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Program Administrators

The last year has been a particularly challenging one for program insurance administrators, as it has been for other areas of the insurance business. The soft market persists, but it is unlike previous soft markets where insurers could depend upon investment income to compensate for lost premium dollars. Moreover, demand is down for some insurance products. Because of the faltering economy, insurance buyers are holding the line in some areas of coverage and, in some cases, choosing higher deductibles or even going bare.

True, there appear to be some pockets of rate hardening or at least stabilizing, but some industry observers believe a true market hardening will not come about until deep into 2011.

Rough Notes spoke with Tony Mathewson and Dean Richardson, both of Epic Premier Insurance Solutions, to elicit their views on how this challenging market has affected program administrators and to discuss other trends in the insurance arena. Epic Premier is a solutions company that offers a full range of software and the expertise to make sure that software is successful in assisting program administrators in doing their work, says Richardson.

“These times are, indeed, challenging,” says Mathewson. “I think carriers are accentuating the profitability in program administration business. There is an increased cost in doing business this way, but carriers have come to realize that the return is greater. In the last year, we have seen a need for a lot more data than in the past.”

Richardson adds, “Program administrators have to provide carriers with full underwriting data, including statistical information for reporting to the various bureaus. Another trend,” continues Richardson, “is the movement towards the virtual office. Some program administrators are having their employees work from home.”

Regarding the soft market, Mathewson says this market is just part of the normal cycle that the industry experiences. “The important thing is for program administrators to continually monitor their business to keep the profits coming in. With the market being what it is, the old cash flow underwriting times are not dominating. Program administrators have to maintain an edge in the marketplace.”

Kevin Donoghue of Mystic Capital Advisors Group says that the soft market has had an adverse impact on program administrators’ profits and loss statements. “There is continued consolidation among program administrators as the result of the aging of principal owners who are retiring,” says Donaghue. “Also, with the capital gains rate going up, people are being forced to sell. That’s on the supply side. On the demand side, there is a trend toward acquisitions because, in this market, it’s one of the only ways to grow.”

Donoghue says that we’re not seeing a hardening of the soft market yet. “We can see the other side of the valley, but the small pockets of hardening have not yet hit program administrators’ P&Ls.”

Richardson says that current market challenges demonstrate even more why the Target Markets Program Administrators Association is important to program administrators. “Some niches are coming back. Target Markets provides a venue for networking, bringing people to the table to discuss market changes and opportunities.”