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Channel Check by Kevin Amrhein The Niche Less Traveled

In uncertain times, wholesaler niches answer the call.

By  Kevin Amrhein

By the time you read this, billions in bailouts may or may not be “stabilizing” our industry. Reinsurers may or may not have tightened underwriting standards. Regardless, volatility is likely to continue well into 2009. “There’s certainly uncertainty,” quipped one Council member during a recent phone conversation before shifting to the non-existent inflection symptomatic of the morose, an unfortunately common demeanor nowadays~

By design, one may assume that members of the wholesale community—a segment especially susceptible to industry fragility—and others offering services to complement the traditional “direct” transaction would be shoved out of the general marketplace, forced to survive in places no one has gone before. In fact, oblivion may be a welcomed respite for those whose successful niche products are a reason to celebrate the unconventional.

Just ask Paul Fuller, president of Glatfelter Insurance Group’s Wholesale/Specialty Program Operations. He believes that obscure is OK, as evidenced by the success of a program he helped create for, of all things, water reclamation. The Rural Special Districts Insurance Services (RSDIS) program was formed after realizing the profitability within the underserved niche of reclamation districts.

“The reclamation district niche was identified by accident,” he says. “Our agency was located near the delta region of California’s Central Valley. This area is renowned for the use of levees to reclaim land otherwise unsuitable for farming.”

Fuller describes how these unique operations were usually stuck with restrictive mono-line placements. “Over time, it became apparent that this niche was underserved and represented a viable market opportunity.”

The time invested paid off for stakeholders, he says, and the RSDIS program expanded its niche to include water, sewer, irrigation, conservation, and cemetery districts. “RSDIS now operates in 48 states and is represented by nearly 500 brokers. We are the largest program in the United States for our niche,” Fuller says.

Recently, Mac Wesson, president and COO of U.S. Risk Insurance Group, spoke of several niche products that he believes provide the wholesaler an identity off the beaten path. Consider the “Take 1” program—my personal favorite, which extends coverage to companies that lease or rent equipment for rock concerts and other live shows. (The fact that he used Bruce Springsteen as an example when describing Take 1 alone merits mention.)

“Most people would assume that concert equipment is owned by the show or the venue, but this is not usually the case,” Wesson says. “Almost everything is leased or rented; the stage, the speakers, just about everything except the people.” He says an advantage the wholesaler has over the few others writing this type of business is access to the entertainment division of Fireman’s Fund, of which U.S. Risk is currently the only MGA.

Offering a neglected niche relief is a concept familiar to Tim Byrne. Byrne was instrumental in forming Coastal Agents Alliance, an MGA and program administrator of which he serves as president. The program supplies retail brokers serving the difficult New York and New Jersey coastal homeowners insurance market with a viable alternative.

“Being a retailer for years helped me. I know how they want to do business,” he says. Byrne found a partner that made his operating model possible: Glencoe Group, a division of Renaissance Re that provides the paper for Byrne’s organization. “Glencoe Group says ‘we do nothing but take risk—you do the rest,’” he explains.

Byrne says he offers services not common in the non-admitted marketplace, such as full automation (they do “everything” online, he says), underwriting, claims, and direct billing on renewal. “Traditional wholesalers are used to a hit-and-run market,” he says. “They’re opportunistic. It’s hard to invest a fortune in time and automation; whereas, our arrangement allows us to act as an admitted market using non-admitted paper.”

Perhaps efforts such as these are the reason why even in turbulent times some major carriers are bullish on wholesalers. “We’re looking to grow substantially in the wholesaler market,” says Brian Specht, vice president and National Casualty Product executive for Fireman’s Fund. “In addition to technical skill, wholesalers are an excellent resource for product development. They see the stuff that doesn’t fit in the retail world. They suggest unique coverage and product enhancements.”

The carrier is investing in underwriting talent around the country to enhance its presence within this distribution channel. Over the last four years, Fireman’s Fund has integrated its formerly separate E&S team into all of its major regional offices. “This integration has allowed us to get a lot closer to our wholesalers,” Specht says.

The only thing we know is that we don’t know the direction economic conditions will take this industry. Fortunately, the wholesaler segment is occupied by organizations like these that understand that off the beaten path may be the safest place to be.

Amrhein is wholesale editor.
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