Special Section sponsored by Target Markets Program Administrators Association

The Life Cycle of the Program Manager

Like any career or business, program administrators go through a predictable life cycle, from start-up to mid-life crisis to retirement. Insurance professionals explored this life cycle at the second annual Program Administrators Town Hall Meeting on May 6 at the 2013 TMPAA Mid Year Meeting in Baltimore, Md.

The meeting featured three panels of program administrators offering expert perspective, as well as a live polling system so program administrators in the audience could answer questions and see results as they voted.

The Start-Up

To kick off the three-part meeting, attendees explored the start-up phase. Current TMPAA president and president and COO of NIP Programs David Springer moderated this discussion.

"We've talked a lot about how to do start ups, but spent very little time talking about what happens after someone says, 'yeah, let's go,'" Springer said. "That's when the real work begins."

It was an issue on audience members' minds. When polled, 85 percent of program administrators said they had launched a program from the ground up, 70 percent said they had launched a new program from an existing book of business that was not a program, and 86 percent planned to launch a program in the next 12 months.

When launching a program, Gary Smith, senior executive for business development at Trust Risk Management, outlined three basic market research questions his company asks: why the product would be needed, whether there is enough interest to make a go of it, and what his company has that others may not be able to demonstrate.

But differentiation is tricky, said Smith, even when program administrators work with carriers to create unique products. "Our experience—and this may be different for smaller programs administrators—is that a lot of what we've agonized over to differentiate the product turns out to be lost on the ultimate customer. Their primary interest is cost, basic coverage and basic service. And our focus is on service."

The majority of the audience agreed it takes three years to get from idea to implementation (or expense to profit). Robert Southard, president of Reliance Global Group, whose program is at the three-year mark, said unforeseen occurrences are normal for a start up; success depends on how you react. His company, for example, adjusted its marketing approach from direct to agents to one that also reached the end user, a change that generated more quotes.

The audience identified carrier support as the most difficult issue to address when implementing a program and Wayne Carter, executive vice president of CRC Crump Professional Programs echoed the important role played by carriers. "It's an iterative process," he said, "and the big key there is to make sure you have a carrier partner that understands your program and that there will be changes and adjustments that you have to respond to. And a big part of that is the expectations and issues that are addressed up front."

About reacting to change during a program launch, Springer quoted former boxer Mike Tyson, "Everyone has a plan—until they get hit."

Mid-Life Issues

In the second portion of the discussion, moderated by Dusty Rowland, president and CEO of Fulcrum Insurance Programs, the panel explored the mid-life of a program manager. "You've made it through the difficult start-up years, probably have two programs, one that you are known for and one you'd like to be known for," Rowland said. "But you do come to a point where you have some success and you have to decide what comes next."

Planning and organic growth are key in mid life, Rowland said. He asked audience members if they were planning for significant organic growth over the next five years. More than half said they were planning for 10-20 percent growth, with the remainder planning for 20 percent or more per year and just a handful with no plans.

Kim Ayala, president and CEO of Landscape Contractors Insurance Services (LCIS), described how planning helped her company expand distribution nationwide: "Strategic planning was how we identified our current position and how we wanted to grow. We were able to identify what was working and not working, and set goals wrapped around that," she explained. "Then we went back to the strategic plan and held the organization accountable both strategically and tactically, and we were successful."

Chuck Smith, executive vice president and COO of Carnegie General Insurance Agency, said strategic planning can build accountability for a program administrator. It involves not just planning, but also communication and measurement. "By communicating your ideas and plan, you also establish a commitment to that goal and idea, and help establish accountability for it," he said.

Exploring the role of vision and mission statements in strategic planning, 40 percent of the audience said they did not have a vision statement that clearly articulated where they wanted to be in 10 years, while the remaining 60 percent either had one or were working on it.

According to Ayala, questions to ask when developing a mission statement are: "Does it represent what you do? Will your staff and clients believe it? Will it remain relevant?"

Finishing up the mid-life discussion was a look at the do's and don'ts of planning for significant growth in midlife. Chuck Smith pointed to the ability to demonstrate knowledge, experience, credibility and respect in the industry, and also taking a conservative approach.

To explain his definition of conservative, Smith drew an analogy to when he was a pilot practice flying jets at 100 miles per hour, 100-200 feet above the ground. To someone below the flight did not seem conservative, he said, but for a skillful, trained pilot, flying at that speed and altitude was conservative.

"Being conservative doesn't have to be a small program or operate in a small region," Smith said. "But if you want to operate at a high speed and high altitude, you have to get that planning down so you know if you're going off course, know if you're going toward the ground and going to crash and burn."

The Autumn Years

Art Seifert, president of Glatfelter Program Managers, moderated the final segment, "Decisions to Sell, Perpetuate or Die at Your Desk." Drawing a comparison to "the aging boxer who battles on, punch drunk," Seifert cited a Marsh Berry 2012 study that found nearly 70 percent of agencies did not have a formal perpetuation plan. Obstacles range from financial issues and lack of candidates to risk adverse owners and lack of communication.

About half the town hall audience said it was involved in transitioning their agency by internal perpetuation or external sale. For those considering selling and/or perpetuating, slightly more than half were over 50 years old.

Karen Izzo, president of Izzo Insurance Services, faced a common internal perpetuation problem: team members with young children who put off buying into the company. "They wait and then what happens is the agency grows and the ability for them to buy into the agency becomes more and more difficult," she said. "Then it's a few years later and so the people you had offered ownership in, can't afford it."

Transitioning family businesses can be complicated, especially if you've decided to sell externally to a third party, she said. Izzo's two children had said they would never get involved, but her daughter later joined the business. "There are positives and negatives," she said. "She is a lawyer and serves as in-house counsel, which is good. When it comes to looking down the road, team members who are aging with me, see her and that gives them a sense of security."

"The difficult part is they know I opened the agency from scratch, so the owner's kid walks in and is taking over," she said. "But because she works hard and long hours, she earns respect."

Lou Schillinger, president of United Shortline Insurance Services, discussed the challenges of transferring intellectual capital to the next leadership group when operating in a narrow niche. That makes it imperative to develop intellectual resources internally so the business can continue to operate and grow.

With his firm, Maritime Program Group, in the midst of a successfully engineered transition of leadership to the next generation, Christopher Pesce explained lessons learned: "We started very early, 15 years out. One of the other critical items we did well," he said, "was that we are single-minded in partnership; our decision to perpetuate was part of a strategic vision that we focus on and continue to focus on."

Pesce also learned that a pre-agreed price for stock helps avoid difficult negotiations. Finally, he believes it is crucial to bring enough of the right people on board, so they can perpetuate the agency and handle the debt load.

From the fledgling start up through the mature mid-life program administrator and into the golden years, the simple take-away from the Town Hall Meeting seemed to be the importance of careful planning and the ability to react to change.