The program insurance segment has been an attractive area for property/casualty carriers in recent years and interest doesn’t appear to be faltering. While carriers have been eager to snatch-up mature and profitable programs for years, interest is gaining among program carriers to invest in more startup programs.

Brian Molusis, founder and president of Vital Insurance Partners LLC, a Glastonbury, Conn.-based consulting firm that helps wholesale brokers, retail agencies and program administrators with the process of building new programs, says the market is seeing carriers take a closer look at startup programs than before.

Molusis, who also serves as the chair of the American Association of Managing General Agents’ (AAMGA) program committee, says program business carriers have become more open to the idea of startup ventures during in the past couple of years. One obvious reason: programs continue to be the fastest-growing segment in the property/casualty insurance market.

Program business premium revenues increased by 7.4 percent reaching $32.3 billion in 2014 up from $30.1 billion in 2013, according to the most recent Target Markets Program Administrators Association “State of Program Business Study.” In five years, total program business insurance revenues nearly doubled. The first study reported $17.5 billion in commercial insurance premium revenue in 2010.

“The program market has repeatedly been the fastest growing segment of the P/C market because everyone is looking to specialize and they are looking for specialists,” Molusis said. But in order to keep growing at that same pace, carriers and program partners have to create new programs. “To do that you have to look at general wholesalers and their books of business. Where can they carve out niche books of business? That’s where you get the new program opportunities from.”

In his view, AAMGA is the perfect organization to seek out those opportunities. “You have an organization that has hundreds of general wholesalers that fit this model so the next step is to look at their members.” That’s one reason why AAMGA tasked Molusis to help develop a program focus at its recent annual meeting in Scottsdale, Ariz., in late May. The association designated a program-specific meeting room to transact business, offered 27 different company presentations from program business carriers and held an executive program panel where executives in the program space discussed issues facing the program marketplace today.

What Carriers Want

Not every startup opportunity is the same and some interest carriers more than others, Molusis said. There are different levels of startup opportunities for programs. First, carriers want to know that there’s some expertise before developing a new program.

They also want to know that there’s a controlled book of business that can seed premium into a new program and it’s not just starting from scratch.

“If you are starting from scratch, where you have an idea for a book of business, that’s a real tough proposition for a carrier,” he said. “You would have to have a very good business case on why a carrier should invest in a scratch proposal.” But, Molusis said, if an agency or wholesaler has a good niche book of business that is not already a program today, but is instead written though various markets, and that agency has expertise in that segment with a solid controlled book, building a startup program could be a good option.

Not every program carrier will consider startups, however.

David Lupica, president of ACE Commercial Risk Services, ACE Group, a panelist on the AAMGA Program Panel, said startups take more resources and have a lower chance of success. “But every program is a startup at some point,” he said.

According to Lupica, ACE looks for balance when examining program opportunities. “We don’t want to be over-weighted and we want to look for a good value proposition and a good business plan,” he said. “I don’t believe in the field of dreams program — if you build it they will come.”

Instead, Lupica takes a common sense approach when examining program opportunities.

“Who’s the partner? Have they demonstrated success? What’s the connection on the distribution side? Are they well-known, do they have a relationship with an association, and/or a relationship with a wholesaler.” In Lupica’s view, someone that comes from the targeted niche industry is a bonus. “We are looking to insure programs where there is specific industry knowledge who understands the risks that the niche industry faces, and the challenges that niche has.”

Lupica said it’s also very important to have a solid business plan going in and good data is key. “We are harvesting a lot of information in terms of the different types of risks that exist within different classes,” Lupica said, so having good, solid data is critical. “Then we have to overlay that data with the competitive landscape. Where are those insureds geographically? Are there other players doing it well? Those are the opportunities we will focus on.”

Molusis said there are quite a few general wholesalers in the market currently looking to move away from a typical wholesale model and start specializing. “Some wholesalers now have pockets of business within each organization that moving those ‘pockets’ to the program administrator model for specific niche segments makes sense. It will help them grow and fill that space with new programs.”

This same group needs help with the process of building out and submitting a program proposal to carriers, he said. “With a little data gathering., building up the underwriting guidelines and putting together a submission it’s possible to get a carrier give them a contract.”

Building Out a Program

It’s not an easy task to build out a program and it takes time and most importantly, good data.

Brian Norman, president of Norman-Spencer Agency Inc., said it can easily take 12 months to launch a new program but he’s worked on some that have moved much quicker.

Norman admits, 12 months is a long time and market cycles and economic changes can and do change. “But if you have a program that you are looking to expand, 12 months to get the forms right and the rates right may not be that long.”

Norman says it’s very important to a program administrator like Norman-Spencer to have the right partners that can move quickly. “You need those carrier partners in your stable so that they can turn something around quickly for you.”

For those retailers and wholesalers new to the program space, finding the right partner to guide them through the process can be key.

Molusis recommends finding a consultant or an intermediary that specializes in building out programs. “At the very least, look and see if you have some sort of niche book of business and ask, ‘Can I seed the program with at least $3 million or so of premium of controlled business.’ …

“If you are at $1 million it’s probably not big enough yet for a program, but if you are between $2 million to $3 million worth of niche business that could be a good start,” Molusis said.