The Nitty Gritty of Blue Collar Programs
Program Managers Working for the Working Class
For some program administrators, blue is the color of money. While other insurance programs target lawyers, insurance agents and various white-collar occupations, some of the most successful cover electricians, auto mechanics, roofers, truck drivers, elevator operators and other blue-collar businesses.
Many of these blue programs are born out of market need. That’s why Alex Zardeneta, vice president of underwriting and marketing for California-based Yates and Associates, got involved in a program for contractors.
“Our artisan contractors program was formed in response to the construction boom in California. The boom was taking off and homes were being built so quickly, a lot of people started requiring coverage,” he noted. The boom has since spilled over into Arizona and Nevada. Yates and Associates currently writes $12 to $15 million in premium for artisan contractors.
Other blue-collar programs are developed from contacts made within the insurance industry.
“A wonderful thing about the insurance industry is the relationships,” said Kathie Hearlston, vice president of property for AVRECO, based in Chicago, Ill. “Someone I knew with Marsh and McLennan years ago had gone to a smaller agency specializing in transportation and kept my card knowing I had given good service. He called me and asked if I would help him with the transportation business he was writing. He had an in-house facility that was writing auto liability and needed physical damage and cargo, which happened to be what I was better at. So it was a good fit.” AVRECO writes $5 million worth of program premiums in both contracting and manufacturing, as well as $3 million worth of premiums in the trucking industry.
Others get started simply on an agent’s own initiative.
Calvin Carter, president of Carter Insurance Group based in Tampa, Fla., designed his firm’s auto service center program himself years ago. “Back 25 or so years ago we found that we were writing a lot of service stations, auto repair garages and we were gaining more and more expertise. We decided, well, maybe we ought to design a dedicated program for that, which we did,” Carter recalled.
There was a small A-rated company with a new president who liked the idea and helped the agency put together the program. In time, Carter got out of the retail side and started a managing general agency operation, appointing agents he came to know through service on the state’s independent agent association board. They began selling two programs in Florida, then in Georgia and other southeastern states.
Today, Carter’s programs yield in excess of $10 million from any type of auto repair services, other than dealers, such as service stations, auto repair garages, body and paint shops, tire stores, parts stores, and brake and muffler shops.
Getting the word out
Like their white-collar brethren, blue-collar programs are marketed through a combination of standard marketing strategies including print ads, word-of-mouth, trade shows, associations and Web sites. Marketing can vary depending on the general agency’s history or relationships with their producers.
Referral accounts
“When we visit other agents trying to drum up business, we get a lot of referral business,” said AVRECO’s Hearlston. “We also advertise in trade journals and go to shows with handouts to get our name out. Lately, we have been doing things like e-blasts in an attempt to reach a broad spectrum of people and see who might have a particular type of business.”
While the Carter Insurance Group does all of its marketing through independent agents, Yates and Associates advertises heavily in magazines, sends out fax-flyers and attends as many association meetings as possible to get their message out.
“In the construction industry, there are a number of associations that a general agency might market to or be associated with. Direct mail to individual insureds is very rare –direct mail to retail or wholesale producers is more prominent. A number of general agents have Web sites where they will put forth what they are looking to do and will often have print ads as well,” said Patrick Hunt, vice president, specialty casualty product line manager of AIG Programs. According to Hunt, the largest segment of AIG’s blue-collar program field is contractors insurance, accounting for 10 percent of the portfolio.
Understanding the exposures
Blue-collar programs have challenges including underwriting guidelines that can be unique to each class of business. In some situations, the financials may be monitored extra closely, if only to make sure the insureds are doing well and can afford the premiums.
“In the trucking industry,” Hearlston said, “people watch the money very closely. We have worked with some insureds to come up with some payment plans to help ease the blow of a big premium.”
Contractors’ additional insured requirements can be tricky for underwriters. “That is the challenging part,” said Zardeneta, who notes that these insureds often want special wording in their policies, wording that insurance carriers don’t want to provide anymore because they’ve been hit with a lot of construction defect claims as a result.
“The ISO form CD2010-1185 broadens the coverage for the insured. That is the reason a lot of them (carriers) pull out of that class of business or pull out of California totally,” said Zardeneta.
Construction defect claims
According to the Yates executive, the biggest exposure follows residential contractors that are involved in new developments such as spec homes, condos, town home tracts and apartments. “Those are our biggest challenge because the construction defect claims come in a lot more frequently on that that type of exposure.”
Carriers might hang in for three to five years, but then pull out due to the defect claims. This forces the agency to scramble to find another carrier that is willing to write that class of business, he noted.
For companies like AIG, which has a large portfolio of business across the spectrum, loss control is a major issue in the blue-collar arena because the solutions are individual to the segment covered. “Contractors have loss control/risk management opportunities that are different from those that are relating to automobile operations. We work very closely with our general agents and our insureds in providing loss control/risk management services. I think the big importance is that all of the things we do with our clients require that we build a solid understanding of the exposures, coverages and the management of the frequency or severity in their claims. The whole point of this is building a sustainable and profitable portfolio,” said Hunt.
Handling claims
A typical claim in the trucking industry involves an overturn or an accident, usually due to weather conditions. “We tend to see more of a threat in the winter as they travel on icy roads,” said Hearlston.
Since no money can be made unless a truck is on the road, it is important to handle claims quickly in that industry. “It is important that the insureds notify us when they sell a truck or buy a new truck so we can be sure that all the vehicles are scheduled on the policy at the proper time. That way, if there is a claim, we can verify coverage right away. We like to get claims handling done right away so we can get them back on the road. They appreciate that, and sometimes the service we give them in that regard helps keep them as long-time clients.”
In the contractor area, especially in residential, the origin of a claim might depend on where it is. For example, in New York, action comes from the subcontractors. A subcontractor will get hurt and the workers’ compensation carrier for that subcontractor will come back and sue the general contractor. In California and other states, action usually comes in the form of class action defect claims.
Keys to success
Hearlston attributed part of her success in the trucking industry to not having all her eggs in one basket. “We try to have as many markets for the clients as possible. Sometimes insurance companies change their minds about writing one class or the other. So we try to always look for new insurance companies and spread the wealth around with all of them. That way if someone does pull out of this class of business, we can continue to service the clients we have and continue with that book of business.”
According to Hunt, it’s important that there be communication among all parties involved at all times. “We want our buyer, who is always price conscious, to look for a long term, knowledgeable, innovative carrier. There are specific challenges by line of business, by industry segment and by state. So what we try to do is to respond to those challenges specifically and not apply a blanket approach to all.”
Like the rest of the economy, blue-collar fields are being transformed by technology. Computers are now common in auto repair, construction and other jobs and in the distribution of insurance to blue-collar services.
“A couple of things have changed in this field; one is a lot of the blue-collar insureds have Web pages. That makes the whole distribution of information much faster. Another is online quoting and binding capabilities,” noted AIG’s Hunt.
AI Risk has developed an online system called ProgramConnect, which allows a producer to enter smaller accounts and have them quoted and bound online. This type of technology enables AIG to distribute its product “more broadly and more cost effectively, leading to a longer-term sustainability,” said Hunt.
Carriers, of course, vary in their appetites but are always looking for new and emerging opportunities, including in the blue-collar sector. Finding these opportunities is a continuous activity.
“There’s significant data available on a national basis on such demographics,” said AIG’s Hunt. “Look at your producers to find out where the insurance is going, who is writing it, how can it be put together, does it produce a profit, does it make sense and do we understand it.”
Cautious carriers
Carriers are going to like what they understand and believe can be written profitably over the long term, which is going to be different for each carrier, according to Hunt. “Volatility and the predictability of growth in product in any segment makes carriers more cautious. I think to find a carrier that is innovative and has a broad base of knowledge in a market will enable [companies] to respond to either changes or to new opportunities.”
Zardeneta thinks that roofers are a class of business that has a lot of opportunity right now. “Four years ago, we sold roofers minimum premiums for $3,500. Now you’re looking at a minimum premium of $35,000. As a result, a lot of roofers, rather than filing a reoccurrence form, are going to risk retention groups–because of the price, but they are not getting full coverage. So someone needs to come in and write roofers like crazy.”
AVRECO has had recent luck with a program for boat manufacturers. “Carriers seem to like that kind of manufacturing,” said Hearlston.
While knowing what carriers want is obviously helpful, knowing what they don’t want is important, too. According to Carter, most carriers don’t want any workers’ compensation. “There are some that do want it, but those are special carriers that have experience in it and they may not be in all states. As far as on a national basis, workers’ comp is a tough class.”
Develop underwriting data
Program business requires preparation.
“When considering starting a blue-collar program, it is necessary to develop all the underwriting information for that book. Have losses and sales history in order to be as helpful to the underwriters as possible, as well as promise a few million dollars worth of business per year,” advised Mark Senkbeil, vice president of casualty for AVRECO.
Zardeneta said it’s important for agents to know the business they want to write and be familiar with the competition:
“Know what class of business you are actually getting into and know it inside and out. Know the loss ratio, not just what it is currently, but what it has been in past years as well. You want to know your competition so you are not the cheapest. If you are the cheapest, then you are going to get bombarded. You just want to be competitive. You can spread the growth with other carriers, but if you are the cheapest, you are going to be taking the volume and getting hit. The companies that are the cheapest usually pull out immediately or in a couple years.”
From a carrier perspective, there are questions agents should be prepared to answer when proposing a program, according to Hunt.
“Do we really control the business? Do we have data on the business we control? Do we understand the buyer’s motivation? What is keeping this portfolio together? What is the need that is being met? What is the purchasing decision? Is it purely price, or are there other services or coverages that the buyers do not have that would make them operate more securely–especially in some of these environments where you have very low margin occupations. It has to be done smartly. And again, finding a carrier that is innovative and is willing to work with the producer.”
While the questions might apply to all programs, the answers vary. “There is no one solution and the challenge and the fun is finding those solutions and making them work,” Hunt concluded.