Program Business

A Focused Approach

The program business is growing and prices are firming.
By: | October 15, 2013 • 7 min read

After a decade or so of softening prices, it looks like the tides are finally turning in the program administrator market. To be clear, nobody is ready to declare the current program administrator market a hard one, but it is decidedly firming, industry watchers agreed.

“It’s certainly not a soft market, but it’s not a hard market either,” said David Springer, president and COO of the NIP Group Inc. of Woodbridge, N.J., and current president of industry trade association Target Markets Program Administrators Association (TMPAA), based in Wilmington, Del.

“Because of our singular focus on specific industries, we’re able to identify and adapt to changes more quickly and understand what our clients are facing,” added Springer, whose firm provides custom insurance solutions to individual industries at a retail and wholesale level.

Looking at the overall market for program administrators, Springer said: “The market continues to be strong. There continues to be new entrants. There’s plenty of risk-based capital to support program growth and expansion, and I can’t think of anything that will change that condition right now.”

Jeremy Hitzig, New York-based CEO of Distinguished Program Group LLC and most recent past president of TMPAA, agreed with Springer’s industry outlook. “I don’t think it’s what anybody would call a hard market; it’s just a firming market,” he said.

Hitzig, whose firm specializes in the hospitality and real estate markets, from condominiums and apartment buildings to hotels, resorts and casinos, said: “I think that’s probably a healthy thing for the industry, and especially for the insurance companies. I think it’s anybody’s guess where things will go from here. I don’t see any particular catalyst for a hard market. On the other hand, however, I think what’s going on is likely to continue.”

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Added Steve Eginore, chairman and CEO of Lockton Affinity LLC based in Kansas City, Mo.: “Overall, I would say the program administrator market is firming but it depends largely on the line and class of business you’re in. Workers’ comp in most states, for example, seems to be very firm. On the other end of the spectrum, professional liability is still very competitive with lots of new capacity entering the market all the time.”

Boston-based Sanjay Godhwani, executive vice president, Property and Programs at Berkshire Hathaway Specialty Insurance, underscored another trend taking place in the program administrator space: consolidation.

“Brokers in general, and in some cases carriers, are trying to find the most efficient way to transact small business so that they are able to do this profitably,” Godhwani said.

“Insurance companies are struggling with this and are looking for brokers/program administrators that have been able to prove that they can process and underwrite this business efficiently and realize a profit.”

Roger Brunner, Omaha, Neb.-based head of programs for Zurich North America, agreed that there certainly has been increased consolidation in the program administrator space.

“Just last July, Brown & Brown purchased Beecher Carlson,” he said. “With this acquisition, Brown & Brown’s Arrowhead unit subsumed Beecher Carlson’s program administrator business. That’s one example of a macro consolidation.”

Overall the program administrator market is a dynamic one, Brunner said. “There are more and more new program administrators that are actively working to start up new programs.”

Long-term relationships

Godhwani said an important challenge in the program administrator space is that both carriers and brokers looking to transact this business should be concentrating on doing it more efficiently.

“I think it’s about both the carrier and the program administrator looking for a long-term relationship,” he said. “A profitable P&L over a long period of time supports the relationship.”

John Willemsen, vice president, Specialty Markets at Munich Reinsurance America Inc. based in Princeton, N.J., noted that profitability for the first six months of 2013 has been good, given the upward pricing trend and what is so far a light hurricane season. “We have continued to grow modestly, organically and inorganically,” Willemsen said. “We’ve also added a few new programs with existing partners and a couple of new program administrators to our portfolio.”

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The last industry survey produced by TMPAA, published last fall, pegged the program business market at $24.7 billion in gross written premium, up from $22.6 billion in 2010. The 2010 market figure was revised to reflect the higher level of response in the survey and research completed in 2012.

Premium revenues increased 5 percent. Program administrators reported an 84 percent renewal rate in 2012, unchanged from 2011. The survey identified about 950 program administrators administering an estimated 2,000 individual programs.

Said Ray Scotto, executive director of TMPAA, “I can tell you anecdotally that given the growing size of our association, which focuses on nothing but program administrators, our market is still a growing and healthy part of the industry. We have almost 270 program administrators in the association [out of 950 in the marketplace] and another 55 carriers and 75 vendors who focus on this industry segment.”

“There are a lot of family businesses, [like stray] cats and dogs out there, that are ultimately going to be ripe for acquisition because of succession issues, among others.”

—James Blinn, executive vice president, Advisen Ltd.

Hitzig and others see a noticeable uptick in interest by equity investors in the industry. “It does speak to the health of the industry,” he said.

“I think there’s an opportunity to consolidate some of the smaller and fragmented players in the space,” Hitzig added. “Some of this is going on now, but my expectation is that’s going to increase quite a bit in the coming years.”

James Blinn, New York-based executive vice president of Advisen Ltd., which conducts surveys for TMPAA, said that one of the larger trends in the program administrator space is that “there are a lot of family businesses, [like stray] cats and dogs out there, that are ultimately going to be ripe for acquisition because of succession issues, among others.”

Diversifying offerings

Another trend taking place in the program administrator space is the growing role of diversification, said Glenn Clark, CEO and president of Rockwood Programs Inc.

“A lot of program administrators are adding risk management services to create a deeper relationship with their clients rather than just selling them insurance,” said Clark.

“Some insurers are adding elements of self-insurance, such as ‘I can do your claims for you,’ or ‘I can do your cash flow for you.’ ”

Another program administrator that has been ambitiously expanding in the past couple of years is Minneapolis-based ProHost USA, which serves restaurants, bars and nightclubs.

President Heidi Strommen said, “At present we are mainly focused on value-added coverages on our existing program.

“For example, we just introduced a data breach endorsement. We had been offering some cyber coverage on a stand-alone separate policy basis but now we actually have an endorsement to our admitted restaurant package in an easy-to-answer five questions instead of a big application.”

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Strommen noted that the coverage includes the services of a data breach specialist that will help mitigate and manage the crisis should a data breach occur.

“That’s a big issue for a lot of businesses, certainly including restaurants, because of their exposures related to point-of-sale systems, use of credit card information and that type of thing,” Strommen said.

She said that privately held ProHost, which operates on a nationwide basis and writes premiums in 41 states, is also working on a similar endorsement for employment practices liability that the company hopes to introduce by the beginning of next year.

“This will be part of our package policy by endorsement, subject to a sublimit,” Strommen said. “The EPL endorsement will give employers some basic coverages for employment practices liability. It will include third-party coverage, which is key to restaurants.”

Last spring, Strommen was the chair for a new venture at TMPAA: a women’s initiative that was kicked off at the group’s mid-year meeting. “There was a terrific turnout, over 70 women attended. I think the trend we’re seeing come out of this is that there’s a lot of interest among program administrators in bringing more female leadership specifically into the program segment.”

Program administrators are also actively exploring the social media and web space.

“I would say,” said Lockton Affinity’s Eginore, “like with all other businesses, social media is a marketing and distribution channel that can’t be overlooked by program administrators. Digital media from our perspective will become the next dominant channel — probably sooner than we think.”

When it comes to advice for people just getting started in the program administrator business, Zurich’s Brunner had three suggestions.

First, have a clear understanding of your business model and why this model best meets the needs of the customer and stakeholders. Second, be focused on how you will successfully work with an insurance company partner. Third, have fun!

Added NIP’s Springer: “I think the program administrator space is still an expanding distribution channel. I don’t think anyone is leaving it, but there are no shortcuts. There’s always room for smart people to identify niches within existing industries, let alone creating more capacity in emerging industries.”

Steve Yahn was a freelance writer based in New York. He had more than 40 years of financial reporting and editing experience. Comments can be directed to [email protected]

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The R&I Editorial Team can be reached at [email protected]