Program business can be a great way to differentiate your insurance business, but getting into a position to be a program administrator is not easy. Insurance carriers writing program business expect a significant level of expertise, underwriting discipline and processing capabilities in addition to a book of business. Many insurers have suffered by not doing a good job of managing their programs.
As noted by this National Underwriter article (see here), insurers will carry out thorough due diligence on a prospective program administrator and their specialty business prior to agreeing to partner. What do they look for? As a minimum:
- Underwriting profitability, and data to support it
- Expertise - The people need to understand the business
- Processes and controls
In addition, insurers will often look for a method of sustainability. Key, as the authors point out, is some edge or competitive advantage:
Specialty programs must demonstrate a unique character and competitive advantage which is not easily replicated in order to be successful over the long term.
You can also expect insurers to audit the business on a regular basis in order to make sure they know what is happening and to provide a measure of control.
None of this is new. Program business challenges were summarized in a book published by the CPCU many years ago called Partners in Profits: The Managing General Agent System Under Fire (see here) by Jerome Shaver. (I contributed on short chapter.)
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