Program business continues to be strong even in soft market
By Dave Willis
Over the years, the program marketplace has grown. Until
recently, perhaps, no one realized just how much. Thanks to a recent survey
commissioned by Target Markets Program Administrators Association, the size of
the marketplace and the value program administrators bring to the market have
"With 750 program administrators representing some $17.5 billion
in gross written premiums, the program market has become a critical
distribution channel for specialized products," says Jeremy Hitzig, CPCU, CEO
of Distinguished Programs and president of Target Markets Program
Administrators Association (TMPAA). "The survey we did certainly validated the
importance of the program market within the overall context of the P&C
TMPAA describes program business as "insurance products targeted
to a particular niche market or class, generally representing a book of similar
risks placed with one carrier." Program administration activities may include
marketing, underwriting selection, binding, issuing, billing, premium
collections, data gathering, claims management/loss control and, possibly, risk
sharing. Specialists distribute programs on a retail or wholesale basis.
Association leaders designed survey questions and teamed up with
commercial insurance research and analytics firm Advisen Ltd., which managed
the survey. "We identified people within representative
organizations—Target Markets member firms and others—then launched
the survey," says Advisen Principal Jim Blinn. "And, when it was done, we
analyzed the results."
The survey included two tracks: one for program administrators
and one for insurance carriers. Results of the survey, titled "The State of
Program Business Study," was presented at the Association's 11th Annual Summit
in Scottsdale, Arizona.
Expertise and breadth
"Not only did we find that the program market is large," Blinn
notes, "but we learned how broad its reach is. Program administrators serve a
broad cross-section of American businesses. They are experts in certain
classes, and they have worked closely with insurance companies to design
products that reflect the needs of specific industries. And they do a good job
of risk selection because they have a vested interest in making sure the
programs keep going over time."
The business is expanding, too. "Growth in membership of the
Target Markets Program Administrators Association provides additional evidence
of opportunities in the program space, with record numbers across all
categories of membership, from program administrators and insurance carriers to
the vendors that support the industry," Hitzig notes.
Not only are association membership numbers up, but survey
results reveal that program administrators are, as Hitzig says, "growing in a
challenging environment where the overall industry has struggled." More than
half of program administrator respondents (54%) reported an increase in
premiums administered, with only 33% showing a decline.
"Premium growth rates for program administrators were strong,"
adds Blinn. "At the same time, our own index of commercial insurance premiums
shows much weaker performance in the broader insurance market. Survey results
indicate that specialization is a good way for organizations to grow. Program
administrators have discovered an important way to outperform in the
Program administrators surveyed identified underwriting
profitability as the most important factor in creating a successful program by
a margin of two-to-one over the next closest "most important" factor, the
program's carrier. Commissions, potential market size and program growth rate
were also identified as important factors by three-fourths or more of survey
Benefits and challenges
These success factors bode well for potential partners and,
Hitzig says, insurance companies have much to gain by proactively supporting
the segment. "Survey results underscore the alignment of interests between
carriers and program administrators," he explains. For example, "Respondents on
both sides identified underwriting profitability as the single most important
criterion for a successful program."
The fact that the program market is growing also bodes well for
carriers. "If you're an insurer, it represents a sizeable—and
expanding—chunk of the marketplace," Blinn observes. "Carriers should be
interested in participating in that expansion because we are, at best, in a
flat market in terms of premium growth. Survey results show this is a growing
market. By having skin in the game, program administrators care about making it
The program market also offers a host of opportunities for
vendors, as well. However, survey results point to possible challenges in
developing such partnership. "Targeting the industry requires a focused effort,
as it is highly fragmented, with many small, privately-held companies," Hitzig
explains. Some 69% of survey respondents manage $50 million or less in premium
and 80% of respondents employ fewer than 60 people.
"These dynamics will challenge vendors—including technology
providers, claims managers and other outsourced service providers—as
program administrators look for customized solutions, rather than off-the-shelf
products directed towards the industry as a whole," he adds.
The survey also highlights strategic challenges and opportunities
facing retail agents and brokers. "The rise of program administrators
underscores the move toward industry specialization in the distribution of
insurance products," he explains. "Agents and brokers that target niche classes
may find program administrator specialists to be a path to faster growth." At
the same time, Hitzig notes, some program specialists focus on direct
distribution and, in doing so, represent a growing threat, especially to
generalist agents and brokers.
Still, agents can benefit from considering program administrators
for more of their accounts. Blinn says, "The good news for retail agents and
brokers is there are homes for a broad range of businesses they serve, and
these programs often deliver preferred products. Too often, the challenge is
finding programs and making use of them."
He suggests tapping online resources—magazines, directories
and even the Target Markets association Web site. He adds, "Quite often,
program administrators use e-mail marketing to highlight their programs and
what they offer. While they may not be relevant when they come into your inbox,
arguably these e-mails are doing you a service by letting you know programs are
available that could deliver the best coverage for your clients."
Finally, Hitzig notes, "The survey also presented surprising
results for reinsurance intermediaries," with 45% of program administrators
indicating that they "never" use a reinsurance intermediary and only 17%
claiming to "always" or "frequently" use one. "This suggests a potential
opportunity for reinsurance intermediaries who can demonstrate specific
capabilities or expertise in the program market," he explains.
Program market prospects
With program administrators seeing increasing value in placing
specialized risks, survey respondents are optimistic about prospects for future
growth. "One comment in particular really summarizes it well," Blinn says. "It
read, 'The program administrator underwriting distribution model continues to
outpace the general insurance marketplace in terms of profitability and growth
for the foreseeable future.' I just love that quote."
Adds Hitzig, "The momentum of the program market is likely to
continue in coming years, and it most certainly will provide opportunities and
challenges for those seeking to participate in its success. This is probably
best summed up by the respondent who commented, 'Program business should have a
bright future since industry specialization is a trend in the insurance
business, and technology is making program business more efficient than ever.'"
Argo Group International Holdings Ltd., an international
specialty insurance and reinsurance underwriter and a TMPAA member, sponsored
the research effort. Hitzig says plans call for the survey to be repeated
annually. "In the coming year, we will be adding more questions in response to
feedback from our members," he notes.
The full report is available at http://bit.ly/TMPAASurvey.