PROGRAM BUSINESS – CRITICAL SUCCESS FACTORS
TABLE OF CONTENTS
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What Constitutes A Program?
Program Checklist
Are You Ready For A Program?
Answers
Who Can Have A Program
Carrier’s “Ideal” Program Characteristics
What Carriers Are Not Looking For
Overcoming The Obstacles
Market Considerations
Product Considerations
Distribution Strategy
Marketing Considerations
Underwriting Considerations
PROGRAM BUSINESS – CRITICAL SUCCESS FACTORS
TABLE OF CONTENTS, cont’d
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Operational Considerations – Other Than Systems
Operational Considerations – Systems
Quality Of Data
Contract Considerations
Carrier Considerations
Claims
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Claims Handling For Programs
Claims TPA/MGA Due Diligence Process
Claims TPA Organizational Structure Overview
Claims TPA Expertise/Experience
New Program Life Cycle
Additional Resources
Endnotes
PROGRAM BUSINESS – CRITICAL SUCCESS FACTORS
• What constitutes a Program?
More than one insured sharing one or more common characteristic(s).
Program facts and figures
The “Annual Survey of the Program Administrators Market¹” valued
the program administration market at $24.7 billion in premium, up
from $22.6 billion in 2011. It found an estimated 2,000 individual
programs, up 5% from the prior year, an average growth in premium
volume of 9% and a renewal rate of 84%. Average annual premium
based on the size of the Program Administrator ranged from $5
million to $800 million.
PROGRAM BUSINESS – CRITICAL SUCCESS FACTORS
Program checklist
– Are you mentally ready for the challenge ahead
– Who can have a program?
• Services you provide
– Ideal Program Submission
• What they don’t want
• Overcoming Objections
– Other Considerations
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Underwriting
Operational
Contractual
Carrier
Claims
PROGRAM BUSINESS – CRITICAL SUCCESS FACTORS
Are you ready for a Program?
1. The first president of the United States of America was George
Washington
A) True or B)False
2. According to a map of the United States, which city is farthest
West?
A) Los Angeles B) Honolulu C) Seattle
3. Franklin Delano Roosevelt was elected to four successive
presidential terms
A) True or B)False
4. The first name of the great English playwright Shakespeare was
A) William B) John C) Will
PROGRAM BUSINESS – CRITICAL SUCCESS FACTORS
5. If you were born on February 29th 1904 you were legally 64 years
old on February 29, 1968
A)True B) False
6. Henry Ford introduced the first Ford automobile. Henry Kaiser
introduced the first Kaiser automobile.
True B) False
7. Between which two cities is the shorter distance by air?
A) New York and Chicago
B) New York and San Juan Puerto Rico
PROGRAM BUSINESS – CRITICAL SUCCESS FACTORS
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Answers
The first president was George Washington.
Honolulu is farthest West?
Roosevelt was elected to four successive terms
“William” Shakespeare
Yes, you would be legally 64 on February 29, 1968
False. Henry Ford introduced the first Ford but Henry
Kaiser never made an automobile.
New York and Chicago is the shorter distance by air?
PROGRAM BUSINESS – CRITICAL SUCCESS FACTORS
• Are you mad at yourself right now?
• The right answer in each case was the “obvious” one
• Your knowledge was not really being tested it was your
conviction, your ability to stick with what you believe is
true.
• Like sausage the creation of a program is often not a
simple (or pretty) process
– Speed to Market – 90 days
– Reality 9-12 months
PROGRAM BUSINESS – CRITICAL SUCCESS FACTORS
Who can have a program?
• Are you a GA, PA, or MGA?
– General Agent
– Program Administrator
– Managing General Agent
• Wholesale broker vs. Binding Authority
PROGRAM BUSINESS – CRITICAL SUCCESS FACTORS
Carrier’s “Ideal” Program Characteristics
• $10 million dollar plus book of homogeneous business.
• 10 year track records of low expenses and 20 points of underwriting
profit.
• No specialty filings (ISO)
• Limited number of policies
• Limited number of states
• Low policy limits
• No catastrophe exposures
• Data, Data, and more Data
If you had one of these programs you would not be listening to my
voice right now.
PROGRAM BUSINESS – CRITICAL SUCCESS FACTORS
What carriers are not looking for
• Start ups
• Tough Classes
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Mono line WC (No NY, No CA)
Trucking (long haul, busses, limos, taxis)
Contractors (residential, roofers, street and road)
Property cat (wind or quake)
• Operationally challenging
– Specialty filings
– Large number of small policies
– Large number of sub agents
PROGRAM BUSINESS – CRITICAL SUCCESS FACTORS
Overcoming the obstacles
• All start ups are not created equal
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Current book of business with several markets
20 years of experience underwriting the class
First person to have the idea or concept
Ability to distribute in an underserved or unique market
Existing relationship with a carrier
• Tough Classes
– Ability to write multi line coverage
– Data is King and Queen
– Access to reinsurance
PROGRAM BUSINESS – CRITICAL SUCCESS FACTORS
Overcoming the obstacles, cont’d
• Operations
– Having your own system to process business
– Proper licensing and staffing
– Expertise to help the carrier with underwriting and policy language
issues
– Use E&S where possible and feasible
PROGRAM BUSINESS – CRITICAL SUCCESS FACTORS
Market considerations
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% of the Market you currently write
What % for growth is realistic
Average size accounts
State mix
– % Cat exposed
• Lines of Business
• Competitive Scan
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Who else is writing this business
Special coverage provided
% of market controlled
Strengths/weaknesses – yours and theirs
• Commission paid by other markets
PROGRAM BUSINESS – CRITICAL SUCCESS FACTORS
• Product considerations
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Is the class currently underserved in the standard market?
Specialized coverages
Association endorsements
Specialized knowledge of class/niche/industry group
Risk Selection Differentiation
Specialized Risk Management/Claims Management Tools and
Services
• Visibility in the market
PROGRAM BUSINESS – CRITICAL SUCCESS FACTORS
Distribution strategy
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Direct only
Open brokerage
Limited access
Exclusives
Trade association
– Pros/cons
PROGRAM BUSINESS – CRITICAL SUCCESS FACTORS
Marketing considerations
• Any Marketing services provided by carrier
– Co-branding
– Shared expenses
• Advertising
• Attendance at Conferences – national, regional or local
PROGRAM BUSINESS – CRITICAL SUCCESS FACTORS
• Underwriting considerations
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Experience with class/niche/industry group
– Mono or multiline experience
– Territories
Size of the current book
Specialized knowledge of class/niche/industry group
Relationships
– Established relationships with trade groups or industry associations
Number of years writing this class/niche/industry group
Detailed Underwriting Guidelines
– Risk selection
• Address the key exposures of the risk
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– Line of business specific
Target Loss Ratio
PROGRAM BUSINESS – CRITICAL SUCCESS FACTORS
• Underwriting considerations, cont’d
• Production mentality
• Adherence to Eligibility Guidelines
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Results Monitoring
– Hit Ratios
– Declination Ratios
– Account and premium retentions
– Renewal Rate Change
– Rate modification distribution
– New Business vs. renewal pricing
PROGRAM BUSINESS – CRITICAL SUCCESS FACTORS
• Operational considerations
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Ability to process and underwrite the business
– Staffing vs. outsourcing
Policy billing and premium collection
– Agency vs. direct bill
Ability to comply with all regulatory requirements, filings, reporting, notices
ISO or Proprietary coverage forms, rules and rates
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Same edition date on rates, rules and forms
Proper licensing
– Established relationships with trade groups or industry associations
Internal Expenses
– External application fees (Oden Terminator, SPI PLUS, SAGE)
PROGRAM BUSINESS – CRITICAL SUCCESS FACTORS
Quality of data
• What data is available on the current book?
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Current Limit Profile
Detailed Premium and Loss for at least 5 years – by industry, class , LOB, state
Submission/Retention Information
Rate Retention data
Current Actuarial study of book
Frequency vs. severity
Accident year vs. calendar year experience
Actual ultimate net loss
Does carrier feed premium and loss data for business written on its account
through its systems
PROGRAM BUSINESS – CRITICAL SUCCESS FACTORS
Contract considerations
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Attorney review
Ownership of proprietary forms
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Carrier or program administrator
Risk Sharing Provisions
– Captive
– Rent a captive
– Sliding scale commission
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Contract Provisions
– Termination/Change to Coverage Provisions
– Ownership of expirations, data and information
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Hold Harmless Provisions
– Mutual Benefit of both parties
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Clear understanding of duties and responsibilities of each party
Exclusivity
PROGRAM BUSINESS – CRITICAL SUCCESS FACTORS
Carrier considerations
• Carrier Partners
– 50+ program markets
– Financial Rating
• Do you need “A” paper
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Admitted vs. Non admitted
Channel Conflicts
Homogeneous vs. Heterogeneous
Reputation
Financial considerations – Letter of Credit/Parental Guarantee
Marketing and Operational support
Cost Structure
PROGRAM BUSINESS – CRITICAL SUCCESS FACTORS
Systems
Do you currently have your own systems?
• Cost /Time and ability to interface with carrier systems – front end,
back end
• Customer Portal
• Can you capture data on submission, quote, bind and decline
activity?
• Can you Co-brand with the carrier?
• Are you using multiple carriers?
PROGRAM BUSINESS – CRITICAL SUCCESS FACTORS
Systems
Will you be using carrier systems?
• How long to implement new products?
• How quickly can changes to forms, rates, and rules be
implemented?
• Ease of use
• Are the systems flexible?
• Are management reports generated that will assist the program
administrator in assessing the quality and profitability of the
program?
• Can the carrier systems interface with any in-house systems – i.e.
Customer Portal, Agency Management System?
PROGRAM BUSINESS – CRITICAL SUCCESS FACTORS
Claim handling for programs
• The true deliverable of every insurance contract is the timely
payment of covered claims.
• Claim Handling Options
– Company Handled
– TPA Handled
– MGA Handled
• Selection and management of claims services are crucial elements
in the ultimate profitability of an insurance program.
• The ability to pay claims promptly and correctly will depend upon the
service providers experience, expertise, and system support.
• The carrier must be able to provide proactive oversight and
direction.
PROGRAM BUSINESS – CRITICAL SUCCESS FACTORS
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Claims TPA / MGA due diligence
process
Pre-Review Survey
On-Site Review
Organizational Structure
– Proper licensing
Expertise and Experience
Workloads and internal reporting structure
Reporting capabilities
– Loss Runs
– Regulatory
Systems
Loss Fund Capabilities
Fees
PROGRAM BUSINESS – CRITICAL SUCCESS FACTORS
Claims TPA organizational structure/overview
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Geographic regions covered
Profiles of key people
Key Claim Handlers assigned to account – performance evaluations
Organizational chart/management controls
Financial strength
Staff turnover rate
Competitive salaries/benefits
Properly licensed, meets resident office requirements, where
applicable
• Compliance with State Fair Claim Handling standards
• Current E&O coverage and claim history
PROGRAM BUSINESS – CRITICAL SUCCESS FACTORS
Claims TPA expertise/experience
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By line of business – areas of expertise
Comprehensive exposure analysis
Sample list of clients and insurance carriers for past 5 years
References, Reputation
List of defense counsel and experts
Litigation management programs
Subrogation programs
Generalists v. specialists
Continuing educational opportunities
SIU
PROGRAM BUSINESS – CRITICAL SUCCESS FACTORS
New Program Life Cycle
› Quoting, Underwriting, Policy
Issuance, Claims, Accounting
› Finalize guidelines and
LOAs
› Make all necessary filings
› Program all system
changes
› Train on all carrier
processes and systems
› Set up imprest and trust
accounts
Implement
Concept
› Gather all material for program
submission
› Determine which carriers to
approach
› Determine if submission
meets appetite
› If yes, perform due
Program
diligence, execute
Development
Submission confidentiality agreements,
to Carrier(s) conduct rate study
› Determine if all work can be
completed for proposed
implementation date
Carrier
› Analyze all proprietary
Analysis and
forms, rules and rates
Decision
› Carrier conducts financial
› If a go, prepare all filings (rates, rules and forms)
review of prospective
› Get all required carrier signoffs
partner
› Issue proposal to proposed partner
› If a go, begin all filing and systems work
PROGRAM BUSINESS – CRITICAL SUCCESS FACTORS
Additional Resources
Target Market Program Administrators Association http://targetmkts.com
Program Business.com http://www.programbusiness.com/company
National Association of Professional Surplus Lines Offices, Ltd.
http://www.napslo.org
American Association of Managing General Agents http://www.aamga.org
PROGRAM BUSINESS – CRITICAL SUCCESS FACTORS
Endnotes
¹ The “TMPAA State of Program Business Study 2012” was jointly funded by Scottsdale Insurance
Company, Western Heritage Insurance Company and Advisen, Ltd.
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