Programs: On the bright side...program administrators scramble to make the best out of the bad

That goes for carriers, too. Content to hang back during a hard market as administrators make their pitches, program carriers become much more hospitable when the market goes south. Today, appetites are going up and thresholds are coming down as all parties struggle to deal with intense competition and dive-bombing rates. AAB asked a number of program administrators how the battle is going.
Any way they can
Competition is hot and capacity is flowing, with program managers, carriers new to programs, offshore insurers and standard national and regional companies all jostling for business. "I've been in the business for 33 years, and from the standpoint of competition this is the worst I've even seen it," said Phil Harvey, president of Inventure Inc. in West Chester, Pa.
At the first meeting of the Target Markets Program Administrators Association seven years ago, there were eight program carriers, observed Thomco's Greg Thompson, TMPAA president. At the midyear meeting this past April, there were 45. "We set a new attendance record at each meeting," added Doug Bennett, senior vice president of Benfield Inc. in Southport, Conn.
And everyone is grudgingly sharing their pieces of the pie. In the past two years at his company, premiums dropped 20 percent each year, Harvey said. The company still managed to show profits the past three years, but "that's a big depletion," he said.
At Distinguished Programs Group in New York, CEO Jeremy Hitzig said rate competition is up across the board, but particularly with accounts of more than $25,000 in premium, and "very evident" in accounts topping $100,000. Companies "are seeing this waning of the last hard market as a final opportunity to grab some market share," he said, and it's far easier to do that by raiding larger accounts.
U.S. Risk Underwriters is writing enough new business to offset the declines in premium–and even managed modest growth–but it hasn't come easy. The key, Seifert said, is really bearing down on the numbers. "You need to keep it at the front of everyone's mind that in this kind of market, every single renewal counts, every single piece of new business counts, and then make sure you get the income you need on every single account," he said.
How bad have things gotten? Monica McNally, chief underwriting officer for Willis Programs in Portsmouth, N.H., said she wished she could say that the market has bottomed out, but believes "the worst is yet to come." Nonetheless, the self-described optimist sees the current slash-and-burn landscape as a sign that things may be nearing the "low point."
"Carriers in general are very hungry for premium, and they're going to get it any way they can," she said. "I've seen the standard carriers come in and actually classify risks incorrectly to get the prices they need to write the business. That surprises me." Meanwhile, McNally said she's seeing rate reductions of up to 40 and 50 percent in some classes. "When it gets that crazy, you'll hit rock bottom at some point," she said. "The depth of the competition actually gives me hope that it may change sooner rather than later."
Like everyone else, program administrators deal with competition by tightening up the ship–selling service over price, value adds, specializing and making smart decisions. But the big differentiator, now and in the future, seems to be technology.
Less is more
"Technology is where it's all going now," said Phil Harvey. "The guy with the technology will be the guy who succeeds, because the biggest shortage in the industry isn't premium, and it's not capital. It's human resource." Lack of industry talent combined with stiff competition equals doing more with less, he said.
If a soft market requires heightened efficiency, automation is the surest ticket to increasing a company's effectiveness–and in some cases, discovering a new booming business in the bargain.
A few years ago, Distinguished formed a Chinese company, Resource Pro, to shift back-office operations overseas for better efficiency and 24-hour operational capability. The company has since expanded Resource Pro into its own business with other program administrators as clients, growing from a startup to 350 employees in four years. "So now we have several hundred people who are the outsourced back office for other program administrators," Hitzig said. "I'd like to believe this is going to be a substantial and continuing trend. It's been quite a growth story for us."
Distinguished isn't stopping there. Hitzig said they're using the current marketplace as an opportunity to reinvest in technology, enabling the company to focus on smaller accounts ("a better place to be in a soft market") and move more distribution into a Web-based environment.
Phil Harvey has seen the technology light as well. Several years ago, his company was a multi-branch organization, but "now we're back to the core," he said. By beefing up technology, Harvey was able to close several offices and otherwise creatively restructure the organization, resulting in a payroll savings of $1 million. Anticipating that premium depletion was going to outrun organic growth, Harvey made a point of substantially improving automation. It was "a lot of pain" having to cut back, but in a market when most are simply trying to survive, "we're trying to make a profit," he said.
Additionally, Harvey is involved in an initiative that matches up current technology with that of Bermuda-based carriers. No one realizes this happens, he said, but when those markets come stateside, their systems do not always integrate well with those of other carriers or intermediaries, which impedes their opportunity to get their products into the market. "This is a big problem today," he said. A few years ago, Harvey spent about $2 million adapting his company's technology to bring the products through his firm.
U.S. Risk's Seifert said his company has aligned itself with a group called Virtual MGA, where their miscellaneous healthcare, professional liability and small assisted-living programs move to an online indicate/rate/quote/bind platform. "We want to make it as easy as possible for our agents to access us on small accounts," Seifert said. "Get an indication on their own, turn it into a quote and print the policy out in their own office. We're learning to be more efficient with less touches."
Step right up
What goes around, comes around. If program carriers can be standoffish in a hard market, they throw the doors open in a soft one–at least to folks they're already familiar with. "Program managers with a track record and relationships are able to get startup programs done these days," and it's even easier to get spin-offs of current programs, Hitzig said. Monica McNally said she's seen carrier interest, already on the rise at the start of the soft market, perk up even more in the past 12 months. Doug Bennett of Benfield agreed that many companies are now willing to look at startups, "where a couple of years ago very few if any would."
Not only are they welcoming program administrators; they're ready to come down off the expectation mountain. Not that long ago, Art Seifert said, carriers were looking for a $20 million existing program. Now if they can get $5 million in the first 18 months, they're thrilled. In some cases, a promise of $3 million will get a deal done.
"They're more flexible in terms of what they'll look at," Seifert said. "Which for me is a great time, since one of the things I've specialized in the past 30 years is bringing new products to the industry. I'm looking at four right now, and it looks like all four are going to go."
However, just because carriers are giving administrators seats at the table doesn't mean they're not still making them sing for their suppers. Administrators still need to back up their projections with reams of material. Seifert attributes the level of scrutinization over the past five years to the introduction of private equity money into the industry. "They want to see data, and everybody's held to a standard," he said. "That's not going to change. No one's going to hang their butt out there for you because of your past successes. You still need to have everything lined up."
Buddying up
So what does all this mean to retail agents and brokers? If carriers work harder to extend a friendly hand in a soft market, program administrators and MGAs in turn will buddy up with agents and brokers. Administrators agree that now is a fine time for you to partner with an intermediary.
There are several reasons. First, as MGAs will readily tell you, it's always good to have a specialist on hand, whether the market is hard or soft. Second, a soft market "is a good time to seek out a specialty and try to differentiate yourself," McNally said. Find a partner that you know has expertise in a particular area, "because it's far easier to build a relationship with a program specialist when the market is soft," she said. "You're helping each other grow. And then when the market changes, you've already built your relationship and have a basis for a book of business you can then go out and build on."
Third, it pays. Renewal retention on programs is seven to 12 points higher than regular business, Seifert said. "If I'm a retail agent and I want to have good retention, the more often I can get a client into a product that's been engineered for their specific needs, the better," he said. "If I were a retail broker–and I was for years–I'd be using programbusiness.com and targetmarkets.com with every client to see if there's a specialty product that's been developed. Chances are if you don't somebody else is, and they're going to use that as a selling point to get in the door."
Lastly, specialists save time, which is critical in a soft market. "Time is the most expensive commodity in an agent's business," Phil Harvey said. "The advantage a retailer has coming to a program manager is that the quality program managers have been out there for awhile, making the retailer's opportunity for placements so much easier. Count on a knowledgeable source that you can talk to."
Since carriers have speeded up their due diligence process, "you can get a deal done much quicker today than you could a few years ago," Bennett said. "Speed to market is very important."
So, a half-empty glass is still half-full. Program managers make the best out of the bad, and retail agents and brokers gain a ready-made list of new friends. Opportunity may knock softly sometimes, but it still knocks. "During the hard market, nobody would talk to me about 'new' new products," Seifert said. "You don't have the hard data they like to look at, so I always liked the soft market as a chance to take this brand new concept, take a week on the Internet and build all my own data online. We just didn't have that capability before."
Jeff Beckner is managing editor of American Agent & Broker.