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Program Business

Programs Flourishing

A growing sector gathers for its annual meeting in Scottsdale.
By: | October 3, 2017 • 5 min read

The advent of more and more technology and concerns about capacity and rate are issues that will perplex and challenge every aspect of the commercial insurance business for years to come. One thing, though, is certain, the programs business is flourishing.  How the sector should respond to emerging players with new technologies, as well as other hot topics will be on the agenda at the Target Markets Program Administrators Association’s 17th Annual TMPAA Summit, Oct. 15 through Oct. 18 in Scottsdale, Ariz.

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Christopher L. Pesce, president of Maritime Program Group in Westbrook, Conn., and the TMPAA president-elect, said the level of disruption within the program market has yet to play out.

“I think what the program administrators are looking at is how to become part of the solution — how to partner with Insurtech to come up with a better mousetrap and keep themselves relevant,” Pesce said.

“It’s a tall order.”

While it’s tough to compete with “very sophisticated technology operators,” program administrators are confident in their own ability to innovate and in how quickly they can adapt to changes in the market.

John Colis, president and chief executive of Euclid Insurance Services Inc. in Itasca, Ill., said that the sector is seeing “a flood of money” backing new Insurtech start-ups aiming to digitize and, to some extent, automate the underwriting process.

Colis said it “remains to be seen” the extent to which these ventures will compete with program administrators — or become program administrators themselves. However, the issue is definitely on program administrators’ radar.

Ethan Allen, executive vice president, AIG

“What this looks like and how it is implemented remains to be seen and will be interesting to watch,” he said.

A session at TMPAA’s Summit will explore specifically how Insurtech will impact distribution networks utilized by program administrators, said Ray Scotto, executive director of the Wilmington, Del.-based trade group. Most administrators use the independent agent network, but some go to the market directly, he said.

“We need to explore the impact on this entire industry segment.”

The group’s leaders will also discuss the results of a study that shows there is continued growth of the program business segment of the market, and the segment is outperforming the general commercial segment “by a pretty good margin.”

The managing general agent and program market growth in 2016 exceeded that of the total P&C market by 32 percent, according to a July study by Conning, an investment management company for the global insurance industry.

In 2016, comparable firms in Conning’s MGA database grew by 4.9 percent compared to 3.7 percent for the P&C market overall.

“I think the program business is somewhat in vogue right now, with more carriers and surplus capacity within the industry signing on,” Pesce said.

“Deploying that capacity with program administrators is cost effective and speedy. Whether it’s a start-up carrier or a carrier simply looking for expansion, the fact that so much surplus is in the industry right now is to the benefit of program administrators.”

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Another topic of importance is heightened interest in the space from large acquirers, Colis said.

The healthy segment, he said, is “prompting an increasing number of underwriters to consider getting into the space. When demand increases, supply follows.”

Paul A. Mihulka, vice president and head of new programs at Zurich North America in Omaha, Neb., said that the carrier is seeing new program administrators being formed, with wholesalers moving into this model and other companies investing in program administration to get into the marketplace.

“We view this as an exciting time to be in the program marketplace, given all of the new entrants and new capital that’s coming in, resulting in new investment, potential new partners and transformative innovation,” Mihulka said.

“… the companies that will be most successful will be the ones that can differentiate their offerings through product, service or analysis such as predictive analytics.” — Jerry Prendergast, insurance programs underwriting manager for specialty markets, Munich Reinsurance America

Zurich, too, is particularly focused on Insurtech, he said.

“As we think about how to leverage a particular Insurtech capability — whether that’s AI, robotics or other technological advancements, we’ve embraced it as an opportunity to gain efficiencies and increase the effectiveness of our products and services to our program administrators and their retailers and customers,” Mihulka said.

Jerry Prendergast, insurance programs underwriting manager for specialty markets, Munich Reinsurance America

“Some would choose to view Insurtech as somewhat of a threat, but at this point, we would view it as a tremendous opportunity.”

Ethan Allen, executive vice president at AIG in Boston, said the carrier has “some exciting initiatives underway” involving data and technology to keep AIG “a best-in-class partner” for program administrators.

New predictive models will help PAs “to be able to go into their portfolio in a way where they’ll be enabled and empowered from a data standpoint to make better risk selection and pricing decisions in addition to more focused business development activities.”

AIG has also implemented a new underwriting and policy issuance system that allows program administrators to be more efficient in the way they transact business, he said.

“These efficiencies lead to improved profitability for our partners due to reduced frictional costs as well as allowing for faster servicing for the retail agencies and insureds they serve,” Allen said.

“In addition, this new system will give us improved access to data that will in turn enhance the value of future iterations of our predictive modeling.”

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Jerry Prendergast, insurance programs underwriting manager for specialty markets at Munich Reinsurance America Inc., said that in the MGA program space one of the challenges many companies face is the commercial auto line of business.

Over the past few years, the auto business has experienced an increase in claim frequency and severity. Many experts believe the shift is directly correlated with an increase in vehicle usage and distracted driving, Prendergast said.

Insurance companies have responded in a number of ways including exiting the line, re-underwriting a portion of their book of business and/or increasing rates.

“There are opportunities in the auto program space and the companies that will be most successful will be the ones that can differentiate their offerings through product, service or analysis such as predictive analytics,” he said.

The conference also features a Lloyd’s Open House, which will give program administrators the opportunity to meet with syndicate underwriters, said Richard Hodge, a director for Lloyd’s broker Tysers’ North America & International Specialty Division. &

Katie Kuehner-Hebert is a freelance writer based in California. She has more than two decades of journalism experience and expertise in financial writing. She can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Cyber Resilience

No, Seriously. You Need a Comprehensive Cyber Incident Response Plan Before It’s Too Late.

Awareness of cyber risk is increasing, but some companies may be neglecting to prepare adequate response plans that could save them millions. 
By: | June 1, 2018 • 7 min read

To minimize the financial and reputational damage from a cyber attack, it is absolutely critical that businesses have a cyber incident response plan.

“Sadly, not all yet do,” said David Legassick, head of life sciences, tech and cyber, CNA Hardy.

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In the event of a breach, a company must be able to quickly identify and contain the problem, assess the level of impact, communicate internally and externally, recover where possible any lost data or functionality needed to resume business operations and act quickly to manage potential reputational risk.

This can only be achieved with help from the right external experts and the design and practice of a well-honed internal response.

The first step a company must take, said Legassick, is to understand its cyber exposures through asset identification, classification, risk assessment and protection measures, both technological and human.

According to Raf Sanchez, international breach response manager, Beazley, cyber-response plans should be flexible and applicable to a wide range of incidents, “not just a list of consecutive steps.”

They also should bring together key stakeholders and specify end goals.

Jason J. Hogg, CEO, Aon Cyber Solutions

With bad actors becoming increasingly sophisticated and often acting in groups, attack vectors can hit companies from multiple angles simultaneously, meaning a holistic approach is essential, agreed Jason J. Hogg, CEO, Aon Cyber Solutions.

“Collaboration is key — you have to take silos down and work in a cross-functional manner.”

This means assembling a response team including individuals from IT, legal, operations, risk management, HR, finance and the board — each of whom must be well drilled in their responsibilities in the event of a breach.

“You can’t pick your players on the day of the game,” said Hogg. “Response times are critical, so speed and timing are of the essence. You should also have a very clear communication plan to keep the CEO and board of directors informed of recommended courses of action and timing expectations.”

People on the incident response team must have sufficient technical skills and access to critical third parties to be able to make decisions and move to contain incidents fast. Knowledge of the company’s data and network topology is also key, said Legassick.

“Perhaps most important of all,” he added, “is to capture in detail how, when, where and why an incident occurred so there is a feedback loop that ensures each threat makes the cyber defense stronger.”

Cyber insurance can play a key role by providing a range of experts such as forensic analysts to help manage a cyber breach quickly and effectively (as well as PR and legal help). However, the learning process should begin before a breach occurs.

Practice Makes Perfect

“Any incident response plan is only as strong as the practice that goes into it,” explained Mike Peters, vice president, IT, RIMS — who also conducts stress testing through his firm Sentinel Cyber Defense Advisors.

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Unless companies have an ethical hacker or certified information security officer on board who can conduct sophisticated simulated attacks, Peters recommended they hire third-party experts to test their networks for weaknesses, remediate these issues and retest again for vulnerabilities that haven’t been patched or have newly appeared.

“You need to plan for every type of threat that’s out there,” he added.

Hogg agreed that bringing third parties in to conduct tests brings “fresh thinking, best practice and cross-pollination of learnings from testing plans across a multitude of industries and enterprises.”

“Collaboration is key — you have to take silos down and work in a cross-functional manner.” — Jason J. Hogg, CEO, Aon Cyber Solutions

Legassick added that companies should test their plans at least annually, updating procedures whenever there is a significant change in business activity, technology or location.

“As companies expand, cyber security is not always front of mind, but new operations and territories all expose a company to new risks.”

For smaller companies that might not have the resources or the expertise to develop an internal cyber response plan from whole cloth, some carriers offer their own cyber risk resources online.

Evan Fenaroli, an underwriting product manager with the Philadelphia Insurance Companies (PHLY), said his company hosts an eRiskHub, which gives PHLY clients a place to start looking for cyber event response answers.

That includes access to a pool of attorneys who can guide company executives in creating a plan.

“It’s something at the highest level that needs to be a priority,” Fenaroli said. For those just getting started, Fenaroli provided a checklist for consideration:

  • Purchase cyber insurance, read the policy and understand its notice requirements.
  • Work with an attorney to develop a cyber event response plan that you can customize to your business.
  • Identify stakeholders within the company who will own the plan and its execution.
  • Find outside forensics experts that the company can call in an emergency.
  • Identify a public relations expert who can be called in the case of an event that could be leaked to the press or otherwise become newsworthy.

“When all of these things fall into place, the outcome is far better in that there isn’t a panic,” said Fenaroli, who, like others, recommends the plan be tested at least annually.

Cyber’s Physical Threat

With the digital and physical worlds converging due to the rise of the Internet of Things, Hogg reminded companies: “You can’t just test in the virtual world — testing physical end-point security is critical too.”

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How that testing is communicated to underwriters should also be a key focus, said Rich DePiero, head of cyber, North America, Swiss Re Corporate Solutions.

Don’t just report on what went well; it’s far more believable for an underwriter to hear what didn’t go well, he said.

“If I hear a client say it is perfect and then I look at some of the results of the responses to breaches last year, there is a disconnect. Help us understand what you learned and what you worked out. You want things to fail during these incident response tests, because that is how we learn,” he explained.

“Bringing in these outside firms, detailing what they learned and defining roles and responsibilities in the event of an incident is really the best practice, and we are seeing more and more companies do that.”

Support from the Board

Good cyber protection is built around a combination of process, technology, learning and people. While not every cyber incident needs to be reported to the boardroom, senior management has a key role in creating a culture of planning and risk awareness.

David Legassick, head of life sciences, tech and cyber, CNA Hardy

“Cyber is a boardroom risk. If it is not taken seriously at boardroom level, you are more than likely to suffer a network breach,” Legassick said.

However, getting board buy-in or buy-in from the C-suite is not always easy.

“C-suite executives often put off testing crisis plans as they get in the way of the day job. The irony here is obvious given how disruptive an incident can be,” said Sanchez.

“The C-suite must demonstrate its support for incident response planning and that it expects staff at all levels of the organization to play their part in recovering from serious incidents.”

“What these people need from the board is support,” said Jill Salmon, New York-based vice president, head of cyber/tech/MPL, Berkshire Hathaway Specialty Insurance.

“I don’t know that the information security folks are looking for direction from the board as much as they are looking for support from a resources standpoint and a visibility standpoint.

“They’ve got to be aware of what they need and they need to have the money to be able to build it up to that level,” she said.

Without that support, according to Legassick, failure to empower and encourage the IT team to manage cyber threats holistically through integration with the rest of the organization, particularly risk managers, becomes a common mistake.

He also warned that “blame culture” can prevent staff from escalating problems to management in a timely manner.

Collaboration and Communication

Given that cyber incident response truly is a team effort, it is therefore essential that a culture of collaboration, preparation and practice is embedded from the top down.

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One of the biggest tripping points for companies — and an area that has done the most damage from a reputational perspective — is in how quickly and effectively the company communicates to the public in the aftermath of a cyber event.

Salmon said of all the cyber incident response plans she has seen, the companies that have impressed her most are those that have written mock press releases and rehearsed how they are going to respond to the media in the aftermath of an event.

“We have seen so many companies trip up in that regard,” she said. “There have been examples of companies taking too long and then not explaining why it took them so long. It’s like any other crisis — the way that you are communicating it to the public is really important.” &

Antony Ireland is a London-based financial journalist. He can be reached at [email protected] Dan Reynolds is editor-in-chief of Risk & Insurance. He can be reached at [email protected]