Opinion: Nonadmitted Vs. Admitted--The Choice Is Clear
By SUSAN PRESTON, owner of Novato, Calif.-based Professional Program Insurance Brokerage
In this rapidly changing world, it makes no sense to offer any program on an admitted basis. Yet the prevailing wisdom among the United States insurance market is that admitted business is the way to go in this soft market This thinking might be why most carriers and insurance brokers are not well set up to be program managers.
Many industries are changing at the speed of light these days. Anyone who specializes in them must be able to change applications, rates and endorsements at a moment's notice. Those carriers that are filed on an admitted basis in 51 jurisdictions simply cannot do this. By the time they have anything new filed, the needs of the clients may have changed, assuming the industry keeps current with the times. If the industry being insured is static, it may not survive much longer. Businesses must reinvent themselves on a regular basis, or face the threat of becoming obsolete.
As insurance people, if we aspire to offer a program for a dynamic industry, endorsements and applications must be fluid. Few companies in the U.S. market are nimble enough to change. This is why many companies choose to use ACORD applications and standard policy forms and wordings.
One of the reasons for the lack of innovation in the insurance industry is the dearth of young people, minorities and women. Without the use of talent across the age, sex and ethnic spectrums, carriers and program managers lack the range of viewpoints in the worlds we seek to insure. This is not a problem if the industry being insured is static or is readily understood, but innovation may be lost without varied input in emerging or volatile markets.
The largest brokers have always had people who specialize in the industries they insure and who understand all of the risk options available. As more smaller and midsize brokers aspire to specialize and become program managers, they must also open their minds. True program managers must be prepared to design their own applications and wordings that target the specific issues and concerns of their insureds. If a company or a broker does not feel comfortable writing manuscript endorsements and thinking out applications geared specifically to the industry being insured, they are better off in the admitted marketplace.
Take an example: At a meeting with a broker who was looking for a home for a trucking program, we asked him what endorsements he was looking for. He said he would look to the carrier to provide this. At that point in time, we knew this broker thought like a salesperson who assumes coverages offered to clients will be on standard forms and endorsements that already exist. This way of thinking is okay for standard, admitted business, but it won't work anymore if the industry being insured is changing with the times. This might not be the case for truckers, but many--if not most--of our industries are changing.
To specialize in a category of business, it is as important to know the sector being insured as it is to know all types of insurance so as to design programs specifically for them. The future of our industry is likely to favor the specialist versus the generalist because issues and clients are getting more complicated.
In the surplus-lines market, and specifically the non-U.S. market, underwriters are often able to adjust to new products, services and procedures at a moment's notice. In some programs being insured by Lloyd's, for instance, underwriters consider new products virtually daily. Members of the Lloyd's market--and possibly some innovative, non-admitted, U.S. companies--have the capabilities to then write a new endorsement often on the same day that coverage is approved. One underwriter can make a decision without having to ask attorneys, actuaries, upper management and colleagues for approval.
If a company has the philosophy and the people to change programs quickly and make snap decisions, this could still never happen with an admitted program, as the multistate requirements are too cumbersome. If the underwriter and carrier fail to understand this facet of program business, they may very well be doomed in the marketplace.
Specialization and nimbleness are all the more important in today's insurance cycle. In this soft marketplace, policies should have unique coverages or something that makes the policy stand out from the competition. If this is not available, the broker and carrier are forced to compete on price alone. This is one of the reasons the insurance market remains so soft. With no attempt at innovation, everyone is competing purely on rate.
This knowledge and backing of a carrier who has surplus-lines capabilities is crucial for the success of most programs. The carrier who is open to innovation will ultimately be the one who survives in this dynamic world we are now living in.
June 1, 2010
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