These are not easy times for small-business owners, independent professionals, contractors, tradespeople, or others trying to make it on their own. Because of the sluggish economy, increased gas prices, inflation, stock market instability, the continuing housing crisis and decreasing incomes, almost everyone is looking for ways to cut expenses, and insurance premiums are falling under increased pressure.

It's also not an easy time for insurers. The soft insurance cycle means fewer premium dollars and increased competition. Insurers are working harder for less and looking for ways to grow. The same is true for agents and brokers.

But hard times bring opportunities.

It's a perfect time for insurers and agents to sell, and professionals to buy, insurance through groups and associations. Program business is a win-win situation for insurers, their clients, and the associations or groups to which they belong. Everyone benefits from a program's more efficient and cost-effective distribution system.

That's why we're seeing program business growing stronger. It is estimated that insurance program business accounts for between $20- and $30 billion annually, and that number is increasing. (See, for example, “Specialty Insurance Programs Issuing Carrier Survey, September 2007″ published by Guy Carpenter, and related article on NU Online News Service, Oct. 15, 2007.)

A successful professional liability program will produce about $1 million in premium in the first year and grow to $5-to-$10 million in a few years. That's a tremendous opportunity for insurers.

Members of an association or group buy insurance policies collectively at lower premiums than if they were to purchase them individually. That's still true even in this soft insurance cycle.

The association benefits because members who buy insurance through the group are more loyal to the association.

Program insurance is an attractive member benefit, which helps the organization grow. That's important as association dues come under increased cost-cutting scrutiny in an unstable economy. A program may tip the balance between members deciding to renew membership or to cut their costs by leaving the group.

Examples of groups and associations that are ripe for programs due to the direct impact of current economic strife in their particular industries include financial advisors, insurance brokers, home inspectors, moving companies, tradespeople, appraisers, title companies, lawyers, trucking companies and delivery companies, travel agents, and those in the auto industry. However, members of any type of homogeneous group can come together to buy insurance through a program.

Many types of insurance are offered through programs. Standard property and casualty have long been program staples, but other possibilities include professional liability, employment practices liability insurance, hard-to-place products liability, and nonprofit directors and officers liability insurance.

While some groups purchase only one type of coverage through a program, others may be able to buy all the types of insurance they need to do business through one program. For example, a health care facility might buy professional liability, general liability, property, auto, EPLI, umbrella and even outbreak expense coverage through a single program. This usually results in increased savings, especially if all lines are purchased from a single carrier.

Insurers have been providing group coverage for many years. But their appetite for the business has ebbed and flowed during different market cycles. Generally, less capacity means fewer programs. But it's never a bad time to form a group to purchase insurance.

Insurers can grow by selling more policies through groups, especially in this soft market. The efficiencies and economies of scale add to the insurer's bottom line.

Underwriting is easier using predefined parameters for insureds with similar exposures, and technology has made it increasingly cost effective for insurers and their representatives to underwrite programs using computer-based underwriting software programs.

Programs bring insurers closer to their customers through regional retail agents or program managers who have relationships with various trade associations. They easily obtain customer feedback and make changes to programs more quickly.

Programs are also a cost-effective way for insurers to expand into new geographical areas. Technology also helps provide more efficient distribution of policies.

Experience tells us that groups are attractive to insurers because they are more stable risks over the long term. They tend to pay more attention to loss control and risk management guidelines, which helps control their losses. Therefore, their prices, terms and conditions tend to be more stable, which makes them more loyal to the program and the insurer.

It's no wonder that many insurance companies are entering or expanding their program appetite. Some deliver better than others. Distinguishing factors between carriers include:

o Competitively priced coverage focused on the needs of the group.

o Product line expertise demonstrated through long experience in multiple lines.

o In-house claims handling.

Insurers with extensive claims-handling experience are experts on the issues facing the group. As such, they can provide solid defense attorney networks and other resources when needed. We believe they set reserves appropriately and know which claims to settle, another factor potentially contributing to the group's price stability.

o Loss control strategies and risk management.

Group members receive information to help them reduce their risks and control their losses. Good companies offer seminars, on-site audits and inspections, and help in other ways to reduce their losses and keep premiums stable.

o Marketing and sales support.

Through professional marketing departments, some insurers put together marketing materials to sell the insurance program and attract new group members. That helps the association grow.

Insurers can provide lead lists, design trade show displays, help with Web sites and brochures, and even do personal presentations to potential members.

o State-of-the-art electronic systems that help insurers and program managers efficiently monitor, control and audit underwriting and policy issuing processes.

o A compensation system that rewards program managers, managing general agents and groups for successful underwriting and sales with profit-sharing agreements.

It's easy to see why program business is an attractive trend in an insurance industry poised for growth in challenging times.

Special Reports /

Hard Times Bring Opportunity For Professionals Buying Coverage In Groups

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