In the last quarter century, a record number of organizations have chosen to finance risk in a non-traditional way. The result is that over 30% of commercial insurance is in the alternative marketplace. It would seem to some observers that the alphabet houses (Marsh & McLennan, Johnson & Higgins, etc.) have discovered this marketplace to be a "treasure chest." Unfortunately, many independent agents view this same market to be "Pandora's Box" -- if you keep the lid on tight, the problems won't be seen or have to be dealt with.

The purpose of this article is to assist agents in understanding how the alternative market can be a treasure chest which will: increase the retention of customers; bring in new customers; increase revenues and profit; make the agency more dynamic.

One of the most significant challenges to traditional insurance and to independent, local agents came in the mid-'80s. Public entities quite suddenly found themselves having to cancel fireworks and festivals, and close skating rinks and playgrounds they had been using for years because insurers refused to cover the liability exposure. How municipalities reacted to this dilemma is an important piece of the history of the alternative marketplace.

They created municipal association pools--i.e., they told the traditional market, "We want what we need, not what you want to give us." The exodus created by these public entity pools has stunned many agents who wrote public entity business throughout their agency's existence. In some cases, agents were taught at seminars how to sell against the pools; they could talk to their public entity prospects about the pool's lack of track record; its joint and several liability; future assessments; and lack of underwriting.

In spite of this, municipal pools have thrived over the last 10 years. If you look hard, you will find a handful of agents who viewed the challenge posed by insurers' refusal to write liability insurance as an opportunity to assist local groups in creating alternatives. Today, many of those agents continue to provide services to the pools they helped create.

Let's explore what we mean by the alternative marketplace:

* high retention/deductible programs

* retrospectively rated plans

* captives (group, association, renta-captive)

* pools/trusts

* self-insurance groups (WC only)

* producer-owned insurance companies

High retention/deductible plans.

Every insurance program should be structured in a manner which takes into account the organization's ability to self-fund some risks. This should not be viewed as reducing premium/commission income; rather, it is reallocating of funds used to cover risk.

(Note: A number of agents disclose all income derived from a particular client to that client and add service fees to those policies which are priced net of commission, or with commissions inappropriately low based on agent's time required to service.)

The institution or corporation with the highest levels of self-funded risk can best weather the cyclical vagaries of the insurance marketplace.

Retrospectively rated plans. A few agents seek retros--particularly, unusually funded retros--from their market sources to have available as the need arises with a particular client.

Recently, the CFO of a local manufacturer went to his agent looking for some better way to fund workers compensation than through the assigned risk plan. The annual premium was $325,000. The agent indicated that none of his carriers were interested in writing the business on a voluntary basis--thus, the Assigned Risk was the only option. A short time later, this CFO was introduced to an insurance agent at a school fundraiser. He was grousing about the problem and this agent gave him his business card with the usual "call me." The result, provided by a very small insurance agency, was a retrospectively rated plan which, based on historic loss information (trended and developed) would save the manufacturer $30,000 to $90,000 a year. The agent requested the opportunity to quote on the rest of the business, and, the rest is history.

Be prepared. It works for the Boy Scouts, and works even better for insurance agents.

Captives. Generally, a captive is defined as "a closely held insurance company whose insurance business is primarily supplied by and controlled by its owners, and, in which the original insureds are the principal beneficiaries."1

Agents can direct clients toward captives which are in operation today. An example would be a local agent insuring the local rural electric cooperative (REA) That agent might get a quote from Federated, a Wisconsin domiciled captive which insures REAs. The agent might find broader coverage at a lower cost than the traditional market.

Most captives which insure U.S. organizations are domiciled (regulated) in Bermuda or Vermont, although several other on- and off-shore domiciles license captives.

The booming real estate market has brought with it an unprecedented rise in the number of agents in the county, according to the Westchester County Board of Realtors.

With no precedent, it's impossible to say what will happen to all of these real estate agents when the market cools, said P. Gilbert Mercurio, chief executive officer of the board. "We've never had it go up like this."

The number of licensed Realtors in Westchester County has jumped by more than a third in the past two years, according to the board's figures.

The board gained 900 members over the last year. "We're looking at 100 new members this month," he said. "It's been 80, 100, 110 a month."

As a result, their ranks have swelled to 6,700 members, despite a steady 10 percent to 15 percent turnover rate every year, he said. "We replace them, and more."

The board was founded in 1980 with about 2,000 Realtors, and didn't hit the 3,000 mark until the 1990s, Mercurio said. By 2003, there were nearly 5,000 members.

"It's been a nationwide phenomena," he said. The National Association of Realtors had 900,000 members in 2002 and has 1.2 million today.

The strength of the real estate market is the main factor, he said.

It's difficult to determine if there is an upper limit to the number or Realtors, since so many are part time, he said. "This is not your normal occupation in that there is a lot of part-time activity."

While there have been no local surveys, the national board has found that only about 30 percent of Realtors put in a full 45- to 50-hour week selling real estate.

The fact it can be done part time is part of the appeal, said Michael Graessle, co-owner of Nelson Vrooman Associates in White. Plains. "It's valuable for people who need to control their own schedules.

"I have a son who's actually considering taking the test. He's an airline pilot," he said. "I think he wants to do this because you can do it part time and find out if it's what you want to do."

His firm has 20 full-time and nine part-time agents, he said. They recently added four new agents and have increased their office space by 50 percent.

However, George Stone, co-owner of ,Julia B. Fee Real Estate in Scarsdale, said agents really need to work full time if they want to earn any money, particularly since most customers now do their own price research online. "It's not a part-time business. You have to he fully committed to it," he said.

Mercurio said the part-time aspect does seem to be changing, but slowly. Where in prior years real estate was often a second career, some are starting to look at it as a first career. "We're seeing a generational change. We see a lot of young people who have studied real estate in college. They see opportunity."

Linda Roth, branch manager of the Coldwell Banker Doernberg Real Estate office in Scarsdale, said the new agents coming to her firm have brought there own network of contacts with them and have had no problem finding business. "Everyone brings their own business to the show," she said. "There doesn't appear to be my absorption problems."

She said her office has added 11 Realtors over the past two years and now has a total 88 agents.

The larger candidate pool has enabled the firm to pick the very best candidates, she said. "They're coming in with very good resumes," she said.

"It does add some price competition," Stone said. "The good firms will take the competition well."

Mercurio said lie could not be sure what would happen to these newly minted Realtors when this market cools.

In previous years, the growth in the ranks of real estate agents slowed and even stopped in years when the market was below average, but there has never been a time when their numbers declined, he said.

In part, that is because there is always a pool of people who have gotten real estate licenses but have not taken the extra step of joining the board and becoming Realtors, he said.

However, no previous period of rapid growth has been this strong or lasted this long, making the future unpredictable, he said. "There's too much change."

Graessle said it's likely there would be agents who would reconsider their career choice, but that many would stick with it. "There's always activity, even in a market that changes."

"The ones that are making money will stick with it, and the ones that aren't will go and look for the next hot industry to try," Stone said.

The Infoshop (http://www.the-infoshop.com/ee/55347) has announced the addition of Asia Market Information & Development Co.'s product Chinese Markets for Defoaming Agents to its online catalog.

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