How to Develop Program Business Despite Tough Market Standards

By Tom Harms | December 1, 2003

Over the past several years, launching new insurance programs—both from the perspective of potential producers (MGAs, retail agent groups, and wholesalers) and the specialty insurance carriers—has been difficult. The hardening of the insurance market in late 2000 is still with us and has continued to affect various market segments.

• Independent agents and brokers had to do all they could to place their clients’ primary business, let alone think about new revenue streams and programs for specialized books of business.
• With capacity restrictions, and even pullouts, MGAs have had their hands full just maintaining and administering their existing programs.
• Wholesalers, always a source for new program development, were similarly challenged by every-day business volume and capacity issues.
• And lastly, many program divisions and specialty carriers struggled with their own capacity challenges, reinsurance woes, and shortages of underwriting and actuarial staff to evaluate new program opportunities.

There have been big changes in the program marketplace over time, both in the way programs were underwritten and how they were defined. Years ago, many programs were underwritten by field offices and line underwriters. It wasn’t unusual for a program to be more generic than specific, and be open to risks, classes and exposures over a very wide spectrum. Programs of this type were often very difficult, if not impossible, to control.

In today’s market things have changed. Specialty programs are now underwritten by designated program divisions within standard lines companies, or by separate specialty carriers. The definition of a program in today’s market is a book of controlled business that has a very narrow focus in a specialized industry or class. They are underwritten and managed by an MGA or other administrator who are considered authorities in their particular industry segment, and their program will usually represent the majority of their revenue. Assumption of some of the underwriting risk is more the norm, and alternative risk structures have grown in popularity.

In a nutshell, the ideal situation for a ‘partnership’ between an MGA and a specialty carrier occurs when the MGA can deliver expertise on a unique specialty class, strong administrative capabilities, and a controlled book of profitable business to a carrier wishing to enter the class, but lacking the specific expertise or resources to do so. The carriers underwrite the MGA, along with the business, and rely on the MGA’s expertise to expand the company’s product lines.

At this point you may be thinking that you have a program that fits this description, or you may be in the position of having to re-market an existing program. Your next question may be “How do I identify the key specialty program markets, and how are these programs put together?” Here are some ideas.

Strategies for program marketing
The current hard market environment is one of the reasons that both potential producers and the carriers themselves often tap into additional resources, such as facultative reinsurance intermediaries, for assistance. Facultative reinsurance brokers can often guide and streamline the development process. More importantly, their familiarity with hundreds of carriers and reinsurers provides important insight into the marketplace in general, and the likes and dislikes of the carriers and individuals targeting specialty program business in particular.

Another benefit to this approach is the fact that the intermediary will be very familiar with the proposal and can quickly approach reinsurance markets, should the carrier wish to buy reinsurance.

There are many companies in this market that consider solid program opportunities. If this is an area you want to pursue, you must come to the table armed with the knowledge of what will fly and what won’t. You must also have access to the information and the resources to create a game plan and proposal that will present your proposal in the best possible format. In the real estate world it may be ‘all about location,’ but in the specialty insurance world, it’s ‘all about information,’ and lots of it.

Importance of knowing your audience
With the contraction and increased marketing activity in the program market, to be successful you must understand a potential carrier’s appetite for classes and risk. On the other hand, it’s also important to identify carriers that already have programs similar to the one that you’re offering. Carriers normally work with MGAs on an exclusive basis. If they have a similar program already in place, they won’t consider yours. This market intelligence will help you to save time and ensure you’re starting off with the best potential carriers for your particular program.

Rollover programs. Most program markets are only willing to consider the rollover of existing programs, and are much less likely to consider “start up” programs. We have seen several interesting new concepts that have gone unplaced for this reason. Carriers spend a great deal of resources to underwrite a program. Beyond the basic underwriting, there are many other due diligence steps that must be completed. These include file reviews, actuarial studies, claims audits, financial reviews, background checks, systems reviews and the like. New programs usually will not have a track record and this makes it difficult for the carrier to review its prior performance and future potential.

Given the time and expense required to underwrite the proposal, many carriers require a premium threshold to consider a program. This varies by carrier and can range from a low of $5 million to as much as $15 million or more.

New programs. While much more difficult, the successful placement of a new program or concept is still possible. However, it will require much more homework on your part. Assuming you have an idea that is truly unusual, and if you can build a logical case for growth and profitability, it may be possible to make a convincing argument for a carrier to take an interest. Short of having prior loss experience there may be other ways to determine the true exposure and allow an underwriter to price it. Reaching an agreement with a carrier on the concept, and proving that a potential product is “hot,” has considerable upside potential, and will sell, is critical when dealing with true, start up programs.

Who do you approach?
In either of these scenarios, consider reaching out to a program development resource that can help you to identify prospective carriers, or help you in structuring and presenting your proposal. As a reinsurance intermediary, I hear lots of stories, every single day, about who’s writing what, as well as the “whys” and the “why nots.” I also occasionally hear cases where the progress of a program’s marketing stalls because the MGA is finding it difficult to identify the right carrier for their proposal. If you’re unsure about potential carriers, look for some help to identify the markets that are the best fit for your program.

Due to the volume of business being considered by each of these program carriers, your proposal must immediately present the compelling reasons why the company should consider your proposal rather than the stack of other deals they’re already looking at. Remember that most program underwriters are inundated with submissions and have the luxury of being very selective on what they’ll pursue. If your proposal has a lot of positives, say it quickly, and emphatically, in the opening paragraph of your executive summary. In order to have a chance for success, a proposal must quickly catch the attention and interest of the underwriter. Well written, to-the-point proposals rarely run the risk of winding up as a doorstop.

As someone who has assisted MGAs in program development for the last 15 years, I can attest to the importance of emphasizing the specific, individual merits of each program. If you have a talented, experienced staff and your proposal offers real potential for underwriting growth and profit you must say so right up front.

Key points to be covered should include the following:

Producer/MGA expertise. Specialty carriers look for producers and MGAs that are experts in the class, and have the endorsement and support of associations or trade groups and/or have the respect and support of the buyers of the product. The MGA should be able to demonstrate that they have both the underwriting and marketing savvy to deliver positive, profitable results.

Risk. These days, the producer/MGA should be able to demonstrate the willingness and ability to take some portion of the underwriting risk. Many carriers look for the producer/MGA to take a portion of the downside risk in some form. This may be as simple as a commission swing tied to profitability, or more involved structures, such as an agency rent-a-captive cell or other retention vehicle.

Competitive edge. Your chances of success will be enhanced if the class of business or the coverage is truly unique, with limited competition. There may be other reasons why the competition will be limited. You may have a unique distribution system, territorial exclusivity or an association endorsement. If this is the case, it should be emphasized in the proposal cover letter, and again, in the proposal itself.

Controls. Remember that producers who control related lines of business that enhance their control of the program under consideration have a distinct edge. Examples of this are bonds for contractors, or other difficult supporting lines. MGAs who control multiple lines of coverage usually have an edge over mono-line product providers.

Back room. The producer/MGA must be able to demonstrate that they are capable of administering the program. Program markets need to be assured that the producer has the staff and the systems to smoothly and correctly administer the marketing, underwriting, policy administration, statistical reporting, compliance, claims oversight, etc. Many deals that make sense from a risk standpoint have not been successful due to the lack of back room systems and capabilities.

Preparing a winning proposal
Your program proposal is a very important calling card. It must include all the relevant details, in a logical sequence, without overwhelming the carrier with extraneous information. Professionalism and polish are important. The proposal must be well organized, well written and appeal to a wide range of individuals within the company, not just the underwriter. At some point along the way other divisions, such as claims, accounting, legal, compliance, IT, etc., will be called on to review your proposal. You should anticipate this and tailor your proposal accordingly.

The proposal outline
Executive summary. This opening section should set the groundwork for the rest of the proposal. It should state who you are, what the program encompasses, your goals and objectives, along with the history of your company and the program you’re offering. It should include an overview of how you intend to distribute the product, the strong points about your organization, and why you think the program will succeed. This is a very important section. Make your key points here, there’s no guarantee you’ll get another chance later.

Additional sections required:
• History of the program
• Market overview
• Program structure
• Premium estimates
• Distribution network
• Geographic scope
• Carrier requirements
• Producer and support staff’s underwrit ing expertise
• Competitive analysis
• Loss experience
• Projected expenses
• Underwriting guidelines
• Sample applications
• Administrative responsibilities and capabilities.
• Proposal summary

The current market, though still feeling the effects of the hard market, is still actively pursuing program opportunities. Many of the specialty carriers view the program market as a way of writing new business, through tried and true sources, on an unbundled basis, at a lower expense factor.

Good proposals and profitable programs will always work their way to the top of the pile. If you are confident you have the resources to handle all of the underwriting and administrative aspects, the information provided will result in a successful program placement.

Tom Harms is senior vice president, program department at Aon Specialty Re. He can be reached at

Was this article valuable?

Here are more articles you may enjoy.

From This Issue

Insurance Journal West December 1, 2003
December 1, 2003
Insurance Journal West Magazine

2003 Program Directory, Vol. I