Fueled by efficiencies introduced by insurtechs and underwriters’ interest in niche classes, the insurance program business has experienced impressive growth the last few years.
But heavy interest is also forcing program administrators to think outside the box in order to stay competitive.
According to the Target Markets Program Administrators Association (TMPAA) biannual study for 2019, program business has grown 12.8% to $40.5 billion in 2018 from $36.1 billion in 2016.
There has been a 131% increase in program revenues from $17.5 billion in 2010.
“The program business continues to outpace the normal direct commercial market,” said Chris Pesce, president of Maritime Insurance Group, who moderated a panel at the Target Markets 19th Annual Summit in October.
Respondents to this year’s survey, conducted by Advisen, included 194 program administrators and 61 carriers.
Bob Petrelli, president of AmWINS Underwriting Division, said he believes much of the growth stems from carriers realizing they can’t access some pockets of risks efficiently.
“So to do that they need to turn to a managing general agency that has the expertise in that underwriting and the distribution to bring those risks in,” he said. “I think a lot of the larger companies are recognizing that that’s a more efficient model to access certain parts of the market.”
The TMPAA study appears to affirm that sentiment, with 92% of the carriers surveyed saying they plan to expand within the next three years by partnering with either existing or new administrators. Carriers said they plan to expand across most lines of business, particularly in workers’ compensation, professional liability, property, excess/umbrella, and liability.
The program business market has been successful with niche classes, and those have also become highly competitive in recent years, says Jennifer Torneden, head of Aon Programs. Program administrators like Aon are now looking at new spaces where a program would be successful.
“We’ve really moved away from sort of the traditional business models that programs have been built around in the past… we’re looking at getting into these sorts of spaces that no one has an answer for yet,” she said.
She pointed to areas of the gig economy that employ highly professional workers, or untouched segments of the personal auto market such as diplomats working for consulates and driving personal vehicles, as an example. Breaking into new spaces is one of Aon’s goals for its program business, she said.
“All the big stuff has really been taken — it’s grabbed; it’s in the market,” she said. “You can either have a conversation where you’re trading a program with a carrier, or you can really go after sort of the new, new spaces that are happening that have possibly a high risk and less data going along with it.”
The entrance of insurtech into the program business space is helping program administrators serve new, and sometimes riskier, classes because they provide efficiency, Torneden says.
“The technology is highly important to reach high volume costumers because they all want efficiency and they want self-service,” she said.
Insurtechs can also help bring a program to market faster.
“We’re trying to digitize our business right now so we can be more efficient and add more products very quickly,” she said.
The mindset on insurtech in the program space has shifted with 85% of administrators viewing insurtech as “enabling,” the TMPAA survey found. Administrators reporting involvement with insurtech increased from 58% in 2016 to 80% in 2018. Thirty-nine percent of both carriers and administrators surveyed reported being heavily involved with some form of insurtech.
Pesce said that is a shift from when insurtech was first introduced and there was a lot of resistance and scrutiny among administrators in particular.
“The fear of being displaced by insurtech seems to be subsiding, and we’re looking for ways to be innovative. It’s interesting to me that our optimism as program administrators is actually exceeding new carriers’,” Pesce said.
Insurtech has helped startup programs come to life, he noted, and that has been beneficial and profitable in the program space.
‘You can either have a conversation where you’re trading a program with a carrier, or you can really go after sort of the new, new spaces that are happening that have possibly a high risk and less data going along with it.’
Amy Malanaphy, head of MidCorp Programs for Allianz Global Corporate & Specialty, who also participated on the TMPAA panel, said the investment in insurtech can be cost-prohibitive for many smaller program managers, especially when dealing with more complicated and complex products.
“We’re seeing more and more PAs look into it but not necessarily invest in it ultimately,” she said. “But what we see is the ultimate objective is to gain efficiencies and the data mining aspect of it to make better underwriting decisions. That’s what we’re seeing the interest in.”
The TMPAA survey found 13 lines of business are experiencing premium increases, with auto, marine and aviation, property, excess/umbrella, financial and political risk, and management liability being the lines cited by the most respondents.
The percentage of TMPAA respondents who reported an increase in premiums administered rose from 76% in the 2017 poll to 81% in the 2019 survey, the same level reported in the 2012, 2013 and 2015 surveys.
Nearly 80% of respondents said rates decreased for their workers’ compensation business.
Yiana Stavrakis, chief sales officer for Program Specialty Group, said it is not surprising that the pace of rate increases is increasing.
“I don’t think anybody is surprised. Rates have been suppressed for a really long time,” she said.
“Do I think program administrators versus the open market are pressured for rate increases in the same manner? I’m not sure,” Stavrakis said. “I think everybody’s pressured right now in most lines except for [workers’] comp.”
Malanaphy said program business in general is healthier when it comes to getting adequate rate because portfolios are managed by carriers very “tightly and closely.”
“We have the opportunity throughout the life cycle of the program to achieve adequate rate,” she said. “The overall program portfolio you can keep healthier and not have the volatility of rate.”
Pesce said though rates are moving up, it’s hard for everyone in the industry to “get around the headwind of capacity.”
“The operating results deteriorate, and the carriers have to get more rate, yet there’s still so much capacity looking to displace it and come in and that’s a headwind that I don’t see changing anytime soon,” he said.
Torneden said Aon Programs is looking to be a disruptor in the industry to not only make it through the headwinds that come from so much capacity and competition, but also to significantly grow its business. It is launching an Accelerate 2020 initiative for Aon Affinity that will focus on six to seven major elements of the program business it thinks need disrupting.
“Our motto is if we don’t disrupt ourselves, we will be disrupted,” she said. “We are looking at the whole chain and identifying how we can increase our retention … and figure out places that we can disrupt to make it much easier to hold the business we have and grow it.”
She encouraged agents and brokers to bring their program ideas to them.
“They know the market better than we do we; let’s see if there is an opportunity for a partnership,” she said.
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