At a time when general property-casualty insurance is suffering from poor economic conditions and a seemingly neverending soft market, the program business niche is a “growing and vibrant market,” generating $17.5 billion in premiums with an estimated 1,500 individual programs and 750 program administrators, according to “The State of Program Business 2011.”
The baseline study, the first of what will be an annual survey to track program trends, was conducted by Advisen and the Target Markets Program Administrators Assn. (TMPAA) and released at TMPAA's 11th annual summit last week.
The study of TMPAA members was conducted via an online survey from July 14 to August 3. Respondents included 92 program administrators and 34 insurers, roughly one-half of TMPAA's total membership.
Among the key findings:
- Many administrators reported growth in their book and high retentions even in a declining marketplace.
- Program administrators are in sync when it comes to their view of the components crucial to establishing a successful program.
- The business includes many small companies with a few larger players. The average program administrator handles about three programs, has $20 million in written premiums and employs about 16.
- Larger firms (administering more than $50 million in premiums) account for more than half of written premiums.
- Program administers report having relationships with 57 carriers, with Lexington Chartis Programs, ACE, QBE Insurance Corp., Amtrust Underwriters Inc. and Munich Re topping the list.
- Although some insurers specializing in programs insure more than 50 programs, most insure less than 20.
- Rate adequacy and premium potential top insurers' list when considering whether or not to write a new program or accept a rollover program.
- Delegation of binding and underwriting authority defines program administration: 100 percent of responding insurers delegate their underwriting functions, 61 percent delegate most underwriting, 22 percent say underwriting is fully delegated, and 17 percent delegate some underwriting.
Click “next” to see charts on the findings.
The program administrator market seems to be thriving despite the continuing challenges of the soft market. One survey respondent stated that “the PA underwriting/distribution model will continue to outpace the general insurance marketplace in terms of profitability and growth for the foreseeable future.”
There is a large concentration of programs in professional services (10 percent), habitational (9 percent) and real estate (9 percent). One-fifth of participants responded “others,” including agriculture, aviation, emergency services, energy, fine arts, life science and recycling.
Asked to describe the change in premiums written in 2010, 53 percent of program administrators saw increases, one-third saw decreases in premiums while 14 percent reported no change. According to the study, “This may be indicative that program adninistrators are making the best out of the bad. The commercial property and casualty business has been facing a particularly difficult and unpredictable environment.”
A very large percentage (75 percent) of the respondents' overall revenues come from program administration. Other significant portions include wholesale brokerage and retail brokerage.
The TMPAA study asked carriers about what they look for when considering a new program or accepting a rollove program. One carrier commented that his company looks for “a knowledgeable, subject matter expert PA who has competent staff that handle their business on a timely basis and work closely with the carrier to adjust filings and processes as needed to ensure profitability. Also, a PA that is 'future oriented' and tuned to growth.”
The long-term success of relationships between program administrators and carriers depends in large part on agreement as to the criteria for successful programs. On a scale of 1 to 5, with 5 as the highest possible rating, program administrators and insurers are in sync when it comes to their view of the components crucial to establishing a successful program. Both groups put underwriting profitability first, with other key factors including gross written premium, commission rate and growth rate.
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