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Specialty program market continues to grow, but new business still a challenge

The program administrator specialty market continues to grow, according to survey results by Guy Carpenter & Company Inc. More than 65 percent of survey respondents estimate the size of the program administrator specialty program market segment at between $20 billion and $40 billion of annual gross written premium.

Though specialty program writers cite new business production as their greatest challenge, prospects for future growth are bright, with 65 percent of survey respondents viewing program market results over the last three years as more profitable than the standard market. More than half of all respondents indicate that they see market conditions remaining consistent through 2007.

“Across the specialty programs segment, we are seeing new opportunities developing, from both existing business and new players entering the market,” said Carl Bach, senior vice president and head of Guy Carpenter’s Program Manager Solutions Specialty Practice. “By providing greater insight into what specialty programs carriers are seeking, where market opportunities are and what program carriers require from their program administrators, we hope to help all participants operate with maximum efficiency as they build their business.”

Key findings

The specialty programs market continues to change and evolve rapidly, with the introduction of new markets, new program administrators and new products, as well as a rise in merger and acquisition activity, an increasing number and variety of third party service providers and more frequent use of non-admitted paper and alternative risk mechanisms. Respondents projected that they will write a total of at least 80 to 100 new programs in 2006.

Specialty program markets are actively seeking profitable new business, as they increase underwriting activity across multiple commercial and personal lines. On the commercial side, all respondents noted an appetite for general liability insurance, with a majority also indicating an appetite for property, inland marine, automobile liability, professional liability and umbrella liability.

The most significant change from 2005 is evidenced in commercial umbrellas, with some 65 percent expressing a willingness to underwrite that line, compared with 52 percent last year.

With respect to personal lines, only 30 percent of respondents indicate a desire to write homeowners, 25 percent indicate an appetite for auto and 10 percent for umbrella.

Regional or national programs

Responding carriers seem to vastly prefer programs that are regional (65 percent) over national (25 percent) and single-state (10 percent) programs. This is a dramatic shift from 2005, when respondents were fairly evenly split, with preferences divided among regional, national and single-state programs. While many carriers continue to feel that their in-house claims departments have the experience and expertise to manage specialty program claims, there appears to be more flexibility with respect to the use of third party administrators. While 40 percent prefer to use their own in-house claims department, 45 percent always use a TPA. Copies are available at www.guycarp.com.

Topics Excess Surplus