Breaking It Down
<table cellspacing=0 cellpadding=0 border=0><tr><td align=right>Copyright: </td><td>(c) 2011 A.M. Best Company</td></tr><tr><td align=right>Source: </td><td>Proquest LLC</td></tr><tr><td align=right>Wordcount: </td><td>1379</td></tr></table><!-- start_body --><br><p><location value="LU/ch..zurich" idsrc="xmltag.org">Zurich's</location> new program business for demolition and wrecking contractors took a slightly different approach on its way to market.</p><p>When <location value="LU/ch..zurich" idsrc="xmltag.org">Zurich</location> and <org value="ACORN:1812573177" idsrc="xmltag.org">RISC Inc.</org> jointly launched a debris removal program for demolition and wrecking contractors in June, familiarity with each other was hardly an issue.</p><p><location value="LU/ch..zurich" idsrc="xmltag.org">Zurich</location> and RISC, a <location value="LU/us.tx.dallas" idsrc="xmltag.org">Dallas</location>-based program administrator, had already partnered on contractor-oriented programs for roofing, oil/gas and fire sprinklers.</p><p><person>Craig Fundum</person>, president of <org>Zurich North America Commercial's</org> Programs & Direct Markets business unit, said he was aware of RISCs expertise in the demolition space.</p><p>The two sides sorted through the multiple classes within the segment before deciding to offer Demolition Select on an admitted basis.</p><p>"We found that the wrecking class for buildings three stories or less was really the space that we wanted to be in," Fundum said. "So together we said, let's put together this program'."</p><p>It marked the eighth program launch for <location value="LU/ch..zurich" idsrc="xmltag.org">Zurich</location> in the first half of 2011, placing it ahead of last year's pace that resulted in a dozen new programs, Fundum said.</p><p>"We really don't set a goal," Fundum said. "It's really about whether an opportunity makes sense, and did it pass the detailed process that we put in place."</p><p>What was unique about the demolition program was the origin of the idea and trajectory that its development took.</p><p>Fundum said <location value="LU/ch..zurich" idsrc="xmltag.org">Zurich</location> knew it wanted a presence in the program space for demolition. Partnering with a known and proven entity such as RISC meant the company had already been subjected to the scrutiny <location value="LU/ch..zurich" idsrc="xmltag.org">Zurich</location> uses in selecting program administrators, which Fundum described as the critical first step in a program's life cycle. Zurich North America Commercial has four regional sales executives who scour the market for new or existing program opportunities, providing the bulk of the prospects for the project pipeline.</p><p>"Our sales executives will generate somewhere around 200 to 250 inquiries," Fundum said. "Round numbers, 100 full-blown applications get completed."</p><p>From there, program submissions are scrutinized by an <location value="LU/us.ne.omaha" idsrc="xmltag.org">Omaha, Neb.</location> -based team that was formed five years ago for the sole purpose of evaluating program opportunities. Separate aspects of program proposals are assessed, including underwriting, actuarial issues, product development, financing, operations and marketing and sales.</p><p>Those reviews are forwarded to an executive committee with approval ultimately determined by a majority vote of its members.</p><p>"For us, quality is really the issue versus quantity," Fundum said. "We've been fortunate in that we've been able to launch a double-digit number of programs for the past four years."</p><p>Fundum said <location value="LU/ch..zurich" idsrc="xmltag.org">Zurich</location> tends to be more successful in developing programs for what he described as misunderstood or underserved classes of business. In the case of demolition and wrecking contractors, Fundum said most traditional carriers will shy away for fear of losing money. The significance behind limiting the program to three-story buildings means explosives aren't involved in the underwriting equation, he said.</p><p>"Sometimes we evaluate, we look, we do the research and we may come to the conclusion that we're only interested in a smaller sliver of this industry," he said. "It varies each time, but a lot of research and analysis goes into whether or not we put together a program."</p><p>Far From Alone</p><p>As for the size of a program, an appealing one tends to fall in the <money>$20 million to $30 million</money> premium range, according to Fundum. Yet, he said, <location value="LU/ch..zurich" idsrc="xmltag.org">Zurich</location> handles programs that range upward of <money>$500 million to $600 million</money>.</p><p>"A successful program in our mind is one that can grow from the start to somewhere in the <money>$15 million to $25 million</money> range," he said.</p><p><location value="LU/ch..zurich" idsrc="xmltag.org">Zurich</location> is far from alone in pursuing that lower-end range of business amid prolonged soft market conditions. Competition comes not only from carriers pursuing existing and new programs, but also from more standard-oriented markets looking to expand toward more-specialized risks on an individual basis.</p><p>In the past five years alone, managing general agents and program administrators have grown more interested in targeting program business with even smaller thresholds.</p><p>According to Guy Carpenter's 6th Annual <org>Specialty Insurance Program Issuing Carrier Marketplace Survey</org>, 48% of insurance carriers were interested in programs with <money>$10 million</money> in premium or less. That response was nearly double from 2005.</p><p>The survey results, which were released in <chron>November 2010</chron>, indicate that 90% of respondents believe that the program segment annually generates at least <money>$20 billion</money> in direct written premium.</p><p>Nearly one-third of respondents believe the figure to be <money>$40 billion</money> or higher.</p><p><person>Carl Bach</person>, managing director of Guy Carpenter's program specialty practice, said growing interest in the smaller size programs used to be about less competition.</p><p>"As more and more people considered smaller programs, this thought disappeared," Bach said.</p><p>Bach also said that carriers have more nonadmitted products and are more amenable to doing nonadmitted programs, given the flexibility on rate and form.</p><p>"If they start to see trends in the class of business or program they are writing, and it's starting to turn sour on them, they can increase rates or change forms to make it more restrictive more rapidly than they would if it was admitted," Bach said.</p><p>He characterized carriers as cautiously optimistic regarding the program space, and said they have been more flexible and open with their MGA partners in order to maintain existing accounts.</p><p>He said MGAs, on the other hand, are nervous and many are testing the waters for secondary or expanded carrier relationships. The nervousness is about the market potentially hardening quicker than anticipated.</p><p>"They are starting to see a little rate increase," Bach said. "They are starting to see some push on their commissions and they are a little concerned with perhaps some market withdrawals."</p><p>He likened the segment's atmosphere to that of the overall insurance industry, with limited prospects for organic growth fueling an even stronger need to retain existing partnerships.</p><p>Bach said most carriers are doing anything they can to hold on to program business.</p><p>As for new programs, Bach said that while carriers are looking, there are few takers.</p><p>The Guy Carpenter survey results indicated that only 24% of respondents planned to write between six and 10 programs in 2010, and 3% plan to write more than 10. The balance said they would write fewer than five.</p><p>"Over the last six months most programs that were in the market found homes, but there was no one carrier that led the charge," Bach said. "So people are competing, but not very aggressively."</p><p><person>Deborah Bibbins</person>, vice president of captive and specialty programs for The <location value="LU/us.ct.hartfd" idsrc="xmltag.org">Hartford</location>, said there's been noticeable activity and interest in group captives within the middlemarket.</p><p>The move to consider loss-sensitive products within a self-insurance option marks an almost unexpected turn away from standard market solutions at a time when pricing remains susceptible to soft market conditions.</p><p>"We're finding that there is a closer alignment between the risk management and financial disciplines at many companies," Bibbins said. "This has resulted in a collective decision that they may be able to do better in the long term with a loss-sensitive product."</p><p>Widespread Interest</p><p>Bibbins said this interest is from numerous industry segments. She said throughout the soft market, The <location value="LU/us.ct.hartfd" idsrc="xmltag.org">Hartford</location> has continued to see accounts move from the traditional market into the alternative market and little movement in the opposite direction.</p><p><location value="LU/us.ct.hartfd" idsrc="xmltag.org">Hartford's</location> structure for its program segment brings together group captives, agency and association captive business and specialty business. Bibbins said The <location value="LU/us.ct.hartfd" idsrc="xmltag.org">Hartford</location> approves between five and 10 programs each year.</p><p>New program business is developed two ways: internally, with coverage offered through <location value="LU/us.ct.hartfd" idsrc="xmltag.org">Hartford's</location> producers on an open access basis; and via its business development team, which looks for new limited distribution programs. <location value="LU/us.ct.hartfd" idsrc="xmltag.org">Hartford</location> uses a centralized underwriting approach, an element Bibbins said is critical in ensuring that a program is long-term, sustainable and profitable.</p><p><person>Key Points</person></p><p>* The News: <location value="LU/ch..zurich" idsrc="xmltag.org">Zurich</location> launched eight programs in the first half of 201 1 .</p><p>* The Significance: <location value="LU/ch..zurich" idsrc="xmltag.org">Zurich</location> only launched 12 new programs during all of last year.</p><p>* The Background: A perception of less competition for smaller-size programs, whether true or not, has more carriers angled in that direction.</p><p>"A successful program in our mind is one that can grow from the start to somewhere in the <money>$15 million to $25 million</money> range"</p><p>- <person>Craig Fundum</person>,</p><p><org>Zurich North America</org></p>
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