A shift in appetite and a stable but continuing soft market has combined to make life challenging indeed for major players in the program business segment, particularly as more competitors enter an already crowded marketplace.

To distinguish themselves in the crowd, program administrators are looking beyond commodity-like approaches, emphasizing their commercial insurance expertise in key segments, according to Bob Kimmel of Guy Carpenter.

“There is a definite shift in appetite,” said Mr. Kimmel, practice leader for global risk and reinsurance specialist for Guy Carpenter's Program Manager Solutions Specialty Unit. “They are looking to grow in spaces that have been unchartered.”

Guy Carpenter–which helps clients effectively and professionally maneuver through the MGA production, placement and servicing process–is due to release its survey of the marketplace later this month.

Vince Pugliese, senior vice president and program division executive of Lexington Insurance Company, said programs succeed if they are a “well-defined segment as opposed to a commodity.”

Marc Willner, senior vice president of programs at Ironshore, said that in a soft market it is “tough to compete” in certain established segments.

“Everything is lined up,” he added. “There are 100 other companies writing [certain target markets].” Ironshore's program operations started about two years ago in the excess and surplus lines segment.

“Longer-term viability in the market has everything to do with selecting the right program administrator,” Mr. Pugliese added. “Are they already in a crowded space? Do they have some kind of differentiation?”

William Thompson, president and chief executive officer of program administrator Manchester Specialty Programs, said he looks for a “class that makes sense,” or one that you wouldn't see a standard carrier involved with.

Manchester, formed about a year ago, provides comprehensive insurance coverage to home health care and medical staffing firms countrywide.

“The litmus test is that if a standard carrier is writing in the class, it doesn't have enough of a different element for me,” Mr. Thompson explained. “If there are no standard carriers writing the class, we're writing it.”

Program business is getting used to crowded spaces, especially in a soft market. Mr. Kimmel said his “phone rings all the time” due to standard agencies seeking information on alternative distribution.

“It is definitely a competitive marketplace,” shared Mr. Pugliese, who added exposures are down 3 percent to 4 percent this year. “Businesses are stressed and looking to reduce costs, and they are out to bid, which creates pressure on pricing.”

Small businesses are partnering with each other in affinity groups, looking to save money on a variety of essentials–including insurance, according to Alan Belthoff, executive vice president and chief operating officer of Chartis' Growth Enterprises, a specialty products provider to small businesses.

There is a balance, he explained, between coming up with new products and making them affordable. “At the end it is about the available dollar–how much they are willing to buy,” said Mr. Belthoff.

Yet the opportunity for profit remains enticing. Like Chartis' Growth Enterprises, Ironshore started program operations about two years ago.

“The market's the market,” said Mr. Willner. “You can never time it well. It will eventually turn, and by that time we'll be in a position to increase program opportunities out there.”

Ironshore currently has nine programs and is looking at others, Mr. Willner noted.

Mr. Belthoff said Growth Enterprises has 10 programs with about $25 million in annual premium and is looking to expand its market presence. The company has recently had about 30-to-40 opportunities and is “really aggressively pursuing” five of them. Mr. Belthoff said that if they get three out of the five, the company would view that as a positive.

Lexington, one of the top three players in the space, has 120 programs (the largest being a $65 million program), with about $1.2 billion in annual premiums. It gets eight-to-10 program proposals per month, said Mr. Pugliese. Two or three may be considered viable. Lexington has six programs this year–half existing programs, with the others being start-ups, he noted.

“If we're interested, we'll work with you,” Mr. Pugliese said.

Mr. Kimmel of Guy Carpenter said that deals are on pace to beat the 26 which occurred at Guy Carpenter in 2009 due to aggressive marketing strategies but that deals are also smaller. “The $100 million-type deals are moving,” Mr. he said.

Mr. Willner said program administrators are working harder to see what else they can add to the program mix. He said a long-term, trusting relationship with an administrator is important, especially when many programs die due to administrative issues.

Mr. Thompson of Manchester noted that other than seeking exposures outside of the standard carrier appetite, he looks for homogeneous business. His plan also includes working with one carrier only (Everest National), while other administrators will shop around the program if it is not a fit for their primary market.

“Nobody else gets it if we don't get it,” Mr. Thompson said. “We lose it together.”

Mr. Belthoff said trust in the administrator is essential. As a business partner, the idea is to make sure the offering is valuable, with unique terms and conditions to a specific market segment. The program administrator brings that offering and the products behind it together.

“You must have the right partner,” he added. “You are reliant on their expertise.”

Mr. Pugliese said Lexington would work on certain programs if the company has confidence in the program administrator.

Special Reports /

Program Business Market Gets Crowded As Players Keep Piling In To Offset Soft Market

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