Westrope sees an aggressive increase
in binding authority as a path to vigorous growth.
John Klag is with one of the big boys. He’s executive
vice president and COO of Westrope, the eighth largest
commercial wholesale brokerage in the United States.
As the property-casualty industry struggles to grow amid
soft pricing, Westrope plans to grow by thinking small. By
establishing binding authority operations, the wholesaler,
based in Kansas City, Mo., can help retail agents stay
competitive on smaller accounts.
Within a year, Westrope launched two binding authority
operations, which have the ability to quote and bind risks for
retail agents on behalf of certain carriers. Westrope Insurance
Managers of Florida, based in Brandon, a Tampa suburb, wrote
its first policy in June 2008, and Westrope General Insurance
Agency, based in Irvine, Calif., wrote its first in May
Klag expects binding authority operations to become a big
part of Westrope’s business. “We’d like to
see it at 30% or more overall,” he says.
While it can hasten transactions, the practice of extending
binding authority has its critics. There are those who believe
that insurers that relinquish underwriting control are inviting
trouble. Binding authority operations are not usually a primary
focus for traditional wholesalers. Many see it not as a growth
strategy but as way to appease a few retail clients. Many shy
away from the practice altogether.
Then there’s Klag. He says binding authority
operations offer Westrope the chance to help retail partners
stay competitive on smaller accounts.
“The main reason for binding authority is that our
retailers need help,” he says. “We’ve got to
be able to provide solutions for our retailers for all
accounts, even smaller ones.” The binding authority
operations typically write accounts that generate $25,000 or
less in premium with minimums often ranging from $500 to
$1,000. In contrast, the minimum premiums in Westrope’s
brokerage business are typically $10,000 or more, Klag
The binding authority operations write risks typical of the
surplus lines market—just on a smaller scale. These
include writing property-casualty, inland marine, professional
liability and other specialty coverage for businesses such as
motels, restaurants, manufacturers and contractors.
“The key criteria are lower minimum premiums and
classes of business that are not ideal for standard
markets,” Klag says.
Does it make sense to develop a growth strategy that relies
on writing more accounts that are small, often with minimum
premiums? Klag has reason to defend Westrope’s strategy.
“Binding authority business usually sees better
retention,” he says. “It helps us smooth out the
volatility in earnings typical in the E&S brokerage
Klag also believes Westrope’s binding authority
operations will help the wholesaler spearhead more
opportunities for coveted program business.
But the focus of the strategy is facilitating relationships
with retail partners—old and new. “Our binding
authority offices help us capitalize on existing relationships
as well as form new relationships with new retailers that we
never would have seen in the absence of these
operations,” Klag says. The introduction of new retailers
has provided a steady stream of brokerage opportunities for the
wholesaler. Klag says that many binding authority carriers also
maintain brokerage operations. “So it helps form and
strengthen relationships on that side as well,” he