remain stable. We may see a slight drop in rates, but for the most part, it’s kind of leveled off.”

The soft market is only part of the story. “It’s coupled with a bad economy,” Mortilla explains. “It’s a double whammy. Until the economy gets better, we will continue to see receipts, payroll and other exposures dropping.”

In the midst of this, Mortilla expects continued heavy competition from the admitted market. “Until we see losses exceeding premiums or until an unforeseen event occurs, we are just going to have to ride this out,” he notes.

Letha Heaton, marketing vice president at Admiral Insurance Company and president of the National Association of Professional Surplus Lines Offices, Ltd. (NAPSLO), shares her perspective. “Companies are hungry for premium, and capital is looking for someplace to go,” she says, “so more standard companies are getting into our [excess and surplus] bailiwick.” She expects the capacity glut to continue.

Plus, she adds, “With the economy still struggling and companies aggressively offering what we’ll call naïve capacity, I expect 2011 will be pretty flat in terms of premium growth.”

Pockets of opportunity

Some companies are showing signs that give Heaton reason for hope. Carriers have signaled they’re pulling back from inadequately priced markets. “After years of declining pricing, even some of the more naïve underwriting companies can’t conceivably believe they could continue operating with rates at 20% of what they were six years ago,” she explains. “There’s just no room for further pricing deterioration.”

She’s actually seen early indication of a turnaround in some lines. “In professional liability, for example, we’ve seen growth in terms of policy count,” Heaton explains, “even if the premium levels haven’t grown.” Included are sectors benefiting from federal stimulus money, such as architectural, environmental consulting and related businesses. “Demand has increased, but we’re not seeing significant price improvement,” she adds.

Daniel Riordan, president, Specialties, Zurich North America Commercial, is eyeing sectors that he believes hold promise for growth. “We see continued opportunities to provide bonds for contract performance and commercial purposes,” he explains. Contract performance and commercial bonds, both in the Americas and overseas, hold promise. “In emerging markets, high rates of GDP growth equate to growing demand for bonds,” he explains. Latin American and Asian markets are among those he cites as holding good potential.

Credit and political risk are other growth engines, Riordan says. “We continue to look at those specialty lines for opportunities to grow,” he notes. “Companies are re-establishing themselves in some of the emerging markets and trade is increasing from the lows they experienced in the depths of the recession, late in 2007 through 2009.” This resurgence of trade bodes well for improved performance in credit insurance products, trade credit and excess of loss trade credit, which is a relatively new product focus for his company.

“We also see opportunities to grow in political risk,” Riordan notes. “Companies continue to experience the need for political risk in the form of expropriation coverage, political violence coverage and currency convertibility. So that’s an area for growth.”

Another focus is in accident and health. “Groups or employers who manage their own health plans are increasingly looking for stop-loss coverage, so that they can manage the balance sheet protection,” Riordan explains. “We see great opportunities for this in North America and internationally.”

Riding out the storm

Consistency and quality are—or, at least, should be—key focus points for agents and brokers, as well as their business alliances, in today’s marketplace. “We tell agents we’re going to be there and that we want to be the best carrier to them,” Riordan explains. Retailers need to convey the same attributes to the businesses they serve. Such commitment is reinforced by continually measuring customer satisfaction and helping meet market needs with innovative new products, Riordan adds.

Finding greater efficiencies is another focus area. That’s an area of special importance for NAPSLO and its members. According to Heaton, the organization is devoting considerable attention in 2011 to marketplace improvements—something she encourages retail agents and brokers to support.

“A prominent issue for us is getting states to adopt the spirit and intent of the [Nonadmitted and Reinsurance Reform Act],” she explains. The Act was signed into law in July 2010 as the Dodd-Frank Wall Street Reform and Consumer Protection Act. Among its key provisions is single-state filing for surplus lines tax. “The bill calls for taxes to be filed in the insured’s state of primary domicile,” Heaton says, “and then the states will figure out how to allocate them among the other states” where the insured does business.

“Getting this passed has been a 15-year battle for the association,” Heaton explains. “Now, it’s incumbent on the states to follow the regulation.” NAPSLO is working with other wholesale and insurance company associations to get the Act’s provisions implemented as intended, in an effort to simplify agent and broker workflows and reduce costs that ultimately get passed on to insurance buyers.

Perhaps the most important thing retail agents and brokers can do is stay strong. “They need to continue to do what they are doing,” says Mortilla. “Pound the pavement, stay close to clients and provide exceptional service.

“Be creative and innovative,” he adds. “Continue to build strong relationships and then maintain them. Try to find ways to pump the markets and get the best coverage for your clients at the best price. Keep insureds close and keep them happy.”

Strong competition highlights the importance of agents finding the best solutions to their clients’ problems. “At the end of the day, premium isn’t everything,” Mortilla notes. “It’s about getting the right coverage, addressing all of the exposures, and making sure the client is insured properly so he can sleep well at night. Then, in the event of a claim, he is covered.

“With rates being lower these days, agents and brokers have an opportunity to not just chase lower premiums, but instead get clients more coverage,” he adds. “Get them to address facets of their business that, perhaps, they didn’t have coverage for before. The better we—wholesalers and retailers—really understand our clients’ business, the more we can provide them.

Mortilla sums it up in this way: “Wake up early, get a head start at the markets and ask a lot of questions. You need to know where you stand when you go to a market with an account and when you are dealing with your client. By knowing and anticipating where others will come in, you’ll have a greater competitive advantage.”

Heaton stresses the value of tapping expertise, where needed. “Ours is an industry of advisors and expertise,” she says, referring to professionals who are part of NAPSLO. “We do the things on which there might not be 20 years of actuarial history. Our focus is to write an insurance policy that covers the needs of something whose ultimate outcome is unknown.

“People who enter this industry and are effective become very strong experts in a select niche,” she adds. “The value a great wholesaler brings to the table is the ability to quickly look from a universe of thousands of options and say, ‘Here are the two or three organizations that understand your clients’ needs and whose coverage will meet them,’ and then turn the account around in a number of days, versus a number of months.”

Heaton also points out that retailers without required expertise could spend a great deal of time searching for a solution—and still come up short. “A wholesaler is a great efficiency expert for retailers,” she adds. “Continue to use us where we bring value. Know when you don’t have that expertise because it could get you into trouble pretty quickly.”

Adds Mortilla, “There are so many competitors out there now. It’s important to continually provide exceptional service and work to find the best possible solutions for clients.”

The author

Dave Willis is a New Hampshire-based freelance writer and regular Rough Notes magazine contributor.