A View From The Front Lines:

MGAs Reveal Programs And Strategies

As insurance company interest for specialty program business heats up again, managing general agents who underwrite and administer the programs are on the front lines of a shifting market.

And with carrier appetites still lacking in some areas, like smaller programs, MGAs say they are well-equipped to find program solutions for their retail agent customers while delivering profitable business to insurers as well.

In the mini-profiles that follow, three MGAs discuss their programs, give their perspectives on changing carrier appetites and requirements, and reveal some of their strategies for forging successful partnerships with insurers who issue the policies for their programs.

Schneider Agency: Solutions For Retailers

For Robert Schneider, president and owner of Robert A. Schneider Agency, in Minetoka, Minn., ultimate satisfaction comes from making people understand where the MGA fits in finding insurance solutions for unique situations.

“We help solve problems by finding markets,” said Mr. Schneider. “We have more expertise with the issue of solving the agent's problems.”

Mr. Schneider has been a regional wholesaler for 31 years. He has a branch office in Madison, Wis., with markets in North and South Dakota and Iowa. The agency has 40 employees and writes around $36 million in premium per year.

The agency writes a number of specialty product businesses and recently developed two niche programs with very narrow focuses, typifying what an MGA likes to do best for his customer–get answers and solve their insurance problems, according to Mr. Schneider.

About three months ago, a retail agent in Minnesota had been writing a national program for in-home daycare centers for 20 years through a major carrier. It was a small program, generating less than $2 million, and despite the years of relationship with the carrier, the carrier made the business decision that the book was too small for them and pulled out. She needed a new partner and turned to the Schneider Agency for help.

“We did not have a relationship before,” explained Mr. Schneider. “Her agency had something put together in another market, but it was not what they needed. I learned about it and contacted her. We had lunch, and by Monday we had a market in place for her.”

The program was placed with United States Liability Insurance Company, an affiliate of Berkshire Hathaway, which has an interest in that type of risk.

“They said right out, 'We would be happy to work with you.' We have a good relationship with the company,” he added.

The biggest challenge in handling this program was in obtaining the licensing in all 50 states for it.

“It's been expensive and time- consuming,” he related. “We have close to $20,000 in licensing fees invested in this program. It's been the project of one person working full-time for five weeks already on it, but we see this as a good risk and a profitable book of business. And we found a market that likes this class and writes it well.”

Another recent program solution, developed nine months ago, was for a franchiser looking for insurance to include in the franchise package for unattended physical fitness centers.

The idea for the franchise is to give patrons 24-hour access to an exercise gym. The gyms are unattended, and the customers gain access to the gym with an electronic card swipe. The facilities are placed in shopping centers in well-lit areas for easy access.

Most carriers don't want to touch such a new concept with no risk history, Mr. Schneider noted. “We took the unknown, analyzed it, priced it, wrote the policy and put it together,” he said.

The program came about after meeting with a retail agent over other business. During the course of the meeting, the retailer brought up the program and said he was not happy with the carrier the program was with. Mr. Schneider said he would be willing to take a look at it. Within two hours, he had a deal for a duplicate program with a carrier that understood the risk.

“We came in at the early stage,” observed Mr. Schneider. “We came in with an offer of a better program that provided what the agent needed and wanted.”

What is even more unique is that the insurance is offered as part of the franchise program and has had a 45 percent take-up rate among franchise purchasers, amounting to close to $1 million in premium.

In both cases, the premium is not significant, which means a lot of carriers would not be interested. But technology makes the difference in handling small accounts. And the agency does all aspects of the business, having the pen to do it.

“We are highly automated, more than most MGAs,” said Mr. Schneider, explaining how the MGA can profitably underwrite smaller premium business. “We are totally paperless, and that puts us in a very unique situation.”

Jack Nebel Companies: Staying In The Box

“At one time, program business had more negative than positive associations to it,” said Jack Nebel, owner-president of Jack Nebel Companies in Palatine, Ill.

Created during the soft market cycle, program business used to be a price-driven business that was not adequately underwritten. But those failures purged the poorly underwritten program businesses, leaving the few profitable ones, according to Mr. Nebel.

“Now, it is not as price driven,” he said. “If you pick a class of business today, in this environment, it has chances at longevity.”

Two programs his managing general agency puts together are general contractors and habitational risks, specifically apartment buildings in Chicago. The general contracting business is specific to the Midwest.

“Our secret for general contracting, for the past 14 years, has been to stay within the box,” said Mr. Nebel. “There has been temptation to stray far out of the state, but we have remained within Illinois and states contiguous to it. It is a small area, very defined.”

The value of being in this niche, for the carrier and the retail agent, is that “we know what to write and who to write it with–and what not to write.”

The habitational risk program for the past eight years has concentrated on writing old apartment buildings in Chicago that are being restored or are in need of repair.

“There are tons of them everywhere [in the city], and they are difficult to find insurance for because there are lots and lots of fires in these buildings. They're old structures.”

Together, the two programs generate around $25 million in premiums, he said.

The general contractors program is underwritten by Nautilus Insurance, a W.R. Berkley Company, and the habitational program has been, since its inception, by QBE of America, a major underwriter in Australia.

He said the companies and his agency have formed long-term relationships, dealing with these programs on a surplus lines (non-admitted) basis. Nautilus has been dealing with Nebel for two years now and is “emerging as a great partner,” he said, speculating that this is among one of the longest underwriting relationships the carrier has had with an MGA.

“We do all the underwriting, issuing the policy. We are their branch office that they do not pay for,” he noted, adding that the only job his agency does outsource is claims handling. Claims are handled by a third party approved by the carriers.

What makes his agency even more valuable to the insurers is that besides doing the work, they also serve as the eyes and ears for the carrier, not only in following risk but providing knowledge on local issues that could affect the underwriting, Mr. Nebel asserts.

“In Chicago, there could be an ordinance that can affect the underwriting of the risk,” he pointed out. “When there are changes we are in the front line on it. We need to be proactive on what is happening in the community and legislature. We have to stay ahead of the curve” and let our underwriting partners know, he said. “It is very important to our success.”

This is one major reason he prefers to stick with his regional risks and not branch out nationally. “Guys sitting in New York, Orlando or San Francisco can read about what is going on here, but they don't know how it can affect the risk–unlike someone who is right here, on top of it.”

When it comes to marketing the program despite broadcast faxes, e-mails or personal visits to retail brokers, the most effective marketing remains word-of-mouth. But it also takes an educated retail agent who realizes that price is not everything, he said.

“If [the agent] does not understand the worth of value-added products, we do not have a good relationship,” he said, adding that for wholesalers, the most important part of their marketing remains personal contact with the agent customer.

“The only reason we [wholesalers] are still around is that what we offer is something different from everyone else–and it is that we are still real people here for the agents to turn to,” said Mr. Nebel.

“That is what is unique and will never make us obsolete. We offer too much unique business and opportunities that can't be shoved into an e-mail or through someone else's creative juices.”

Seaboard Underwriters: Data Is Key

Seaboard Underwriters is a familiar name in the managing general agency community, and its head, Joseph P. Hutelmyer, is equally well known.

President of the Burlington, N.C.-based agency–a member of American Wholesale Insurance Group of Charlotte, N.C.–Mr. Hutelmyer was president of the American Association of Managing General Agents in 2004.

Seaboard specializes in commercial trucking and auto, and has been around the business since 1957.

“You have to have your arms around the risk and be focused on one thing,” Mr. Hutelmyer said, explaining what it takes to have a successful program. The number one thing “is to have something you have a handle on.”

“If you are not focused, it can be real tough, he said, explaining that lack of focus opens an MGA up to too many exposures.

Data and actuarial numbers are essential to price the product adequately, and to get a return for the carrier. There also needs to be a demand for the program, and the MGA who is seeking to inaugurate a program needs a proven track record to have credibility in the eyes of the underwriters.

That said, however, program business is “as tough as it had been in the mid-80s,” he remarked. “Not many carriers are that interested.”

Still, that should not dissuade any retail agent from presenting an idea to a wholesaler if he or she thinks there might be a good business there.

“The MGA will do the homework and [get to] know the products, but [the retail agent] writes it and knows the history,” he observed, adding that a successful placement depends as much on doing your homework as the willingness of an underwriter to put up the capital and take the risk.

In his own case, he has two long-term programs for the trucking industry that may not produce a lot of premium, compared to the rest of his business, but because of Seaboard's reputation, they found the market, he said.

One program is a motor truck cargo program, which started back in the mid-1980s. It insures the cargo a truck is carrying, with few limits on the products covered. Over the years, the program evolved from a brokered business to one in which Seaboard now oversees the entire program for the insurance carrier.

He said his agency was able to sell the program to the insurer because of the years of data it had collected. And the MGA was able to demonstrate its understanding of claims and losses on the risk.

“We supply the data to the company on a monthly basis and perform many of the company functions, with the company performing quarterly audits on claims and underwriting,” he explained.

Another program–a physical damage program–provides comprehensive and collision coverage for individual commercial trucks. The coverage is written on a non-admitted basis, unlike the cargo, which is on an admitted basis.

Both are national programs, generating around $3 million in premium.

Mr. Hutelmyer said the physical damage insurance is relatively new in its current form but grew out of a similar program his agency had been doing for years. Previously, the program was lost when other carriers began throwing in similar coverage as part of their liability insurance programs.

About a year ago, it became apparent a need was developing for such coverage again, and Seaboard reintroduced it with the insurance company market it had done the business with previously. To differentiate itself, the program has additional limits that similar coverages do not, such as providing coverage for towing or loss of the driver's personal items.

“Both of these programs were sold to companies because we have a solid reputation in both the company and reinsurance marketplace,” he pointed out.

The programs are also short-tailed because there are finite limits to the duration of the coverage (for example, the cargo is limited to the pick-up, transport and delivery of the merchandise), making it even more attractive to the underwriters.

One thing he advised agents to do when introducing a program is to present corresponding values on the account. He noted that, for instance, the loss history may involve a trucker who once ran 100 trucks. However, the trucker seeking insurance now has 30 trucks. While the loss history for 100 trucks may have been prohibitive for one insurance company market, that same market may see the risk for 30 trucks as acceptable.

Most carriers don't want to touch a new concept like an unattended fitness facilities program with no risk history. “We took the unknown, analyzed it, priced it, wrote the policy, and put it together.”

Robert Schneider, President

Robert A. Schneider Agency

“Guys sitting in New York, Orlando or San Francisco can read about what is going on here, but they don't know how it can affect the risk–unlike someone who is right here, on top of it.”

Jack Nebel, Owner-President

Jack Nebel Companies

“We supply the data to the company on a monthly basis and perform many of the company functions, with the company performing quarterly audits on claims and underwriting.”

Joseph Hutelmyer, President

Seaboard Underwriters

Special Reports /

A View From The Front Lines: MGAs Reveal Their Programs And Strategies

Related Stories

Recommended For You