The financial performance of commercial property/casualty insurance program administrators continued to outpace the performance of the overall property/casualty insurance markets, according to a recent study.
Program business premium jumped 11.7 percent in 2016 reaching $36.1 billion for the sector, up from $32.3 billion in 2014, according to the study “The State of the Program Business,” published by the Target Markets Program Administrators Association (TMPAA).
Released at its annual summit in Scottsdale, Ariz., in October 2017, the TMPAA study identifies the size, characteristics, growth and other baseline information about the program insurance market.
Since the launch of the first TMPAA study seven years ago, the program insurance market has more than doubled in size (a 106 percent increase), the report said. The first study reported $17.5 billion in commercial insurance premium in 2010.
The TMPAA defines program business as insurance products targeted to a particular niche market or class of business, generally representing a book of similar risks placed with one carrier. Program administration includes product marketing, underwriting selection, binding, issuing, and may also include billing, premium collections, data gathering, claims management/loss control and risk sharing. Specialists distribute these programs on a retail, wholesale or direct basis.
The program business market is growing more quickly than the overall commercial insurance marketplace, according to the study.
While the size of program business rose 5.3 percent between 2015 and 2016, the growth in direct premiums written for commercial lines increased by only 1.3 percent during that same time period, the report said.
“Despite facing challenges in the areas of technology, the soft market, data collection, recruitment, consolidation, and increasing competition players in the program administration industry continued to report strong growth,” the study said. “Both administrators and carriers remain bullish on the industry’s future. They are in agreement that the program space will continue to be a strong market especially if they address areas that need improvement,” the study said.
“The specialization of program business continues to drive results that outpace the market,” said Chris Pesce, TMPAA’s president-elect and CEO of Maritime General Agency, “Entrepreneurial program administrators are poised to take advantage of opportunities created by leveraging technology, increased use of data analytics and exploiting new program niches.”
Mergers and Acquisitions
The number of insurance programs remained constant with approximately 2,100 programs and 1,000 program administrators despite significant mergers and acquisitions activity in the segment.
Almost half (45 percent) of the administrators polled are looking to acquire other firms in the near future, the study revealed. The larger administrators responding to the survey reported a greater tendency to acquire other program administrators than smaller firms. The current state of high valuations of insurance organizations are impacting acquisition activity, the report said. Some 18 percent of administrators polled said current valuations are preventing them from successfully acquiring.
Carriers have their eye on continuing to grow revenues through programs as well. Some 21 percent of the carriers surveyed plan to grow their program business book by acquiring program administrators.
Data and Predictive Modeling
The study reports that data collection and analysis continue to garner increasing interest among program administrators. Some 37 percent of the program administrators responding to the survey reported engaging in predictive modeling in 2016, which is up from only 26 percent in 2014. Only 26 percent of administrators polled see predictive modeling as extremely important to their underwriting strategy.
Some 31 percent of those polled said they saw a positive change in program profitability when asked about the impact of predictive models.
Take-up rates for cyber coverage remain relatively low in the program business sector. However, 42 percent of program administrators reported now offering cyber coverage. Of those responding to the survey, 14.7 percent offer cyber in base coverage, while 28 percent offered cyber as an optional endorsement.
Some 75 percent of the carriers surveyed offer their program administrators optional cyber cover to add to their program packages for a charge. “Offering adequate coverage to mitigate potential cyber losses is a growing challenge among administrators,” the study said.
Apart from cyber, the industry is also studying other emerging areas including drones, autonomous vehicles, and cannabis.
About the Study
The 2017 study is the sixth in a series of annual surveys of program administrators and carriers to track trends in the program business. The study was sponsored by Allied World, Ironshore, NetRate Systems and Allianz, and analyzed by the research firm Advisen. More than 200 program administrators and program carriers participated. Additional analysis was drawn from the Advisen databases of retail and wholesale brokers, underwriters and managing general agents.
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