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Program Insurers and Administrators

How has the soft market affected the programs business?
Brendan Brownyard: For any program, an individual risk that may have been acceptable 5 years ago may not be acceptable at today's pricing. It's also possible that a previously desirable risk may, for its own competitive purposes, accept work that we would consider unreasonably hazardous from an underwriting standpoint. Experienced program managers know that after 5 years of shrinking rates, the effort to maintain underwriting standards is critical to a program's success; they also know they must compete not just by price but also in service and expertise. For example, our efficiency in handling complex claims through our in-house claims facility (Brownyard Claims Management, Inc.) and extensive knowledge of the industries we service have proven to be invaluable tools.
Glenn Clark: Rockwood's core prospects are in management liability. The soft market has put downward pressure on rates on employment practices and made it harder for us to keep renewals at a credible rate. Larger E&O accounts are especially vulnerable to carriers who exhibit some pretty risky pricing strategies. We have a duty to protect our carrier partners, and program business is the best way to have deeper relationships with a partner. I simply cannot imagine what a non-affiliated wholesaler must be going through,
Greg Thompson: There are many carriers expanding into the programs market and those who are already in the market are expanding into new programs. As a result, there is increasing competition which should result in continued downward pressure on pricing in 2010.

What impact has the recession had on your own business in 2009?
Brownyard: Regarding our security guard program, in previous recessions we found that when buyers of security guard services were faced with harsh budget constraints they didn't hesitate to cut or reduce the level of security services before they reduced their own workforce or applied other cost saving measures. In the current recession, purchasing efficiency is important, but security services are more highly valued than they had been in the past and not just viewed as a commodity. As a result, while payroll growth is not as great as it had been earlier this decade, it is still healthy considering the economic climate. In addition, for several of our programs that would be considered labor intensive, one interesting by-product of today's higher unemployment rate is that there is a more qualified employment pool to draw from. This is an underwriting benefit.
Clark: Many of our insureds are in the smaller end of the E&O world. Usually our biggest competitor is not another program or insurer; our biggest competitor is the decision to buy insurance or to go without it. We have seen an uptick in the number of prospects who decide not to buy. Obviously from our perspective, it is hard for someone to hold themselves out as a true professional and then not be insured.
Thompson: The impact varies by program. The Pest Control Industry, which is heavily dependent upon Termite letter revenues linked to home sales, has been hit hard and that means less premium. The Tanning salon industry has been hit by much lower sales too. Health care related business, such as senior living and home health, however, is doing much better.

Are you finding that carriers are more interested in developing program business to gain a competitive edge in a soft market?
Clark: Our agency is the founding agency of TMPAA (Target Markets Program Administrators Association). Program business had gained new status over the past 8 years or so. The best carriers and the best administrators are finding each other. The weaker models have been weeded out. While we all face challenges and we all sell the same product–a promise to pay–what makes one partnership work and another fail? The program model is time tested and we are doing everything we can to be sure the best partner with each other.
Brownyard: In the face of shrinking income from their everyday business, some insurers are suddenly interested in program business, and program managers are exploring new classes. Some insurers merely copy information and sample policy forms from the Web sites of established programs and consider this sufficient due diligence. We do not. Rates are currently the lowest they have been in almost 10 years, and knowledge of an industry has never been more important to the success of a program. The classes we specialize in have proven to be volatile from an underwriting standpoint, and a broker must consider carefully the prudence of placing a risk with a new “program” or market that can't guarantee a long-term commitment to that class or offer adequate expertise and knowledgeable claim administration.
Thompson:Yes I believe many carriers view a program strategy as a way to avoid the ruthless competition of the standard market and middle market sectors.

What do you see as your top 3 most critical issues in 2010?
Clark: Personnel, government and expenses. Personnel is the top challenge in every year. People are differentiators. Hard work, energy and good ethics will win out over a lot of adversity. The government seems much more focused on trying to fix the economy by giving away money. This economy will only be fixed by the people who make the jobs: small business. To ride out the soft market, every expense must be analyzed and evaluated, whether it's shared marketing costs, reduced travel, etc. We all need to be careful.
Thompson: The first issue will be to maintain the profitability of our carriers. Lower rates are putting pressure on our loss ratios. Secondly, we will have to control our expenses as lower premiums affect our margins. Finally, we will need to find ways to improve our competitive edge in each of our programs so that we can maintain our premium volume despite increased competition.

Brownyard:

Continuing to deliver the high level of innovation and service expected from us by the marketplace
In today's prolonged soft market, to maintain competitiveness we must be aware of the actuarial status of each program
As rates continue to decline, it may be prudent to convince some insureds that further premium reductions can lead to sudden and damaging pricing corrections in the near future.

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