Ballinger on Growth, Professionalism in Texas Surplus Lines Market

Phil Ballinger retired at the end of December 2014 as executive director of the Surplus Lines Stamping Office of Texas (SLSOT), a post he’s held for more than two decades.

During his tenure at SLSOT, the organization has been recognized nationally for its service to the state and to the surplus lines market; and the market itself has grown dramatically.

In this interview with Insurance Journal, Ballinger reflects on his work in the surplus lines industry and the changes that have occurred in the Texas marketplace during his service at SLSOT.

Insurance Journal: When you mention surplus lines to most people outside of the industry, they have no idea what you’re talking about. It’s likely that the industry was even more obscure when you first got involved with it. How is it that you became involved with surplus lines?

Phil Ballinger: I was an oil and gas appraiser in the ’80s. Because surplus lines is a fairly important coverage provider in the oil field, I had some familiarity, just generically, with — there’s an insurance called surplus lines.

Then, when I was at the Department of Insurance, I was director of tax administration there. That was before that function was transferred to the comptroller. I think that transfer occurred in ’93. I was at the Department, in ’90 and ’91 I guess it was, as director of tax.

I was involved in the surplus lines premium tax administration. Then, I did some speeches for Stamping Office seminars. They had me come as the tax person and give some information to the people that attended the Stamping Office seminars, back in those days.

I got recruited by the then head of the Stamping Office and came to the Stamping Office from the Department. My background in surplus lines wasn’t particularly deep, but I got over here and decided: I need to really learn a lot more about this, don’t I?

I studied to get a CPCU. At that time, also, the ASLI designation was just rolled out. I got it at the same time. The ASLI program was really a great way to get introduced to and learn about surplus lines quickly, one-stop shopping. That’s my immersion into the surplus lines market.

Plus the day-to-day stuff at the office, going out to association meetings, NAPSLO, AAMGA, TSLA, speaking to agents, speaking to underwriters, that sort of thing. That’s how I got exposed to it.

IJ: What are some of the most significant changes in the industry — both in Texas and nationally — that you’ve seen during your career?

Ballinger: I guess several things. Number one, the importance of surplus lines has grown astronomically. As I was getting ready to talk to you, Stephanie, I started looking back into the ’90s and even when we opened our doors, in ’88.

In 1990, there was a little more than $700 million in premium in the Texas market. Last year, it was $4.7 billion and it will probably hit five billion this year. As recently as 2000, it was just slightly over a billion dollars. There’s been a fivefold increase in premium in the past 15 years.

That shows an increase in the percent of market share. That’s a corresponding increase in the importance of surplus lines to the market, to the commercial lines market especially, because this is predominantly a commercial marketplace, commercial lines. That’s number one.

Number two, I think the sophistication and professionalism of the market has really grown. A lot of that is just natural evolution. Some of it’s due to the workings of NAPSLO and the AAMGA. They promote professionalism, knowledge, continuing ed, etc. They’ve developed their own schools now and they continue to roll people through those schools. …

There are some of the admitted markets that still think that this is an unregulated market, full of unscrupulous characters and insolvent Caribbean insurers, and all of that. It ain’t that market at all, if it ever was. …

The third thing is technology has assumed such a huge importance in the ability of the market to do what it’s supposed to do.

Saying all that, by the same token, there were some things that have remained unchanged. This is still a market of innovation and rapid response. It’s a market of relationships. The relationship between wholesalers and surplus lines insurers is a very interesting one. That’s how business gets done, is because of those relationships.

The value added concept that wholesalers, surplus lines agents bring to a transaction. The reason retailers go to them is because they have to. They don’t go to them because they want to; they have to find coverage that they can’t find otherwise. They go to the people that know how to get that coverage, that know the products, know the insurers, know the markets.

There’re some things that have changed a lot and there’re some things that haven’t changed much.

IJ: How have actions or non-actions of Congress in recent years affected the industry?

Ballinger: The NRRA, obviously, is one of the big things that has given a federal uniformity umbrella over the marketplace that was probably needed in some areas like certainty of who the regulator is on a multi-state transaction, ease in paying taxes on a multi-state transaction, trying to remove some of the diligent effort problems on large commercial buyers, exempt commercial purchasers that are called under the NRRA. …

Surplus lines is a creature of state regulation because the whole foundation of the thing, obviously, is freedom of rate and form. That exists under the auspices of the regulation of rate and form by the states. The individual states can vary quite a bit on how they do that because their laws, their requirements, their markets. The environment that the policies are issued in are so different. Manhattan is very different from Missouri. You have that. NAPSLO and the AAMGA, the surplus lines market generally were opposed to the concept of the federal regulation of insurance, back when that used to be kicked around a lot.

You remember those days, when there were some of the bigger organizations like the AIA that were interested in, well, maybe we want federal regulation because their large members like State Farm, USAA, they may thrive under federal regulatory regime, but not the surplus lines market.

Having said that, there were instances where there were needs for uniformity in certain areas, such as tax payments, such as who’s the regulator on a multi-state transaction. The states could not get together to provide a uniform answer for.

That ended up requiring the federal government to put in something like the NRRA to address uniform provisions, to try and set standards in certain areas. Certainly, not to establish a federal regulator, but to establish federal standards that would then be regulated by the individual states.

IJ: If you had a piece of advice to give to surplus lines brokers and MGAs to keep them out of trouble with regulators, what would that be?

Ballinger: Continue to be active in the associations, especially TSLA because they do a good job of staying current on what are the issues before TDI. Stay involved and active there. Keep an interest in day-to-day events because something that’s before the department will ultimately show up. It’ll show up in the trades. It’ll show through TSLA, etc.

Be aware of what the laws require and the rules require. Do your best to instill in the employees of your agency that compliance is an ethical consideration, but it’s also smart business practice. There’s ultimately a cost to failure to comply with regs. It can be a small cost or it can be quite a large cost.

Listen to a podcast interview with Phil Ballinger at: https://www.insurancejournal.tv/videos/11771/