Special Section sponsored by TMPAA

Carriers

Everybody is hungry. That’s probably a fair representation of how carriers view the program business market today. “It’s rare that we are looking at an opportunity with no competition,” says Richard Suter, assistant vice president of program business development for The Hartford. “Traditionally, in a soft market, program business represents a way for companies to put on some top-line growth.” Suter’s firm is busy adding programs—some are new programs and others are shifted from different carriers.

Mark Mahanna, assistant vice president and marketing officer for AIG Programs, recalls five years ago when just a handful of carriers were active in the space. “Now there are more than 40 that say they’re program carriers,” he notes. “Market dynamics have changed. Conditions are such that program administrators are now better able to leverage their position.”

MGAs are clearly looking for better deals, notes Rick Weidman, vice president and director at CastlePoint Management Corporation. This puts pressure on carriers to offer better compensation on existing programs. At the same time, peer competition cuts bottom line insurer margins even thinner.

There are other issues. “Some displacement is going on,” Weidman adds. “Some companies are going through challenges, including ratings challenges.” This will provide opportunities for stronger carriers to step in. Plus, strategy changes leave gaps where some companies elect not to write certain classes or decide to limit their exposure.

Through it all, carriers are finding opportunities to support program administrators. “Many carriers are continuing to expand coverage provided and offer attractive pricing,” says Mahanna. “In many cases, coverage has been broadened and limits have been increased.”

Insurers are collaborating with program administrators to help them replace lost revenue. “One way we do this is through program administrator-owned captives,” Suter explains. His organization can help agencies establish these facilities, and then provide services—bundled or unbundled—to help them thrive. “For example, if the program administrator has a good TPA [third-party administrator] relationship in place, we try to keep that in tact,” he says. “If not, we have claims options and a list of TPAs. The same holds with loss control. If the program has a loss control provider, internally or with a third party, we don’t like to try to fix what’s not broken.”

Growth is a key area where carriers are stepping in. “A lot of general agencies have a need to expand,” says Weidman. “Carriers can support this by helping to finance acquisitions or even helping to find potential candidates.” Carriers can also help administrators expand into other classes. “The carrier may not start by giving full authority,” he explains. “Perhaps a stepped approach could allow administrators to grow their business. By helping them diversify, they can better weather situations that might impact one segment but not another.”

Mahanna expects current market conditions to persist. “Over the next year or year-and-a-half, I anticipate that we’ll continue to see extremely strong competition from other carriers that specialize in program business,” he says. Things could be worse. “We’ve always felt this business is not subject to swings as dramatic as individual lines might be because there’s within this community a better knowledge of the specific class and coverage that is tailored for the risks in the groups.”

Weidman adds, “When you build a specialty around a particular segment, individuals and businesses that are in the segment want to be a part of it.”

Suter says he believes program administrators will continue to evolve in terms of the range of services provided and their expertise. “Carriers are just going to have to adapt to that,” he concludes. *