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Special Section sponsored by Target Markets Program Administrators Association

We've Come a Long Way, Baby

A preview of the upcoming TMPAA research on the Program Business Market

Three years ago, the Target Markets Program Administrators Association (TMPAA) completed the first comprehensive analysis of the Program Business market. Today, with the third annual study about to be released at the annual fall Target Markets Summit meeting, it's clear that the Program Business market is among the most vibrant in the insurance marketplace.

"The changing conditions in today's commercial insurance market, where coverage and limits can be more difficult to obtain and prices continue to fluctuate, are really the ideal conditions for specialized insurance programs to flourish," explained TMPAA President David Springer, President and COO NIP Group Inc., NIP Programs, based in Woodbridge, N.J., is a national Program Administrator.

The association and the market have come a long way since about 100 program administrators and insurance carriers gathered 13 years ago in Arizona to form the association. This year's TMPAA conference will bring together about 800 program insurance professionals—brokers and carriers—where they will hear, at a special panel discussion, the results of the association's investment in developing the benchmarking data that documents the strong growth and increasing profitability of the program business market over the past three years.

Pegged at $ 24.7 billion in premiums in 2011, program administration is a huge business. The estimated size of the market rose 9 percent from $22.6 billion in 2010. It's expected that revenues will increase in the new report, especially as pricing for insurance products aimed at niche markets has been increasing as the economy has improved.

There are more than 2,000 programs operating throughout the United States—a figure that continues to grow.

The study was sponsored by Scottsdale Insurance and the Western Heritage Insurance Co. The survey of the membership and the research was completed by Advisen, the New York-based insurance data analytics and research firm that provides insights into underwriting, marketing and purchasing commercial insurance.

Everyone Benefits

Program business, as the studies have shown, is a win-win for the broker/program administrator and the program insurance carrier.

With the program distribution model, Program Administrators offer insurance products targeted toward a particular niche market or class, generally representing a book of similar risks placed with one carrier. These specialty firms' activities include marketing, underwriting selection, binding, issuing, billing, premium collections, data gathering, claims management, loss control and, possibly, risk sharing. Administrators distribute these programs through retail brokers, wholesalers or direct to the policyholder. Usually the Program Administrator and the Program Carrier have entered into a contract that gives the Program Administrator exclusive rights to distribute these niche offerings for the program carrier. In effect, the carrier outsources portions of the underwriting and administration to the Program Administrator in return for gaining access to a profitable and growing line of niche business.

The results of the research over the past three years is a consensus that the program business market, as measured in premium dollars, is growing at a rate in excess of five percent annually. The data also shows that Program Administrator's portfolio has a strong renewal rate, usually at least 85 percent or more.

In the previous two reports, the figures show the industry continues to grow as a more program administrators reported an increase in premium volume in 2011 compared with 2010. The average increase reported for 2011 was 9 percent compared to 4 percent in 2010. In 2011, carriers and program administrators reported an estimated 2,000 individual programs—an increase of 5 percent from the 1,900 individual programs estimated 2010.

Success Factors

Carriers and program administrators both report growth and profitability continue to remain top-of-mind. Rate adequacy and the potential for premium growth remain on top of insurers' priorities when considering whether or not to write a new program. But, in a hard market, that issue may be of a bit less concern as premium prices in most markets continue to rise.

Program Administrators suffered the impact of lower pricing during the depths of the soft market. But they were not hit quite as much as the overall commercial marketplace in 2010. Then, in 2011, the signs were stronger that Program Business rates and revenues were on the upswing. This year, it is expected that trend will continue, especially in certain lines that are far less vulnerable to the impact of major weather catastrophes. For example, across the board, workers' compensation rates have been rising after years of being one of the most difficult coverages for carriers.

In this environment, carriers are looking for continued profitability and growth especially as competition exits the marketplace and demand is increasing as the economy rebounds. Carriers evaluate program administrators on a number of factors, but the consensus has been that profitability of the policies they write is probably the most important element for a successful growing portfolio. Indeed, profitability is also the key factor for Program Administrators and if profitability isn't consistent, then the relationship between the program carrier and program administrator won't survive.

In past surveys, the most frequent areas of coverage include "All Lines Packages", Professional Liability, and Casualty. "All lines" is generally considered to include the full suite of insurances needed by a business, while Casualty generally includes general and automobile liability, as well as umbrella and excess liability coverages. Professional liability includes the errors and omissions coverages tailored to the specific professional exposures of an organization. Management Liability encompasses such lines of business as Directors & Officers Liability, Employment Practices Liability, Fiduciary Liability, as well as ancillary Lines of Business such as Crime. Workers' compensation refers to insurance paid by companies to provide benefits to employees who become ill or get injured on the job. Packages would include a variety of lines of business (e.g. property, general liability, umbrella, etc.) offered within a single policy.

The New Research

The two previous surveys identified more than 800 program administrators and that number may reach 1000 in the current research. The TMPAA's current membership of program administrators is now approaching 300 brokerage firms. It's expected that more than half of the TMPAA membership will respond to the 2013 questionnaire, a record response rate.

The new research looks at some additional factors. More information has been solicited on compensation structures for individual brokers. Additional information was sought on the expenses and investments made by program administrators in their operations to gain additional benchmarking data. More information has been sought to identify the breakdown of revenues and expenses at individual firms. This year's survey will document commission levels and rates and the questionnaire sought to collect information about profit sharing between the program administrator and the carrier.

In every survey, a series of baseline questions have been asked to be able to document ongoing and emerging trends in the Program Business community.

Mostly Smaller Businesses

The data continues to show that most program administrators are not huge operations. They tend to have less than 60 employees, although the industry also has the more common 80/20 breakdown—80 percent of Program Administrators are relatively small while about 20 percent of the program administrators are larger operations with more than 100 employees.

A handful of carriers boast more than $1 billion gross premium dollars from their program business operations, but the average carrier with a program business operation has fewer than five programs in operation. Most carriers report that for a program to be successful it needs to generate at least $5 million in annual gross premium dollars. Part of the reason that many programs are smaller relates to the nature of the distribution model—by definition a program targets a smaller, but very profitable, niche market. The average size of a carrier program, in the past, has been between $20 and $30 million in gross premium revenue.

In the past two years, most Program Administrators reported annual revenue increases. The 2012 study showed that revenue in 2011 was growing at twice the rate posted in 2010.

Program administrators in 2011 recorded the largest volume of premiums in government, nonprofit and education; construction; and transportation industry sectors. The lowest volume, on the other hand, was seen in retail, financial services and leisure industries.

In the 2013 study, Program Administrators rated more than 60 program carriers on five factors: submission turn-around time; financial strength; open-minded risk consideration; compensation; and creativity. Both the carriers and the program administrators ranked the 10 most important factors for developing a new program. In the past, carriers and program administrators agreed that underwriting skill and profitability were the two most important factors for a successful new program.

The TMPAA plans to continue this research. Members of TMPAA will be able to access the full report on the Association website, once it is completed. Others interested in accessing the report should contact the Association. The continuing research project is part of a group of services that the TMPAA provides to its members including program administrator certification, training through Target University, and the group's commercial website, Target Programs, which allows retail brokers to search for programs with specific coverage's offered by the Target Markets administrators.

Additional information is available on the website or by calling the TMPAA executive director Ray Scotto at 302-268-1010 or emailing