Accident & Health Business Offers Fresh Opportunities For P&C Program Insurers

While program carriers have found property and casualty business opportunities in everything from auto repossessors to fine arts in recent months and years, some are eyeing new business potential in the accident and health space.

Craig Fundum, president of Zurich Programs and Direct Markets, explained that while there aren't necessarily a lot of new a&h programs popping up in the marketplace, Zurich sees a "greenfield" opportunity on the a&h side of the program business insurance segment because the Schaumburg, Ill.-based carrier has just written a&h on a program basis before.

He explained that Zurich, which has previously written a&h insurance through worksite marketing and individual risk group approaches, is now "going to be aggressively looking for program partners."

"Zurich should be in all those spaces, and really it's our turn on the program side to step it up and grow that business," Mr. Fundum said.

Zurich's programs team will emphasize the 'a'--the accidental death and dismemberment part--of a&h, he said, noting that a recently launched a&h profit center is currently being staffed with some experienced AD&D professionals. "There's huge potential out there," he said.

QBE the Americas, which was a relatively small a&h player on the reinsurance side ten years ago, made the transition to the primary side and started building a portfolio of a&h insurance programs in 2001. The current portfolio of 10 specialty a&h programs includes employers stop loss, student medical and student accident, and QBE's newest program, Complication Insurance, according to Stephen Fitzpatrick, president of QBE Specialty Insurance.

In September, 2009, QBE added to its a&h portfolio by acquiring the CIGNA special risk, student and sports accident insurance book of business, and in February, the company announced the launch of Complication Insurance, a start-up program providing financial resources to patients in the event of adverse outcomes following any one of 80 covered elective surgical procedures.

QBE will entertain a start-up, but only "if it's got the right business and the right story," Mr. Fitzpatrick said. (Complication Insurance was described fully in the last edition at http://bit.ly/djmVwW.)

Typically, the carrier looks for programs that "can get to $5 million in a reasonable period of time," he said.

BEYOND A&H

Beyond the a&h unit, the overall program business portfolio at QBE the Americas has grown substantially in recent years, according to Mr. Fitzpatrick, who put the active program count at 85.

While Mr. Fitzpatrick attributed a large part of a 17.4 percent premium jump in 2009 to the acquisition of a large program administrator, new appointments also fueled "meaningful growth last year, even though the industry was sluggish," he said.

He said QBE, which first opened its offices in the United States in the early 1990s, is probably one of the nation's largest program business writers today. Within QBE the Americas, the specialty program business unit is the largest single unit, representing nearly $2 billion in premiums, he said.

In addition to the 10 a&h programs, the expansive scope of p&c insurance programs includes most lines of business--admitted and nonadmitted--with a broad range of sizes. The smallest program is a $0.5 million prize indemnification administered by Hole In One International in Reno, Nev., while the largest--a program of forced-placed property coverage for financial institutions managed by Atlanta-based Sterling National--garners several hundred million in premiums.

The common thread for QBE's programs, he said, is that they all require a certain level of specialized skill from the PA. Actual examples include:

o A program for a difficult class, like an assisted living facilities program QBE signed onto last year, which requires specialized underwriting expertise.

o Business that lends itself to unique coverages customized for a specific industry, like a new staffing industry program. In addition to general liability insured with a package, there is coverage for "malplacement"--a professional cover.

o Programs that require specialized approaches to loss control or claims settlement, like a longtime fine arts program through which QBE provides personal inland marine coverage for large private collections and museum collections.

"Some programs we undertake would be considered to be more difficult to underwrite as you look at the spectrum of program business," Mr. Fitzpatrick noted, listing a program for small chemical operations and another for West Coast contracting business as examples. "We're willing to entertain more difficult exposures provided we find best-in-class PAs" to manage them, he said.

ZURICH'S BIG PUSH

At Zurich, Mr. Fundum said the carrier's big push into the program business arena came four years ago, even though its participation in the segment actually spans four decades.

"We have several programs with relationships that have been in existence upward of 40 years," he said, explaining that the definition of a program centers on business for which the carrier has outsourced the transactional underwriting, marketing, policy processing and issuance to an MGA, MGU or PA, adding that sometimes claims are outsourced to third-party administrators as well.

"In 2006, we decided to capitalize on our experience and market position, and to really put a heavy emphasis on growing the program business, leveraging a position of strength to become even stronger and bigger," he said, noting that the company created a new programs team that is dedicated 100 percent to evaluating new program opportunities.

"That's all they do everyday," he said, noting that today the team has 300 people organized in five strategic business units (not counting the new a&h unit).

The "re-energized, rejuvenated approach" to a long-term play has resulted in 70 programs in place today--with roughly half of those added in the last three years. In 2009, Zurich brought on 14 new programs, Mr. Fundum said.

His description of Zurich's latest foray--into a&h programs--similarly highlights a move to capitalize on a strength of the company, in this case a strength that existed in other parts of the world. "We identified a&h globally as an area for huge growth potential," he said, noting that the company has enjoyed a&h success in Europe.

Today, Zurich has no a&h programs in its U.S. portfolio, but several large opportunities are under review, he said. In addition to the a&h unit, Zurich's program SBUs include:

o Transportation programs.

o Construction services programs.

o Segmented programs, focusing on professional lines, workers' comp and others areas that aren't categorized as either construction or transportation.

o Alternative programs.

o A new programs team, performing due diligence.

Mr. Fundum explained that the "alternative programs SBU" writes programs that have some form of alternative approach, such as alternative distribution, where policies might be distributed through a bank or a homebuilder.

Alternative risk mechanisms fall under the purview of this unit as well, where a program-based captive or risk retention group might be involved.

Zurich acts as a reinsurer on some programs, including a crop insurance program with Rural Community Insurance Services, a unit of Wells Fargo.

Other successful programs include:

o A builders risk program for custom homebuilders administered by ZIS in Jacksonville, Fla., which has been with Zurich for at least 25 years.

o A partnership with San Diego-based Arrowhead General Insurance Agency on a California quake program.

o An ambulance program with Kennesaw, Ga.-based Thomco.

Also highlighting lawyers and veterinary professional liability programs, and a recent plaintiff contract liability insurance program with Los Angeles-based Sonoma Risk Agency (described fully in the last edition of E&S Extra at http://bit.ly/djmVwW), he said two evaluations take place when Zurich is deciding whether to team up with a PA on a new program.

First, the PA is evaluated to determine if it has the right expertise, the processes to handle rate-quote-and-issue functions, marketing wherewithal and financial stability, Mr. Fundum said. The second evaluation involves "the risk class itself. Do we want to write veterinarians, lawyers or crop insurance? Why is a particular [PA book] performing better than an industry aggregation of experience?"

Given that process, doing business with a new PA or a start-up program like the PCLI program is rare for Zurich, he suggested. Typically, "my team would be looking for an existing program, [and] we would like that to be at least $5 million, probably closer to $10 million with a plan to grow it."

Once Zurich becomes comfortable with a PA, the company tries to work very closely with its best PA partners to do multiple programs, Mr. Fundum explained.

Both Mr. Fundum and Mr. Fitzpatrick said their companies don't currently do any medical malpractice programs, although Mr. Fitzpatrick said it is an area that QBE might consider in the future.

"We're putting a long-term strategic plan together and looking at various segments where we don't write a lot of business today," he said. "We're willing to look at just about any type of business with the caveat that we would want to develop the underwriting expertise if we didn't have it in house already."

Mr. Fitzpatrick said QBE also looks to grow its programs segment by partnering with PAs on multiple programs, or by adding lines and states to existing programs.

Currently, QBE owns six PAs in the United States, including Sterling National, which was acquired in 2009. "Our [acquisition] strategy, I would say, has been more defensive than opportunistic," he said. Explaining the distinction, he said that these were situations where a PA partner may have had succession issues and approached the carrier about making a deal.

In some instances, QBE also assists retail agents that specialize in particular business segments in making the transition from being a retail agent to a PA.

"We have had situations where [initially] our own underwriting staff handled the risk selection and pricing on the business, and then over time, through training and just experience, we were able to transition, on a graduated basis, levels of underwriting authority out to that agent--and after a period of several years, they were functioning as a full-fledged PA," he said.

At Zurich, Mr. Fundum highlighted the carrier's marketing creativity as a benefit to partner PAs. For example, he described a special Web site--ZProgramsMatch.com--noting that agents can go to that site, click on a particular program, find out more about that program, and if they have risks that fall into the appetite of the program, they can submit them to Zurich's PAs.