In an industry awash with underwriting profits, insurers are eager to find opportunities to put that cash to work. One place to which they are turning is the program business market, where they see possibilities for quick revenue production. To attract business, many insurers are lowering minimum premiums, broadening coverage or even relaxing data requirements, in some cases. Of course, there are always challenges and risks. One is coping with the competitive pressure of an increasingly soft market. To gauge the state of today's program-business market, we recently contacted five program administrators, all members of the Target Markets Program Administrators Association. Their comments follow.

Greg Thompson, CPCU
Thomco
The interest in program business only seems to be increasing, said Greg Thompson, president of Thomco. When contacted for this article, Thompson had just returned to his office from the Target Markets Program Administrators Association's midyear meeting. He is the association's current president.
“We had 435 registrants,” he said, “which was a record for us for a midyear meeting.”
New insurers are entering the program-business market, Thompson said. “Ohio Casualty is a perfect example.” The insurer, which he said hadn't been involved in program business before, just applied for–and was granted–membership in the association.
Thompson said the interest in programs was noticeably higher than it was just six months earlier at the association's annual convention. More carriers than ever are considering startup programs, he added. One reason, he said, is that fewer program administrators seem interested in moving their current programs. He said insurers are looking for program administrators with “viable” business plans and a good distribution network, so a startup can generate the numbers to “make it successful in a reasonable period of time.”
“I think that they're still reluctant to do startups for smaller, less-established program administrators,” he said, “but for the larger and more well-established ones, I think they're considering it more and more.” In some cases, insurers appear to be offering to do startups with established program administrators as a way to get a foot in the door, he added.
While most startups still are created by insurers and program administrators that have existing relationships, some are now being formed by carriers and program administrators that previously had not worked together. “That was unheard of a year or two ago,” Thompson said. Insurers still want programs that generate at least $5 million to $10 million in premium volume, he said, although many now are content to see that kind of volume after three years, rather than from Day 1.
In the soft market, program insurers are broadening coverage, Thompson said. Pricing has been coming down, too, he said, particularly since the end of the first quarter of the year. “In April, we noticed much more aggressive competition,” he said.
Program administrators must respond to such competition wisely, Thompson said. “You have to look at your loss ratios and see how much room there is for some price adjustment,” he said. “If you're going to get aggressive in pricing, you try to focus on those accounts where you can justify it.” Such an approach not only mitigates the loss of revenue, he said, but also helps a program administrator retain its best business.
In the soft market, insurers are lowering their growth expectations, Thompson said. In 2005 and 2006, carriers expected established programs to grow by 10% to 15%, he said. “I think now they're happy if you stay static.”
If the top line is not growing much, program administrators will look for ways to trim expenses. One tactic, which Thompson said he has not turned to himself, is to use offshore processing centers for policy issuance, invoicing and similar tasks. In fact, a vendor offering such services attended the Target Markets midyear meeting, he said. “They have a location, with about 100 employees, in China, that they employ to do a lot of backroom processing for a number of agencies and MGAs.”
Art Seifert, CPCU, CIC, RPLU
U.S. Risk/Lighthouse Underwriters
While the insurance industry has been recording record profits, carriers are having a harder time increasing the top line, said Art Seifert, president of U.S. Risk's underwriting division, and that has implications for program business. “I know specific carriers that are off by $100 million (in written premium) in the first quarter,” he said. “There's a lot of concern about growth because, obviously, we're seeing a much more competitive market.”
For a program administrator, “the bad news is your existing book is under pricing pressure, so you're going to see it shrink somewhat,” Seifert said. “But the good news is carriers are willing to talk about new programs, both re-launches (programs that an administrator previously tried to start then shelved for lack of carrier interest) as well as brand-new ones.” That, he said, is because programs allow carriers to “capture a significant amount of premium quickly–again, to support the growth in the top line.”
Insurers are offering to broaden coverage, to make programs more attractive and competitive, Seifert said. For instance, he said, insurers used to offer sexual-abuse coverage as a sublimit in policies written for risks like nursing homes and social service agencies. “Now they're going to include it in policy limits,” he said.
In response to favorable market conditions, Seifert said, U.S. Risk is hoping to launch “three or four” programs. One is for the food industry. After a 10-day waiting period, it covers business-income losses stemming from outbreaks of food-borne illness, workplace violence or other events that draw adverse publicity. Seifert said Lighthouse tried unsuccessfully to start the program when market conditions were tighter. “Now we're basically re-launching it,” he said, adding that several carriers are looking at it.
Seifert said the market also is encouraging him to look for new program opportunities, particularly if they are related to something Lighthouse already is doing. For instance, Lighthouse Underwriters, a U.S. Risk program administrator, already has a program that covers audiovisual equipment–cameras, sound systems, lights, etc.–used for live events in the entertainment industry. So now Seifert is looking into a program for riggers and flyers–the people who put up all the scaffolding and hang the lights and speakers. “We already have to research them because they're going to be moving high-priced equipment” covered by the existing program, Seifert said. “We probably have enough knowledge about them to write insurance for them too.”
Requirements for new programs have been relaxed, Seifert said. In the past, insurers wanted to see a lot of actuarially supported data about the loss experience of a program's intended insureds and the program's projected results. Now, he said, some carriers are saying: “Give us some information, so we have an idea whether this makes sense or not. Tell us what the distribution play is, what the hooks (a program's value propositions) are and what you expect to be able to do.” Particularly with program administrators they've dealt with in the past, insurers may take a flier on a new program with limited data, he said.
Seifert, who is the immediate past president of the Target Markets Program Administrators Association, said the group's events are good places to talk to carriers about new programs. Before a meeting, he sends a two- or three-page summary of anything he's working on to carriers of interest. “Then they have a chance to sort of launch it as a 'trial balloon' internally,” he said, “so when we get together, we know whether this is something that might have traction–or not.”
With an emphasis on growth comes an emphasis on marketing, Seifert said, a task with which new technology is playing a significant role. Seifert said he sends e-mail blasts to a database of 85,000 agents. He said his system can tell him which agents opened an e-mail and even whether it subsequently was routed to someone else in the agent's office. “We can call and say, 'We noticed you took an interest (in an e-mail message) because you opened it. Did you have any questions?'”
Seifert said his major worry right now is that certain “rogue” carriers are going overboard in their efforts to increase the top line. “I just saw an account that was a $700,000 renewal (a nursing home) renew at $185,000. That concerns me.”
With growth harder to come by, program administrators are doing what they can to rein in expenses, Seifert said. “I think everybody is making better use of technology.” He said there's an emphasis on using Web-accessible automated underwriting programs that can give agents quotes–or at least indications that subsequently can become bindable–for certain types of small-premium accounts. “We're doing that now with umbrellas, with nonprofit D&O and a couple of other things,” he said. “Carriers also are starting to issue two-year policies for certain accounts, which trims renewal transactions by 50%.”
“That'll cut your cost down pretty significantly.”
Ben Francavilla
Americana Program Underwriters
While Ben Francavilla doesn't necessarily see many new carriers entering the program market, he said those that formerly only had a toe in the water have now jumped in with both feet.
“It's hard to say that somebody wasn't doing programs and then suddenly is,” said Francavilla, who is senior marketing director of Pennsylvania-based Americana Program Underwriters. “It's more like they might have had a tiny program-market area, and now they're … putting maybe 10 to 15 underwriters on.”
New programs are flourishing in this environment, Francavilla said. “We're up to about 19 (from 16 last year), ranging from waste haulers to pizza delivery,” he said, “We expect to start up a wholesalers program shortly.”
The renewed emphasis on program business is playing out across the board, he said, with traditional program insurers, including those Americana Program Underwriters works with, looking for more opportunities–particularly those related to existing programs. “It's less expensive for a carrier to expand an existing program relationship than it is to start a new one, because of the cost of doing due diligence,” he said.
For example, Francavilla said, Americana Program Underwriters recently started a program for scrap dealers. “We had experienced underwriters in a similar class (solid-waste haulers),” he said, “so it was not a stretch to just move into the recycling/scrap area.”
Insurers also will consider startup proposals from program administrators with which they have a track record, Francavilla said–”if you have enough data to convince them that the class of business is going to work and that you have enough expertise to underwrite that class.”
The soft market is putting downward pressure on rates for some programs, Francavilla said, particularly on liability lines and in such niches as waste haulers and environmental insurance. In times like these, he said, it helps to have a diversified book. “If we have a program that's getting hammered from a competitive standpoint, we have other programs that are doing well,” he said.
In response to stronger competition, Americana Program Underwriters tries to be as aggressive as it can, Francavilla said, but not at the expense of profitable returns for its insurers. To hit growth targets while maintaining underwriting discipline, “we try to get more prospects in the funnel,” he said, by ramping up marketing–”whether it's our Internet portals, whether it's e-blasts, whether it's direct mail. We just use a variety of marketing platforms to maximize our opportunities.”
John Torvi
The Herbert H. Landy Insurance Agency
As competition heats up, The Herbert H. Landy Agency is increasing its marketing efforts, said John Torvi, director of marketing and sales.
“I'm on the road for the next two weeks, primarily to visit our agents and some new agencies, as well as go to a couple of conventions,” he said. “We do e-mail blasts to our agents and to new agents, letting them know about program changes. We're also in the midst of a Web site revision.”
The Massachusetts-based agency has two programs for accountants, Torvi said, and one for real-estate agents, brokers and appraisers. The programs account for about 75% of the agency's revenue, he said, with the rest coming from retail insurance sales.
To encourage production from agents in a competitive market, the agency increased new-business commissions on its accounting program by up to 20% last year, Torvi said. Product quality remains important, however, he said. “We're very proud of what we have, in terms of our policy forms and our ability to comprehensively cover the businesses, both on the accounting and the real estate sides.”
Ease of doing business also is an important factor, Torvi said. “That has a lot to do with streamlining the application process, streamlining the renewal process and recognizing that clients and agents do have choices.”
As part of its approach to business, The Herbert H. Landy Agency maintains a Web site at which agents can obtain applications, specimen policies and other sales and marketing materials. “We're highly automated and want to stay at the forefront of that,” Torvi added. “Insurance companies are certainly encouraging it.”
Like many program administrators in today's market, The Herbert H. Landy Agency has plans for launching new programs, Torvi said, although he said he is not at liberty to discuss them. He said the agency is fortunate in that it can pick and choose from options that insurance companies have taken the initiative to present to the agency. “But the work involved is huge, he said. “To think that you could really do more than one, or maybe a couple, a year is stretching it.”
Darren Lewin
Abacus Insurance Brokers
Abacus Insurance Brokers derives about 55% of its revenue from its programs and the rest from retail brokerage, said Darren Lewin, chief financial officer and vice president of programs. Originally, all of the California-based program administrator's programs were geared to entertainment production, he said. In recent years, however, Abacus has added programs in such niches as special events, contractors equipment, and errors and omissions.
Lewin said insurers today will accept smaller programs. “Two or three years ago the common theme was $25 million for multi-state deals,” he said. “I'd say that's decreased dramatically.”
Despite insurers' increased appetite for business, Lewin said relatively few carriers are really interested in starting programs from scratch. “They want the history,” he said, which implies an existing program. In general, he said, “programs aren't created; they're just transferred.”
Nonetheless, he said, Abacus has been able to launch startups over the last few years. One, a program that insures entertainment events, started “literally from zero” five years ago and now is one of the program administrator's largest programs. The current insurer is Travelers, he said.
The events program, like others Abacus operates, is largely technology-driven, Lewin said. While most program administrators have underwriters evaluate individual submissions, risks sent to Abacus are screened by proprietary software developed by Abacus. Either a risk fits an insurer's parameters, Lewin said, or it doesn't.
In the Abacus model, proprietary technology also is the key to distribution, Lewin said. Retail brokers send submissions and do business with the program administrator “completely in a Web-based environment” at www.abacus.net.
In short, the Abacus model is geared to efficiently handling a large number of homogenous, small-to-medium-premium risks, Lewin said. “It's more of a processing, as opposed to the traditional programs that are not as transaction-driven but have a higher premium per risk,” he said. “In our model there's very little overhead. We're not looking to get into large premium-per-account programs that require tons of overhead, and staff to manage it and lots of hands-on involvement.”
Perhaps because of its business model, with its emphasis on smaller risks and cost containment, Lewin said, Abacus has not been greatly affected by the soft market. “We really have seen … zero impact,” he said.
Lewin said he has seen insurers that lack experience in program business now try to get into what they see as a potentially lucrative game. He said he would be hesitant to work with such carriers, however, because the program business “infrastructure” is quite different from that of a standard P&C operation. “To bring onboard a carrier that doesn't have program expertise, they would really have to bring a lot to the table,” he said.
For insurers that do have experience with program business, Lewin said he wishes more would be open to alternatives ways of doing business–”especially on the technology front.”
Someone must be listening. In the year ahead Lewin said he expects Abacus' number of programs to grow by a third.