Niche market development
The time is right for program business
By Phil Zinkewicz
Agents and brokers who want to move into the program administration business should ask themselves a number of questions.
First, what carriers are looking favorably upon writing program business? Without a financially secure carrier that is dedicated to the venture, a program is doomed from the start.
Second, how much do you know about the niche market that you are planning to pursue? A successful program administrator needs to know his or her insured’s business as well as his or her own.
Third, how long are you willing to wait until the program takes off and begins to generate the profits desired? Some programs are not deemed successful until they have been in operation for as long as two to five years.
Additional questions might include: Do you have the staff, systems, and expertise (legal, regulatory, administrative, technological) to serve as a program administrator? Do you know how to identify and attract qualified retail agents to your program?
In answer to the first question, it appears that in today’s soft market, carriers are eager to underwrite program business. Insurers seem to be looking forward to diversification that could bring in new premium dollars at a time when competition in the standard market is increasing.
Glenn Clark, president of the Wilmington, Delaware-based Rockwood Programs and founder of the Target Markets Program Administrators Association (TMPAA), says that when the association was formed in 2001, only seven carriers were members. “Today, we have 41 and more waiting to come on board,” he says. “These new carriers are bringing in new capital, not only from within the United States, but from Bermuda and other markets as well. They see program business as a way of using that capital to generate premium income.”
Guy Carpenter & Company, a leading global insurance and risk management specialist and a part of the Marsh & McLennan Companies, recently released a survey that also shows increased carrier activity in the program arena. Carl Bach, senior vice president and head of Guy Carpenter’s Program Manager Solutions Specialty Practice, says that, based on the survey’s results, “We expect carrier markets operating in this space to be interested in most program opportunities presented … However, the key to successful marriages between program admini-strators and carriers is a clear understanding of carrier require-ments, program needs as well as program administrator experience, expertise and servicing capabilities.”
Capturing niche markets
Ask today’s successful program administrators about winning programs and they’ll echo those views. Rough Notes spoke with two seasoned program administrators to find out how they captured their desired niche markets and what advice they can give to those just moving into the arena.
Darren Lewin, vice president of program development for Los Angeles-based Abacus Insurance Brokers, explained how his firm built a program for short-term film productions.
In 1998, Lewin said, Abacus decided to get into the entertainment business but wanted to begin with a small niche, so it focused on short-term film productions. “To start up, we first had to find a carrier who believed in the viability of the program,” Lewin said. “We started with zero authority and worked the program until we built up a reputation. When we had established ourselves, we moved our business to another carrier, Zurich. We expanded our program to include films with budgets up to $1 million. After that, we moved into special events. These are events where a camera is involved, such as in special screenings of short films.”
Today, Lewin said, “We are the largest writer of short-term film productions in the country. These films are low-budget ventures, usually under $300,000 and within a time frame of 60 days. They may be student films or brief documentaries. We insure only films shot in the U.S. and Canada and films that do not involve stunts, pyrotechnics, aircraft, boats, animals, fight scenes, blanks, squibs [wireless explosives worn by an actor that cause fake bleeding], guns and live gangster rap music.”
Lewin continued: “We insure rental equipment, owned equipment, props, sets and wardrobes, negatives and faulty stock, third-party property damage, extra expense, general liability, automobile liability and physical damage, workers compensation and umbrella. The program is available in all fifty states.”
In a program that Abacus developed for annual events, more than 200 event types can be declared in the annual policy. There is no maximum attendance and no limitation on number of days. Eligible classes include holiday events, plays, concerts and shows, weddings, festivals, business meetings, parties and more. In addition to the coverages already mentioned, the annual events program also includes liquor liability, as well as participants and spectators medical and excess liability.
Lewin advised beginning program administrators that one element of success is making it easy for the retail agent or broker. “We have a strong IT team and an automated system called Abacus.net, which allows all transactions between the retail producer and Abacus to be conducted online,” he said.
What are the potential pitfalls? “With the soft market, there will be new carriers entering the market. Make certain that your carrier is financially secure. And make sure you have an infrastructure in place to support the program.”
Sean McCann of Sterling Underwriters Agency in Chicago said that his firm’s programs include “paper” residential and general contractors, the word “paper” meaning that these contractors don’t actually do the work on a particular job, but rather hire subcontractors. One recent addition to Sterling’s book of program business is remodeling contractors.
“It is a market that is burgeoning,” said McCann. “Finding a niche that is not being efficiently addressed is a big part of the program business. Right now, with the economy going the way it is, people are choosing to remodel their present homes rather than purchase a new one. We began our program in Indiana, Illinois and Wisconsin and in 2007 moved into Missouri and Colorado. We’re planning to expand into some other western states.”
McCann stressed that a program administrator needs to do all the work before approaching a carrier with a new niche program. “The program administrator must put together a full package with five years of loss data, at least … and choose a carrier carefully. He or she needs to know that the carrier will remain with the program through market changes.”
Finally, McCann said, it is important for beginning program administrators to establish ties with an association in order to network and seek out opportunities. “We have benefited from our association with Target Markets, an association that is dedicated to program administrators. There is no other venue that fits program administrators’ needs,” he declared.