PMC responds to changing market demands
By Dennis Pillsbury
Gregory W. Malloy is chairman and CEO of PMC Insurance Group.
The workers compensation insurance marketplace has gone through many dramatic changes in its history, a number of which have been dubbed "crises" by media pundits and insurance industry public relations people. The penultimate crisis in the mid-to-late '80s produced numerous reforms, as did previous crises, that were intended to permanently fix the problems--the Crisis to end all Crises, so to speak. Needless to say, they didn't. Lawyers continued to find ways around the exclusive remedy, health care went crazy and became the major component of comp, estimates for old liabilities were inadequate resulting in reserve deficiencies, and a large number of clients, usually the better ones, went to the alternative market. And, while all this was happening, the insurance industry blithely continued to cut rates, apparently believing the hype that this time the reforms would hold.
It is amazing how quickly a few years of grossly inadequate premium accompanied by rose-tinted underwriting can place the industry in serious jeopardy.
At the same time, there were some companies who understood the novel concept that the best way to keep workers comp costs down was to cut losses.
Against this backdrop, Greg Malloy, in 1997, decided to start PMC Insurance Group in Needham, Massachusetts, a wholesaler that would focus strictly on workers compensation. It proved to be a propitious decision, despite the fact that he was entering the marketplace just as comp was starting to turn sour and he was specializing in writing workers comp retros for large accounts through Reliance National. Greg reached $20 million in premium in his first year, writing accounts with minimum premium size of $500,000.
Greg brought 27 years of experience with Crum and Forster to the venture as well as a host of agency contacts. "I wanted to branch out on my own and use those contacts. I established PMC as a wholesaler so I could continue to work with the numerous agents I had come to know over the years at C&F. The 'exclusive' product with Reliance National and its quick success got us into the game."
Fortunately, Greg started taking on more carriers at the request of the agents with whom he was working. "They wanted us to do smaller accounts, so we took on more companies and lowered our minimums. We also opened a small office in Florida to offer a dividend product. We did that until the company decided it didn't want to be in Florida." And, of course, Reliance disappeared from the scene as its financial woes eventually led to its liquidation in October 2001.
Meanwhile, PMC was actively adding several comp specialists to its employee roster in recognition of the aforementioned concept that cutting losses could help keep costs down. This staff included several people from EBI, a company renowned for its successful use of risk management and loss control and mitigation. "Dave Henkels, our sales VP, had an extensive background in risk management with Marsh before heading EBI's Northeast region and Todd Pollock was the underwriting manager. This really helped build our reputation for expertise," Greg notes.
Able to handle smaller accounts
By the time things really heated up with the arrival of the millennium, PMC had solidified its reputation for providing profitable workers comp business with the numerous carriers it represented, all rated A- or better. So, although most workers comp markets have contracted, PMC has been able to continue to provide needed capacity to the marketplace and answer a growing demand to handle even smaller accounts.
"Our minimum premium now is $5,000 with an average account size around $35,000," Greg says. "We have close to 1,300 insureds and 650 retail agents. We finished last year at $50 million in premium and are on target to write $70 million this year."
In addition to the need for capacity, there's also been a dramatic shift in the type of coverage sought. "Insureds are looking for guaranteed cost or large deductible plans rather than loss-sensitive plans," Greg reports. "Insureds with loss-sensitive plans found that their insurance costs were not anywhere near the amount that they originally anticipated. Instead of being X, their costs were multiples of X and they were getting bills for prior years. They don't want surprises." He goes on to note that this demand to fix costs has grown even greater following the financial scandals of Enron et al. and the resultant clamor for balance-sheet transparency. It also is the result of much tougher underwriting requirements facing companies that still want loss-sensitive products, including higher maximums on retros and increased LOC requirements. In addition, because of the red ink that insurers started to use in increasing amounts, the pricing for loss-sensitive products also hardened.
Greg continues that the switch to guaranteed cost products has lessened the demand for creativity and expertise, but has increased the demand for capacity and service. "Agents are losing workers comp markets, oftentimes with very little notice. They can't afford to leave their clients hanging so they need quick turnaround as well as a stable market. That's one of our real advantages. We can provide coverage in a matter of days, particularly if agents are willing to submit online. We've invested in a company called AgencyPort," Greg explains, "so we could have the ability to take agency submissions and send them directly to the carrier, or to two or three carriers, once we determine if it fits their appetite. The AgencyPort system helps us to keep in touch with our agents and our companies economically. In the long run it will drive down our cost of doing business and our retail agents' costs as well."
Almost all classes are available
"We offer a broad range of classes," Greg continues, noting that "we even have some markets for contracting and transportation classes starting at $7,500, which have typically been very difficult. For the larger classes, over $100,000, we have essentially no restrictions except for PEOs. We do have a market for temp agencies but the underwriting is very strenuous, particularly the financial requirements."
He continues by noting that some jurisdictions are difficult, like New Jersey, California and Florida, but "we do have a few markets that will still write in those states. We can also do the larger, more difficult accounts on a consent-to-rate basis. We can usually find a market for almost any piece of business. However," he warns, "it's a hard market and getting harder, so agents need to prepare their clients for some sticker shock, especially in the really difficult classes.
"Our real advantage is our ability to provide very quick turnaround," Greg concludes. "That's not true of many carriers today. We don't get paid unless we write the business so we work very hard to do just that." *
For more information:
PMC Insurance Group
Phone: (781) 449-7744
Fax: (781) 449-7889
Web site: www.pmcinsurance.com