“To say the move both surprised and shocked the state’s wholesale insurance broker community would be an understatement.”
“Few were willing to speak publicly about it. However, off the record many members of the Texas MGA community expressed frustration and confusion — in some cases disgust — that the largest state affiliate of the Big “I” would go into direct competition with them in the wholesale insurance marketplace.”
By Stephanie K. Jones | February 9, 2015
In mid-November 2014, Texas’ largest association of independent retail insurance agents took the unprecedented step of acquiring a managing general agency as a way of providing its members greater access to non-admitted commercial insurance markets.
In announcing the acquisition, the Independent Insurance Agents of Texas said it was acquiring Dallas-based wholesaler LevelFirst LLC to “expand the ability of IIAT to offer member agencies access to commercial lines markets traditionally unavailable to smaller agencies.”
State independent agents association nationwide, including the IIAT, have long offered a variety of insurance programs to their members, but the Texas association is the first Independent Insurance Agents and Brokers of America (IIABA or Big “I”) affiliate to operate its own wholesale broker and MGA, according to the Big “I.”
Surprised and Concerned
To say the move both surprised and shocked the state’s wholesale insurance broker community would be an understatement.
Few were willing to speak publicly about it. However, off the record many members of the Texas MGA community expressed frustration and confusion — in some cases disgust — that the largest state affiliate of the Big “I” would go into direct competition with them in the wholesale insurance marketplace.
In a Nov. 14, 2014, letter addressed to IIAT Chair Pat Arthur, who had previously spoken to the board of the Texas Surplus Lines Association about the LevelFirst acquisition, TSLA President Penny Restrepo said members of the association were surprised to learn that IIAT felt its small, rural retail agency members were being underserved in the wholesale insurance marketplace.
Some TSLA members “effectively specialize in serving smaller and predominately rural retail agents,” Restrepo pointed out.
Perhaps more upsetting to TSLA members, however, was that IIAT also looked at the new MGA as a source of non-dues revenue.
“The mention of a new non-dues revenue stream for IIAT appears to be of greater concern to our members,” Restrepo wrote in the letter posted on TSLA’s website. “IIAT evidently concluded that the anticipated benefits of the non-dues revenue from its new venture would … outweigh the financial benefits that IIAT has received over the years from the TSLA organization and its members.”
In an interview with Insurance Journal in late 2014, then-IIAT President and Executive Director David VanDelinder said the association did not see its action “as providing significant competition for our other good general agency friends out there.”
But, he added, “there is a legitimate concern. We have a non-profit trade group basically getting into the wholesale insurance business. Our intent is, by no means, to compete directly with the very good general agencies in this state. Instead, build a unique model that serves the small members of our organization.”
J.J. Horan, CEO of the Dallas-based MGA, South & Western, wrote in an email to Insurance Journal that he agrees with VanDelinder that “there is a legitimate concern with a non-profit trade group entering the wholesale insurance business.”
Horan noted that many “associate members of IIAT are MGAs focused in the small commercial lines wholesale space, and it just seems problematic when an association chooses to directly compete with its own associate members who pay annual dues and provide sponsorships at IIAT events.
“If market access for smaller member agencies is truly an issue, I believe other options could have provided similar solutions to this concern,” Horan said. “Perhaps several strategic alliances formed by allowing existing associate members to submit proposals containing specific carrier availability and revenue pro forma’s to the association would to me have been an equally profitable and a far less controversial approach.”
Mike Berry, CEO of Austin-based Specialty Insurance Managers Inc., also commented via email, stating that the competitive move by IIAT, which is the largest state Big “I” affiliate in the nation, “could potentially change the dynamics of the wholesale distribution system — even more so than has already happened in the past decade or so.”
Berry added that with “the M&A activity being what it has been in recent years I believe our segment of the industry has gotten used to having to compete against the wholesaler who owns the retailer, or the many direct writers that now exist. But I certainly never anticipated I’d be competing against the retail agent’s state association.”
Berry stressed that he’s not being a protectionist or afraid of competition.
“In fact I strongly believe it’s healthy competition that helps keep prices lower on a wider variety of products and services than would be available otherwise,” Berry said. “But I’d be lying if I didn’t say that I wake up every day as an independent business owner with those very same goals in mind — to better serve the rural agents in the state and produce a profit while doing it.”
The IIAT, meanwhile, has taken a wait-and-see attitude about the competitive effect IIAT Services MGA could have on the wholesale market in Texas.
New IIAT President and Executive Director Marit Peters, who took over the leadership post at IIAT in January, declined to comment for this story.
In response to a query about the concerns that MGAs had over IIAT’s reasons for acquiring an MGA, VanDelinder, who retired from IIAT at the end of December, said in an email that the association “has said all we want to say on the issue.”
IIAT Services MGA Chair and IIAT Past President Patrick Watkins confirmed that LevelFirst would be servicing both members and non-members of IIAT. About IIAT Services MGA, Watkins said only that “IIAT is excited about this opportunity to carry on our mission of ‘Helping our Members Succeed.’”
MGAs and wholesale brokers provide retail agents with access to markets offered by surplus lines and non-admitted carriers that provide insurance for risks that admitted insurers have no interest in. And the numbers are big.
With more than $5 billion in surplus lines premium reported to the Surplus Lines Stamping Office of Texas in 2014, Texas is the second largest market for non-admitted insurance in the United States. California ranks number one with nearly $6 billion in surplus lines premium in 2014, and Florida is the third biggest market, with $4.6 billion recorded last year.
SLSOT reported that nationwide, the 14 U.S. stamping offices — which collect surplus line policy data and review the financial condition of eligible surplus lines insurers — processed $24.2 billion in surplus lines premium last year, an increase of 7.6 percent over 2013.
Collectively, the stamping offices process 60 percent of all surplus lines policies written in the United States.
Data from the Texas Department of Insurance shows there are 513 active managing general agencies and 1,268 active surplus lines agencies licensed in Texas.
The total premium in Texas for all lines of insurance, including P/C, life and health, and others amounted to $129 billion in 2013, according to TDI.