SG placed and wrote this article on behalf of Ralph Lee, President, Agency Resources (Professional Insurance Agents of New York, New Jersey & Connecticut).

Workers' comp wholesalers –
Lending a hand through the hard market
Professional Insurance Agents (September 2001)

By Ralph Lee

Brokers in New Jersey, New York and Connecticut – and throughout the country – who expect to prosper in the hardening workers' compensation insurance market may need to place certain risks through wholesalers. It's one of those essential paradigm shifts that Spencer Johnson was referring to in his best-selling business book, "Who moved by cheese?" Those of you who long for that soft market may want to add, "Who made the cheese so hard?" to the title.

Who moved my soft market?

The property and casualty market is not expected to soften in the near future, according to most experts. More than 70 percent of risk managers surveyed expect the market to harden further in the next two years, according to figures released by Liberty Mutual during the Risk Insurance Management Society (RIMS) conference last April in Atlanta.

With the soft market fast becoming a distant memory, workers' comp underwriting with leading carriers just isn't the same. It's bad enough that rates average15 percent to 25 percent higher than last year. Now, you must often wait two weeks or longer for a quote -- which could increase if the client's loss history is less than perfect. Plus, insurers are starting to demand a huge amount of information on the background of the account. Start-up firms with no trackable loss histories and companies with recent shock losses are most vulnerable to the carriers' exhaustive underwriting requirements.

Long underwriting delays can also jeopardize a long-standing or burgeoning relationship with a client or prospect. He or she could lose patience, sensing that the carrier doesn't really want the company's business, and call another broker.

Which wholesaler can lead you to cheese – and more revenues?

With the hardening market, an increasing number of brokers in the tri-state region and throughout the country are turning to workers' comp wholesalers as an alternative to the assigned risk market. The challenge is finding the right worker's comp wholesaler, which can offer the advantages outlined below:

Fast turnaround . Some insurers take more than two weeks for a quote that could be raised after loss history is revealed, while a wholesaler should be able to provide an accurate quote within 48 hours.

High premium limits. You should be able to place risks with annual premiums ranging from as low as $500 to well over $75,000.

Access to top carriers. A wholesaler should have good rapport with "A" rated insurance companies willing to consider a wide array of class codes.

Reasonable level of disclosure. While many carriers require hard copies of loss runs for the past three years (unlike the soft market when a loss history and a letter of explanation were sufficient), a wholesaler should be able to secure a quote with far less disclosure.

Out-of-the-box underwriting. Many carriers do not cut any slack to companies with an experience modification above 1, and will often raise their original quotes or reject them. Your wholesaler should be able to secure coverage for firms with an experience modification of up to at least 1.25 provided there's a reasonable explanation.

Financing alternatives. Clients should be able to make a down payment on the premium, followed by installment payments.

Direct billings and annualized commissions. Clients should be billed directly from carriers, while you should receive full annualized commission upon payment of the first premium.

Internet billing. Some wholesalers are starting to offer web-based electronic billing that facilitates payment of workers' comp premiums each pay period. This enables employers to maximize cash flow by paying premiums based on actual reported payrolls, without any interest, thereby creating a perpetual audit that significantly reduces the impact of the year-end audit.

This feature can help combat the growing threat from payroll companies that can withdraw premiums on a direct basis – thereby taking some accounts away from agents and brokers.

High-quality service. Your wholesaler should make it easy to do business. That means prompt responses to your inquiries and flexibility to accommodate your needs.

Ralph Lee, a 25-year veteran of the property and casualty industry, is president of the Wayne, N.J.-based Agency Resources, a property and casualty insurance wholesaling operations that specializes in workers' compensation. He can be reached at 973-837-2558 (Nicholas@agencyresources.com).

Used with permission of Professional Insurance Agents, September 2001.