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Finding Markets: The Specialty Program Consultant
While a reinsurance intermediary operates between the ceding insurance company and the reinsurance company market, the specialty insurance program consultant operates between insurance agents and the insurance company. This document by Andrew Barile introduces you to this emerging type of consultant. Program brokers, marketing insurance consultants, and specialty insurance program consultants have all existed for a number of years. They perform a valuable service for an agent, and should be part of the agent's cadre of experts, together with lawyers and public accountants. Without a suitable insurance company market the agent can't exist. Insurance company market finders perform a unique service that agency staff members can't always perform on their own. The first question agency owners ask is 'Why should I pay a consultant for a service that I, the owner of the agency, should be able to perform myself?' Certainly visiting with insurance company markets is an owner's function. However, agency owners should quantify their time spent on an hourly basis. How much time do they really want to spend developing new company markets? Some consultants have adapted a formal approach to representing insurance agencies by using an 'engagement agreement,' or a 'consulting services agreement' which outlines the specific services that the consultant will perform, and the cost of these services. After providing agencies with this service for more than 25 years, I've noticed that each engagement agreement is different. Consultant's fees vary from a single flat fee to a specific percentage of premium volume. Some engagement agreements have a fixed time frame. Others run as long as an agency contract between the parties (agency and insurance company) is in force. FINDING A CONSULTANT In the past many agents used a reinsurance intermediary to place them with an insurance company. Now with more stringent regulations for reinsurance intermediaries, they should not perform this type of service. Use reinsurance intermediaries to structure the appropriate reinsurance program behind the company making the agency appointment. On this basis, agents must become more familiar with the difference between the insurance and reinsurance markets. Consultants who can access both types of markets perform better for agents. Interview consultants much the same way carriers scrutinize the appointment of reinsurance intermediaries. Based on the exchange of information, the appointment process is made. The agent must realize that this is only the beginning of the process in finding a company market. BUSINESS PLAN FOR AN AGENT Most company markets have standardized the information required to make an agency appointment. Some companies have standardized forms that the consultant must complete. To create a business plan for finding an appropriate company market, you'll need these basic ingredients: Copies of the agency's certified balance sheets and income statements for the current and prior years Biographical profiles of the agency principals and staff Premium and loss experience for three to five years, segregated by line, class, territory, etc. Sample policy forms and rating examples Analysis of trends in the rate level and company competition Copies of existing and prior agency agreements with companies Trade references When applicable, full details of the existing reinsurance program or proposed reinsurance structure Copies of cover notes, proposed placed reinsurance, and reinsurance agreement, where applicable MARKETING THE PROGRAM Once the initial business plan is completed, the marketing strategy targets the appropriate company. Although there are some 2,000 P/C carriers nationwide, there are significant differences among them. Licensed companies, non-admitted companies, regional companies, mutuals, stocks, and owner-operators all present opportunities to obtain an appropriate agency-company relationship. Company market knowledge is crucial. Knowing about P/C company purchases benefits a consultant, as does having relationships with top management at the companies. Treaty reinsurance brokers usually aren't good specialty insurance program consultants. Unfortunately, very few consultants have the technical knowledge to market programs. Once the program moves to company technicians, the consultant must negotiate with the underwriters and have the educational qualifications to answer their questions to complete the program with a good market. CASE STUDY Let's consider the placement of a general agency agreement for a hospital malpractice program requiring a $25 million occurrence limit. The first concern is to determine how many companies have the net worth to issue a $25 million gross policy limit before treaty or facultative reinsurance. Understanding this basic marketing strategy could save weeks of market research. Suppose the general agency has already built a favorable relationship with a direct writing reinsurance market. This limits the consultant because the direct writer has determined the terms and conditions of the reinsurance and controls the type of company security required. This could hamper the consultant with excessively stringent reinsurance terms. An effective consultant should have access to markets that use reinsurance intermediaries as their exclusive source of production. The agent is better protected when no one company dominates the reinsurance market. With the continuing vertical integration in the reinsurance business, suppose that a large direct reinsurance company, who's been writing the hospital malpractice program for many years, decides to purchase a P/C company. If the specialty program is running well, the reinsurer through the new insurance company vehicle could replace the agent's current company. Going a step further, the reinsurer might also purchase the general agent. If this is what an agent wants, they should inform the consultant at the beginning. TYPES OF PROGRAMS Consultants must have a broad understanding of the P/C business: Hospital Malpractice, Agents E&O, Private Passenger Auto Liability, Contractors Liability, Auto Default insurance, Crane Rigging Contractors, Truck insurance, Yacht insurance, Amusement Park risks, Hazardous Waste Haulers, Homeowners insurance. Consultants must be able to use agent-clients in-depth knowledge to accelerate their learning curve in all of these product lines. Many agents recognize that their future lies in developing specialty products that they can sell to groups of insureds and their associations. A comprehensive package can go a long way toward keeping clients for the agency regardless of the underwriting cycle. CONCLUSION The services of the specialty insurance program consultant don't end with the consummation of the agency contract. The challenge comes from listening to agents describe new products that require a specialty market. Agents are beginning to recognize that together with legal and accounting services, they can purchase company marketing services. The future looks bright for the specialty insurance program consultant who has a successful track record of agency-company accomplishment.

...transfer catastrophic layers to reinsurers; together they enable larger limits...

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