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Survey says…

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 been quantified.

"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 insurance industry."

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 marketplace."

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 respondents.

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 profitable growth."

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


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