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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

High Net Worth

High Net Worth Clients Live in CAT Zones. Here’s What Their Resiliency Plan Should Include

Having a resiliency plan and practicing it can make all the difference in a disaster.
By: | September 14, 2018 • 7 min read

Packed with state-of-the-art electronics, priceless collections and high-end furnishings, and situated in scenic, often remote locations, the dwellings of high net worth individuals and families pose particular challenges when it comes to disaster resiliency. But help is on the way.

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Armed with loss data, innovative new programs, technological advances, and a growing army of niche service-providers aimed at addressing an astonishingly diverse set of risks, insurers are increasingly determined to not just insure against their high net worth clients’ losses, but to prevent them.

Insurers have long been proactive in risk mitigation, but increasingly, after the recent surge in wildfire and storm losses, insureds are now, too.

“Before, insurance was considered the only step in risk management. Now, our client families realize it is one of the many imperative steps in an effective risk management strategy,” said Laura Sherman, founding partner at Baldwin Krystyn Sherman Partners.

And especially in the high net worth space, preventing that loss is vastly preferable to a payout, for insurers and insureds alike.

“If insurers can preserve even one house that’s 10 or 20 or 40 million dollars … whatever they have spent in a year is money well spent. Plus they’ve saved this important asset for the client,” said Bruce Gendelman, chairman and founder Bruce Gendelman Insurance Services.

High Net Worth Vulnerabilities

Laura Sherman, founding partner, Baldwin Krystyn Sherman Partners

As the number and size of luxury homes built in vulnerable areas has increased, so has the frequency and magnitude of extreme weather events, including hurricanes, harsh cold and winter storms, and wildfires.

“There is a growing desire to inhabit this riskier terrain,” said Jason Metzger, SVP Risk Management, PURE group of insurance companies. “In the western states alone, a little over a million homes are highly vulnerable to wildfires because of their proximity to forests that are fuller of fuel than they have been in years past.”

Such homes are often filled with expensive artwork and collections, from fine wine to rare books to couture to automobiles, each presenting unique challenges. The homes themselves present other vulnerabilities.

“Larger, more sophisticated homes are bristling with more technology than ever,” said Stephen Poux, SVP and head of Risk Management Services and Loss Prevention for AIG’s Private Client Group.

“A lightning strike can trash every electronic in the home.”

Niche Service Providers

A variety of niche service providers are stepping forward to help.

Secure facilities provide hurricane-proof, wildfire-proof off-site storage for artwork, antiques, and all manner of collectibles for seasonal or rotating storage, as well as ahead of impending disasters.

Other companies help manage such collections — a substantial challenge anytime, but especially during a crisis.

“Knowing where it is, is a huge part of mitigating the risk,” said Eric Kahan, founder of Collector Systems, a cloud-based collection management company that allows collectors to monitor their collections during loans to museums, transit between homes, or evacuation to secure storage.

“Before, insurance was considered the only step in risk management. Now, our client families realize it is one of the many imperative steps in an effective risk management strategy.” — Laura Sherman, founding partner, Baldwin Krystyn Sherman Partners

Insurers also employ specialists in-house. AIG employs four art curators who advise clients on how to protect and preserve their art collections.

Perhaps the best known and most striking example of this kind of direct insurer involvement are the fire teams insurers retain or employ to monitor fires and even spray retardant or water on threatened properties.

High-Level Service for High Net Worth

All high net worth carriers have programs that leverage expertise, loss data, and relationships with vendors to help clients avoid and recover from losses, employing the highest levels of customer service to accomplish this as unobtrusively as possible.

“What allows you to do your job best is when you develop that relationship with a client, where it’s the same people that are interacting with them on every front for their risk management,” said Steve Bitterman, chief risk services officer for Vault Insurance.

Site visits are an essential first step, allowing insurers to assess risks, make recommendations to reduce them, and establish plans in the event of a disaster.

“When you’re in a catastrophic situation, it’s high stress, time is of the essence, and people forget things,” said Sherman. “Having a written plan in place is paramount to success.”

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Another important component is knowing who will execute that plan in homes that are often unoccupied.

Domestic staff may lack the knowledge or authority to protect the homeowner’s assets, and during a disaster may be distracted dealing with threats to their own homes and families. Adequate planning includes ensuring that whoever is responsible has the training and authority to execute the plan.

Evaluating New Technology

Insurers use technologies like GPS and satellite imagery to determine which homes are directly threatened by storms or wildfires. They also assess and vet technologies that can be implemented by homeowners, from impact glass to alarm and monitoring systems, to more obscure but potentially more important options.

AIG’s Poux recommends two types of vents that mitigate important, and unexpected risks.

“There’s a fantastic technology called Smart Vent, which allows water to flow in and out of the foundation,” Poux said. “… The weight of water outside a foundation can push a foundation wall in. If you equalize that water inside and out at the same level, you negate that.”

Another wildfire risk — embers getting sucked into the attic — is, according to Poux, “typically the greatest cause of the destruction of homes.” But, he said, “Special ember-resisting venting, like Brandguard Vents, can remove that exposure altogether.”

Building Smart

Many disaster resiliency technologies can be applied at any time, but often the cost is fractional if implemented during initial construction. AIG’s Smart Build is a free program for new or remodeled homes that evolved out of AIG’s construction insurance programs.

Previously available only to homes valued at $5 million and up, Smart Build recently expanded to include homes of $1 million and up. Roughly 100 homes are enrolled, with an average value of $13 million.

“In the high net worth space, sometimes it takes longer potentially to recover, simply because there are limited contractors available to do specialty work.” — Curt Goetsch, head of underwriting, Private Client Group, Ironshore

“We know what goes wrong in high net worth homes,” said Poux, citing AIG’s decades of loss data.

“We’re incenting our client and by proxy their builder, their architects and their broker, to give us a seat at the design table. … That enables us to help tweak the architectural plans in ways that are very easy to do with a pencil, as opposed to after a home is built.”

Poux cites a remote ranch property in Texas.

Curt Goetsch, head of underwriting, Private Client Group, Ironshore

“The client was rebuilding a home but also installing new roads and grading and driveways. … The property was very far from the fire department and there wasn’t any available water on the property.”

Poux’s team was able to recommend underground water storage tanks, something that would have been prohibitively expensive after construction.

“But if the ground is open and you’ve got heavy equipment, it’s a relatively minor additional expense.”

Homes that graduate from the Smart Build program may be eligible for preferred pricing due to their added resilience, Poux said.

Recovery from Loss

A major component of disaster resiliency is still recovery from loss, and preparation is key to the prompt service expected by homeowners paying six- or seven-figure premiums.

Before Irma, PURE sent contact information for pre-assigned claim adjusters to insureds in the storm’s direct path.

“In the high net worth space, sometimes it takes longer potentially to recover, simply because there are limited contractors available to do specialty work,” said Curt Goetsch, head of underwriting for Ironshore’s Private Client Group.

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“If you’ve got custom construction or imported materials in your house, you’re not going to go down the street and just find somebody that can do that kind of work, or has those materials in stock.”

In the wake of disaster, even basic services can be scarce.

“Our claims and risk management departments have to work together in advance of the storm,” said Bitterman, “to have contractors and restoration companies and tarp and board services that are going to respond to our company’s clients, that will commit resources to us.”

And while local agents’ connections can be invaluable, Goetsch sees insurers taking more of that responsibility from the agent, to at least get the claim started.

“When there is a disaster, the agency’s staff may have to deal with personal losses,” Goetsch said. &

Jon McGoran is a novelist and magazine editor based outside of Philadelphia. He can be reached at [email protected]