Program business — or groupings of commercial insureds with specialized risk needs — is attractive for growth-challenged companies, and the year-after-year increase in program premium in the industry proves it. According to the Target Market Program Administrators Association, from 2010 to 2011, program business saw a 9% increase in premium, and writers of these lines of business are bullish on the prospects ahead.
Program business is also one of those opportunities where carriers can be creative, define a new market segment, and establish a leadership position. Moreover, savvy insurers realize that while getting into a new market is critical, getting out of a failing market is even more important. That's the true beauty of writing program business well – the agility to quickly capture new revenue, while pruning off the unprofitable programs before they start to hemorrhage money. It's the ability to get in quick and get out quick that carriers should strongly consider with program business.
Some carriers may shun program business thinking the blocks of business in niche markets are just too small to justify spending the time and effort to serve them. But, a few million in program premiums here and a few million there – and pretty soon you're talking about real revenue. Additionally, with dismal return on equity in standard P&C over the past five years, carriers might consider looking to program business for its attractive profit potential.
The secret to succeeding in program business comes down to implementing technology that encompasses the essential "3 Cs": Content, Configuration, and Collaboration.
Content drives program business and covers a wide range of information that needs to be part of supporting technology. Content can be rates, rules, and forms. It can be the carrier's own proprietary information or standardized content from industry bureaus. It can be information shared with their insureds that helps reduce loss frequency and severity.
Content is also complex. The more lines of business written and the more niches targeted, the more content the technology platform will need to manage. Content is also constantly changing because of the number of jurisdictions involved in reviewing and approving it. For instance, last year, literally thousands of changes to rates, rules, and forms were needed because of what various industry bureaus promulgated and state regulatory departments mandated.
The ability to maintain and manage this content is essential in the varied and fast-moving world of program business, where the time to make changes needs to be measured in minutes, not months. Even a short delay could make the difference between profit and loss on a book of business. Therefore, the second essential feature of technology is configuration.
At the outset of a program, configuration capabilities allow carriers to create new products using easily modified templates, rather than starting with a blank slate requiring extensive customization. Also, because program business can be low-premium and high-volume, configuration allows processes to be tailored to a particular segment, creating efficient, exception-based, low-touch processing of new business and renewals.
As programs develop, configuration should enable changes in content and processes to be made quickly and as needed, in contrast to legacy systems whose labor-intensive change requirements still force companies to batch up modifications into infrequently scheduled maintenance releases.
Lastly, systems supporting program business must offer a collaborative environment. There are many stakeholders in the life of a program or policy who create content and make decisions. Additionally, carriers that achieve success in program business often build a network of third-party providers to bundle coverages and services, and deliver added value to customers. Having collaboration tools facilitates providers quickly collaborating amongst themselves whenever the need arises, helping create strong, effective partnerships. Ease of use of collaborative tools is also critical, particularly since program business is heavily MGA-driven.
Program business can be challenging. Niches are narrow, policies are smaller, and cycles are shorter. Creating opportunity is only part of the key to success in program business: insurers must also be fast, flexible, agile, and accurate. And, they must have technology that delivers robust content, easy configuration, and powerful collaboration capabilities. Otherwise, those opportunities can disappear as quickly as they came.
About the Author: Bill Budde, CPCU, has led the Insurance divisions for global services providers such as EDS and Patni, and has held roles in actuarial, underwriting, product development, information technology and operations at Zurich, USF&G and has consulted for insurance organizations in more than 40 countries.Bill now leads Instec's revenue and relationships. He and his wife live in Avon, CT.