Creating a Successful Program is Like Baking Cake CJ Lotter, MBA, Director, Engagement Management | Jun 28, 2019

Insurance Technology Systems

Editor’s Note: This is the first of several posts in which CJ Lotter, a 15-year MGA insurance industry veteran, shares lessons learned in the form of guidance to MGAs on the steps required to build a successful new program.

Spinning up an insurance program is a lot like baking a cake. A good cake requires the right ingredients, the right amount of time to bake, and meticulous crafting to ensure it looks and tastes great. Creating an insurance program is similar. It takes a combination of ripe market conditions, the right amount of time to grow, and the skills to execute. In this post, we introduce 10 steps to creating a successful new program.

1) Size the Market

Prior to starting any program it’s important to size the entire market. How many companies make up the market? How much premium is floating around your target market segment? How many agencies serve this segment? Spare no expense to gather the most current and accurate data you can find. And tap underwriting experts to find adjacent markets you may be able to enter quickly.

2) Analyze the Competitive Environment

Scan the competitive landscape to determine how easily you can enter the market. How is the market segment being served today? What kind of programs are already in the space? What other MGAs serve this market? To continue making a viable case for your program, you need to ensure there’s enough space for your policy solution. Ideally, you want to compete against an old school insurance company that can’t rapidly adjust.

3) Profile the Industry’s Characteristics

Establishing the industry’s characteristics is much like Step One, but at a much more granular level. Analyze the perceived threats and challenges. Examine as many dimensions as you can. How will the economy affect this market? Is climate change a key a factor? Is technology a potential catalyst for disruption?  You’re looking for clues that suggest an industry with unique needs. You don’t want to create an insurance program for a commodity that is easy to insure. This would only lead to competition on price rather than expertise and service.

4) Spot and Attack “Distressed or Perceived Distress”

Good, profitable programs are generally made up of difficult to insure business challenges. Ideally, you are looking for a distressed industry to serve, specifically a distressed class code. Distressed or perceived distress is the key here. Distressed or perceived distress essentially boils down to a gap in the insurance offerings available to your market that can be exploited by technology, underwriting expertise, or better customer service.

5) Assemble Relevant Expertise

Identifying a strategic direction for your program establishes your roadmap. Hopefully you can bolster that through agency expertise. Your analysis of industry characteristics will give you the background you need to staff your program through internal or external hires. Assigning or hiring the right expertise can make or break a successful program. Ideally you want underwriters with direct experience in the industry you are targeting.

6) Technology

Of the many dimensions a company can compete on, technology may offer the biggest opportunity to differentiate in the Darwinian Economy. Partnering with companies that do what you want to do, and do it well is crucial. Competing on better technology can reduce your time to market so you can capitalize on distress or perceived distress sooner than your competition – especially if the competition is a big, slow-moving, legacy insurance company.

7) Distribution

You’ve chosen your market, sized the competition, analyzed the industry, and determined how to leverage expertise and tech. So, how do you sell this? Start with the competition. How are they selling? Do they use agents? Do they have a dedicated team? Look for gaps in your competitors’ ability to deliver. Do they take three days to provide a quote? Use your superior technology and processes to deliver in one.

8)  The Product

At this point, you have an idea of what the program offering will look like. But you still have a few critical questions to consider. Foremost is whether the property and casualty product will be admitted or non-admitted. As a rule, you want to do as much admitted business as possible. If even one competitor provides an admitted option, you have no choice but to offer an admitted product.

9) Pricing

Understanding the price elasticity in your market will help determine what it will take for your potential customers to leave their current provider. What can you offer or give them that is of more value? Can you underwrite more efficiently to lower the price? If you can maintain the customer experience while offering a price reduction from incumbent providers, you are in a sweet spot for a new program launch.

10) Choose a Carrier

As an MGA, choosing the right carrier partner can make or break a program. Recent industry developments have made programs a strategic priority for carriers, and MGAs that underwrite and distribute profitably are in demand. If you can’t find a carrier partner, consider alternative capital sources, coupled with a fronting arrangement. This is a model that is growing in popularity as players along the value chain attempt to engage more directly with the policyholder.

This has been a brief overview of a ten-step process to bake a new insurance program. We will revisit this topic in future posts, providing a deeper look at the steps. Creating profitable programs is a vital skill in the new insurance world, and those that do it well will never have trouble finding work. You may not be able to bake a cake, but with the profits your successful program delivers, just go out and buy one.

CJ Lotter joins Instec as the Senior Solution Architect. He adds deep insurance program expertise as Instec continues to grow its program market share. Most recently, he spent nine years as Chief Research and Business Development Officer at the US programs division at Willis Towers Watson. There, he established a process for efficiently launching programs, and in eight years created nine new Managing General Agent (MGA) programs resulting in double-digit premium growth.