Bringing a new insurance program to market is an exciting timefor the program’s agency and staff, as well as their carrierpartner.

Policyholders will benefit from the financial strength and broadrange of resources that a new carrier brings to the agency’s bookof valued business. The potential exists to expand this bookof business to new accounts, while also substantially improvingloss ratios and, thereby, profitability.

The first three articles of this educational series on dedicatedinsurance programs reviewed, in detail, assembly of the programsubmission, identification of a carrier partner, due diligence bythe carrier, financial modeling and negotiations.

With a signed deal in place, it is now time to begin theimplementation of the program based upon the executedproposal. Program implementation has its own set ofchallenges and important areas that must be addressed, which willbe covered in this article.

Basics

Program implementation is a complex process. Fortunately,many of its parameters will have already been determined, orstarted on, during the program submission, due diligence, financialmodeling and negotiation phases. Like any other businessprocess, the implementation will go smoother when necessary careand thoroughness has taken place during the developmentstages. A strong foundation leads to a better success ratefor revenue growth and profitability, including in the program’searly stages.

Several factors help the program get off on the rightfoot. The first is when the program carrier has staff,including a key contact person, dedicated to the implementationprocess. This model is better than asking staff to jugglebringing on a new program while actively managing otherprograms. Proper implementation is time consuming and verydetail oriented, so having a dedicated team in place is a distinctadvantage.

Next, the implementation matrix can be quite complex, withactions taking place simultaneously or with one step dependent oncompletion or approval of another. As we have emphasizedthrough this series, regular, open communication between carrierand agency is one of the hallmarks of a successful program. Don’t take anything for granted. In particular, agencies,even sophisticated, experienced ones, should not hesitate to askquestions to make sure all parties are “on the same page.”

Every program is unique, requiring specific resources. Thus, notwo implementations are alike. Regardless, there is astandard implementation process (or checklist) that should befollowed, which we now discuss.

Authorizations

Under this heading falls required contracts, which will includean agency agreement between agency and carrier and any negotiatedprofit sharing, reinsurance, trust/collateral and/or claims servicecontract, the last being needed if a third party administrator(TPA) is being used to manage/adjust the claims.

The carrier must complete an agency appointment process, whichofficially allows the agency to solicit business in a given stateon behalf of the carrier for the lines of business appointed. The carrier will also have the agency provide additionalinformation, such as copies of agency/agent resident andnon-resident licenses (as required by the states in which theprogram will be marketed), a W-9 form and a copy of its Errors& Omissions policy.

Next, the agency and carrier will develop underwritingguidelines for the given program. These underwritingguidelines define the parameters of risks being underwritten, asthey will be submitted for quotation. They include: lines ofbusiness; classes of eligibility for a given state; pricingparameters; and coverage forms. Both parties should sign offon the final language and forms of these essentialdocuments.

Additionally, the carrier will provide an underwriting authorityletter, if the agency is granted underwriting authority and isassuming those responsibilities. This letter will detail suchitems as lines of business, available coverage, policy limits,premium thresholds, classes of business, states of operation, andtypes of scheduled credits and debits allowed for a given risk.

Typically, the underwriting guidelines and underwritingauthority letter are reviewed annually.

“Workings” of the program

A program’s forms can include specific policy language toaddress unique exposures that are contemplated by thatprogram. There are various insurance organizations (i.e.:ISO, AAIS, NCCI) that carriers may subscribe to for use ofstandardized coverage forms to address more common exposures. Whilethese standard forms might not handle the unique risks of everyprogram, they are a good foundation as a starting point, along withadditional tailoring through the use of manuscriptendorsements. Similarly, these organizations provide baselinepricing across states, with adjustments being made from there basedon the individual carrier loss experience and expensestructure.

As elsewhere in program development and implementation, formsand pricing are areas where the agency is consulted due to theirlevel of expertise and experience in the class of business. Astute carriers will respect and rely on agency input in this area,another example where communication, mutual respect and a genuinesense of partnership are paramount.

Next, it is necessary to make required rate and forms filingswith the appropriate state departments of insurance. Clearly,this is a key implementation step, as it will govern when a programcan become active in any given state. Each state has its ownregulatory requirements. Some states are “file and use,”while others are “prior approval” when reviewing and approvingcarrier filings. In any case, with complex, multi-stateprograms, it is advised to pursue a filing strategy thatprioritizes the states based on the program marketing plan.

Depending on the state requirements, a single-line, conventionalprogram (i.e. workers’ compensation or a property line) might beapproved in 30 days, while the approval process for more complexprograms could take several months. Both agency and carriershould be prepared to provide timely responses to any requests forfurther clarification of policy language and rates.

In many cases, the carrier’s in-house staff will be responsiblefor claims handling. Some programs will utilize the servicesof a TPA to handle claims. In these cases, the agency andcarrier will conduct appropriate due diligence and complete aclaims service contract with the TPA. This contract willdetail such important areas as fees, authority levels, maximumclaims payout by line of coverage, reserving and how the TPA willinterface with the carrier’s reporting systems. Financial modeling conducted earlier would have accounted forclaims handling charges (carrier or TPA fees) when arriving at theprogram’s anticipated loss and expense ratios.

Similarly, the agency and carrier will outline the program’sbilling responsibilities, authorities, fees and reportingsystems. Generally, the agency agreement will identify thesebilling requirements.

Loss control and risk management

Along with underwriting guidelines, loss control and riskmanagement activities go a long ways towards controlling aprogram’s claim experience and profitability. Workingtogether, the agency and carrier will establish a loss controlservice plan appropriate to the class of insureds and its range ofpotential exposures. Furthermore, this is an area where theagency can make great use of the carrier’s in-house and fieldunderwriting and loss prevention specialists.

Infrastructure—technological and functional

If the agency has an agency management system and will beproviding rating and policy issuance functions for their program,it might seem to go without saying that the agency and carrierinformation technology systems must be compatible. Investments in needed technology can be a major step for any agencytaking on a dedicated program. Processing systems certainlymust be more than an afterthought, but, rather discussed andbudgeted for early on in the proposal and negotiation stages.

With the necessary technology in place, common systems willinclude the rate, quote and issue (bind) system; programs thattrack performance parameters like premium growth, claims and claimspaid; and regular reporting that will be used to direct the overallmanagement of the program. With today’s technology, most ofthese reports can be generated automatically on a “real time”basis.

Marketing

This stage of the implementation process brings us nearly fullcircle. The advantages and special features of a book ofbusiness brought its maturation into a formal program proposal,identification of a carrier partner, and, finally, a negotiatedprogram. Now, along with market intelligence and otherinsights acquired during the development process, it is time to“sell” the program to existing and new clients.

Most carriers will have an experienced corporate communicationsteam that will be a valuable resource for the agency. Marketing methods may include brochures, flyers, a program-specificweb site, e-mail blasts and social media strategies. Thecarrier can also help with presentations to prospective clientgroups and attendance at trade conventions.

The “finish line” is only the beginning

With everything in place, we find that a detailed finalimplementation sign-off checklist pays dividends in making surenothing is missed before a program goes “live.”

It is important to carefully present the change in carrier to aprogram’s existing clients, including items like any changes inA.M. Best rating, coverage enhancements, payment terms or andclaims reporting procedures. The carrier’s corporatecommunications department can help draft a cover letter thatconveys the advantages of the new relationship. Thiscommunication is usually initiated at the time of policyissuance. It’s been a complex process developing the program, establishingcontracts and underwriting guidelines, gaining needed regulatoryapprovals, setting up all necessary infrastructures andestablishing processing and reporting systems. The care takenduring implementation, buoyed by a growing rapport between agencyand carrier, will be rewarded in the marketplace with a programthat serves all parties, including insureds, in the waysintended.

Timothy J. Harkins is vice president of businessdevelopment for Southfield, Michigan-based Meadowbrook InsuranceGroup, Inc., and can be reached at [email protected] or(248) 204-8170.