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Channel Check by Kevin Amrhein Open Season

Workers comp wholesalers can make quite a difference in open-rating states and don’t do badly elsewhere.

By  Kevin Amrhein

To better serve retailers, several of the country’s largest wholesalers, those traditional trollers of specialty risk, are hanging shingles in the not-so-traditional-to-this-distribution-channel workers compensation world. This is particularly true in those states subscribing to a so-called open-rating system, allowing carriers more flexibility with schedule credits, deductibles, and other factors that create significant fluctuations in premium and intense competition.

Yet wholesalers often find their message of helping retailers place and maintain accounts in this coverage line falling on deaf ears. Jeff Sandy, vice president and workers compensation broker at Westrope, explains why he believes many retailers overlook the wholesale marketplace for workers compensation: “Workers compensation is not an E&S world. Retailers have direct access,” he says. He also explains that, while wholesalers like Westrope can broker workers comp nationally, it’s even more challenging to convince retailers of the wholesale advantage in states that do not subscribe to open rating. States like Florida, he says, apply the same rates to everyone, leaving few options beyond dividend plans for competition.

In an open-rating state, however, bringing in a wholesaler could change everything.

Westrope, he says, has access to about 20 workers comp carriers, some regional, others national.

“In open rating, the relationship that I have with carriers, driven by both experience and premium volume in other lines, has a direct impact on the number of [competitive markets] and level of schedule credit,” he says.

The level of competition in the workers compensation marketplace follows that in other casualty lines, he explains. “If there’s a need for market share, it drives the price down. We’ve seen prices down 15% to 20% in many areas.”

Just how flexible can pricing be? In some states, a carrier could apply schedule credits (or debits) and discount anywhere from 25% to 50% based on good loss experience. Add a carrier with an appetite for a specific class of business and the word “contortionist” comes to mind.

Blake Baker agrees. Baker is workers compensation program director at Colemont Insurance Brokers in Woodland Hills, Calif.

“In California, carriers are essentially wide open to dictate their own pricing. Each carrier adds their own LCM [loss-cost multiplier] to the filed pure premium rates. They can also file for additional deviations, including premium discounts and a wide range of other potential credits and debits.”

Baker provides a candid and sobering explanation of the significant rate decline in California, brought forth by unprecedented competition. However, he says, data are starting to show that underwriting results are beginning to deteriorate. Rates are too low, costs are on the rise and some results are starting to look rough. He expects that some carriers will begin to pull back in the very near future.

Still, he explains, market conditions in states like California are the reason why Colemont is more aggressively pursuing a workers comp presence there. “We have success there because of the nature of the marketplace, the volume of business, and our expertise. This is combined with our agents’ need to gain access to some of the many markets that they cannot otherwise obtain direct appointments with.”

Colemont provides its retailers access to about 20 carriers. The broker also recently announced an exclusive managing general agent arrangement, called Contractor’s Select, with Employers Direct Insurance Co. to serve the needs of an extensive portfolio of construction risks. What makes this program unique, Baker says, is that, while most California workers comp programs (risks with limited exposure in Nevada and Arizona are also OK for this one) are all about rate, there is little or no back-end service. Most outsource loss control, third-party administrator claims service, etc. The model for this program is based on providing clients the best possible service to improve risk and perpetuate their business.

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