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Getting Going: Creating Great Program Proposals

Anyone thinking about starting a program from scratch needs to do one thing first: “Determine if you have the fortitude,” says David Springer, president of Woodbridge, New Jersey-based NIP Programs. “It’s not easy, or quick. From the time you start until you see the benefits could be five years or more. You have to be able to support/fund a new program for that long, unless you get incredibly lucky. People overlook the time and effort it takes to find or develop a partner, negotiate terms, get to market, fine-tune things and hit their stride.”

After the gut-check, you must convince yourself that you can make the program work for you and a carrier partner, adds Springer, who participated in a panel presentation, “Program Proposals Revisited,” which took place at the Target Markets Program Administrators Association 2009 Mid Year Meeting, which took place in April. “Look at the market size, the economic indicators for the industry, and underwriting performance,” he says. “Will you do segments of a class of business, the whole class or the entire industry? Scope out how you can make a difference and make a good, profitable program out of it. Satisfy yourself that you can either hire the talent or learn enough to be a specialist. At the end of the day, that will separate you from everybody else writing that class.”

Ask yourself the questions carriers will ask: Why will this program grow? Why will it appeal to an industry? Do you have an affiliation with certain industry groups? Will the program fill a real industry need; will it make an underwriting profit?

Doug Bennett, Southport, Connecticut-based senior managing director of Aon Benfield, who presented with Springer at the TMPAA meeting, says it takes more than simply deciding to create a program. “The most important thing is to show a sustainable competitive advantage,” he explains. “What is your hook? What will get the carrier interested? Why should they do this with you versus a competitor, or versus relying on the general market?”

Research time

After preliminary soul- (and gut) searching, and some creative thinking, it’s time to further research the proposed market and potential partners. “Different companies have different appetites and capabilities,” says Ron Molatto, divisional senior vice president at Cincinnati-based Great American Insurance, another co-presenter. “For instance, we don’t write personal lines. If someone comes to me with a nonstandard auto or hard-to-place homeowners program, we’re not a market.”

On the other hand, his company, like others, can provide admitted and not admitted paper, write all lines—including workers comp—in all states and Canada, and provide high limits. Molatto suggests learning if a carrier has capacity itself or if it’s wholly dependent on reinsurance.

When probing, listen—but not just to answers. “You can get a feel, just by the nature of carrier questions, whether or not there is legitimate interest,” Molatto says. “Even by their response time you get a sense of what kind of a partner they’d be.”

Delve into the potential market. Gather information and put together thoughts and facts. “Use demographic data from the industry itself, the U.S. Census Bureau and other information sources,” Bennett says. “Profile your target customers. What about them and their businesses is attractive from an underwriting standpoint, compared to others? Get into account selection and then determine why pricing would be adequate.”

If this research process is drudgery, watch out. “Make sure it’s something you buy into and get excited about,” advises Springer. “Sure, you need to determine if the market has enough size, that you can reach critical mass and can differentiate yourself. But do you have a passion for it?”

It’s important to prepare a thorough and thoughtful financial plan. “There will be product development and investment timelines,” Springer adds. “You must figure out when the program will break even, when you’ll start making money, how the program will behave in a recession or when things are flush.”

Consider your roots. “The closer a new program is to expertise the program administrator has, the better,” says Bennett. Such knowledge and familiarity cannot only jumpstart a new program—and help fund its rollout, but a proven track record broadens the pool of potential carriers. “Related experience is more interesting to a carrier than an MGA that has been writing a particular line of business or segment and decides to pursue something entirely new,” he adds. “To the extent they are related and have similar exposures, that’s a much easier sell to carriers.”

Let’s make a deal

Once a short list of carriers is generated, Molatto says, be ready to offer more information, if it hasn’t already been shared. Address historical data, experience, marketing, cost of doing business, systems information, claims handling and more. “All of these things will enter into the discussion,” he says.

Bennett adds, “Show some level of underwriting or distribution expertise, or show some unique way you handle claims or provide loss control services. Something should distinguish your program. To me the most important thing is to show why you’ll do it better.” Support that with strong underwriting talent, strong systems and operational capabilities, he adds.

Carriers are interested in whether or not the new program is populated by experienced underwriting people, perhaps from another MGA or from a carrier. “Where they can demonstrate strong historical background, there is a lot more appeal,” Bennett says.

“We look for whether the administrator has a command of the business, the knowledge and the discipline to execute,” Molatto adds. “We look for agencies that really try to specialize in what they do. We can generally ferret that out very quickly. Very quickly.”

Finally, he says, they look at performance. “It could be the program’s experience, if it’s a rollover, or the agent’s reputation in the business,” he says. “Is it just another situation where someone wants to write the same business cheaper than the next guy or is it viable, with ties to an industry group or an association?”

In presenting the program, Molatto advises setting service expectations and arranging processes up front. “For instance, tell them if you have a system that can produce, underwrite and build the business, as well as capture data and manage the portfolio,” he says. “The same holds true for claims administration; if you have a successful relationship with a TPA, tell us.”

Data and dollars rule

“In a sense, you can make a laundry list of important items—the marketing plan, the people, the coverages you need or think are important,” says Jeremy Hitzig, CEO of Distinguished Programs in New York City, “but at the end of the day, in hard market or soft, it all comes down to the loss data and premium data.” Distinguished Programs works with a couple of carriers on the various programs it offers. “We are diligent about tracking and maintaining claims, premiums and underwriting information,” he explains. “We use an outside actuary to keep track of it. That’s the key.”

Molatto echoes Hitzig’s sentiments on the value of good data. “The better the information, the faster and smoother the process will go with any carrier,” he explains.

“To the extent you have it, good data with actuarial analysis will reinforce that any advantage a program administrator has translates into underwriting profits,” says Bennett. “It’s nice to have an advantage, but if you can’t show it has created a profit and let you out-perform the industry, it’s not worth as much. As a reinsurance intermediary, we work with MGA clients to get this across to carrier partners as most critical.”

“Underwriting profitability. That is what sells,” Hitzig concludes. “You need to do all of the other things—have a marketing plan, have effective management of the programs, and so on. But at the end of the day, it’s underwriting profit that sells.”