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Like a rock

Rockwood Programs leads the charge
for program administrators E&O

By Elisabeth Boone, CPCU

For a program administrator that has been in existence for just 11 years, Rockwood Programs, Inc., has amassed an impressive record of achievements and surmounted some daunting challenges. Chief among them has been the firm’s efforts, as a founding member of the Target Markets Program Administrators Association (TMPAA), to obtain errors and omissions insurance for TMPAA program administrator members.

Based in Wilmington, Delaware, Rockwood was established in 1996 as a subsidiary of reinsurance brokerage E.W. Blanch. A key responsibility for Rockwood was to manage InsGroup, an agency group owned by Blanch. InsGroup’s members were the owners of large retail agencies (with over $30 million in premium each).

“In the course of running InsGroup,” says Rockwood President Glenn Clark, “we learned a lot about the issues that keep agency owners awake at night. Agency perpetuation, client retention, recruitment of human resources, consistency of markets, and agency errors and omissions were all top-of-mind concerns for owners.” Clark, a former president of AIG’s MGA, Morefar Marketing, was ideally suited to his new role.

In 2000, Rockwood’s management team was offered the opportunity to buy the firm from its parent company. The newly independent MGA, which offers management liability products nationwide, wasted no time launching a series of initiatives that would become the cornerstones of its future—and the future of the program administrator community as a whole.

“First, we established an MGA division, which allowed us to help our peer group by providing marketing services, electronic market-ing consulting, agency valuations, agency loans, and an E&O brokerage operation,” Clark explains. “We are advocates for our insureds, not just brokers.”

Birth of TMPAA

“Our second initiative was to create a new association dedicated solely to the interests of program administrators,” Clark says. The Target Markets Program Administrators Association, whose first meeting was held in the fall of 2001, brings together the three key elements in the program administration equation: program administrators, carrier partners, and vendors. Clark served as the association’s first president and continues to play an active role in TMPAA.

Since its first meeting six years ago, TMPAA membership has grown steadily in each category, and the group now boasts 190 program administrators, 45 carrier partners, and 50 vendors. The vendor partner category is quite diverse and includes systems vendors, a reinsurance intermediary, a TPA law firm, claims management organizations, a merger and acquisition specialist, a capital management consultant, a rating system provider, a premium finance company, a billing management firm, and a remote staffing facility. The common theme for vendor partners is that each must have a distinct programs- related strategy.

TMPAA actively promotes networking among its members via an annual meeting every October and a midyear meeting in May; a Web site that describes program administrator members’ programs (www.targetprograms.com); and a variety of leadership opportunities for volunteers.

At this year’s TMPAA Annual Summit in Tempe, Arizona, October 15-17, the keynote speaker will be Steve Forbes, president and chief executive officer of Forbes and editor-in-chief of Forbes magazine. The midyear meeting in May featured Maurice Greenberg, chairman of C.V. Starr & Co., Inc.

In search of E&O

A major initiative for TMPAA was securing access to appropriate errors and omissions coverage for the association’s program administrator members.

“Throughout 2002 and much of 2003, we interviewed 16 different carriers to make the case that program administrators are a unique E&O class and that the most professional program managers were active participants in Target Markets,” Clark says.

“In late 2003 we aligned with a carrier that agreed to give Target Markets members a 10% discount. From that point through the end of 2006, we were able to move many of our members to the discounted program,” Clark says.

“As we became more expert in the line, we began to ask the carrier questions about what we believed to be inconsistencies in its approach. We asked for copies of their rating algorithms and pressured them to let us do the front-end quotes,” Clark continues.

“Our attempts to gain more control over the process ultimately resulted in a termination letter from the carrier stating its intention ‘to discontinue our business relationship.’ Apparently we were regarded as a threat to the carrier’s distribution model,” Clark goes on.

“The carrier even went so far as to close Rockwood out from making submissions through any of its subproducers, and they began to contact our accounts directly. For accounts that we brought to a ‘partner’ to obtain a renewal, they essentially had to leave Rockwood,” Clark says. “They basically took our accounts, and there wasn’t much we could do about it.

“We thought: If a carrier partner for which we produced millions of dollars of profitable premium could arbitrarily terminate our relationship, how would that carrier have treated us if we ever had an E&O loss?” Clark explains. “As program specialists, we vowed never again to put ourselves in a position where a carrier essentially could take our accounts.”

Building a better model

“At Rockwood, we pride ourselves on taking a negative event and channeling our energies toward a positive outcome,” Clark asserts. “Armed with over 300 submissions, we examined alternatives to the existing E&O market. We scrutinized new carriers, existing carriers that had left the business, and the possibility of forming a captive. What were the weaknesses in the current system?

“Rockwood wanted to build a model for Target Markets that would protect the individual who might have a temporary challenge by capitalizing on the size, affinity, and experience of the group,” Clark says. “We are advocates for our insureds—not just brokers.”

In March of 2005, Rockwood was the subject of an arbitration suit when it attempted to move a book of business from a carrier partner that had been closed by its parent company. “The full legal resources of a multi-billion dollar property and casualty giant were unleashed on a privately held MGA program administrator,” Clark says.

“With the very survival of our agency threatened, we turned to the association we had founded and to vendor partner Wilson Elser Moskowitz Edelman & Dicker, LLP,” Clark says. “Wilson Elser has an in-house team that specializes in legal issues that concern MGAs. Over the next two years we were superbly guided by the experts at Wilson Elser, and our legal costs were less than half those of the carrier.”

The team was built by law firm partner Tom Wilson Jr. “The MGA segment requires unique expertise,” Wilson asserts. “Our firm has been litigating for and defending MGAs for the past 30 years. We put together an internal ‘A team’ to partner with Target Markets.”

Says Clark: “We marveled at how well this team performed on our behalf. Not only did they know the business, but also they involved us intimately in our own defense and in formulating offensive strategies.”

“It is essential to involve the client in its own defense,” says Tom Hyland, Wilson Elser’s chief litigator. “It is my job to ensure that our client is understood in a legal system that may not understand MGAs.”

Notes Clark: “An advocacy defense from the best defense attorneys in the business carries no price tag. When you are faced with an E&O loss or arbitration, you don’t care what your E&O premium was at the last renewal.

“Our personal experience in this situation gave birth to a new concept in E&O protection,” Clark says. “We proposed to change the past dynamics of MGA E&O and to build a lasting model.” He lists the essential elements of this process and comments on each.

• A program-oriented company. “We need a carrier that respects program distribution, ownership of expirations, and group versus individual risk performance.”

• Front-end risk assessment and risk management. “We want to know our clients well and help them become better agencies. The old dynamic of telling your ‘story’ on an eight-page app is outmoded and inadequate.”

• Advocacy defense. “Know who is going to defend you before you have a loss. Have them available as counselors during the critical potential claim phase.”

• A “come to us last” mentality. “We wanted a model where the program administrator becomes a committed member, not an insured who is looking for the lowest premium at every renewal.”

• Shared loss experience. “While names are protected, loss data is shared to make us all better agencies. Strategies to minimize future losses are critical.”

Finding the right partner

Once the framework for the MGA E&O program was established, the next challenge was to find the right carrier partner.

As noted earlier, Rockwood had already interviewed 16 carriers. “We were already producers for virtually every broker market in the U.S. and London,” Clark says. “We also explored alternative risk transfer options.

“Our next step was to consult with Target Markets exclusive reinsurance intermediary partner Benfield Group,” Clark notes. “The Benfield practice leader for MGA distribution, Doug Bennett, suggested that we ‘think outside the box’ and take our ‘story’ outside the U.S. and London to a carrier that was unencumbered by past U.S. experience in this line.”

Says Bennett: “Benfield is totally committed to the MGA segment and program distribution in particular. As the exclusive reinsurance intermediary partner of Target Markets, we welcomed the opportunity to work on a tough placement with Rockwood.”

Clark traveled to Hanover Germany, where he met Ulrich Wallin, a board member of Inter Hannover, a primary insurer that is owned by Hannover Re, a leading international reinsurance group.

Wallin assigned to Ralph Beutter of Inter Hannover the task of negotiating with Rockwood on the MGA E&O program.

“When we met with the team from Rockwood and reviewed their history in MGA E&O and discussed their plans for the future, we knew we had found the right partner to represent our company,” Beutter says. “Since they will essentially be Inter Hannover in this market for us, we had to have full confidence in their expertise and capabilities.”

Launch of The Defender

Called The Rockwood Defender, the new E&O program was launched in September. Its key elements, Clark observes, track closely with those identified in the process of building the program concept:

• Front-end risk assessment. “Our clients receive a thorough two-day on-site risk assessment from our partners at Wilson Elser. The on-site audit is based on the comprehensive Best Practices of Target Markets. The assessment (valued at $5,000) is performed at no cost to the member (except if a subproducer is involved) once the account is bound.”

• Ongoing consulting. “The Rockwood ‘Defenders’ at Wilson Elser have built their team to provide pre-claims counsel, best practices advice, risk management newsletters, and consulting services on virtually every issue facing an MGA or program administrator.”

• Expert advocacy defense. “The heart of our program is knowing who is going to defend you before you have a claim. Our insureds are defended exclusively by Wilson Elser, which is committed to Target Markets, Rockwood, Hannover, and our insureds. Each agency will be involved in its own defense and no longer will be subject to the arbitrary assignment of counsel that is done by traditional E&O carriers.”

• Competitive forms and pricing. “We don’t intend to be the cheapest—just the best. As experts in MGA E&O, we have crafted our forms to respond to their unique exposures. Rockwood has even added an identity theft option for all principals and employees of our insureds.”

• Come to The Rockwood Defender last. “We don’t intend to be just another market to be spreadsheeted in MGA E&O. Our preferred method of doing business is directly with agency principals—or, if a subproducer is involved, to be the last market visited. Since we have a high front-end cost for risk management audits, we seek long-term direct relationships, not the traditional ‘shop your E&O every year’ agency.”

Strength in numbers

“The Rockwood Defender is what the association is all about,” says Ray Scotto, TMPAA executive director. “We combined the expertise of Rockwood, Wilson Elser, Benfield, and Inter Hannover to form a partnership that has built a better model for MGA E&O. The strength of the group helps make the individual agency member stronger.”

Agencies may access The Rockwood Defender at www.rockwoodinsurance.com. *

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