Retailers gain mid-market savvy from
Gallagher's Artex/Innovative Risk Services
By Elisabeth Boone, CPCU
Jennifer Gallagher is President of Innovative Risk Services, Inc., the U.S. sales and marketing arm for Arthur J. Gallagher's Bermuda-based rent-a-captive subsidiary, Artex.
Can distressed occupational classes be sources of good workers compensation business? Your first response might be, "No way!"
For the alternative market professionals at Innovative Risk Services, however, the answer to that question is a resounding "Yes!" A unit of major brokerage Arthur J. Gallagher, Innovative Risk Services (INRS) is the U.S. sales and marketing arm for Gallagher's Bermuda-based rent-a-captive subsidiary, Artex. As such, it offers loss-sensitive workers compensation programs for selected mid-market niches: Premier Comp Plus, for a wide range of industry classes; Hospitality Plus for the hospitality industry; and Premier Temps for temporary staffing companies.
Heading up Innovative Risk Services is Jennifer Gallagher, a 21-year veteran who is the granddaughter of AJG founder Arthur J. Gallagher. Chris Newell is product manager for the Premier Temps program. Product manager for Hospitality Plus is Robert McWeeney; Patrick Kennedy is product manager for Premier Comp Plus.
The history of Innovative Risk Services, Gallagher says, is best understood in the context of Artex Insurance Company, which was established in 1998. Artex is the acronym for Alternative Risk Transfer Exchange. Artex is a segregated cell captive facility domiciled in Bermuda, whose primary function is to reinsure risk management programs in which the insured shares in the underwriting profit and investment income of its own risk. Innovative Risk Services provides sales and marketing services to retail agents and brokers on behalf of the programs managed by Artex.
"Innovative Risk Services was initially set up to be the dedicated alternative risk sales force for Artex," Gallagher says. "It has grown to include full MGA services: marketing, underwriting, policy issuance, premium and collateral financing, claim oversight, and tailored loss control that we coordinate for all of our Artex programs." Also within INRS, she adds, "we establish underwriting guidelines and loss rating models, as well as conducting contract negotiations and research and development for new programs. We are continuously in the mode of asking: What will our next product be, and how can we best serve our retail agents and brokers?"
Targeting retailers
To gain access to INRS products and services, Gallagher explains, an agent or broker first must be an approved broker within CoverageFirst, an Internet-based portal (www.coveragefirst.com) that is retailers' entry point for a variety of niche programs throughout Gallagher's wholesale system. "CoverageFirst is our gatekeeper," she says. "Retailers use CoverageFirst to learn about INRS products and services, as well as a host of other wholesale program offerings. If the retailer has a client who fits one of our programs, all that's necessary is to call or e-mail the contact person for that program." Retailers interested in INRS also can visit another Web site (www.rent-a-captive.com). INRS currently works with 60 to 75 retail agents and brokers nationwide.
INRS's approach to choosing retail partners is careful and methodical. "We identify prospective agents whom we hope we'll be able to develop into 'target' agents and then into 'key' agents," Gallagher says. "A 'target' agent is one who has expertise in a particular class of business, maintains strong agent-client relationships, and wants more control over their business. The retailer should have a proven track record of selling loss-sensitive programs; have a good understanding of an Artex program's mechanics; have a client who has expressed a need for an alternative product; and have accounts that fit our premium range (between $125,000 and $1 million). Finally, the agent must be capable of putting together a good, complete submission."
Choosing niches
INRS's three workers compensation programs (see sidebar on page 76) clearly are designed to meet the needs of clients in some challenging markets. Why did Innovative Risk's principals decide to enter these markets, and what criteria do they consider when evaluating potential niche markets? "Our intent is to identify profitable niches within slightly distressed industry classifications and then target good risks within those niches," Gallagher explains.
Kennedy offers an example. "The reason we designed our Premier Temps program for temporary staffing companies is that, among insurers, this is a very misunderstood niche," he says. "Carriers continually confused temp staffing with professional employer organizations (PEOs), and this misunderstanding resulted in the temp staffing industry being underserved in the market. We determined from our R&D that temp staffing actually was a controllable risk and could be a profitable niche," Kennedy says. "We developed a program that is now going into its fourth year with almost $20 million of premium."
Meeting with Jennifer Gallagher are two of Innovative Risk Services' product managers: (from left) Robert McWeeney, who handles Hospitality Plus and Patrick Kennedy, who is responsible for Premier Comp Plus.
"While we're identifying these distressed market segments and working with our agents," McWeeney notes, "we're also communicating with the marketplace to make sure we provide the submissions and underwriting data that will ensure the proper placement of reinsurance." Unlike the standard market, which tends to run hot and cold when it comes to challenging risks, Innovative Risk Services is committed to being a stable force in its chosen markets. "We see our offerings as a long-term solution for clients," Gallagher says.
Middle market solutions
As noted earlier, INRS has chosen to offer workers compensation programs to some challenging classes of business. What conditions currently prevail in each of these markets with respect to competition, capacity, and pricing? How does INRS meet the needs of qualified risks in each of these classes?
Premier Comp Plus is a heterogeneous middle market workers compensation program for a broad range of industry groups such as manufacturing, wholesale distribution, short-haul trucking, rural hospitals, assisted and independent living facilities, and janitorial services.
"In terms of the middle market business for Premier Comp Plus, this segment hasn't been as distressed overall as other segments," Kennedy notes, "so these risks still have capacity in the marketplace. AIG, Fireman's Fund, Zurich, and a number of regional carriers are players in this business. What we're finding is that the hardening of the market is driving these companies to find an alternative to traditional insurance. In 2002, these risks were seeing 25% to 40% rate increases. Since then, the increases have slowed; but as a result of rising premiums, these middle market companies are being forced to look for alternatives where their own individual loss history is the basis for their premium, as opposed to being class underwritten. That's what we offer in Premier Comp Plus."
Premier Temps is Innovative Risk's program for temporary staffing companies. "From the standpoint of competition, temp staffing is probably one of the most distressed business segments that Innovative Risk serves," Kennedy remarks. "Over the last several years there's been a tremendous shift as carriers have decided to leave the marketplace. The Hartford left the market about a year and a half ago; Great American exited in July of 2003; and CNA recently announced it was leaving the temporary staffing marketplace," Kennedy says. Still a player, he notes, is Wausau Insurance.
In the temporary staffing market, "We're looking for accounts large enough that they need an alternative to guaranteed cost, but not large enough to be competitively eligible for a high-deductible program," Kennedy explains. Premiums for these accounts, he says, range from $150,000 to $1 million.
Economic conditions, Kennedy points out, "have a profound effect on this class of business as a whole. Temporary staffing went into a recession in 2001 and still remains sluggish. While premiums continue to escalate for these companies, their business is continuing to drop, and temporary staffing companies are struggling to find a solution," Kennedy observes. What's more, he adds, "this industry segment has really been forced to 'find religion,' getting on board with loss control. With our program, we partner with one of the premier loss control/consulting companies, Risk Control Services (RCS). It's their contribution to the program, along with the product we offer and the unbundled claim service provided by Gallagher Bassett, that allows these temp staffing companies to take advantage of a product that's never been available to middle market companies."
Hospitality Plus, like Innovative Risk's other programs, was developed in response to a need in the marketplace, says Bob McWeeney. "There are three or four well-known MGAs that have very good property and liability programs for hospitality risks, but they don't focus on workers compensation products," he explains. "We saw an opportunity for us to meet that need. We also saw that over the last couple of years, with the hardening of the market, there was constriction of capacity in Florida, Texas, and California, which are key areas for the hospitality industry," McWeeney observes. "We developed a program that has capacity in all states, and that's unique in the marketplace right now. We target accounts with premium from $250,000 to about $2 million, and we pursue risks in this range because they don't have many loss-sensitive options other than our program."
Another reason middle market hospitality business is difficult for the standard market, McWeeney says, is that "typically these risks have concentration issues: They have lots of employees in a hotel in, say, New York City, Los Angeles, or Chicago. Also, it's common for the owners of these businesses to own aircraft, so there's an aviation exposure on the comp policy," he notes. "We can typically accommodate these exposures as well as those related to difficult locations."
California is a prime example of a workers compensation market that has few options for good risks, McWeeney observes. "Hospitality Plus not only can accommodate these risks but also can provide profitability and investment return potential to program participants. These risks are being penalized simply because they are in a distressed state; many good risks are paying a penalty merely for being in a mismanaged environment," he comments.
Simple products
Although Innovative Risk handles complex exposures, "Our products are very simple," Gallagher says. "Artex enters into an agreement with the client under which the client will receive underwriting profit and investment income by assuming a moderate amount of risk participation. The client is then issued a first dollar, guaranteed cost policy from an A rated fronting carrier. The client has all the benefits of our facility and still has an A rated fronting market."
What's more, Gallagher says, "We consider our products and programs to be market neutral. These are long-term solutions that are attractive in soft markets as well as hard markets. Our programs are flexible enough that if reinsurance costs are coming down in a soft market, we deliver those savings to the client." What's more, she notes, "if an account qualifies from a financial review perspective, we can offer some relief on collateral requirements."
Gallagher points out another key feature. "All of our programs' component parts are interchangeable. An example is temp staffing, where a lot of players have been in and out of the market. With our unbundled approach, if a fronting company or reinsurer decides to leave the program, we don't disrupt the entire program--we simply replace that program." Account renewal in INRS programs, she says, is close to 95%.
"Using our program resources," Kennedy says, "We're able to take a $500,000 risk that has only a first dollar, guaranteed cost option, and bring that risk a loss-sensitive program with tailored loss control and claims management. Our programs for the middle market are similar to those available to Fortune 500 companies with risk management departments. We see that as a big advantage for our clients."
In each of Innovative Risk's programs, Kennedy emphasizes, "We always keep the agent in central control. In fact, agents probably end up with more control because of the efficiency of our programs in terms of rate, quote, bind, and policy issuance functions."
In today's market, Gallagher declares, "The challenge to the agent is to deliver alternative risk management programs to a greater percentage of clients, and we believe that Artex is the best way to do that." *
Artex/Innovative Risk Services
Workers Compensation Programs
Each program has a potential risk-sharing element and offers safety-minded clients the opportunity to earn underwriting profits.
Premier Comp Plus
(Patrick Kennedy: (630) 285-4095; patrick_kennedy@ajg.com)
* Heterogeneous program for broad range of industry groups
* Excludes most contracting classes and Hazard Group IV risks
* Issuing carrier: Alea North America (A-, IX)
* Agent's commission: 5%
* Loss control and claims handling services provided by Gallagher Bassett, Inc.
* Minimum premium $150,000
* Minimum 3 years in business
* Minimum 3 full year loss runs
* Last 2 years' financial statements available
* Limited capacity in California, Florida, and Texas
Hospitality Plus
(Bob McWeeney: (630) 285-3863; bob_mcweeney@ajg.com)
* Hospitality industry only
* Issuing carrier: Discover Property Casualty Insurance Co. (A+, XV)
* Agent's commission: 5%
* Loss control and claims handling services provided by Gallagher Bassett, Inc.
* Minimum premium $125,000
* Minimum 3 years in business
* Minimum 3 full year loss runs
* Last 2 years' financial statements available
* Excludes accounts with significant payroll in California and Georgia
Premier Temps
(Christopher Newell: (630) 773-3800; christopher_newell@ajg.com)
* Temporary staffing companies only (no professional employer outsourcing or employee leasing companies)
* Issuing carrier: Alea North America (A-, IX)
* Agent's commission: 5%
* Minimum premium $100,000
* Minimum 3 years in business
* Minimum 3 full year loss runs
* Last 2 years' financial statements available
* Quoting and binding subject to independent loss control analysis and evaluation. Separate evaluation charge will apply.
* Excludes accounts with significant payroll in California, Florida, and Texas
For more information:
Innovative Risk Services
Jennifer Gallagher
Phone: (630) 285-3873
E-mail: jennifer_gallagher@ajg.com
Web site: www.rent-a-captive.com