Program business premium revenues increased by 9.8% in 2013, reaching $30.1 billion up from $27.4 billion in 2012, according to the annual “State of Program Business Study” recently released by the Target Markets Program Administrators Association (TMPAA).
The financial performance of commercial property-casualty insurance program administrators continues to outpace the performance of the overall p-c commercial insurance markets, which increased only 4.6% over the same time period.
Why? It’s simple, says Jim Blinn, executive vice president at Advisen Ltd., the research firm that conducted the study for TMPAA: “The reality is the marketplace rewards people that know what they’re talking about, both in terms of the sales process to the insured or in talking to a market,” he explains.
“Product specialization really allows you to follow the trends and demands of a given industry and develop more tailored products,” agrees Heidi Strommen, president of ProHost USA, Inc. and incoming president of TMPAA. “The most successful program administrators focus on building a strong reputation for quality and service with their brand, and it gives them the ability to effectively compete on product attributes and not necessarily only on price.”
It’s also part of a larger movement toward specialization throughout the entire insurance industry, including independent agencies that serve middle-market commercial accounts—70% of which have developed a major focus on target markets, according to the 2014 Future One Agency Universe Study.
Why is specialization picking up steam across the board? Strommen says it’s a strategy that allows insurance organizations to allocate their resources more efficiently and effectively. “You’re focusing on what your firm does best, because we can’t all do everything well,” she explains. “It allows you to focus on specific expertise you can build up and gives you a much better chance of long-term profitability and success.”
According to the research, management and professional liability are the best fits for program business. Meanwhile, “there’s a strong negativity toward workers compensation,” Blinn says. “We heard among respondents that they have a really hard time developing any program including workers compensation. Insurers said ‘We don’t like it,’ and administrators said ‘We can’t place it.’ So that’s kind of a word to the wise.”
The TMPAA defines "program business" as insurance products targeted to a particular niche market or class, generally representing a group of similar risks placed with one carrier. Program specialists who have developed an expertise in that market claim administrative responsibilities and negotiate them with the carrier, including underwriting selection, binding, issuing, billing, marketing, premium collections, data gathering, claims management/loss control and possibly risk sharing.
While the estimated number of confirmed U.S. organizations that meet the definition of
“program administrator” remained unchanged at 1,000 in 2014, a year-over-year comparison of administrator responses revealed an average 3.1% growth in the number of programs.
“Carriers like it—they’re looking to grow this area,” Blinn says. “They see the value relative to the profitability. There’s a natural progression—people are interested in it, it’s a working formula and specialization is just kind of the nature of the way this business is going. It’s going to continue to drive the growth for the foreseeable future.”
Jacquelyn Connelly is IA senior editor.