In the interesting business life of an insurance agent, one thing often leads to another. A family friend opens up a wedding planner service and can’t find coverages that suit this unique field, whose exposures could range from a wayward delivery of flowers to something more serious like double-booking the reception hall or even a jilted bride or groom. Could you help out?
You develop a solid rapport with a local professional group, such as accountants, or a trade group of heating and cooling contractors, which leads to a growing book of business in a defined area — perhaps an exclusive association relationship. Or you venture outside your comfort zone to do a one-time “favor” for a client. Volume builds based on your ability to place this initial risk, and as word spreads, other prospects and perhaps even other agents are calling with referrals. “We heard you have a handle on X, Y and Z."
We all can recount similar examples. This is the natural flow of being an agent or agency, and one of the ways in which we increase our premium and commission volumes through the years. Eventually, we become good at something; we come to better understand how the insurance industry evaluates, underwrites and processes claims in a specialized coverage area; we come to possess insights and connections that others do not.
In this way, many smaller retail agencies are developing specialty areas of concentration by successfully writing homogeneous types of business, quite often through specialized knowledge of certain industries or via association endorsements.
These agencies have a potential program and may have never realized it. In general, strong candidates for elevating a book of business to program status will have:
- a proven loss history, hopefully for at least five years;
- agency expertise in the class of business;
- an established distribution system;
- stability in past carrier relationships;
- competitive market intelligence; and
- risk-sharing potential.
Furthermore, upgrading an existing a book of business into a program with an exclusive underwriter relationship will provide many advantages as well as new obligations and ways of looking at things. Some of these factors include:
- The ability to develop customized, program-specific policies and policy language, as opposed to dealing with off-the-shelf policies from a variety of standard markets;
- Access to carrier specialists in business operations for niche program evaluation, loss prevention or claims adjusting;
- Access to dedicated underwriting support in marketing and distribution, including joint presentations at association conventions, introduction to new associations or other potential insureds;
- Potential underwriter support in expanding to new geographic regions;
- Value of applying an enhanced discipline to areas like loss prevention; evaluating an insured’s business plans, needs and competitive status; and understanding the true costs and profitability of a book of business;
- Learning to execute or perform according to defined benchmarks/yardsticks; and
- Ability to take an “equity position” in the program.
- Revenue expansion of your existing book – You are now more than just the “agent”.
Lest we think these ready-made programs came about by accident, or that agents somehow just fall into them magically, we must remind ourselves that they don’t. Yes, a novel lead or favor for someone might have gotten us started, but the best programs are the result of hard work, a great knack for listening to the needs of clients, and special factors in your local or state business climate. The best programs result from understanding one’s local marketplace, as well as how it relates to overall industry trends in coverage availability, pricing and claims experience.
Last but not least, you need to take balance your mission of “client advocacy” while also maintaining the program’s underwriting results. A successful program requires a win-win situation for all parties involved: the insurance carrier-partner needs a proper return on its capital (reward for the risk); the insured benefits from a competitive product in coverage, price and service.
Although there are general similarities at the surface, no two specialty property/casualty programs are alike. There are many unique aspects or angles to each program. The differentiating features that set one program apart from another can include such areas as coverage highlights, specialized distribution, efficient automation, or association endorsements, to name just a few. In a soft market, program administrators are encouraged to promote their programs by exploiting such unique traits.
As we know, with rewards come risk. Competing in a more competitive environment also means watching out for potential pitfalls. The first consideration falls under the area of market intelligence. If you are working with a trade association, how many similar associations or affinity programs are out there? You may find that there are a half-dozen associations that represent jewelers, for example, and each of these associations already has dedicated insurance programs. Know what you are going up against as you work to identify your program’s uniqueness.
Another element to consider is the statistics on the industry in question. Using wedding planners as an example: is this an industry that is still growing, or has it become saturated? How many wedding planners are really profitable? How long does the average practitioner stay in business? Could you market to complementary businesses such as florists, bridal salons or hair stylists? Who will be your competition?
Another area to be well versed in is your state’s legal and regulatory environment. Is your class of coverage growing because of new insurance requirements set for that industry? Is regulation of that industry becoming stricter? What has been the trend in lawsuits, including from the plaintiff’s bar in your state or region?
A final example relates to adverse selection. You might be adding to your policy count in a given niche, but are you attracting the best risks or the worst — the individuals who couldn’t find coverage from “regular channels”? Also, when your pool of insureds is small, just one client with adverse claim experience, even a single large claim, can make a dramatic impact on the program’s overall loss ratio. Therefore, it is imperative to define your strategy within your underwriting guidelines. By addressing all key risk factors, the result is a specifically designed plan that will attract carrier partners and reinsurers to support your program’s underwriting initiatives.
Many agencies focus their attention very heavily on commission and incentive structures in their programs. However, when analyzing how a program is truly performing, one needs to take an active role in studying and consulting on all the other expenses impacting a program’s results. Overall, we want to understand what lies behind the numbers and take a comprehensive look at not only premium volumes but also all the expenses involved in running a program.
As a result, one of the responsibilities (and one of the greatest opportunities) of formalizing an existing book of business into a dedicated program is to think through insurance from a different vantage point — that of the underwriter. While the best programs percolate, if you will, from the ground up, they go on to achieve their best results and longevity from some “big-picture” thinking and discipline. Some examples include:
- Administrative and financial. This area includes typical business overhead. When we take on program status, there may be new requirements for processing applications and claims, marketing expenses, and/or investment in enhanced Web sites or other types of e-communications. There are also opportunities to achieve economies of scale in many administrative areas.
- Claims. Program administrators will be able to access claims and loss control specialists, whose feedback will help fine-tune program language, conditions and rate structure. This supports your goal of growing the quality, not just the quantity, of your book of business.
- Join the brain trust! When you establish a program, you can tap into the expertise of the sponsoring underwriter’s full team. Along with closer attention to volume trends, loss ratios, and other quality audits comes a better understanding of how your program is performing. Furthermore, rapport is established as your responsibility becomes critical to communicate and report on necessary benchmarks, continual changes in your program’s industry, and insureds’ needs.
Managing a specialty program is a great responsibility and a great opportunity. It has proven to be a solid path to career progression and greater income for individual agents and independent small to mid-sized agencies. Most importantly, the best programs rely on your local perspective and expertise. Your market insights, people skills and energies will define your program’s success. It’s there on your home turf. Go for it!
Archie McIntyre is senior vice president of business development for Southfield, Michigan-based Meadowbrook Insurance Group and can be reached at Archie.McIntyre@Meadowbrook.com or (248) 204-8518. Phil Gajewski is AVP of business development and can be reached at pgajewski@meadowbrook.com or (248) 204-8276
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