Agents who use an organized, straightforward method when submitting program business to market will benefit by gaining faster response times from carriers and the potential to create new programs.
Kenneth Robinette, of Bellingham Underwriters Inc., a commercial underwriting management firm located in Bellingham, Wash., knows this from experience.
Robinette, who has been in the program business since 1983, said that for the most part, the methodology for submitting program business to market has been the same for years. It was as simple as sending the proposal to the carrier, waiting, and then working with the carrier on the details.
This year, he decided to make a change in the way his firm submits program business. He shared his experience at the recent Target Markets Program Administrators Association meeting in Scottsdale, Ariz.
Program Submission Process
Robinette submitted the same program to four carriers and advised each of the group submission. He required due diligence be performed within 60 days and gave the carriers criteria on how each would be evaluated. “None…had an objection to it,” Robinette said.
He was surprised at how quickly the carriers responded. “The speed at which we got activity was remarkably quicker,” he said. In fact, it took just 40 days from inception to decision-making.
Using a scorecard, he graded the carriers on several criteria, including:
- Financial strength;
- Underwriting philosophy;
- Potential overlaps with other programs or carrier products;
- Acceptance of National Claims Management as third party administrator on the program;
- Acceptance of existing expense and profit sharing structure of the program;
- Excess limits capacity;
- Data and accounting interface;
- Able to support program expansion; and
- Fair general agent contract terms.
Ideally, an agent should avoid overlap and look for a carrier that doesn’t do the same thing, Robinette said. “You need to find a carrier that doesn’t do what you are doing.”
Robinette also recommended reviewing a carrier’s structure and management style. “Is the carrier layered with referral requirements and authority limitations or can you deal directly with individuals who have decision-making authority?” he asked.
In addition, an agency should consider whether the carrier has a coordinated team structure that enables a program manager to solve problems that may arise, Robinette said. The ideal is to have one contact at the carrier that will take the issues and address them within its own internal departments.
Robinette recommended making sure the general agency (GA) contract contains reasonable terms. “Request a copy of the GA contract,” Robinette said. “Don’t wait until you’ve done the deal.” Some contracts make the GA responsible for everything, no matter what.
Robinette outlined potential problem areas within a contract:
- Audit/deductible collection guidelines;
- Financial statements;
- Ownership of books and records;
- Premium payment guidelines;
- Reciprocal intellectual property rules;
- Reciprocal indemnification language;
- Limited termination for cause conditions;
- Program run-off after termination;
- Compensation/profit-sharing calculation; and
- Carrier’s right to amend underwriting guidelines without notice.
A carrier’s actuarial staff can also be a source of conflict, Robinette said.
“As a general rule, actuaries are trained in loss modeling and book forecasting of an ultimate loss,” he said. Rates are either sufficient or insufficient. If insufficient, the actuary will provide a figure; for example, a 4 percent rate increase. But the number is useless, according to Robinette, since they can’t provide guidance on how to change the existing underwriting plan.
“They are not used to thinking on a transactional level,” he said. Often, the solution may not involve a rate increase, but rather changes in the selection process, Robinette said.
Though the remaining carriers were disappointed with Bellingham’s decision to place the business with the fourth carrier, their overall reaction to the submission process was good. Each wanted to know where the other markets performed better, Robinette said. In addition, all expressed an interest in doing future business with Bellingham. As a result of the modified submission process, he said new programs were created and placed with two of the carriers and a third is in the works.
“The process enabled me to replace my program very rapidly,” Robinette said. “I didn’t think I’d have two new programs as a result of this process.”
In order to attract a carrier’s attention, Robinette said an agency needs to have certain elements in place.
According to Robinette, administratively an agency’s must have the ability to handle the process, including claims, audits, accounting and rate filings. Data collection and transfer are important, as is the premium collection and remittance process. Insurers put great emphasis on well-defined privacy (Fair Credit Reporting Act) practices, Robinette said, which relates to an agency’s agreement not to sell private information.
Carriers also want to see an underwriting plan that demonstrates an agency’s ability to earn the carrier a profit. Robinette recommended providing the carrier with criteria identifying the lines of coverage, limits required by line, deductible levels, if any, states and territories, and an outline of acceptable and unacceptable classes. In addition, detailed rating and selection criteria should be submitted, along with a projected loss ratio plan.
The financial/legal status element relates to an agency proving its legitimacy, Robinette said. This can be accomplished by providing a minimum of six months of financial documentation showing agency profit and retainer.
The final element touches upon an agency’s marketing capabilities. “Most carriers want a stand-alone product,” Robinette said. “If you can’t do it, have an answer in place. Make certain you give them an answer to everything. You need to demonstrate the ability to answer all of the carrier’s needs.”