Get with the program: how to build a relationship with a carrier and succeed in the program business.

Wholesalers and managing general agents looking to develop a new program relationship are competing in a limited, highly competitive market. Program business is when a managing general underwriting operation quotes, binds and issues policies on behalf of a carrier. Industry experts have estimated that program business represents $20 billion-$40 billion in annual gross written premium.

Adding to the challenge, program carriers typically require an agent to be able to roll over an existing book and furnish evidence of past underwriting experience. If the program is considered a startup, the competition is intensified as the agency may be asking the carrier to make an exception for its program.

Which Scenario Are You?

A startup usually falls into one of five scenarios. They are ranked here in order of least- to most-compelling to a carrier.

(1) "I Have an Idea." Let's say an agency has a concept for a new product or program but has no in-force business. This is the most challenging situation for an agency. The carrier takes the most risk because there's no book of business or underwriting experience to assess. There's only a promise of potential premium.

An agency has several alternatives if it cannot secure a program facility. It may find a carrier who has developed an underwriting box and provides underwriting parameters while reserving the right to sign off on all accounts. While this is not complete underwriting authority and the agency may not be able to issue policies, it is a step in that direction.

(2) "It's New and Improved." Often an agency new underwriter, a new underwriting team, or made an acquisition with program underwriting expertise. This scenario is fairly common as people and agencies move around the industry. Agencies may believe that because they hired an exceptional underwriter, they're qualified to enter a new market segment and even earn underwriting authority. Hiring a team with good bench strength is preferred to an individual player. If the agency has active business and is in need of a new market, acquiring an existing underwriting entity is best.

If it's possible to provide historical underwriting results and the agency provides a strong marketing plan to support its ability to attract new business, a carrier may be intrigued.

(3) "I Know What I Am Doing." This is an agency with a book of in-force specialized accounts that would lend themselves to a program. Some brokerage agencies have developed valid industry expertise and know a good risk from a bad one, despite the fact that they don't have extensive underwriting experience. The agency should tout its technical knowledge, provide an analysis of the in-force book and submit account histories to prove that the book has been profitable.

These opportunities may generate carrier interest, if the premium controlled is significant--$10 million or greater. The challenge is to convince the carrier to commit the resources to develop underwriting parameters and validate the capabilities of the proposed and/or new underwriting team, since the historical underwriting results cannot be directly attributed to the agency.

(4) "I Want More." An agency has program but is looking to add a new coverage or expand into a new territory with no rollover business. When a program is looking to increase its market share with existing accounts by offering additional lines of coverage, this is the typical scenario. The challenge is to obtain credible data on the buying patterns of the insureds and the competitive marketplace. When moving into a new state, the key issue is how confident the MGA is that their experience will track to the in-force book, considering the regulatory/legal environment, market conditions and competitors in the new state.

If the agency has strong underwriting results with its current program business, a carrier may be willing to move ahead with no premium base. The agency should sell the carrier on the strength of its underwriting team and historical results. So it should develop a detailed competitor analysis, a pricing analysis and a marketing plan.

(5) "I Want I Had." This is the agency that had underwriting authority with another market but for various reasons may now be without a market. Some consider this a "rebuild." This agency still may control a portion of the prior book via brokerage placements and still may have marketing clout and contacts.

In this situation, the ability to provide evidence of strong historical underwriting results is key. The challenge is that often the prior program statistics are not currently valid. Thus, it may be difficult to obtain credible historical data. One way to supplement the prior data is to manually pull account-specific historical results and build the account histories from scratch. Gaps in data may be addressed if the future and current data are consistent and both show historic profitability. If the agency has been out of the program arena for a period of time, it is imperative to re-evaluate the competition and market conditions. It's also important for the agency to have a very strong sales/marketing plan that demonstrates the ability to recapture lost accounts. If a portion of the program will be seeded by brokerage accounts, that is a positive.

Whatever scenario best represents your situation, your challenge as an agency in search of a program entails the following key steps:

Challenges

(1) Establish Relationships

Make it a priority to establish relationships with carriers who specialize in program business. Specifically, learn the risk appetite and program requirements of the major program carriers and let them know what you do. Risk appetites and program requirements of carriers do change, so if there's no fit today, there may be tomorrow. If, for example, a carrier decides to pursue a specific risk class in which you may have interest and/or expertise, it may modify the standard. This is a good possibility if a carrier/ MGA relationship is terminated but the carrier wants to continue in the market segment. Conversely, your agency strategy may evolve as you grow and you may add new products/programs to your offerings.

(2) Demonstrates Underwriting Expertise

This is the single most important item to address, since you are asking an insurance company to let you underwrite on its behalf. This is also one area where wholesalers and MGAs may fall short because they either lack underwriting expertise or cannot present a strong case.

Does your agency have in-house underwriting expertise? If you have underwriters on staff with positive insurance company experience, you cleared the first hurdle. Understandably, carriers are biased toward underwriters who have worked for insurance carriers, due to the training and underwriting discipline expected of carriers. Underwriters should update their resumes with a focus on past job responsibilities and insurance technical training.

Have you developed specialized applications, underwriting guidelines and loss control for your new program? Do these underwriting tools have the level of depth needed to demonstrate your ability to select risk appropriately?

If you have underwriting experience in a similar class or for another line of business, you should highlight that experience. For example, if you're writing workers' compensation for restaurants, your underwriters should also be adept at writing the general liability and property. If you are writing country clubs, then you have expertise that can translate to restaurants.

Are you willing to enhance your current underwriting capabilities by hiring additional personnel? Would you be receptive to the carrier reviewing the new hires?

(3) Historical Data Is Key

Carriers prefer to see agency-specific experience data with significant detail over multiple years, generally a minimum of five years. If that is not possible, you may be able to re-create it from account records if your book has been stable over a period of time and/or you obtain credible historical account data as part of your submission requirements. To supplement your experience, you should obtain industry statistics, which may be available from an industry association. Such data should include trends, industry performance standards, loss control and claim scenarios. ISO, Insurance Risk Management Institute and other insurance data sources also can be very helpful, especially if you can target ISO class codes that are a good representation of your industry segment.

Be prepared to address industry "horror stories" of severe but infrequent types of losses in your area, but focus on your underwriting and loss control efforts as well as your results. This is especially critical for industries which have either experienced claim severity or are high profile. Describe the types of claims that can occur and the most common, or frequency-driven, claims as well as your experience with large losses, generally defined as $100,000 or greater.

(4) Market and Industry Data Are Important

Include statistics and key trends affecting the industry in which you specialize. Is the industry segment growing, stagnant or shrinking? Where are the insureds located? Is this segment ripe for consolidation? Are there any legislative, regulatory or environmental concerns, such as toxic mold?

Know the strengths and weaknesses of the major carriers and programs. This is the competition, and you need to show that you understand what it takes to compete in terms of your product and servicing capabilities. Do you feel confident that the market can support a new program? Can you demonstrate there is a need that is not being met? What are your "hooks?" Why would you be considered the preferred market?

(5) Build a Strong Business Plan

When approaching carriers, it's imperative to deliver a crisp yet comprehensive overview of your program proposal. Most program carriers prefer an executive ruminator. This summary should be comparable to an "elevator speech": who, what and why, with very high-level information. The summary should include:

* Agency overview--history; products, production and results

* Biographies--principals and senior program underwriters

* Program overview--lines of business, limits, special coverages, etc.

* Typical account profile--sales, employees, Total Insured Values, Standard Insurance Classifications list class code, etc.

* Why you're seeking a new and/or replacement market

* Critical issue/product requirements.

If you get a spark of interest, request an outline of the carrier's submission checklist and complete the submission promptly. Be up front about any data gaps and be realistic regarding your ability to satisfy the data requests.

Contributor Lois Massa is sales leader for programs at Swiss Re's Commercial Insurance. She can be reached at [e-mail]

* To capture a carrier's attention, provide a program's historical underwriting results and develop a marketing plan to attract new business.

* Analyze the program in-force book and submit histories to prove the business is profitable.

* Develop an underwriting team with good bench strength.

SPECIAL AND UNIQUE:

Managing general agents can help tailor programs to specific situations. For instance, a hotel with a shuttle van has more auto exposure than one not providing that service, An extended-stay hotel and a bed and breakfast also have unique needs. The same applies to a number of businesses and services.