How to Market Program Business to Carriers: Tell All, Honestly

Target Markets Mid-Year Meeting

Program administrators, painfully aware how difficult it can be to get insurance companies to sign on, improve their chances of program success when they tell the complete story of their operations and history, including mistakes made and lessons learned.

“Be prepared to let the carrier know everything that’s happened and what you expect,” one executive advised at the recent Target Markets Mid-Year Meeting in Baltimore.

Carriers selecting program administrators require considerable due diligence because they are handing over the pen to them, in effect making the administrator a branch of the company, explained Fritz Seifert, who develops new program business for AIG Programs.

Seifert was joined on a “How to Market Your Program to Carriers” panel by C. Douglas Bennett, senior vice president at Benfield, where he leads the program unit, and Lois J. Massa, who shared some rules from the program handbook at GE Insurance Solutions where she is a vice president responsible for new program business.

“It’s important to pick the right partner,” AIG’s Seifert stressed, noting that the right partner might be someone who does not have a perfect track record but who has learned from the lessons of the past.

Carriers’ eye for the PA
GE Insurance Solution’s Massa explained what it is that carriers are looking for in a program and an administrator.

“They’re looking for, among other things, knowledge of insurance on the part of the broker, and that includes expertise within the segment that’s being targeted,” she began.

Carriers also want their program administrators to possess the “analytical tools and skills” that are needed to understand the numbers of the business, including losses, rates and cycles.

Insurers will look into the past performance of brokers, checking into their track records and looking for proof that they know how to improve a book of business.

Finally, Massa noted, insurers want program managers they can trust. “We want to trust that you will you look out for our mutual interests,” she maintained.

“The ideal program administrator relationship is one where both parties must be willing to invest the time and weather the storms for the long term,” Massa continued. “Carriers don’t want to give up on programs either, believe it or not.”

Submitting proposals
In addition to desiring certain qualities in their program administrators and brokerages, carriers also have preferences in how program proposals are submitted to them.

“It is important to know how to get your program to the top of the pile,” Massa noted.

Massa suggested that agents and brokers start with an executive summary, which can be an “elevator speech” that covers the who, what, when, where and why of their operations and proposals. This can be followed by a one to two page summary of the program, including the outlook, the opportunities and key facts. This abbreviated package is to gauge interest before preparing a complete submission with all the data. It should be sent electronically whenever possible.

A formal program submission to GE Insurance Solutions should include an agency overview, a program overview, and a typical account overview.

The agency overview must include a history of products, production, a staff profile, as well as biographies of the principals and the senior program underwriters.

The program overview should discuss the business segment targeted and the lines of business and limits proposed. It should also include premium and loss data, including the catastrophe analysis if possible.

Massa strongly recommends including an independent actuarial analysis. “Our actuaries look at it but they don’t always agree, so the independent actuarial analysis provides a benchmark,” she remarked.

The submission should explain the underwriting and marketing plans and show how the guidelines are clear and specific to the targeted market.

In terms of target industry, the carrier will want to know the trends in the industry, the future of the industry, whether it is stable or growing, what regulatory issues it may be confronting, and how the economy affects that industry.

Massa also seeks information on the retailers picked for the program and whether any associations have endorsed it. Administrators must also reveal their specific experiences with other programs and carriers.

“Give the good, the bad and the ugly,” Massa said. “Be honest about your results, good and bad, and explain why.”

AIG partners
AIG expects a lot from its program partners. AIG candidates should understand what it takes to achieve profitability, how to monitor rates, how to be proactive in analyzing and meeting market changes, and be open to actuarial analyses.

“Proactively identifying risks exposures and trends can be a key to the success of a program,” Seifert said.

Seifert wants to see audited financials and wants proof that internal financial controls are in place.

Every submission to AIG must include an actuarial analysis. Program administrators with their own staff actuaries are looked on with favor. AIG does an actuarial review of proposals as well but only after the program administrator has submitted his own.

“We take this very seriously. It can determine the rate adequacies and the profitability potential,” he added.

In the claims and risk management arena, Seifert looks at whether there are any conflicts of interest (for instance, if the program administrator is also a third party administrator); if the broker has the ability to spot claims trends and manage litigation, and whether the candidate understands the impact of large losses. Regarding underwriting, AIG wants to know how the pricing criteria were determined and if there are regular audits.

AIG even checks into the program administrator’s automation, computer security and disaster plan.

Competitive advantage
Benfield’s Bennett urged program marketers to make it clear how they plan to compete by identifying their “sustainable, competitive advantage” in their proposals to carriers. Examples of competitive advantages might be a better pricing model, a better risk selection process, cycle management experience, excellent loss control or risk management, custom policy forms, a closed distribution system or sophisticated claims management systems.

Massa, noting that there are now more than 30 carrier members of the fast-growing Target Markets association, stressed the importance of quality. “Carriers will still expect due diligence and professionalism and expertise regardless of how many carriers are out there,” she commented.

While most carriers look for deals with $10 million to $20 million in premium, Seifert noted that AIG also has an incubator program for small programs of $1 million to $2 million.