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SPECIALTY LINES MARKETS
"Pay for play" is a competitive market
Finding local opportunities and dealing with underwriting concerns
By Dave Willis
The economy is in a shambles. Don’t stress it. Take a break. Get out and play. That’s what sports and leisure organizations hope the public will do.
In some areas, this is happening. Take youth sports, for instance. Parents will tend to eliminate other discretionary spending before cutting their children’s recreational activities, says Matt Sackett, president of Fort Wayne, Indiana-based Leisure/Sports Specialists. Plus, he says, people shorten vacations, opting instead for more local events.
That’s good news for many organizations, but it’s not universal. John Sadler, president of Sadler & Company, Columbia, South Carolina, has seen youth sports registrations per league decline by roughly 5% nationwide. “Certain isolated pockets are faring worse than others, according to media accounts,” he notes. Some are doing better. “Some leagues are responding by lowering player registration fees and offering scholarships in some cases,” Sadler adds.
Dan Szathmary, chief operating officer of Morgan Hill, California-based Gagliardi Insurance Services, has had similar experience. “Either registrations are declining or organizations have had to reduce registration costs to keep participation up.”
Dave Sefcik, program manager within Chubb’s Accident and Health Special Risk unit, notes, “For the past five to 10 years, society has become more active,” producing growth among membership organizations and, as a result, event participants. Today, however, brokers he deals with see participation as stagnant or down slightly.
Other economic factors come into play. Interestingly, Sefcik adds, inclement weather has plagued a number of venues, leading to event cancellations. The economy has led some smaller entertainment venues to shut down, Michael Dean, vice president of Chicago-based Francis L. Dean & Associates, notes. Those remaining may be fighting for fewer available dollars, Sackett adds.
This income squeeze is pervasive. “People are not contributing as much to nonprofits,” says Lee Hilsabeck, profit center head for the Chubb Accident and Health Special Risk unit. “Based on our client feedback, sponsorship dollars are not as readily available either. Both of these have led to a drop in membership participation or scheduled events.”
“Even if insureds are surviving the downturn, many are reluctant to increase expenses for capital improvement projects,” Sackett notes. These include things like installing new bleacher steps or anti-slip restroom flooring, which could reduce claims.
Schools are feeling a pinch, too. “They need insurance for the NCAA,” says Roger Shockley, who heads the college accident program for Freehold, New Jersey-based CGA Associates, “but it is getting tougher.”
The insurance market
Shockley describes insurance as “cost-based. Everyone is looking at every dollar they can save.” Producers, at their insureds’ request, aren’t renewing without getting other quotes, adds Dean. “This has resulted in a sharpening of underwriting skills to obtain additional business.”
Shopping in-force business is up on the accident side, too. “We insure a lot of schools through college sports programs and K-12 student accident programs,” Hilsabeck says. “Because budgets for many of these organizations have been reduced, expenses are looked at more closely, including their insurance costs.”
Szathmary sees demand for lower prices. But that’s not all. “Folks have been more sensitive about coverage levels,” he explains, citing competition between in-house governing board programs and other insurance.
Adds Sadler, “We are still able to negotiate rate reductions for good accounts. There are more carriers than ever chasing this relatively small niche.”
Nick Campanella, CISR, CPIA, LUTCF, president of CGA Associates, says carriers are seeking new revenue sources, so many are trying to get into the business. “A lot of new programs are in the pipeline,” he notes. Previously uninterested insurers are testing the waters, he adds.
Sefcik sees similar changes in the accident business. “When we’ve attended conferences and trade shows more recently, it is apparent that there are more insurance exhibitors than in the past,” he says.
Signs may point to a market shift. “It is my opinion that we are seeing the last gasps of the soft market,” says Sackett. “Reinsurance contracts last quarter increased 14%, on average, and I believe more is to come.”
Sackett stresses the need for good underwriting. “Principled and experienced underwriting will identify those operations that will be forced to compromise maintenance in order to survive a downturn.”
Certain underwriting concerns play a prominent role the business. “Major issues continue to be negotiating add-ons for child abuse and molestation and non-owned and hired auto liability,” says Sadler. “Carriers are still wary of these coverages and want to limit their scope and/or see risk management controls in place.”
Also, he adds, the economy appears to be impacting the frequency of volunteer theft and embezzlement claims. “Over the past year, we have seen a greater number of these being reported than ever,” Sadler explains. “In several cases, when pressed, volunteers suspected of embezzlement confessed, claiming they were just ‘borrowing’ league funds for a while to get through temporary financial difficulties.”
Certain types of business have it tougher. “Our biggest emerging market is the gym and studio business,” says Szathmary, particularly boxing and mixed-martial arts training facilities. “It’s very volatile and the premium is very high.” Careful underwriting and good risk management are key.
A role for retailers
Despite—or perhaps because of—market conditions, opportunities exist for retail agents and brokers. “It’s a good sideline business,” Szathmary explains, adding that, in most years, retention rates are quite high. “It’s almost like life insurance.”
A big advantage retailers have is that “people like to buy insurance locally,” he adds. “Agents have relationships. They’ve sold auto or the commercial general liability” or other products to the organization’s leaders.
“Those agents and brokers who are specialists in niche business have a distinct advantage,” says Sefcik. “They’re among the few experts.” This allows them to stand out in a field of newer entrants.
Approach is key. “Obtaining multiple quotes for clients allows producers to demonstrate that they’re aware of tough financial times and truly are looking out for their clients’ best interests,” says Dean. “This also can be a significant tool when approaching new clients and establishing new relationships.
“Producers who have an outlet for entertainment business with an underwriting facility or insurer can use that as a tool when contacting potential clients,” Dean adds. If the producer can demonstrate the ability to help businesses reduce insurance expenses, buyers will listen.
Focus on more than price, though. Anticipating continued “frenzied marketing efforts” in the marketplace, Sackett warns: “Operations that have sold on price will have a very rude awakening” once rates firm.
“Those brokers that communicate the value of the coverage they are selling, outside of price, and explain succinctly the insurance marketplace to their insureds will be in a good position to increase their premium volume during the hard market,” he adds.
Carrier interaction can play an important role too, Sackett says, “Agents and brokers who can communicate to the markets why their particular risk is superior to others will set themselves ahead of the pack quickly.”
Prepare to succeed
Those without experience—but with contacts in their local communities—can find support. “They should align themselves with a financially sound insurance carrier with experience in this business and, through this partnership, try to gain as much expertise as possible,” Sefcik says.
Shockley recommends that agents and brokers investigate how and with what authority the program is run. “We have a specific program where we have binding authority,” which, he says, can help reduce turnaround time.
Check out compensation arrangements, too. According to Szathmary, “A lot of youth programs don’t pay commission at all.” Also, understand access. Some programs require membership in specific organizations, he adds. Others don’t.
Differences—although subtle—can exist among programs. “A lot of coverages are pretty much uniform,” Campanella explains. “They’ve been out there for years. Some carriers are trying to reinvent the wheel. We have added a couple of bells and whistles to enhance our product.”
That said, agents should really be looking to provide service, Campanella adds. Many organizations—including colleges and schools he serves—“need good service, because they report to a board of directors,” he explains. “Agents should look for quick turnaround and proper claims processing.” Name recognition is less of an issue in today’s turbulent insurance market, Campanella believes.
Because premiums tend to be smaller, it’s important to streamline new business and renewal processes. “The agent must be deadly efficient in order to make a profit,” says Sadler. “This won’t occur if they’re forced to exchange multiple communications and wait several days for MGA or carrier responses.” Online access can cut quoting and service times to just a few minutes, he notes.
“Agents also want back-up help on how to answer client questions and provide advice on a number of issues,” Sadler adds. “These questions tend to come up within sports organizations with predictable frequency.” For example, agents constantly ask his staff about safety programs, waiver and release forms, facility lease agreements and good sources of criminal background checks. “Our Web site has a risk management section that offers a number of articles, forms, and reports on these issues,” he notes.
Carriers and MGAs offer other help, too. “We have a complete staff that not only helps underwrite, rate, quote and issue the policies, but also helps agents and brokers know what to look for and how to sell them,” Campanella says. Training classes and Webinars are part of the mix.
He adds, “A lot of agents and brokers might have an associate or acquaintance or friend who is a potential contact, but they have never exhausted that opportunity because they are not familiar with the product.” It may be time to change that.
It also may be time to follow advice like to that given the public: Take a break. Get out and learn about the sports and leisure business. And then sell it.
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