How Challenges Create Opportunity in Program Business

December 20, 2016 - Today’s program administrators continue to face plenty of challenges, including increased competition, high merger and acquisition activity, market pressures for more creative options, and other issues. Those challenges are leading to opportunities as the industry is forced to create and innovate, some experts say.

The number one challenge facing program experts is the amount of capacity in the market today, according to Christopher L. Pesce, president, Maritime Program Group. “It all boils down to the fact that there’s so much capital in the marketplace and that’s not changing anytime soon.”

That trend is placing a high burden on program administrators to find creative ways to offer their products, to try and find a competitive edge, Pesce said.

“Program administrators must find a way to deliver more value than just the product,” he said. “We’re up against a commoditization of our products that are being offered by everyone under the sun.”

Chris McGovern, senior vice president at All Risks, Ltd., says the soft market pricing along with some carrier pullback has created a few disruptions as well.

“There are some disruptions going on with carriers pulling out of programs for various reasons,” McGovern said. “Those carriers may have chosen the wrong classes of business or the wrong program administrator that didn’t do the right thing for them and the losses show it.”

It’s also difficult to start-up new programs today or move some books of business, he added. “Most of the books of business that are on the street these days are there because they have loss issues or profitability issues for the carrier.”

That same disruption is creating opportunity for the more established program administrators, McGovern said. Those established firms that can offer “all aspects from the front-end marketing to the trapping of data, to the underwriting teams, to the back-end policy issuance that act as a virtual insurance company. You’re seeing the large (firms) get larger and the small (firms) get swallowed up.”

Despite the challenges, overall the program space continues to be a bright light in the property/casualty insurance market, and carriers have taken note, according to Bob Newmarker, head of Sales for Zurich Programs.

“Program business continues to grow and outpace the rest of the industry, which I think we’re going to continue to see going forward,” he said.

Carriers have their eye on program administrators for a couple of reasons, he added. “One, insurance companies are recognizing that the expertise that’s in the program world is top notch.”

And there’s an opportunity to develop deep relationships with those program administrators who have that expertise, he added. That expertise, whether it’s an industry segment, a line of business, or whether it’s their distribution model, provides a variety of different ways that carriers can capitalize in program business.

“That really bodes well for Zurich,” he said. It’s about measured growth, he added, and finding the right opportunities.

The other aspect that Newmarker sees as an opportunity for program growth is disruption in the marketplace.

“You’ve seen a lot of acquisitions of program administrators. We’ve also seen a lot of acquisitions of carriers, as well,” he said. “That certainly has given us some opportunity to capitalize on opportunities that are presented to us.”

The key to finding success in today’s program market is knowing the market and knowing it better than anyone else, said Ron Boudreaux, executive vice president in charge of national accounts with Breckenridge Insurance Services.

Know the market niche, he stressed. “Do you have a competitive advantage? Do you have a better program than anybody else does? Are you marketing it appropriately? I’ve seen more programs fail because they don’t put the horses in. They don’t put the time in to figure out how they’re going to market it.”

Competition is fierce, so differentiating expertise from everything else available in the marketplace is critical. “The more you know, the better you can present yourself to the marketplace, and the better your chances of getting somebody to quote it competitively,” he said.

Being nimble is critical, too. “You need to be nimble,” he said. “There’s a lot of large program administrators out there. Sometimes they’re so big they can’t find their own way. You need to be nimble.”

Having the right terms and conditions, and trying to find something new in an industry that’s been doing the same thing forever, is not an easy task, Boudreaux added.

“I keep using that phrase, ‘think outside the box,’ but that’s the only way you’re going to be successful,” he said. “Understand the segment you’re trying to attack and approach, and make sure you can put the right terms and conditions together to be competitive, to have an advantage over what everybody else is doing.”

Program business is the way to go, he added, “That’s where this industry’s headed.”