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The Rough Notes Company Inc.



November 29
09:51 2017

Who will be the drivers of new program growth?

Leaders of the Target Market Program Administrators Association (TMPAA) had plenty to smile about as they gathered in October for their annual Target Markets Summit.

According to the group’s 2017 “Program Business Study,” compiled with survey data gathered by Advisen, “Program business continues to defy the odds, delivering noteworthy results in the face of a persisting soft market and economic uncertainty.

“Program business is growing at a quicker rate than the overall commercial insurance marketplace,” the report says, noting that program business grew at a 5.3% clip annually in 2016, compared to 1.3% growth in other lines.

Program business premium stood at $36.1 billion in 2016, the report adds, more than double the $17.5 billion reported in 2010, when the annual study began.

Those results are for only the 1,000or so organizations that fit the TMPAA’s definition of a program administratorand do not include premium for programsdeveloped and supported by managing general agents and other wholesale intermediaries.

Insurtech impact

While new risk exposures and abundant capital are the primary drivers of the growth in program business, the growth also comes at a time when insurance technology startup firms—the so-called “insurtech” companies—are sometimes bypassing carriers and creating intermediaries of their own to implement new methods of addressing risk without having to integrate with carrier operations.

In remarks to the annual meeting of the Property Casualty Insurers Association of America, Jacqueline LeSage Krause, managing director of Munich Re/HSB Ventures, said: “We’re seeing data science companies getting involved in the space, not just sellingdata to primary carriers but also becoming MGAs themselves.

“Insurtech forces everybody across the board to get better.However, underwriting expertisewill continue to differentiate.”

—Tom Clark
PresidentNationwide E&S/Specialty

“Being an MGA allows these startups to go to market on their own,” she said. “They can do innovation all across the value chain from that vantage point.”

One leading MGA, Glatfelter Program Managers, has “plans in place”to incorporate artificial intelligence and third-party data into its underwriting, says Arthur Seifert, president.

“From both a risk monitoring and mitigation perspective, and a pricingperspective, we expect wearable technology to become more and more important,” he says. “Having the ability to price risk based on real-time information with artificial intelligence and machine learning through a responsive mobile platform is key to being successful over the next several years.”

Falling costs

Krause’s observation was directed to carriers but also underscores new possibilities for agents, brokers, and wholesalers.

Whatever the hype surrounding insurtech, there’s no question that the cost of insurance IT operations, still a major hurdle for product and program innovation, is falling fast, according to Alex Tsetsenekos, co-founder and head of business development at Mgaero Risk Solutions.

“When financing insurance operations, the largest cost has long been the technology,” he says. “Today the costof acquiring technology is down, and the dollars are going to customer acquisition and program development.”The cost savings extend to administrative functions and elements of underwriting data that can be program-med into sharing platforms, he says, allowing insurance specialists to concentrate on the functions that require their unique underwriting and risk assessment skills.

“I can start a $50 million program, and I don’t need 10 people,” he says. “We can concentrate on customer acquisition and service. We can focus on risk selection over processing, and on underwriting over administration.”

Given the potential for insurtech to transfer more of the initiative for product development and support, it perhaps comes as a surprise that the TMPAA survey found greater engagement with insurtech among insurers than among program administrators.

According to the report, 85% of carrier respondents saw insurtech as an opportunity, compared to 56% of administrators. Roughly 30% of both the carrier and administrator respondents reported they were “involved heavily” in insurtech, while more than twice the percentage of carriers (57%) as administrators (28%) said they were “somewhat involved.” Slightly more than a third of program administrators reported they were not involved at all with insurtech.

Perhaps the important conclusion is not that program writers must make their mark through technological innovation (although they will not resist emerging best practices), but that insurtech may give them the option of acting on their own if carrier support is slow in coming.


However one views the evolution of insurtech, other program business leaders share a generally bullish outlook for specialty lines and programs.

Despite—or perhaps because of—retrenchments by a few program carriers, “The market is healthy and there is plenty of capital capacity to consider new opportunities,” says Rich Suter, divisional president of alternative markets for Great American Insurance Group. Suter adds that he expects the property catastrophe experience of 2017 to help strengthen pricing.

“The presence of continued record capacity makes it challenging to realize even modest rate increases,” according to Seifert. “There are still new entrants coming in, and new capacity tends to buy market share and put stress on existing providers.”

Healthcare and trucking are two sectors that offer great challenges and great opportunities, Seifert says.

“Healthcare, especially healthcare directed at seniors, is a huge business and will continue to grow as Baby Boomers age,” he says. “Trucking is also growing as more of the retail economy moves online and purchases need to be delivered. Fortunately or unfortunately, depending on your tolerance for risk, these are two of the most stressed sectors for insurance.

“Liability rates for skilled care facilities are deficient across the country, and commercial trucking is in a similar state,” he says. “The program managers that can figure out how to write those classes at an underwriting profit will do very well.”

Where some carriers see a persistently soft pricing environment, Tom Clark, president of Nationwide E&S/Specialty, sees new opportunities. “If capital flees the market given current conditions, we see tremendous opportunity to grow and leverage both our property and liability lines,” he says, especially in management liability, cyber, and financial market coverage.

If there’s one downside to a healthy, stable program business market, Suter sees it in the relative lack of opportunities to compete for accounts that are due to renew with a competitor. In key areas of business, he says, “renewal retentions have been strong and new opportunities are difficult to come by. Most of what we see in terms of new activity are distressed programs where underwriting action, including higher price, is needed.”


Agents and brokers looking to develop programs will find Suter and Clark to be open to ideas but careful to commit.

“We review hundreds of new program opportunities every year but only write a handful,” Suter says. “Our strategy is to select programs that will be with us for the long term. We believe we can be successful in the program space as long as we maintain our disciplined approach to underwriting, with a focus on bottom-line growth first and top-line growth second.”

“Developing new programs is a discipline,” says Clark. “We maintain anongoing pipeline of opportunities, reviewing far more programs than we can launch, because we are looking for strong partners who can deliver profitability and provide a full suite of services.”

When asked how insurtech is affecting program development and implementation, Clark says, “Insurtech forces everybody across the board to get better. However, underwriting expertise will continue to differentiate.

“We believe strong products and knowledge of how to rate and underwrite them, coupled with strong distribution partnerships, are what drive profitable results.”

Great American has had discussions with technology startups about program business, says Suter, and is “keeping a close eye on developments.”

Tsetsenekos would have no argument with that approach. Although he’s made his mark with insurance technology startups, he says the development and implementation of insurtech is “an evolution, not a destination.”

The author

Joseph S. Harrington, CPCU, is an independent business writer who specializes in property and casualty insurance coverages and operations. For 21 years, Joe was communications director for the American Association of Insurance Services (AAIS), a P-C advisory organization. Prior to that, Joe worked in journalism and as a reporter and editor in financial services.


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