Special Section sponsored by TMPAA

Surviving a Soft Market

Panel examines creative ways to stay ahead of the curve

Whenever the property and casualty insurance market turns “soft” and premium levels begin to drop, retail insurance agents, managing general agents and program administrators alike invariably ask themselves what strategies they might employ to make up for lower commission levels and diminished revenues. This soft market is no different.

A panel on soft market strategies at the Target Markets Program Administrators Association’s mid-year meeting in April addressed those very subjects. Panel members included: Greg Thompson, THOMCO; Richard Weidman, CastlePoint Management Corp.; Steve Porcelli, Hudson Insurance Group; Geof McKernan, NSM Insurance Group; John Paulk, Britt/Paulk Insurance Agency, Inc.; and Doug Bennett, Benfield, Inc. The panel was moderated by Andrew Bustillo, also of Benfield.

Rough Notes magazine spoke with Thompson to get a thumbnail sketch of what the panel discussed. “Well, as might be expected, the panel addressed what tools can be used to compete in a soft market,” Thompson said. “Premiums are down, commissions are down and that has a negative impact on bottom-line results. The panel determined that one way to compete is to offer value-added services to particular accounts such as loss control and risk management. They also discussed improving the quality of advertising.”

Thompson added that during a soft market, it is a good idea to look at your book of business. “I say to myself that I know I’m going to lose some accounts. But which accounts would I not mind losing, those accounts that are not profitable for the companies. Also, I look at my expenses to determine ways to become more efficient, and that improves conditions for the client as well.”

Coming up with new products and programs to replace lost business is also a strategy that was discussed by the panel, according to Thompson. Moreover, looking at merger and acquisition opportunities is a tool that needs to be explored, he said.

“There are a great many tools in the box and we, at THOMCO, have used all of them,” said Thompson. “With some larger accounts, providing risk management services is a way to go. With smaller accounts, automation and ease of doing business is important.”

In a separate interview, Paulk agreed with Thompson, particularly on the subject of value-added services. “The most important thing a program administrator can offer is a higher level of service. Anybody can quote a price. But it is how they service the program that’s important,” he said.

The panel itself, which is available on audio at the Target Markets Web site (www.targetmkts.com), is interesting on a number of levels. Doug Bennett preceded the actual panel discussion by instructing the attendees on how to use the keypads that had been provided for the audience.

Bennett asked the audience a number of questions so that he could “get a clear demographic fix” on attendees, and the attendees responded via the keypads. Among the questions he asked the agent members of the audience were: How many programs do you currently write? How many carriers do you represent? What is the largest premium volume for which you have binding authority?

Bustillo then began moderating the panel. He opened his introductory remarks by reminding the attendees that the last couple of years have been “extremely profitable” as far as the property and casualty industry is concerned. He said that profitable years generally lead to more capital coming into the business, which leads to a soft market. But he said that this soft market is different from ones in the past.

“It’s a much more volatile world out there,” Bustillo continued. “There are always potential catastrophes, but today we face corporate frauds and scandals, the mortgage crisis and other major difficulties.

“This is true at a time when the industry has surplus exceeding written premiums, so there is an excess of capital. It has been estimated that there is so much capital that it would need to be reduced by $100 billion before the market would turn,” Bustillo explained. “I can’t imagine a catastrophe or even a combination of events that would take $100 billion out of the industry’s capital, so the market will remain soft for some time even with all the volatility that’s out there.”

Bustillo then went on to examine the program business in particular. He said that programs are a major part of the industry’s commercial lines and personal lines business, and that there are more people moving into the program arena every day. Many programs have moved over to the admitted market, he said.

Turning to the panel, Bustillo asked them to comment on soft market strategies that might be employed by program administrators. Rick Weidman said he expects the soft market to continue for some time. “That’s clear from the new capital coming into the market, which far overshadows premiums written. What we have to do is look for more support from the companies we write for,” he said.

However, for the most part, panelists stuck to tried and true methods in dealing with the soft market, i.e., providing more value-added services, becoming more efficient, considering expanding their program products and looking for merger and acquisition opportunities.

But Paulk added that program administrators need to employ more sales people and make better use of advertising if they are to survive in this new soft market. *