In a business where specialization and differentiation are essential for growth, the program administration market is showing steady year-over-year growth, according to the Target Markets Program Administrators Assn. (TMPAA)'s 2012 “State of Program Business Study.”

The study pegged the 2011 program administration market at $24.7 billion in premiums, a 9 percent increase from $22.6 billion in 2010.

The TMPAA defines “program business” as insurance products targeted to a particular niche market or class, generally representing a group of similar risks placed with one carrier. Administration is done through on a wholesale or retail basis by agent/broker program specialists with an expertise in a given market, working with the carrier to provide underwriting selection, binding, issuing, billing, marketing, premium collections, data gathering, claims management/loss control and possibly risk sharing.

Results were based on two surveys: one distributed to program administrators, and a second to insurers that use the program distribution channel.

Key findings include:

  • There are roughly 950 program administrators in the U.S. About 70 percent have fewer than 60 employees, and 30 percent have more than 60 employees.
  • Carriers and program administrators reported an estimated 2,000 individual programs, a 5 percent increase over the 1,900 of last year.
  • The average increase in premium volume reported by program administrators was 9 percent, compared with 4 percent in 2010. The largest volume of premium was in government, non-profit and education, construction and transportation. Lowest volume was in retail, financial services and leisure.
  • Top-ranked program insurers included Meadowbrook Insurance Group, Western World Programs, Great American Insurance, Liberty International Underwriters and Markel Programs.
  • Average renewal rate reported by program administrators was 84 percent, the same as last year.
  • The mergers and acquisitions landscape is uneven: 43 percent of respondents say they want to purchase other administrators, while only 9 percent say they plan to sell. This sellers' market means multiples for program agencies may increase and, combined with higher revenue and profitability, may change the dynamics of the M&A market.
  • Technology plays a growing role in program administrator success. About three-fourths of respondents have internal IT departments and most plan to invest in quoting and underwriting systems.
  • Underwriting profitability is a primary motivator. When asked to rate the factors crucial to program success on a scale of 1 to 4, program administrators registered an average rating of 3.8 for underwriting profitability, while insurers recorded an average rating of 4 for this factor.

For the complete study, go to targetmarkets.com.

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