Program Business: A Little Up Front Review Will Save You Headaches Later

There has been a significant increase in retail brokers looking to program administrators for placement of their business. While this trend has increased, we still hear considerable concern from retail brokers regarding placement of their accounts in this manner. Brokers should be concerned if they haven’t done their due-diligence in researching a program or understanding the benefits brought by the program administrator being considered. There are a few questions you should ask as you consider this route for placing your clients’ insurance.

How knowledgeable is the program administrator of the industry being underwritten? This is likely to be the greatest benefit you and your client will reap, particularly if developed for a homogeneous class of business or industry group. You will want to be sure the program administrator has been involved with the program for a number of years and stays actively involved in the industry being insured.

It is not unusual to find program administrators with 20 or more years of experience. Often, the whole organization is structured around one or more programs and they are considered true experts in marketing and managing business in this fashion. The greatest benefit is the deep understanding of the exposure and the creation of insurance products aimed directly at the business being insured. They will likely uncover exposures and make coverage recommendations you would not consider on your own. Not only will you create a better insurance program for your customer, but you will also protect yourself in the process.

How will policy processing, claims, loss control and premium audit functions be handled? Are these functions performed by the program administrator, the insurance carrier, or a third party administrator? Understand each function and the experience and longevity of the staff performing these functions. These are the individuals who will have direct access to your clients.

What is the expertise of the insurance carrier in terms of program business? Be sure to understand the insurance company or companies that are underwriting the business. Are they experienced at handling and managing program business? Do they write other programs and what is the longevity of the business model? If they have not had an appetite for this approach to insuring business, it can be tricky and something that can be disastrous if not done right. You need only look at the number of players that have exited the program market to understand this point.

Is this a class the insurance carrier understands and is comfortable underwriting? Almost as important as understanding the program business model is understanding the class of business. While an underwriter may not have as much knowledge of the industry as the program administrator, they should be familiar with similar classes and exposures to effectively oversee the work of the program administrator. The insurance carrier may be handling claims, loss control or other important service functions. They are likely to interface directly with your client and you will want to know that they bring value to any exchange.

How solid is the relationship between the program administrator and the insurance carrier? This one may be a bit more difficult to determine, but you can certainly look at the program administrator’s list of carriers and the length that the program has been placed. Frequent movements of carriers should cause concern. It is also a positive sign to see multiple programs with one carrier, as this is typically a sign of a strong relationship. Additional programs are not added if the relationship is strained for any reason. While it is obvious, it bears mentioning that you will want to be sure both the program administrator and the insurance carrier are financially sound.

What are the program results? You will want to understand whether the program has been profitable for the insurance carrier to aid in determining whether what is present in the program will be so in the foreseeable future. If not profitable, you can bet it is being scrutinized heavily by the insurance carrier’s underwriters and changes will follow, often with very little notice. Understand the program penetration into the desired marketplace and if the program has been seeing healthy growth.

Can you get recommendations from other retail brokers who have placed business with this program administrator? I am almost certain most of your clients have asked for, or received recommendations, from other clients regarding the work you do. A program administrator should be able to give you current recommendations from both brokers and clients alike.

Does this effort seem a bit daunting to place an account? Perhaps, but your reputation and retention of your client depends on your most diligent effort.

Terri Moran (previously Clark) is vice president/director of marketing for AIG Program Division, a position she has held for three years. Moran’s 25-year career has included positions in underwriting management, product development, and broker and program management with an emphasis in program business.