<<Back to the 2009 Review & Outlook Issue

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Program Insurers and Administrators

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How has the soft market affected the programsbusiness?
Brendan Brownyard: Forany program, an individual risk that may have been acceptable 5years ago may not be acceptable at today's pricing. It's alsopossible that a previously desirable risk may, for its owncompetitive purposes, accept work that we would considerunreasonably hazardous from an underwriting standpoint. Experiencedprogram managers know that after 5 years of shrinking rates, theeffort to maintain underwriting standards is critical to aprogram's success; they also know they must compete not just byprice but also in service and expertise. For example, ourefficiency in handling complex claims through our in-house claimsfacility (Brownyard Claims Management, Inc.) and extensiveknowledge of the industries we service have proven to be invaluabletools.
Glenn Clark: Rockwood's core prospects are inmanagement liability. The soft market has put downward pressure onrates on employment practices and made it harder for us to keeprenewals at a credible rate. Larger E&O accounts are especiallyvulnerable to carriers who exhibit some pretty risky pricingstrategies. We have a duty to protect our carrier partners, andprogram business is the best way to have deeper relationships witha partner. I simply cannot imagine what a non-affiliated wholesalermust be going through,
Greg Thompson: There are many carriers expandinginto the programs market and those who are already in the marketare expanding into new programs. As a result, there is increasingcompetition which should result in continued downward pressure onpricing in 2010.

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What impact has the recession had on your own businessin 2009?
Brownyard: Regarding oursecurity guard program, in previous recessions we found that whenbuyers of security guard services were faced with harsh budgetconstraints they didn't hesitate to cut or reduce the level ofsecurity services before they reduced their own workforce orapplied other cost saving measures. In the current recession,purchasing efficiency is important, but security services are morehighly valued than they had been in the past and not just viewed asa commodity. As a result, while payroll growth is not as great asit had been earlier this decade, it is still healthy consideringthe economic climate. In addition, for several of our programs thatwould be considered labor intensive, one interesting by-product oftoday's higher unemployment rate is that there is a more qualifiedemployment pool to draw from. This is an underwritingbenefit.
Clark: Many of our insureds arein the smaller end of the E&O world. Usually our biggestcompetitor is not another program or insurer; our biggestcompetitor is the decision to buy insurance or to go without it. Wehave seen an uptick in the number of prospects who decide not tobuy. Obviously from our perspective, it is hard for someone to holdthemselves out as a true professional and then not beinsured.
Thompson: The impact varies by program. The PestControl Industry, which is heavily dependent upon Termite letterrevenues linked to home sales, has been hit hard and that meansless premium. The Tanning salon industry has been hit by much lowersales too. Health care related business, such as senior living andhome health, however, is doing much better.

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Are you finding that carriers are more interested indeveloping program business to gain a competitive edge in a softmarket?
Clark: Ouragency is the founding agency of TMPAA (Target Markets ProgramAdministrators Association). Program business had gained new statusover the past 8 years or so. The best carriers and the bestadministrators are finding each other. The weaker models have beenweeded out. While we all face challenges and we all sell the sameproduct–a promise to pay–what makes one partnership work andanother fail? The program model is time tested and we are doingeverything we can to be sure the best partner with eachother.
Brownyard: In the face of shrinking income fromtheir everyday business, some insurers are suddenly interested inprogram business, and program managers are exploring new classes.Some insurers merely copy information and sample policy forms fromthe Web sites of established programs and consider this sufficientdue diligence. We do not. Rates are currently the lowest they havebeen in almost 10 years, and knowledge of an industry has neverbeen more important to the success of a program. The classes wespecialize in have proven to be volatile from an underwritingstandpoint, and a broker must consider carefully the prudence ofplacing a risk with a new “program” or market that can't guaranteea long-term commitment to that class or offer adequate expertiseand knowledgeable claim administration.
Thompson:Yes I believe many carriers view aprogram strategy as a way to avoid the ruthless competition of thestandard market and middle market sectors.

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What do you see as your top 3 most critical issues in2010?
Clark:Personnel, government and expenses. Personnel is the top challengein every year. People are differentiators. Hard work, energy andgood ethics will win out over a lot of adversity. The governmentseems much more focused on trying to fix the economy by giving awaymoney. This economy will only be fixed by the people who make thejobs: small business. To ride out the soft market, every expensemust be analyzed and evaluated, whether it's shared marketingcosts, reduced travel, etc. We all need to be careful.
Thompson: The first issue will be to maintain theprofitability of our carriers. Lower rates are putting pressure onour loss ratios. Secondly, we will have to control our expenses aslower premiums affect our margins. Finally, we will need to findways to improve our competitive edge in each of our programs sothat we can maintain our premium volume despite increasedcompetition.

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Brownyard:

  1. Continuing to deliver the high level of innovation and serviceexpected from us by the marketplace
  2. In today's prolonged soft market, to maintain competitivenesswe must be aware of the actuarial status of each program
  3. As rates continue to decline, it may beprudent to convince some insureds that further premium reductionscan lead to sudden and damaging pricing corrections in the nearfuture.

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