In our world of specialized or segmented skills and markets, many independent agencies are thriving by serving distinct, homogeneous classes of insureds. In time, many of these areas of concentrations evolve into formal, carrier-underwritten insurance programs.
There are many paths to program status. However, in general, strong candidates for elevating a book of business to program status will have a proven loss history and agency expertise in that class of business, along with competitive market intelligence and an established distribution system.
Increasingly, elevating such coverage niche or special expertise to program status is proving an excellent way to generate premium growth and enhanced profitability, including through equity participation in the program. Also, it may, depending on the specific program and class of insureds, help buffer against customary cycles in insurance markets.
An agency is ready to take on a program. How does it get started?
In this first in a series of articles, we will discuss how to develop and prepare a program submission.
• Develop a timeline.
At the outset, it is important to develop a timeline for submission. The time it takes to research and assemble a submission will depend on the complexity of the program, how much work is required to gather the required information and staff resources.
Certain programs are more complex with respect to the scope of business of the insureds, the underwriting issues inherent to that class and the overall corporate sophistication of the group with which it covers. Consider wedding planners as opposed to environmental-remediation firms or frame makers as opposed to aircraft-leasing companies. Each has its own distinct insurance issues and can be a profitable program. However, some are just inherently more complex than others.
Similarly, the ease or difficulty of obtaining and assembling the required information (discussed in the next section and accompanying sidebar) will impact the time required to prepare a submission. A good agency information-management system, with ready access to quarterly reports, loss runs, claims history and the like, is invaluable.
Be forewarned: Going back to a carrier and suddenly asking for past quarterly reports or five-year loss ratios is often a tip-off that an agency is looking to take its insureds elsewhere, i.e. program status.
Last, agents and agencies must consider the resources required to prepare a submission. Devoting resources to developing a well-rounded submission, while simultaneously running your insurance agency, can be a daunting task, especially for smaller shops. Larger agencies often temporarily assign an individual to this project.
Help is available. Agencies can submit information for independent actuarial analysis and review by working with specialized accounting firms that are insurance-industry experts. Often, this is money well spent. The review may lead one to go back and do more homework—refining the program to make it more viable and attractive to potential partners. On the other hand, it can confirm the quality and marketability of your prospective program.
Compiling the information and narrative required of a complete submission can seem overwhelming. However, there are valuable professional-education programs and resources, such as those offered by Targets Markets’ Target University, which can guide you, step by step, through the submission process.
While one timeline does not fit all programs, gathering and assembling a quality submission generally takes from 30 days to as long as six months for the more complex programs.
• Get it in the book
The core components of the program submission book include: Executive Summary, Distribution, Underwriting, Claims Experience, Program Experience, Actuarial Information, Agency Profile and Competitive Market Intelligence.
Think of the Executive Summary as putting your agency’s best foot forward—and, then, backing it up with numbers. This summary will provide the overview and history of the program, right down to loss ratios; the reasons you are seeking a new carrier or market; and your plans for premium growth, revenue growth and, if applicable, geographic expansion. Here is also the place to make the case for the special circumstances that have made and will continue to make your program unique and ultimately successful.
(See the accompanying sidebar for a comprehensive outline of what the submission must under this heading and each of the others.)
Distribution and Underwriting come next. Distribution will include direct versus subproduced business, agency relationships and a geographic breakdown of the existing book. The Underwriting section will include details such as class of business, average account size, general eligibility guidelines, a list of the forms, endorsements and applications that you use, legal environment of each state, and program rates.
Next, proceed to the in-depth number crunching that must support a submission under the headings of Claims Experience, Program Experience and Actuarial Information. This is where alert agencies are rewarded by already having outstanding information-management systems and comprehensive, up-to-date recordkeeping. Yes, “good numbers” make any prospective submission attractive, but it is also essential that your information be consistent across the submission, including the Executive Summary.
The Agency Profile includes basics such as principals, staffing, incorporation date and existing business mix, as well as copies of current audited financial statements. In this section, the agency should detail its loss-control programs and reinsurance history or experience. These last items allow agencies to demonstrate their risk-management skills and overall insurance-industry sophistication.
Competitive Market Intelligence is the final component of the program submission—one of the most telling and, really, the fun part of the submission. Here, the agency makes its case for the program in terms of the current and potential market for the coverage line, backed by applicable market research. This section must also include an honest analysis of competitive products and competing agencies—a look in the mirror—and elsewhere.
• Assembling the program submission.
Fortunately, today’s technologies offer many advantages compared to the former expense, bulkiness and delays inherent in printing, assembling and shipping out the program submission as a “hard copy” in those once ubiquitous three-ring binders.
The entire submission can now be instantly e-mailed anywhere it is needed. Many entities are also setting up secure web-based data rooms. These data rooms can feature access control and even chat areas. The agency will know who is studying the submission, when and which parts at any time.
Overall, electronic data storage, submission and communication are helping improve the accuracy of the submission; any needed corrections or updates can be made on-the-fly, while speeding up the evaluation timeframe.
In the past, if potential underwriting partners had to go back and forth asking for missing information, it often mistakenly created the impression that a formal relationship had been established. Instead, through advanced technology, a submission can be promptly evaluated and a “go or no-go” decision can be more easily and quickly made, which serves the interests of all parties.
In our next article of this five-part series, we will take a comprehensive look at just that—taking the completed submission to market, where we discuss how to identify, approach and work with a program’s prospective underwriter.