Program-Able

Many carriers struggle to meet the needs of program administrators. What gives? Program carriers are not keeping up with the demands of administrators and, in fact, are making it more difficult to innovate. 

There is no lack of carrier interest, but far too many employ outdated thinking, thus confirming the same old insurance industry inertia.

Administrators need more carriers who recognize them as the client and provide more value. That should render them more commercially friendly to the ever-growing sophistication of the program administrator marketplace.

I recently met with a program carrier with numerous access points that had recently added yet another. What a great way to confuse clients! “Why not have a single point of access?” I asked. And they admitted they really didn’t have a system in place to take in data. Amazing. This carrier’s new access point had been functional for nearly 16 months, yet they had seemingly no idea when their “system” would be ready.

Another carrier that has a programs division told me they are taking a pause in writing programs, but they suggested my company send them program opportunities because they like to use the information and reference it for their own purposes. While I am not naïve enough to think this likely isn’t common practice, to state it out loud was astounding.

While these stories are entertaining, they also demonstrate that program carriers need to recognize where insurance is headed. The insurance world is changing. Technology is creating greater transparency, risk financing capital is becoming a ubiquitous commodity, distribution is concentrated, and the customer acquisition experience is emerging as the greatest value.

Traditional carrier risk capital is changing. We now see interest from pension funds and institutional investors backing reinsurers. A few reinsurers are already beginning to back new program administrators using their own group insurer or a fronting company just for licensing. Commonplace in the life insurance industry, this is a trend that will rapidly expose intermediaries who don’t add value and vulnerable insurers that don’t actually assess risk but just arbitrage with reinsurance.

Technology is quickly collapsing the value chain. The long-standing relationships among defined intermediaries and artificial hurdles are quickly eroding (as they should). The days of relying on investment returns to mask poor results and expense inefficiencies are long gone. The relatively recent and rapid rise of insurtech is only going to quicken this process. Yet despite opportunities to do so, few, if any, program carriers are bothering to actively engage with the insurtech community.

It’s true there are many regulatory hurdles to overcome, and as a smart attorney in the industry once told me, “much of the industry is set up to be a jobs program.” In no area is this truer than in the regulatory scheme that currently exists in the U.S. insurance market. The significant costs involved, in terms of time and money for a company to get licensed as an insurance provider and to get its products licensed have created substantial barriers to entry and have hindered innovation.
Inevitably, these hurdles will be overcome as regulators are forced to meet the demands of consumer and industry. But how long will that take?

Existing and future program carriers need to evolve now and shed their inertia. They need to adapt to a collaborative model of linking competitive risk financing capital with the most efficient product delivery to the end user. Many of today’s program administrators are highly innovative and sophisticated operators who invest heavily in technology, access origination, and distribution at fractions of their historical expense. They add value by facilitating risk transparency, assisting in gathering data to improve predictive analytics on both the underwriting and claims side, and—most importantly—remaining a stable and consistent implementer of distribution and risk capital.

However, administrators need to step up their performance as well. There are far too many program administrators that don’t have a handle on their own exposure and experience information, nor can they articulate why a market opportunity exists or an underwriting strategy is sound. They also fail to put together a professional underwriting submission and business plan (scanned copies of raw loss runs don’t count).

Program administrators need to go over and beyond what is required and focus on building trust with their risk financing partners while protecting and ensuring their position within the value chain.

Zuk is president of the commercial and property divisions and EVP of corporate development at Atlas General Insurance Services.