Fluctuating niche market strategies of insurers are a good reason for agents to “think global”

Fluctuating niche market strategies of insurers are a good reason for agents to “think global”

Barile, Andrew

In today’s chaotic property and casualty insurance marketplace, with companies more and more pulling away from traditional lines of business, insurance agents who want to survive and grow into the next century will have to alter seriously the way they do business. And, let’s say it right up front: The changes they make must include expanding their knowledge of international insurance market developments.

Producers are discovering that in today’s insurance industry environment, there is no such thing as “predictable insurance company appetites.” Insurers may be hungry for a specific line of business today and then go on a strict diet tomorrow.

There’s a good deal of talk these days about “niche” marketing, with insurance companies targeting certain lines of business in order to make up for the premium volume lost as they desert the bread and butter lines. But, in fact, most companies are not really addressing the trouble spots such as homeowners insurance and commercial interests in California or along certain coastal areas. What they are doing is chasing after the same “niches” such as professional liability. Sadly, they cannot see beyond what the other guy is doing.

Therefore, agents of the future will have to become more creative in recognizing real “niche” opportunities, resourceful enough to construct a business plan that will allow those niches to be underwritten properly and aggressive in their efforts to convince company markets that these niches represent potentially profitable business.

In short, agents must seek to become program creators and administrators so that they can have more control over their own destinies. And, to do that properly, they will have to stretch beyond the narrow limits of traditional insurance markets and become more well-versed on international insurance happenings. In the past, agents could be content to wrestle with developments on their own shores. What happened in London and Bermuda seemed remote to agents who service Main Street business or small commercial accounts. But today, things have changed dramatically. With the new global insurance marketplace, everything that happens in foreign insurance markets has a filter-down effect right here in the U.S. When overseas reinsurance market capacity diminishes, it has a dramatic effect on primary companies in the United States and their ability to provide direct coverages on virtually every line.

Moreover, since producers no longer have the luxury of merely accepting canned programs from insurers but must be creative in designing their own programs, a knowledge of overseas markets is essential.

The first step in becoming a proactive program administrator is to look at market conditions in the U.S. to determine where the opportunities are–where companies are not writing business. Then, the agent needs to put together a program for company markets that cannot see past industry trends. As companies continue to chase after the same business, the challenge for agents is to highlight the business that companies have said they don’t want and then find a way for that business to be written profitability.

A “niche” is nothing more than the underwriting philosophy of an insurance company. If a company doesn’t believe it can underwrite the line profitability, it will pull out. But if a “niche” is not being scratched by the companies, it should be by agents who have become program administrators in the truest sense, including the design of the program.

Any line of business, even one that has proved troublesome, can be underwritten profitably as long as one learns from past mistakes. Putting together a business plan is the key. The administrator has to ask serious questions, such as: Was the business being priced properly? Were the coverages too liberal? How should renewals be structured?

Furthermore, one of the most important questions that agents need to ask when putting together a business plan for a program is: How can attractive reinsurance capacity be lined up before approaching a primary market with the program? It is in answering this last question that the need for today’s agents to understand international markets becomes crystal clear.

How many agents really know what has transpired at Lloyd’s of London in the last two years or in the London insurance market in general? How many agents know that Bermuda has changed from a market that only boasted captive insurance companies as recently as five years ago to one that can now provide capacity at all levels, almost challenging the position once held by Lloyd’s of London? How many agents can discuss intelligently the changing insurance markets in Japan or in Europe?

Probably very few, and the reason has nothing to do with intellectual capabilities. Rather is has to do with the fact that agents have traditionally been insulated against market dislocations overseas because their own U.S. markets have been predictable. But that predictability is gone, and with it is gone the insulation.

It has become evident that producers, if only in their own self-defense, must learn how to tap overseas markets, not only for capacity, but also for ideas on how to develop insurance programs in the U.S. as well.

Andrew Barile is the president and CEO of the New York-based Insurance Agency Programs, Inc., an independent consulting firm. He regularly conducts workshops around the country in conjunction with seminars co-sponsored by the Montclair, New Jersey-based International Quality & Productivity Center and Insurance and Reinsurance Trends Newsletters based in New York. The next series of workshops and seminars will be held in Chicago on June 20, 21 and 22, and in Toronto on July 24, 25 and 26.

Copyright Rough Notes Co., Inc. Apr 1995

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