COMMUNICATIONS COMMITTEE SETS THE RECORD STRAIGHT

Rough Notes, May 2005

Promoting and defending MGAs is part of the job

"Setting the record straight" is what the AAMGA Communications Committee, chaired by Tony Glotzbach, is all about, and this year the committee was successful in several areas. Glotzbach, who is president of the New Albany, Indiana-based United Brokers, Inc., says that getting the AAMGA's messages to the public, the press, regulators and legislators by writing articles, press releases, reports, contributing to trade media articles, and answering the questions of the media is the primary goal of the communications committee.

What are those messages? Well, one, of course, is to make it clear that AAMGA members operate in a professional and trustworthy manner or they won't be members for very long. "In recent years, there have been allegations that certain MGAs or pseudo-MGAs have been responsible, in part, for insurance company bankruptcies," says Glotzbach. "Whether those allegations have merit or not, we refuse to allow our members to be tarred with the same brush. AAMGA members are 'entrusted' with the underwriting pens of insurers, but there are periodic audits made by the company to make certain that underwriting guidelines are consistent with contract wording. Moreover, the AAMGA has a Code of Ethics that each member must follow, which includes meeting all financial obligations-debts owed, premiums due companies, returns due to subproducers and to policyholders-on a timely basis. If an MGA is found guilty of violating state or federal criminal laws, he or she can be expelled from the organization."

Glotzbach referred to an article by Joseph Hutelmyer, this year's outgoing AAMGA president, in which he countered allegations made by a national trade publication that "failed carriers litter the roadside as a direct result of conducting business through the managing general agency distribution system."

Said Hutelmyer: "This quote sharply contrasts with 'Best's Insolvency Study, Property/Casualty U.S. Insurers, 1969 to 2002,' which clearly states that insurance carrier insolvency is most often pinned to insufficient loss reserves. Forty-eight percent of the failures are attributed to inadequate reserving, followed by rapid growth at 11%, catastrophe losses at 8.2%, impairment of an affiliate at 7.8% and alleged fraud at 7%."

Hutelmyer continued pointedly: "It would be an inaccurate statement on my part to deny that some MGA-produced business, combined with company actions and inactions, led to certain company failures over the past several years; but casting blame on the entire MGA segment of the marketplace is an unwarranted indictment on a broader issue to which there are collaborative, manageable solutions. When looking at market stability and surplus, one need look only as far as recent estimates by Morgan Stanley indicating that additional reserves of as much as $60 million could be required to make up a short fall, excluding under-reserving for asbestos and environmental claims. We are in the 'intelligent' risk business and there will always be a degree of uncertainty. However, MGAs are more uniquely positioned to guide and work with their customers and markets to achieve mutual profitability as security for the policyholder."

Glotzbach added that statistics show the excess and surplus lines market, the game field of the wholesale broking community, has consistently outperformed the standard market in terms of premiums written. "According to an A.M. Best report on the E&S industry, the standard markets enjoyed a 12% increase in premiums written for the year 2003, while the E&S industry realized a 28% growth rate," says Glotzbach. "In fact, the E&S industry has consistently outperformed the standard markets with respect to premium growth since 1990, with the exception of two years-1996 and 1997. The primary reason for the E&S market's growth can be attributed to customized products, which leads to specialization and value-added services provided by the MGAs and wholesale brokers."

Another "message" that the committee had to "set the record straight" on this year had to do with insurance company and broker disclosure requirements being considered by both the NAIC and NCOIL. Because of all the controversy that has hit the dailies, periodicals and trade press regarding Eliot Spitzer's investigation into the contingent commission system, the NAIC and NCOIL have each constructed their own models regarding full disclosure of compensation in insurance transactions.

"The AAMGA believed that MGAs should be excluded from both these models because MGAs do not deal directly with the ultimate insurance client," says Glotzbach. "We sent press releases out to state the AAMGA's position clearly, and our Governmental Affairs Committee succeeded in testimony before the NAIC and NCOIL to clarify our position further. Subsequently, in both models, MGAs have now been excluded from disclosure requirements. It's not that we're against disclosure. It's just that, since we don't deal directly with the insured, we felt we didn't need to be included in the model."