By Steve Yahn
These are good days for program administrators. Specialty program insurance providers predict that the program administrator market will grow in 2012, according to a survey conducted by Guy Carpenter.
Survey respondents report that they are now considering smaller programs, larger territorial scope and start-up programs as well as front opportunities in order to grow, or at least maintain, a reasonable market share, the survey concluded.
Against this background, Risk & InsuranceŽtakes a look at three ways program administrators are distinguishing themselves from the pack to better build their businesses.
The first is through the use of captives, the second is through the use of social media, and the last is through processes to refine the target market of a program.
MAKING USE OF A CAPTIVE
Now is a good time for a program administrator to contemplate implementing a captive, said Deborah Bibbins, vice president of captive & specialty programs at The Hartford.
"We've started to see the market firming," she said. "Program administrators with profitable books of business and consistently low loss ratios can participate in the benefits of a firming market by moving to an agency captive arrangement. This enables the program administrator to share in the underwriting profits of the book, as well as earn some level of investment income."
Bibbins said savvy program administrators will share some of the underwriting profits of a captive with key employees. "If they're thoughtful about retaining key employees they can do that either through sharing captive distributions with the employees or by giving them an actual ownership share in the captive."
"If a program administrator believes in his business, if he believes it's profitable business and if he believes he has good underwriting and he has a good loss ratio on the business, then a captive would be another source of profit for him," said Rod DeMaso, head of captives for Zurich North America.
He cited the example of a program administrator who had a $50 million worker's compensation book of business. "They say, 'That's a pretty good business, why should I be transferring all that liability to the insurance company?'
"They might say, 'I want to take out some of that risk. What if I take 25 percent of the first $1 million of every policy and I'll share the proportional and get the proportional share of premiums.' "
"Now what happens is that they say, 'Okay, I'm going to take out a captive.' "
In most cases where a captive is organized and owned by the program administrator, the capital is provided by the program administrator, said Chris Kramer, Washington, D.C.-based director of marketing-captives for Ullico, a $5.6 billion insurance and financial services holding company serving unions, union employers and benefit funds.
"The capital serves not only to meet certain regulatory standards to underwrite the risk, but, importantly, it demonstrates to the carrier, and regulators, that the program administrator has 'skin in the game.' The amount of capital varies by program size and captive domicile. Capital is most often in the form of cash or letters of credit."
THE SOCIAL MEDIA CHALLENGE
A number of social media experts stressed that most program administrators are at a rudimentary level when it comes to establishing social media programs.
"What we're seeing is that some program administrators know just enough to be dangerous about social media," said Jino Masone, head of program sales, marketing and distribution at Zurich North America. "So they'll do a Twitter or a Facebook or something on their site, but there's not necessarily a lot behind it and it's not a part of an integrated marketing plan."
But there are consultants who are specializing in providing social media advice to program administrators.
"The old way of generating publicity was to push information at people through public relations," said Richard Look, president of Vertibrands, a West Chester, Pa.-based advertising agency that specializes in serving program administrators. "With social media you're getting people coming to you."
Look stressed that most program administrators already have the content that they need to communicate through social media. "They're the industry experts," he said.
Gary Kimball, who as president of Easton, Pa.-based Kimball Communications, is a strategic partner with Look in serving program administrators, said, "In some cases we see program administrators who want us to manage a social media account. We see that as not the most effective way to do it.
"Social media is more effective when they're managing it themselves and they're very engaged in it themselves," Kimball added. "We like to offer advice on how they can do it a little bit better."
In addition to Twitter, Facebook and LinkedIn, Kimball said he is seeing a lot of people getting involved in Pinterest, an online bulletin board.
At Woodbridge, N.J.-based NIP Group, which specializes in developing specialized insurance policies for segments of businesses that are typically focused on service and installation classes, marketing manager David Orban said his firm is developing a network of online followers through LinkedIn, Facebook and Twitter.
"On Facebook, one of our programs is for insurance professionals," he said. "After developing the page we're in the process of building a follower based on that and we're also using the venue to announce webinars we host. From a customer standpoint, we're building a library of resource material, white papers, blogs and news bulletins that we can use in social media applications."
NIP is also contemplating using guest bloggers, said Simon Barrel, its marketing director and chief marketing officer.
Reg Pierce, director of the Target Programs Marketing Services operation of the Target Markets Program Administrators Association, said: "The hardest pill to swallow if you want to participate in social media is that you have to dedicate the human capital, designating someone at your company who takes ownership, someone who is proactive in making the social media campaign relevant, current and inviting to people.
"You're not selling products, you're providing information about the industry you're in," added Pierce. "You're selling trust."
Pierce said that LinkedIn currently is the one channel that has the greatest potential in the next couple of years for helping insurance people. "It's the best lead generator on the business side. I think they're a little conservative right now because of all the scrutiny of social media, but that will change."
But Pierce liked Facebook and Twitter because they are engaging. "They are fun, and I think LinkedIn is catching up with them on that." LinkedIn and Facebook have gone public in the last year.
STAYING ON POINT
Glenn Clark, president of Wilmington, Del.-based Rockwood Insurance and founder of the Target Markets Program Administrators Program, said it's most important to "investigate what else a program administrator can sell to the class they serve, either as an add-on or an additional service."
"Similarly, if they're dealing with agents that bring them that kind of business find other things that can be sold through that distribution structure," said Clark, whose firm specializes in management liability.
In creating a better niche, Heidi Strommen, president of Minneapolis-based ProHost USA Inc., a program administrator which focuses exclusively on restaurants, said: "The first thing is that we developed a website that had as much specific information about what we do as possible."
ProHost will be revamping its website in the next couple of months, Strommen said.
On another front, Strommen said that "the best growth strategy for us is that when we get a new submission from an agent, we emphasize prompt, friendly answering of phone calls and emails. It seems like a no-brainer, but you'd be surprised how often agents comment to me that they like doing business with ProHost because we return phone calls and emails promptly."
Strommen said her firm is expanding into employment practices and cyberliability coverage, even with the steep learning curve involved.
Another program administrator that has had great success with a combination of upgrading its website and emphasizing a hard-charging call center marketing operation is Valley Forge, Pa-based GMI Insurance, which serves the commercial transportation industry.
"I did an entire revamping of my website and I know people are going there because it's coming up on Google," said GMI Insurance Chief Operating Officer Karen Trudel. "We revamped our logo and changed our tagline to 'Driven by auto expertise.' The site also has a rate calculator."
Even though the company is redoing its website, business is still conducted the old-fashioned way.
"I have four people full-time on the phone for eight hours just calling agents and telling them what we do. Plus, we're supplementing that with email blasts and some postcard mailings," Trudel said.
In the claims area, Mark J. Kissick, president of York Programs, said that the current insurance market is a double-edged sword for program administrators.
"They're excited to have the rate increase, but at the same time when you start to raise rates, you start to drive your customers to look for other means to place their insurance and you have to handle that very carefully."
STEVE YAHN, the former editor of Advertising Age, can be reached at firstname.lastname@example.org.
May 1, 2012
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