“We must all hang together or assuredly we will all hang separately.”
– Benjamin Franklin.
Benjamin Franklin’s famous statement during the signing of the Declaration of Independence in 1776 could just as easily be directed to a gathering of program administrators (PAs) 228 years later given the current state of the insurance marketplace.
Nationwide, there are fewer than 1,000 PAs—specialists that derive more than 75 percent of their agency income from commercial programs. Almost all entities possess some level of underwriting and/or binding authority. Unfortunately, changing market conditions and other externalities are making it more difficult for PAs to operate successfully. Below are some of the most significant issues affecting the industry today:
Hard market. The tragic events of Sept. 11 had an unprecedented impact on our industry. Stagger-ing losses severely constricted the market’s capacity to accept risk. Insurers began to terminate or significantly restrict the underwriting authorities granted to PAs. Mature, profitable blocks of program business were either lost or seriously eroded; and carriers under pressure to improve their underwriting profits were forced to critically re-evaluate commission rates and profit sharing arrangements.
The technology “trap.” PAs are deluged with solicitations promoting the latest technological advancements on almost a daily basis—paperless office environments, interactive Web sites, agency automation systems, etc. All promise to radically alter the way business is done. Unfortunately, these revolutionary advancements usually come with a hefty price tag. Choose the wrong one and your substantial financial investment may fail to provide the processing efficiencies you expect.
Distribution channel wear-out. The downside of being a niche market player is that your audience of prospective clients is finite. It is the classic example of the law of diminishing returns: the investment made to promote the same product to the same audience will eventually begin to produce less and less results. In the absence of additional products to sell or alternative distribution channels to utilize, productivity usually stagnates or drops off.
New competition. PAs are finding it more and more difficult to retain the business they spent time and effort developing. Some carriers have begun to abandon the independent agency system in favor of a direct-to-consumer marketing approach. Increasingly, businesses themselves are looking into alternative risk transfer mechanisms (captives, risk purchasing groups, etc.) as a means of reducing their insurance costs.
Thomas Edison once said, “Opportunity is missed by most people because it is dressed in overalls and looks like work.”
We can certainly appreciate Edison’s viewpoint. It took us more than three years of hard work to launch the Target Markets Association, but the the effort was worthwhile. Taken together, we represent one formidable group. It is estimated that these entities control over $24 billion in property/casualty premium. The benefits of such aggregation include:
Market access. Insurance carriers with long-term, program-based business strategies will often affiliate themselves with groups like Target Markets. Member agencies can discuss book transfers and new opportunities with underwriting companies predisposed to this type of business.
As our industry begins its cyclical transition from a hard market to a soft market, more insurers will have renewed interest in program business. These carriers will seek out the associations that provide access to program specialists.
Technological support. Specialized association committees can be used to critically evaluate new systems and report findings to the membership. The association can also leverage the group’s buying power to negotiate reduced pricing from vendors.
Benchmarking. The shared experiences of a homogeneous group of PAs provide many benefits to individual members. Benchmarking studies the various internal procedures and workflows of each organization’s operation and compares it to the level of performance achieved. Practices that yield the best results can then be evaluated and possibly emulated by the organizations within the group.
Cross-selling. Program specialists can increase revenues, expand their portfolio and strengthen the affinity with their target audience by selling other administrators’ products. Similarly, the same entities can increase sales of their own product by utilizing the distribution networks of other PAs.
Networking. Everyone benefits from the exchange of ideas, experiences and exploration of new business opportunities.
Henry Ford noted, “Coming together is a beginning; keeping together is progress; working together is success.”
Isn’t it time for program administrators to heed Henry’s advice?
Glenn W. Clark is the president of Wilmington, Del.-based Rockwood Programs Inc. Clark also launched Target Markets, a nationwide association of PAs.
Topics Market
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