Knowledge Center


Knowledge Center Items Podcast Episode 9

What Happens When Wholesale Insurance is a Better Deal?

Published on

It's fairly well known that the more hands you have in the cookie jar, the fewer cookies there are to go around. 

That assumption is also one that has been made about the commercial insurance buying processes. 

Of course, allowing an extra hand in that jar will take some food off your table, even if it's just a few crumbs. 

However, according to Brady Kelley, Executive Director of WSIA, offering a cookie to a wholesale broker might not take any extra treats from your jar.

For more Change Insurance episodes, click here.

Full Episode Transcript

Joey Giangola:

Mr. Brady Kelley, how you doing today sir?

Brady Kelley:

I'm doing great. How are you?

Joey Giangola:

I'm doing all right. So, I want to know what would you consider to be your most unusual productivity habit that one might be surprised to find about you?

Brady Kelley:

Productivity habit? I don't know if it's a productivity habit or not but I am a list-maker. In fact, I'm afraid sometimes my list-making causes me to be less productive than I should. But I've got, if I turn my computer screen around here you'd see a number of little notepads and sticky notes and you name it. I just, I'm a note taker just to keep myself organized and to get my stuff crossed off the list.

Joey Giangola:

Do you have lists for your lists or are you not to that point yet?

Brady Kelley:

That was my point about the nonproductive side of that sometimes I think I do. I'm trying to knock that out.

Joey Giangola:

All right. Well then let me ask you this then what's the one that you could not do without? What's the one that anchors you the most?

Brady Kelley:

Productivity ways?

Joey Giangola:

Yeah I mean, what's the list that if you did not make this list you would not function as a human being anymore?

Brady Kelley:

Probably more personal, just the things to take care of personally that if I don't write them down they're not going to get done.

Joey Giangola:

Probably helps keep those marital squabbles to a minimum too I would imagine.

Brady Kelley:

That's the point.

Joey Giangola:

All right Brady. Well, let's dive in a little more focused on what it is that you do professionally and I'm curious from where you sit what do you think agents need to be paying attention to? What kind of lists should they be making in terms of their agency? Where are businesses going? Where should their attention be focused right now?

Brady Kelley:

Well, that's a good question because I think they probably are focused on a lot of different things right now, I think we all are. But I would say the most important thing for agents to be thinking about or keeping at the top of their list is staying connected with their policy holders. Working with those folks through the COVID-19 impacts that they and all of us are facing. Since all of this started into February early March almost every state has issued some form of policy holder accommodation due to the pandemic be it allowing deferments of payments or in some in some cases states are recommending a return of premium for lower risk during stay at home orders and that type of thing. And so, there's a ton to pay attention to.

               I think so long as agents are paying close attention to that state guidance and doing their best to comply with that I think that's another key thing. I would say one last thing for any agent who's dealing with a unique policy holder impact or the unusual, the very complex type of risk I would just make sure that those agents are closely connected to a wholesale expert. Our members that's what they do, they're wholesale brokers, underwriters that are extremely experienced in the most complex type of risk underwriting. And so, if there's an agent out there that doesn't have that type of wholesale access, wholesale relationship they should get one.

Joey Giangola:

What would you maybe think is the biggest misconception when it comes to wholesaling that maybe an agent that dabbles here or there that doesn't put a ton of their business in that direction where do you think they may be misinformed or is there something that they're just not maybe looking closely enough at?

Brady Kelley:

I think oftentimes being in this segment now for nine years early on in my career I heard a lot of commentary around the addition of a wholesaler to a transaction will increase the cost of the transaction. I guess it makes sense structurally that would appear to be the case. What we did as an association now almost five years, ago believe it or not, we had Conning study the facts around that. We actually developed two composites, a composite of insurance companies that distribute on a standard basis and a non-wholesale basis and companies that basically distribute their product generally predominantly through the wholesale network.

               And so, they took those composite, those statutory annual statements compared the cost ratios between the two composites and they found that the wholesale composite insurers leveraging a wholesale network actually spent about 100 basis points less in producing the transaction than the other. And so, when we set out to do that study we never anticipated that the answer would be that wholesale is actually less expensive. We assumed it would, we were hopeful it would be that wholesale and retail would be about equivalent, in fact we found wholesale was cheaper. So, I think that's a tremendous misconception and one that if it's driving an agent not to use a wholesaler I think it's a bad misconception

Joey Giangola:

And we all love to talk about pricing and what it does and who's getting paid what, where, and when. Is there in terms of just adding to the cost or reducing the cost do you think that it's really more about specialization that when you come to the wholesale market that it's just you're really going to get something that is really just zeroed in on that particular thing where the big box players will say they have to play a little bit more of a wider game?

Brady Kelley:

I think that's a key part of it. I would say in addition to that the wholesaler's going to get that producer, that retail agent access to very stable capital, a very stable market, that on their own they might not have access to. So, I think there's a laundry list of reasons why that retail agent would want to use a wholesaler. A lot of times it's they can't solve the problem for their client. They might not get the client what they want but they may not be able to solve the problem in the way the client needs without the customized solution a wholesaler can help them craft.

Joey Giangola:

When we're looking at those different solutions how do you think we can continue to push the independent channel forward? How can organizations like yours really help agents to do something not necessarily different but just help them facilitate business in a way that is more meaningful to their end customer?

Brady Kelley:

Just to sum up, I think the conversation we've been having. I would encourage them, I think they can push themselves forward by making sure that a retailer who doesn't have access to the wholesale relationship now that they consider developing one. I think that the expertise, the capital, the access that the wholesaler can bring the independent agent will help them solve their client's problems and longterm I think help them retain clients.

Joey Giangola:

Have you seen any sort of, this is completely off the cuff Brady I'm curious, have you seen any sort of statistics in terms of that retention as to when a wholesale product is in the mix versus not potentially of helping that retention?

Brady Kelley:

I don't have any facts to support that Joey. We don't have data that would say that adding that wholesaler would improve the retailer's retention but certainly anecdotally we hear it all the time. Yeah, we hear that from a number of our members who say their retail partners rely on them to find a solution and help them retain that client.

Joey Giangola:

Yeah. Just in my conversations with agents over the years they always have this, they've always painted a picture per se as to what they go to certain markets for. And I'm always curious as to where they develop those certain biases of it's just inherent legacy training or whatever. But yeah, I'm always interested as to what can be done to help agents think a little bit differently, to experience and place the business really in the most effective way possible. Speaking of that business being placed where do you see it moving? Is there some opportunity right now that agents may be not be paying the most attention to or is there something that they really should start to really zero in on because it's going to be pivotal moving forward?

Brady Kelley:

I say this often in response to a question like that. I'm oftentimes not the best person to ask that question. It's more our members who would be best equipped to answer that question of any missed opportunity in the market, lines of business or otherwise. But I think one of the risks that we're very interested in, in monitoring is where things go with pandemic risk. Obviously the last three months have highlighted the need to be pretty serious about a longterm solution there and we're monitoring a number of proposals now, some at the state level, a few at the federal level, that would address how we manage pandemic risk going forward.

               So, I would say that's the line and that I would assume some opportunity for the private industry will come out of. Again there's a variety of proposals, there's one that would create a private public partnership to address the pandemic much like the TRIA program helps us address terrorism risk. There are some nuances and differences obviously but that program is modeled after TRIA. And there's another proposal if not multiple proposals that will say pandemic risk is uninsurable. There are some dramatic differences between the types of proposals out there today. I think where we land with how best to manage the risk and provide consumers who are now probably more heightened now than ever to that being a real risk they're going to have to mitigate it'll be interesting to see where some of this goes. We think something between a completely public solution and a public private solution that doesn't provide the industry with a nice limit on how much exposure they would have. Something in between those two will likely be the right solution we think going forward.

Joey Giangola:

What kind of conversations do you think that trickles down for the agents to have with their clients? I mean, what would you be telling your members to how to handle these discussions in terms of preparing them for what's happening? Is there any preliminary discussions that should be going on right now?

Brady Kelley:

I think that for those who are dealing with clients who are saying, "How do I manage this? How do I manage this what somewhat feels like a limitless exposure to me and for perhaps my business?" I think it's right now best to do education. We're not sure where pandemic risk programs are going to land so it's not easy to answer the question in many facts right now. But just to educate clients about what these proposals are, where they may go I think that type of education will help agents inform and make their clients more comfortable that something will come forth at some point.

               I'd like to say it's a risk that our market would be willing to step up and support. I should clarify, they already do. I mean, there are products for pandemic today, I think the percentage of them that actually address a pandemic like what we've been through is pretty darn small. I think there will be capacity in our segment for this, to what degree is the unknown. But if ever there are going be crafty solutions, innovative solutions around pandemic I think it will be in the wholesale specialty and surplus line segment.

Joey Giangola:

You'd said something that was really interesting in the sense of at least just if you don't know saying that you don't know, having that sort of reassurance of this and we're keeping an eye on it. How many times do you think agents maybe forego giving that intermittent update to like say, "Well, I've got to wait until I have all the information." Because I know in my years across the industry that tends to be sometimes that analysis by paralysis sort of thing where they don't want to say anything until they have everything but yet that still doesn't create a very reassuring environment.

Brady Kelley:

Well, especially right now. I think the more facts and answers we try and provide right now when we all know that there are few that's a problem. That's a concerning environment at least in my opinion. So, I think it's perfectly fine to say we really don't know and I get pretty good at saying that because oftentimes I don't know the right answer. But we don't know certainly with pandemic where this is going and I think it's fine and fair to say that and educate clients around the potential solutions going forward.

Joey Giangola:

All right Brady, I've got two more questions for you. And we've talked a lot about across the industry but I want to drill it down a little more specifically to home for you in terms of your organization and what you're doing. Is there something that you guys are doing or you think is important to help push insurance, the industry, the agent channel forward? How do you think that you guys play a role in all of that?

Brady Kelley:

Well, a key service that we provide Joey is advocacy. So when it comes to all of the state and federal legislative changes and responses that I referred to earlier our job is really to promote the market, make sure lawmakers understand what the market's all about, make sure they understand how important this is to the overall economy and helping manage through crises like these. But also to protect the market, make sure lawmakers and regulators aren't making changes that will disrupt its ability to do just that, do what it does, help consumers solve problems and deal with catastrophes.

               And so, I would say we're not in the business of trying to change insurance. Quite honestly, I would say our segment the way it works and operates today I don't know that I would have a list of things to change. But we're constantly promoting, protecting, advocating on behalf of our members and that's a key thing that we do. And like I said, after probably mid to late March I think there's less than a handful of states now that haven't issued some type of guidance recommending how insurance companies and insurance brokers agents respond to the pandemic. And as strong as the state system is we're very strong supporters of the state based system of regulation. Many of them in the right way they're responding to protect their consumers but they respond sometimes in a very inconsistent way.

               And so, timeframes for different payment can vary in these bulletins and the guidance we've seen so far they can vary pretty dramatically. And so, our role is to try and make sure where that's happening there's as much consistency and uniformity as possible and that again regulators understand the impacts of the things that they're doing. And we're working together to improve that where we can. That's a key service of ours and I think it's one that's been pretty beneficial so far to members since all of this started.

Joey Giangola:

All right Brady last question for you sir. I don't know if you have a list for this but if you do, I definitely want the thing that's at the top of it. And I wanted it more specifically from your perspective the thing that is most exciting to you in terms of where insurance is going, what you think is possible, not just we hear about a bunch of different things what could happen, what might happen. But what's the thing that's right around the corner for you and your perspective that's going to have the biggest impact on the way things are going to go?

Brady Kelley:

Maybe I'll answer that question more generally, come back to specifically what's around the corner and you think about that for a second but generally speaking what excites me about this segment and current environment is that I think that this segment has been in a significant period of growth and I'm pretty confident it's going to continue to be. Not knowing what the pandemic might do to impact that I've talked with a number of members. Our board is comprised of 16 members of some of the most successful firms in the country largest to smallest. The optimism I'm hearing from them in terms of growth and submission rates and perhaps even business flowing from the standard market to the ENS market that borderline business that's now moving into the ENS space I am pretty optimistic we're going to continue to see significant growth in 2020. That's what I'm excited about.

Joey Giangola:

All right Brady. I appreciate your time sir. Thanks a lot.

Brady Kelley:

Thanks Joey. I appreciate your time. I appreciate the opportunity.

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