Soft Market Tests Program Administrators’ Survival Skills

In a recent letter to fellow program administrators, Greg Thompson, CEO of Thompson Insurance Enterprises Inc. and Target Markets Program Administrators Association (TMPAA) president, advised that being ahead of the competition with lower rates and broader coverage is the most effective strategy for remaining productive through a soft market cycle.

It’s a strategy with risks, however.

“[L]ike a drunk on a binge, this scenario ultimately results in consequences that are certain to be painful and which could be potentially fatal to our business,” Thompson wrote.

“As the soft market heats up, our ethics and survival skills are both being tested to the limit,” he cautioned.

Another program expert, Geof McKernan of NSM Insurance Group, minces no words with his advice to managers in today’s market who cover niche markets: grow, change or die.

Thompson and McKernan were among the participants in a panel discussion during a midyear gathering of the TMPAA in Atlanta where agent and carrier minds focused on survival strategies for the soft market.

The panelist agreed that the soft market requires all parties involved in insuring programs, not just program managers, to work harder, be fiscally responsible and position themselves to ride out the cyclical slumps.

Beyond hard work, soft market success for program managers could hinge on effective marketing, loss control and attention to relationships.

NSM’s McKernan said, “It’s simple. At the end of the day, it’s who you’re doing business with.”

From the carrier perspective, however, it’s perhaps not quite that simple. They may be in need of improved program data, expanded or rounded out program lines and supporting business from their program agent partners.

Both carriers and agents recognize the importance of loss control to the financial success of their program business. But the feeling at the conference was that loss control should be a shared responsibility. Nearly all of the TMPAA conference audience members — 97 percent — revealed in a poll that they would increase efforts in loss control if carriers compensated them for it.

Marketing, Networking, Promotion

Another informal poll conducted at TMPAA’s midyear conference revealed that 54 percent of approximately 100 audience members said they increased their marketing budget over the past year. Seventeen percent said they decreased marketing efforts while 29 percent said their marketing budget remained flat.

Program administrators agreed that effective marketing, networking and promotion are essential to maintaining, growing and protecting the relationships and financial integrity of programs. For example, an agency’s marketing can be important when deciding whether to pass along loss control costs to customers or absorb them in-house.

The most effective marketing and networking efforts are aimed in specific directions, the program administrators concurred.

Thompson said his company networks heavily with the largest producers but he won’t schedule a meeting unless a high ranking official or ultimate decision maker is in attendance. His company isn’t looking for just any partner. “We look for stability and ethics within the management and its team,” Thompson said.

John Paulk of Britt/Paulk Insurance Agency Inc. believes that funding for advertising and promotion should be a perennial fixture in the corporate budget. Britt/Paulk broadcasts “e-mail blasts” to agents twice a month and the company uses a call center to efficiently route business.

McKernan said it is important to “keep agents close and in constant contact.” NSM’s $2 million annual marketing budget includes costs for periodically flying agents to the home office for three-day informational seminars, he added.

Data Access

Carriers stressed the importance of program administrators developing their own business data. Hudson’s Porcelli said it’s necessary for agents to maintain “on-the-ground data” in order to know their customers extremely well.

Rick Weidman of underwriter and reinsurer CastlePoint agreed that the importance of access to quality niche market data could not be emphasized enough. CastlePoint prefers “building a bridge” into the program administrator’s own data warehouse rather than installing its own, Weidman noted.

Paulk said carriers are actually more concerned with the data and results of programs than with the size of programs. If smaller programs show good results and data with no channel conflicts, carriers would be interested, he maintained.

Technology can also be a big differentiator in a soft market, according to Porcelli. A free flow of pricing data is very important and program administrators should have complete access to pricing strategies.

Actuaries should be invited to pricing strategy meetings, he added.

In addition to marketing, loss control and data development, program administrators face other demands related to the soft market they might have to incorporate into their success strategy. In some cases, these involve changes in pricing and calls for new or additional business to go along with what is already in place.

“Carriers are being risk selective for the pricing that supports the exposure as well as expecting other supporting lines of business to better round out the account,” Paulk said.

In a soft market, carriers may be more interested in expanding existing and developing new programs or lines of business, Paulk noted. As carriers discover that existing programs are “hard to move,” they find that starting new programs may be their only avenue in some classes.

“It is never easy to start a program but growing an existing program by rounding out the product is much easier,” Paulk said. “Expanded product lines that complement core business is a definite plan to growing in the soft market.”

Packages, general liability, workers’ compensation and multi-peril lines, as well as some property programs are areas that have been growing lately, according to Paulk.

As more and more traditional excess and surplus business flows toward admitted insurers, more start-up programs begin emerging, Benfield’s Bustillo said. Declining prices affect underwriting profitability and there are fewer claims per unit of exposure, he added.

“Our focus is to add more emphasis on renewal business,” CastlePoint’s Weidman said. “We also look at profitability; lines of business and territories they [MGAs] are opening up.”

Competitive Edge

While carriers may be enforcing stricter pricing and demanding additional business in the soft market, Weidman offered that program administrators are themselves looking for support — not constriction — from carriers.

They are also looking for rapid response time from carriers as a competitive advantage, he added.

With regard to consistent performance, Weidman said his company looks at program administrators with greater than 60 percent on the loss ratio side and greater than 90 percent combined ratio.

Porcelli said as an underwriter, he likes to see niche market program administrators engaged in “change movement,” but added he is attracted to administrators with an “extremely well-defined market segment.”