Critical program administrator 101 rules of engagement

There are several steps a program administrator needs to closely review when choosing a carrier with which to partner:

First, make sure you have alignment with the carrier's culture and people. Take a hard look at your potential partner and commitment to the program space. Look at their historical position and if they have been in and out of the business. What dedicated program resources have they committed? Get referrals from their existing partners.
Second, review your proposed contract from the carrier and be prepared to spend a lot of time with your lawyer. Hire a lawyer with knowledge of business contracts and insurance distribution. Issues such as "exclusivity," "ownership of renewal rights," and the underwriting manager's "authorities" need to be spelled out along with the "divorce" conditions if the deal falls apart in the future. Understand profit-sharing arrangement limitations and conditions, including any retrospective cancellation of this agreement, to pay out if the program is canceled or moved to another carrier. Before you sign, make sure you're comfortable with the contract before going any further. The probability that your contract terms and conditions will come into play at some point is high and can be very costly to the PA.
Third, make sure you've established additional market relationships in case something goes awry. The programs market has been as successful as it has because of the commitment to long-term relationships. The last thing any PA or carrier wants to do is make a large disruptive move. But the program carrier market can be like the stock market–up and down, and not always predictable. Markets change and insurance environments change, and thriving PAs are wise to foster relationships should they need new capacity or new capabilities for their clients.
Fourth, it's important to hire an independent actuary to capture your data, making sure pricing and results are in line with the loss ratio established by the carrier on the program. Remember, "He who controls the data wins" — you can't just rely on the carrier's data. It makes for a much more transparent relationship and ensures everybody's working toward the same goal. It's a significant — and critical — investment to make sure you have the data. Always obtain a confidentiality agreement before providing your data to a carrier.
Finally–especially if you are a retail broker looking to get into this space–you've got to build out a separate underwriting department that employs non-broker, non-retail employees trained in underwriting operations. All authorities rest in this department. If you want to take on underwriting authority, you must have the right talent and controls in place to make that work.

There's ample reason to be optimistic about the future of program business. The opportunities to grow and be successful are bright.

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