2009 and 2010 were record years for New York-based Distinguished Programs Group, a program manager specializing in insurance for the real estate sector

The milestones, however, were not the result of timing—coming right after the height of a global financial crisis partially fueled by a bursting real estate bubble, according to CEO Jeremy Hitzig.

Instead, he attributes his firm's ability to prosper through recent tough times to a change in strategy at Distinguished's program-administration (PA) operations and to explosive growth in a separate operating subsidiary known as ReSource Pro—a remote-staffing company based in New York and Quindao, China.

On the program side of the business, Hitzig says it was 2007 when Distinguished first recognized the need for a new strategic plan—one focused on “smaller and smaller accounts” to carry the firm through a prolonged soft market. With smaller accounts, “we believed we could hold the line on rates, if not possibly get modest rate increases, and handle them efficiently.” Efficiencies, he says, came from the offshore resources at Resource Pro and internal investments in technology.

Numerically illustrating the strategy shift, he says Distinguished wrote 27,000 policies in 2006 and 48,000 in 2010.

“I wish I could say the company grew by exactly that same amount. What really happened is we had to write many more small policies,” he says, noting that the average policy size is around $2,500 today.

“Going back 10 years ago, our average policy size was somewhere between $10,000 and $25,000, Hitzig recalls. “The business has really changed,” and the new small-account strategy “has positioned us to do well in any kind of market.”

The strategy has a downside, he says. “We probably won't see the same acceleration you would if you wrote medium or very large accounts” when the market hardens, but “I would rather have a business you know [is there] through thick and thin”—one that doesn't generate a “roller coaster in our results,” he says. (See related article, page 22, for another CEO with a similar view.)

Turning to the ReSource Pro side of the growth equation, Hitzig notes that the service firm—formed in 2003, initially to perform the back-office processing tasks of Distinguished—grew quickly during its first six years as it expanded to take on other PA clients.

Demand for ReSource Pro's services really took off in 2009, however, Hitzig says, noting that PAs' needs shifted as a result of the dual forces of economic downturn and a soft market. “If you go back to 2005-2007, most PAs were growing nicely,” but with their growth drying up in 2009, “folks got more sensitive to costs and making sure their processing was efficient, lean,” he says.

According to Inc. magazine, which ranked ReSource Pro No. 57 on its annual 500/5000 list of fastest growing privately held companies in 2009, the three-year growth rate for the company was 2239.5 percent in 2009. In 2006, when NU first profiled ReSource Pro, the company had grown from just two employees in 2003 serving one customer (Distinguished) to 125 employees serving 15 clients. According to Hitzig, ReSource Pro ended last year with 850 employees serving 115 customers.

Hitzig, who is the 2011 president of the Target Market Program Administrators Association (TMPAA), spoke to NU late last month, in advance of this week's TMPAA midyear meeting in Boston, about his firm's latest business strategies, the property and casualty insurance market, and ongoing initiatives at TMPAA.

RECENT INITIATIVES, M&A NEXT

Still eyeing the potential to build efficiencies into the insurance placement process, Hitzig says one of the latest initiatives at his firm is its DPExpress.com website—a new platform hosting a builders-risk program. “The platform will do everything from clear to rate, quote and issue a policy in a single session online,” Hitzig says, drawing a distinction between those that allow retailers to only get quotes online or to just submit an application online. “This is really an end-to-end process.”

Why builders risk?

Hitzig says small-account targets make the product conducive to online transactions. “We surveyed that market, and existing products are fairly traditionally distributed. So we thought this was a place where we could differentiate ourselves,” Hitzig adds, noting that his firm is looking to transition other existing programs to the DPExpress environment as well—those that do not require heavy underwriting.

He notes that the builders-risk product and technology were actually developed by executives from GreenLine Underwriters, a PA acquired by Distinguished. “We married the product and technology with one of our existing insurers—Chartis—and launched it about three weeks ago.”

With more acquisitions in mind, Distinguished has also teamed up with Ironshore, the Bermuda-based specialty carrier, to launch a joint-venture acquisition vehicle called IDP Holdings. Explaining the thinking behind the venture, officially announced in October 2010, Hitzig says Distinguished started viewing itself as being “well positioned” to build through acquisition back in that record year of 2009. Given the dynamics of an economy that remained weak and the insurance rate environment that was also stubbornly slow to recover, “we realized that other PAs might be struggling, and it might be because of scale.”

Noting Ironshore's strong capital base and underwriting appetite, he says the two firms jointly contributed capital to the new venture. “Distinguished Programs is the operating partner. We're responsible for sourcing opportunities, [while] Ironshore will provide underwriting capacity to those companies in which we invest.”

Over the next few years, Hitzig believes the number of PA acquisitions in the industry will increase. “There are probably 1,000 PAs out there,” he says. “Most are fairly small, and almost all are independently run businesses,” adding that the requirement to invest in technology will become increasingly important.

In addition, he says, when the market eventually changes from soft to hard and capacity is pulled back, smaller PAs are likely to feel the most pressure, spurring activity to gain access to markets.

MARKET VIEWS, LESSONS LEARNED

Right now, Hitzig is not seeing any imminent signs of a market change in the program space and points to the record number of TMPAA carrier members—now nearly 60—to support the view. To put that in perspective, back in 2007, NU reported that TMPAA had 38 carrier members.

“Capacity is strong,” says Hitzig, giving his perspective as TMPAA president. From a business leader's perspective, however, he sees program carriers growing more “sensitive to where we're at in the cycle.”

“A few years ago, there was more velocity in program business. More PAs were moving markets, and carriers were more active in taking on new programs,” he says, attributing some of that movement to new entrants that worked hard to capture business in the sunset of the last hard market.

Now, insurers are more cautious. “Likewise, PAs are recognizing there is value in maintaining relationships, as the market becomes more challenging.”

But have carriers and PAs learned lessons from the last market turn, when Legion failed and other carriers exited the program segment? Or will there be a replay of prior turmoil in the years ahead?

“The simple answer is we're going to see elements of what we saw last time,” Hitzig responds. “As much as we all might like to imagine that we have learned everything there is to learn, we wouldn't still have the cycles if we had.”

At Distinguished, “we have been careful to do business with insurers we believe are in it for the long haul,” he says, noting that even the oldest and seemingly strongest insurers can exit unexpectedly despite a PA's best efforts. “We learned the hard way,” he says, recalling that Distinguished had programs with Kemper before the company's demise which began in late 2002. “That wasn't them exiting programs, that was them exiting existence.”

Hitzig says a new TMPAA initiative known as Target University—a multi-course program that leads to the Certified Program Leader designation—and the best-practices workshops of TMPAA's meetings are among the activities that could help educate members and moderate the fallout of the next turn.

TMPAA University will officially launch at the May midyear meeting, the culmination of three years of work, Hitzig says. (See NU, Nov. 1, 2010, page 28 for course and designation details.)

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