Mr. Robinette differentiates his firm by building his underwriting models around one central belief–”that to be successful, you must build plans that are in no way, shape or form involved with qualitative risk decision-making.”

“It's effectively impossible for an individual underwriting firm to pick the better [quality] risk because everyone is trying to do the same thing,” he said. “We all understand what 'better' means. It means better management, better employees, better housekeeping. Everyone understands the same rules.”

Further explaining why he creates a completely different set of rules for his programs–building rating plans around “operational” risk characteristics instead of “qualitative” ones, he described how an underwriter using the latter approach might price a risk using a bureau schedule modification plan.

Such a plan assigns 5- or 10 percent credits and debits for better and worse qualitative factors, he explained.

“The problem with that is that everyone does the exact same thing. So the market basically tells you where you're going to end up,” he said. “When the market is soft, you always end up with a credit. When it is hard, you get a debit. But you're only getting a swing of 10-to-15 percent, and it's not a way of differentiating you.”

He added that “if you're going to be an MGA, you have to differentiate yourself. We can't be like an insurance company. We have to be better than an insurance company or we don't exist because that's the only reason we're here. If we're doing what an insurance company does, they don't need us.”

Distinguishing “operational” risk characteristics from “qualitative” ones by using the example of underwriting sawmills, Mr. Robinette contrasted the idea of choosing to write a certain sawmill because management has been in place for 30 years from an approach that focuses on type of wood that's being cut–an operational distinction.

Noting that the industry rating basis for sawmills is receipts, and that a sawmill takes in $4 per foot for cutting pine but $22 per foot for red oak, he said, “I can write the absolutely most disgusting red oak mill and I get five times the premium I get with an absolutely cream-of-the-crop pine mill.”

Mr. Robinette builds his program underwriting/pricing models by collecting data, and then analyzing all the research he gathers about a particular class to determine the operational risk characteristics that are primary causes of loss. Bureau rating plans referenced by the rest of the industry are typically off the mark in this area, he said.

For example, he said that by doing an analysis of loss causation for trucking risks, he found that risk is not dependent upon where a truck is garaged or how big it is–factors included in the bureau commercial auto rating plan used by many insurers.

Instead, 87 percent of all claims are driver errors. So the driver should be in the underwriting plan somewhere, he said, also asserting that the type of road is another true causation factor.

A truck garaged in New York that drives to St. Louis gets a dramatically higher premium under the industry's plan than one that goes from St. Louis to New York, “but they're the exact same risk. They're going over the same route,” he said.

For the underwriting and pricing model for its trucking program, Bellingham creates an eight-digit class to correspond to operational factors such as type of road, age of driver and miles driven. “They have nothing to do with the quality of the risk,” Mr. Robinette said.

He said the rates he uses to populate his class plan have allowed his program to achieve a limited loss ratio (where individual losses are capped at $100,000) of 25 percent in every year since 2002, “regardless of where I write, regardless of whether its long-haul or short-haul, [and] regardless of whether it's a landscaper or a truck hauling nuclear waste.”

“It doesn't make much difference. The front of the truck is what causes the accident,” he said.

While he said that building an underwriting plan around true causation is the “only way to get away from the trends of the marketplace” from a profit perspective, his firm still has a hard time writing business when the market is soft,” he said.

Indeed, he estimated roughly 25 percent of the business in the country is priced at a level where he can write at to achieve his targeted loss ratio during a hard market, and only 3-to-5 percent is available during a soft market.

“I just have to quote more business, and I'm going to have a much lower hit ratio. But my loss ratio is going to be exactly the same today as it was during the hard market,” he said.

Mr. Robinette spent the remainder of the session demonstrating how he continually tracks the results of his model using a benchmarking method–based on limited loss ratios–that allows him to see the impact of his underwriting plan within a six-month timeframe.