As the market continues to soften, program business is drawingincreasing attention from insurers, who value programadministrators' ability to use niche-specific knowledge tounderwrite coverage profitably. If a program administrator can alsohandle other functions competently, that's often a plus.

One such “all around” program administrator is the GlatfelterInsurance Group, in York, Pa. For the programs it manages, itliterally takes on the insurer's role in everything from marketingits products to adjusting claims.
Recently, we spoke with Anthony P. Campisi, Glatfelter's presidentand chief executive officer, about how his business operates. Hestressed the importance of staying focused on program stability ina soft market, explained what he looks for in a potential niche anddiscussed numerous other aspects of program business. Following isan edited transcript of our conversation.
AA&B: Could you give me an overview of theGlatfelter Insurance Group's operations?
Campisi: We have retail agency operations in York,Pa., and Joplin, Mo., both of which largely operate within 50 milesof their offices. We also have a nationwide wholesale/specialty–orprogram–operation, which accounts for more than 80% of ourbusiness.
AA&B: Has Glatfelter been involved in programbusiness since its inception?
Campisi: No. Our agency was founded in 1951 by ArtGlatfelter, a World War II Marine Corps veteran. In the late 1960s,he was asked to quote the accident and sickness coverage for avolunteer fire department. He quickly realized there was a huge gapbetween what was available and what the department needed. He alsosaw an opportunity in an underserved market.
He started studying the needs of volunteer fire services inPennsylvania, operating his agency during the day and driving tovolunteer fire department meetings in the evenings. He learned theexposures the departments faced and what they needed in aninsurance program. Eventually, he put together an unmatchedaccident and sickness program for volunteer fire departments in theearly 1970s and began to market it at fire department meetings.After it succeeded, he began offering it through other retailagents throughout the state. That's how VFIS, our program foremergency service organizations, was started. Art later expanded itto include customized property-casualty coverages. Today, it coversmore than 15,000 organizations in the U.S. and Canada.
AA&B: How many programs does Glatfelterhave?
Campisi: Four that we market on a wholesalespecialty basis throughout the country: VFIS; Rural SpecialDistricts Insurance Services, a program for water, sewer,irrigation, conservation and various other districts; Public RiskInsurance Made Easy (PRIME), a program for municipalities withfewer than 25,000 residents; and Hospice and Community CareInsurance Services, a program for hospices, home health-careagencies and related risks.
AA&B: Are there plans for any newprograms?
Campisi: We may expand the eligibility criteriafor our hospice and community-care program to include othersocial-service providers. We look for opportunities within ourexisting niches, because we know them so well. Anything that we can“bolt on” to an existing program would be our first priority.
AA&B: How receptive are insurers to ideas fornew programs?
Campisi: In the soft market, their appetite haschanged dramatically. A few years ago, many program carriers wereinterested in new programs only if they could produce $10 millionto $20 million in volume–and in some cases more. They also wantedthree to five years of loss data and program administrators withstrong track records. Everything had to be perfect, whichessentially meant that they were not really interested in startups.Today, that has changed. If you have a proven track record and asolid business plan, insurers are more willing to talk.
AA&B: How large does a new program have to beto be feasible?
Campisi: We're currently talking to a programcarrier that is willing to work with us on a program that's lessthan $2 million in size. It would be an expansion of somethingwe're already doing, but it gives you some sense for how farinsurers have moved.
AA&B: What do you look for when consideringnew programs?
Campisi: An unmet need for which we can tailor aresponse. Insurance availability is not always the issue. A marketmay be poorly served because it's highly fragmented. Maybe no onehas really focused on trying to build long-term relationships byproviding a high level of service to that particular marketsegment.
We look at how the niche's members make their risk-transferdecisions. Are they guaranteed-cost buyers, as most are, or do theylike to share in some of their own risk? We can serve either typewithin our programs. Is the industry growing? Where are riskslocated? One thing that helps keep a program stable is an excellentgeographic spread of risk. Do members of the industry valuestability in their insurance programs, or do they buy insurancepurely on price? If it's the latter, then we would not have muchinterest.
Indeed, the whole idea behind program business is to provide notonly tailored coverages and services but also stability–in terms ofmarket, coverage, service and, of course, pricing. If you'veproperly underwritten a program, the only major premium change thatan insured should see will be based on exposure. You're notconstantly adjusting your rate in accordance with the market cycle,as the general commercial marketplace does. As clients come to knowyou, they associate value, quality and dependability with yourparticular brand. That's what makes the difference–and sustains youthrough soft markets.
We also look for program acquisition opportunities. We believe thatwith the platform we've developed, we are in an excellent positionto assist program managers who are having difficulty getting to thenext level. We have our own claims-adjusting operation and in-houserisk control programs. We also have our own actuaries, who annuallyreview our rates on a state-by-state basis within each program.They also evaluate the adequacy of loss reserves and projectaccident-year loss ratios. Their work puts us on a par with ourcarriers in terms of understanding the rate adequacy andunderwriting results of our business.
AA&B: What is the outlook for consolidationamong program administrators?
Campisi: Conventional wisdom would suggest thatwe're likely to see an uptick in M&A activity. As the marketgets softer, it's going to be harder for program managers–or retailagencies–to grow their top line and increase their profitability.Also, more program administrators than we'd like to admit do nothave solid perpetuation plans. We can offer them analternative.
AA&B: What goes into a good proposal for aprogram?
Campisi: First, when we look into a new program,we more than likely have had some experience with the niche on theretail side of our business. That enables us to understand a couplethings: the nature of the market, and the challenges the averageretail agent has in placing and servicing that particular class. Aswe identify the challenges, we ask ourselves whether we have anopportunity to differentiate ourselves in the marketplace bytailoring some coverage and services that would be unique to thatparticular market.
We try to customize coverages and provide them in a fullyintegrated product. That's an important point, because we want toprovide a one-stop shop for local agents. That makes their liveseasier, more efficient and more productive.
AA&B: What information do you need to provideabout underwriting guidelines and marketing plans in a programproposal?
Campisi: You start with the definition of themarket segment you intend to serve, then address numerous issues,including the following: How many potential insureds are in it?What risks do they face? How do they handle risk management? Whatinsurers currently serve the market? What's the perceived level ofrate adequacy in that market? What is the segment's potentialprofitability?
We also include our marketing plan, which explains how we intend toreach prospects and how much business we believe we can capture. Weprovide one-, three- and five-year growth forecasts.
Our proposal also spells out the duties and responsibilities wewill assume. This is an important issue, because in most cases thecarrier wants to offload as much of the transactional work aspossible to the program administrator–while being assured that itwill get the information it needs to monitor the program. In somecases, an insurer may expect to get daily electronic feeds about aprogram.
In regard to underwriting, most insurers audit a program on aquarterly basis–at least in the beginning–to monitor whether youare in compliance with the program agreement, that the businessyou're writing constitutes eligible business, that you're usingapproved rating plans, that you're complying with various staterules and regulations, and that you're operating the programconsistent with your program proposal.
AA&B: What sort of growth projections doinsurers desire?
Campisi: Times have changed. Not long ago,carriers were looking to start out with a minimum of $5 million,$10 million and up. Today, I think they're looking for evidencethat you will be able to grow the program to those levels–or maybeeven beyond. To put together a multistate program with a carrier,there are certain minimum expenses that you and the insurer aregoing to incur. So you want to be able to project, with reasonableassurance, that at some point you will reach a sufficient volume ofbusiness to run the program profitably.
AA&B: Do insurance companies expect a programadministrator to share in the underwriting risk?
Campisi: It is not a prerequisite for most programcarriers. Most are content to have you operate under aprofit-sharing arrangement or sliding-scale commission arrangement.So at a minimum, program managers are “incentivized” to underwriteprofitability. But while they can share in the “upside,” theyusually aren't required to put their own capital at risk to coverany losses. Now, many carriers openly admit that they like to seeprogram managers share “downside” risk, because that aligns theirinterests with the carriers'. It gives an insurer some assurancethat the program manager has a long-term perspective.
AA&B: Does Glatfelter have such a stake in itsprograms?
Campisi: Certainly. We share in the underwritingrisk on each of our programs. Just what form the participationtakes varies by program, but we always assume a meaningful amountof risk.
AA&B: Your Web site shows that you have anagency captive. Do you use it to assume underwriting risk?
Campisi: Yes. We set it up in the 1990s because werealized that to obtain more control over our program business inregard to underwriting, pricing, claims administration and riskcontrol–in other words, to run the program as though we were thecarrier-we really had to “buy a seat at the table.” It'sunrealistic to expect an insurer to give you significant controland not share in the risk.
American Alternative Insurance Corp., an admitted subsidiary ofMunich Re America, is the property-casualty insurer for most of ourprograms. In other words, it is the fronting carrier for our agencycaptive, and we have a quota-share arrangement with it.
We have more underwriting authority than most programadministrators. There are few underwriting decisions we have torefer to insurers, which enables us to be more responsive to localbrokers. We don't have to wait a week for someone at an insurer tomake a decision; we can make it within a day. That's a hugeadvantage for us.
To get such authority, we had to let the carrier know, by ouractions, that we weren't focused just on sales and marketing, butthat for our own financial health we were committed to theprogram's long-term profitability. And that was our sole reason forcreating the agency captive. It's the mechanism by which we retaina part of the underwriting risk for every program we have.
AA&B: How long does it take to create aprogram?
Campisi: There's no one answer for that question.It depends on the nature of the market in which you're interested.Also, a program administrator using E&S carriers can move a lotfaster than one that uses admitted insurers, in which case formsand rates must be filed in all the states the program serves. Evenamong program administrators who use admitted paper–as we doexclusively–there are differences in how fast you can get a programto market. Those operating only in “file and use” states may beable to start writing business relatively quickly. Those who haveto file in states like New York and California, on the other hand,may face a process lasting six months or longer.
This is one reason that few, if any, admitted programs roll out inall 50 states. What typically happens is that in your proposal to acarrier, you specify where you think the greatest opportunitiesare. So you pick maybe five or 10 states and go from there. Formost programs, starting out in sparsely populated places like theDakotas or Montana cannot be justified, given the required upfrontinvestment.
AA&B: How much can it cost to set up aprogram?
Campisi: As with any new business initiative,you're going to put a lot of dollars in before you get any dollarsout. You have to invest in a production force if you're sellingdirect. Even if you're writing on a wholesale basis, you must havea field presence that is out there selling and promoting whatyou've built to retail producers. That takes money. If you'retrying to market in multiple states, you're going to have peopletraveling, which is expensive. It's going to take time to find outwhere the business is. We may know a state has 1,000 widgetmanufacturers, but who's writing them? We need to find out if thereare any brokers who have a large book of business in the targetedclass, because those are the people we want to get to first. Thisis all part of the R&D of a startup, and there's still a lotmore, particularly for multistate programs. We had more than$500,000 invested in our hospice-community care program by the endof its first year.
AA&B: What are some of the major issues thatprogram administrators should address in their contracts withinsurers?
Campisi: First, I'd say that the contract, whileimportant, is really secondary to your knowledge of, and trust in,the company with which you're doing business. Once you sign acontract, you hope you never have to pull it out again. That can bethe case if you've had a meeting of minds with the carrier and youtrust each other. Then the contract is just there to be abackstop.
Having said that, we want to define the market segment in thecontract: Who is the customer? What territory am I going to cover?Then you get into the program manager's and insurer's respectiveauthorities and obligations. Those responsibilities need to bespelled out in detail. You also want to outline the manner andlevel of your compensation, which should be based on the scope ofyour duties and responsibilities.
Ownership of the program's intellectual property rights, if youwill, also needs to be made clear in the contract. Then, if thereis a parting of the ways, both parties know what belongs to whom.The expirations and the intellectual property should remain withthe program administrator–even if the carrier has done the filingsin its name. Your property needs to be defined in the contract, soyou don't find that the carrier continues to compete with you,using the same products and your confidential information, if youhave to move the program for some reason. In the contract, we alsoidentify what information is confidential to us, as another meansof protecting our property.
Mutual exclusivity, or restricted dealing, is another importantissue. At a minimum, a program manager must be certain that thecarrier cannot use the program's forms and rating plan with anyother agents.
Of course, the termination provisions are another big issue. In ourcontracts, we have termination provisions that are “for cause” and“not for cause.” On the “not for cause” side, we tend to ask eachother for 180 days' notice, as a courtesy.
In regard to “for cause” termination, notice could be immediate to60 days, depending on the nature of the contract breach that led totermination. The contract should contain a “cure” provisionapplicable to some instances of contract default that gives thedefaulting party a reasonable amount of time to correct thedefault.
The simple truth is that a program administrator writing a largevolume of business on a multistate basis is frankly going to needtime to move a program. Unless you've had a “Plan B” all along,you're not likely to have another carrier to which you can rollthis business within 60 days, as well as deal with any filingissues.
AA&B: What kind of things might force aprogram administrator to move a program?
Campisi: The most obvious would be a ratingchange. If an insurer was required to maintain an A- or better A.M.Best rating, falling below that would trigger the programadministrator's right to move the program. So might a change ofownership. If the insurer was acquired by another carrier, aprogram administrator could be forced to deal with a new set ofunfamiliar people. So a contract provision might state that ifcertain members of management leave the insurer, the programadministrator has the right to terminate the agreement. The carrierno doubt would want to have the same right. After all, an agreementcovering a program is essentially a personal-services contract.We're selling the insurer the expertise and services of our people.So if the people who for years were instrumental to the program'ssuccess are suddenly gone, the carrier understandably wants to beable to reassess whether it will continue the agreement.
AA&B: Who takes care of reinsurance on thesebooks of business?
Campisi: For the most part, our fronting carrierobtains it from its parent, a reinsurance company. When it comes tothe property catastrophe exposure, however, we work with domesticmarkets as well as those in Bermuda and London to place specificproperty CAT coverage on our program business. Essentially, we sitat the table with our carrier partner, negotiating and buildingrelationships with property CAT reinsurers. I think we've spreadthat coverage through about 15 different markets. While we preparethe reinsurance submissions and negotiate with the reinsurers, thecoverage actually is issued for our fronting company, not for ouragency captive.
AA&B: What is the extent of your involvementin claims handling?
Campisi: We adjust first-party and third-partyclaims and take care of salvage and subrogation. We're among aminority of program administrators that do so. We went that route,rather than contract with a third-party adjuster, because we thinkclaims adjustment is the most important thing we sell. It enablesus to be responsive to the policyholder at the time of loss. It'sthe reason any insurance entity exists in the first place. It's notto sell policies; it's to help your client at the time of aloss.
AA&B: What kind of safeguards do insurancecompanies expect you to implement, if you're going to adjustclaims?
Campisi: First and foremost, if you'rerisk-sharing, then the carrier knows that you're making decisionsdiligently and conscientiously, that you're staying within the fourcorners of the policy. They know that if you do need to exercisediscretion in a gray area of a particular claim, you're going to doso responsibly. They also want to make sure that you're fully awareof all the laws applicable to claims hand-ling in each state.
Insurers also want to make sure you adjust claims only within thelimits of your authority. We call a lot of what we do “counsel andconcurrence.” If a claim hits a certain threshold we counsel andconcur with our carrier partner. They just want to know what we'redoing with such a claim, not take it over. And that works verywell.
AA&B: What's the outlook for programs in theyear ahead?
Campisi: The soft market is going to continue wellthrough 2008, barring some mega-catastrophe that pulls a lot ofcapacity out of the market. Thanks to another mild hurricaneseason, it looks like the stars are lining up for the industry tohave another record-breaking year.
Some people argue that the soft market is not going to be as severeor as long as the last one, because of such factors as theindustry's enhanced reporting capabilities, greater oversight onthe part of rating agencies and regulators, continued demands for asatisfactory return on equity and Sarbanes-Oxley. But at the end ofthe day, there is a fundamental question of supply and demand–andright now supply is building much faster than demand.
AA&B: Do you expect more insurance companiesto get into program business?
Campisi: I do, because the word is out thatprogram business is underwritten profitability. Programadministrators and MGAs tend to have disciplined operations, andthey connect with the marketplace in a way that carriers can't. Socarriers are keenly interested in growing their program businessand having more relationships with program managers and MGAs. Ihear that over and over. We're contacted by insurers all thetime.
AA&B: How do you vet them?
Campisi: First, we make it clear upfront thatwe're not looking for anything right now. If we do meet, it'sreally to learn more about each other's operations, just for thevalue of that knowledge, not to pursue some immediateopportunity.
We assess the carrier's capacity, product capability and resources.Are they really willing to provide broad underwriting and claimshandling authority? Many of them, quite frankly, are not all thatwild about having you handle the claims.
AA&B: Is there anything else that's importantto your success in program business?
Campisi: This is a service business. And whetheryou're operating as a program manager or as a retail agent, itcomes down to providing service to the client. The simple thingsare important, like ensuring that when someone calls us, a humanbeing answers the phone. Getting out policies, endorsements andquotes–accurately and timely–is important too.