Finding & filling a niche

Program start-up checklist: future growth prospects, competition, carrier choice

By Phil Zinkewicz

About 30 years ago, a well-known national property and casualty insurer decided to experiment with a new and—they thought—more efficient way of marketing automobile insurance. The idea was that the company could attract more premium dollars by marketing to groups of people, rather than only to individuals. Back then, it was called Mass Merchandising. Their marketing people would approach large businesses, trade associations and even government entities, offering the chance to buy the insurer’s automobile insurance at a discount. Furthermore, the insurer opened up the opportunity to all comers.

The experiment was an abysmal failure. In the first place, they began the experiment in the midst of a soft market. Therefore, most people were already getting good deals on their auto insurance—except for bad drivers. The result was that the good drivers stayed with their own carriers, while the bad drivers jumped onto the mass merchandising program. This problem of “adverse selection” caused the experiment to stumble right out of the gate.

In the second place, the company’s executives didn’t expect to raise the ire of their agency forces that were looking upon the experiment as more competition against them. The company had to work hard to restore its good relationships with its agents.

There were several attempts at mass merchandising by other insurers during this time, but most fell by the wayside. Even the concept of group marketing itself was shelved for a time.

Then, in the 1990s, general agents themselves began recognizing the benefits they could accrue by setting up program business. They realized that they could put together programs for groups of people with like characteristics and then persuade carriers to take on the risks. It was slow going at first, but today group programs have become a very popular way of attracting new premium dollars.

Not all programs are successful, of course. However, if a general agent does his or her homework, works diligently and is willing to invest time and money, solid programs can be created.

One program administrator that has enjoyed success in the area of program business is NIP Programs, a division of NIP Group, Inc. The company provides a wide range of brokerage, underwriting and risk management services to select industries throughout the country. With more than 100 employees headquartered in Woodbridge, New Jersey, NIP Group does retail business and wholesale business; forms and manages group captives; and designs programs.

David Springer, president of NIP Programs, says, “Moving an existing insurance program when there is a supply disruption can be difficult enough, but developing a new program from an idea presents a whole different type of challenge.”

Springer has been president of NIP Programs, a leading national program administrator, since 2005. Under his leadership, NIP Programs has improved operational efficiency, dramatically increased the breadth of product offered through the division, and significantly improved the quality of the service that NIP Programs provides to all of its customers, from carriers to brokers to insureds.

“To start developing a new program, you first need to picture what it will look like when it is mature, and work backwards from there,” Springer explains. “It is only after you look at where you are standing and where you want to be that you can appreciate the work you will have to do to get there safely.”

First, he says, an analysis must be performed to determine if the industry will generate enough premium volume to make financial sense as a program. “Look at the program you want to create and try to envision what that particular part of the economy will look like in two, three or five years. Is it moving in the right direction? What is the potential for growth?

“Once you satisfy yourself that you picked an industry with your preferred characteristics, you move into more detailed research and development,” he continues. “It could take a great deal of time to learn all that you need to for development of a program. All the while you’re investing time and money on your idea. You have to be committed to that level of long-term investment and decide if you and your organization can withstand that drain.

“Research helps in understanding the dynamics of the class, including a geographic footprint,” Springer says. “You will need to know how many target businesses there are around the country. Are they localized in specific areas? What are the markets that are already out there writing that particular class of business? What will your competition be like?

“Are there other program administrators out there targeting these risks? What are the weaknesses in those programs and what are the strengths? All this information is important in helping you to determine which carriers would be the best fit for your program,” according to Springer. “Is the program a better fit for a small regional carrier rather than a national carrier with a large network of agents? Make an ‘A’ list and a ‘B’ list and then choose who you approach carefully.

“You have to become an expert in the class and industry,” Springer continues. “Be honest with potential partners. Remember, this has to be a good match for both of you to enjoy long-term success. Some programs may take a year or two before starting to show growth. It’s your job to make sure everyone is entering into the agreement with both eyes open. No one should be asked to proceed with false expectations.

“More than that, keep your own expectations realistic,” Springer says. “When someone has the idea for a program, there is maybe a 500 to 1 chance of it becoming a reality. After the initial analysis, the odds improve to perhaps 200 to 1. After the research and development stage is completed, the odds of successfully launching a program are about 50 to 1.

“When you bring your program to a potential carrier partner, you have to bring something special to the table, and that starts with a deep understanding of the intricacies in your target industry,” he continues. “The product might a specialized forms and pricing strategy, deep segmentation of the work being performed in the industry, and industry-specific risk control service that is not available anywhere else.”

NIP Programs structures and man-ages specialized business insurance programs, underwritten by top-rated insurers, for specific industries that are generally underserved by the general insurance marketplace. The company currently targets businesses in the following industries: Landscape, Tree Service, Greenhouse/Nursery Grower, Garden Center, Grading and Excavating, Paving, Glazier, Sign Manufacturing and Installation, and Janitorial/Cleaning.

Finally, Springer says that the time taken to put together a program—from the point where the idea is conceived until the day it gets off the ground—can be as long as three to five years. That depends, of course, on how well you do your homework, he says.