So you want to have a program?

Every trade magazine touts them – most companies want them – those who don’t have them feel threatened by them. Insurance programs are fast becoming the tools by which agencies, companies and associations provide large groups substantial protection at a cost below street rates. The programs are also permitting economies of scale to profit carriers and agencies. Most agents would like to be program administrators but have no idea of the steps to take to develop and implement a program suitable for the marketplace. This article is meant to be a primer in successful program design and implementation.

Why should you consider Programs?

Programs are ways of capitalizing on pre-existing agency strength, customer base and expertise to generate substantially more customers and revenue than could be expected by individual sales. Programs are sought after by associations to provide added value to their members. They are sometimes used to enrich the associations, as well (financially and through their acquisition of new members). Program management defines the insurance Law of Large Numbers for insurance companies that permits manageable risk and loss ratio by insuring sufficient numbers of a known risk group to spread the risk and assure profitable operation (even if the individual risk generates low premium levels). Finally, program development and management provides a self-defense mechanism against competitors’ attacks on agency customers.

O.K., there appear to be good reasons for having Programs – but what are they?

First let’s discuss what a Program is not. It is not a common form of client for an agency. Just because you insure a dozen contractors, it doesn’t mean that you have a contractors’ Program. Similarly, sponsorship by an organization or association doesn’t define a program if you use products, pricing and carriers that any other agency can access. Finally, programs developed by a carrier (sponsored or not) for their distribution system are, in fact, Programs – but they are not yours. You may be a sub-producer. The submissions may go to a General Agent who developed the program or directly to the carrier. It is a valid program, but can’t be considered your program because of the lack of the primary ingredient, control.

An Insurance Program provides coverage for a substantial number of risks combined in a homogenous or heterogeneous group. A homogeneous group is most often in the form of an association, franchise, employer, or credit union. A heterogeneous group can be a loose as all small businesses with less than 20 employees within 25 miles of a central point. If the group is an association, it must also serve purposes other than insurance. The Program is created, owned and controlled by a Program Manager, often an insurance agent. It most often uses a single carrier who provides the enticements and enhancements to the Program in the form of coverage, rates, underwriting, claims and/or policy writing authority. As Agency Consulting Group, Inc. assists more agents create and change programs we have come to realize that there are guidelines in the establishment of Programs, but no rules. We have seen programs with ownership shared by an association, an agency and a carrier. We have seen programs controlled by an agency and using a variety of carriers. We have seen groups negotiating directly with a carrier and “hiring” an agency to administrate their program.

What Can A Program Do?

It can provide common coverage with distinctive differences in rates and services. Hertz and Avis are examples of common coverage programs. Each provides exactly the same service, renting cars. Each tries to distinguish itself by price differentials, different types of vehicles and different types of customer services. Each, therefore, has carved out a significant part of the car rental industry. If 9 other companies offer the same type of insurance coverage that you can offer, you can still expect to capture 10% of the market with the right mix of pricing, service and marketing.

A program can also provide uncommon coverage – we call this “Building a Better Mousetrap”. Imagine, for a moment, if you could design your own insurance form for a group that you know very well. Are there improvements that you could initiate that would make your product different from the others in the market? In Program Management, you actually have the opportunity to design or re-design insurance coverage with only one group of clients in mind. Of course, you will have to sell the changes to the selected carrier, but that has proven much easier than expected in most situations.

W – I – I – F – M (What’s In It For Me?)

Whenever a new program is introduced, the WIIFM question will be asked by a variety of involved parties, customers, the sponsoring group, the agent and the carrier. Unless you can prepare the WIIFM (in writing) for each of them, the program will fail.

For the End Customer – The individual florist doesn’t care much about his association. He certainly doesn’t care about building an insurance program. He’s probably never heard of the agency and feels that the insurance companies are all out to steal his money. The WIIFM for the customer must be in terms of coverage enhancement, price differentials and better control over his service and claims issues.

For the Sponsoring Group – Most associations are, by their nature, self-serving. Yes, they want benefits for their members, but they want them to add value to their membership in the Association. They also want to retain and grow their membership to permit them to pay for the people and services that they do provide. An insurance program should respond to those needs. If the association has excess administrative capacity, an insurance program can use them (for a fee) to mail and administer parts of the program that don’t need insurance licensing. Some associations have evolved in-house licensed agents who become the sales force for the program bringing additional funding to the association. They also want trouble-free programs. This means that they never want to be called because their member couldn’t get properly serviced by the insurance program manager.

For the Company — Many carriers want to build and expand their program departments. They recognize that any risk can be managed profitably if you have enough of them dispersed over a wide enough area. They are partnering with Program Managers to off-load many of the underwriting, policy issuance and administration (including, in many cases, claims) to lower the company’s costs to those of licensing, filing and use of company resources to cover the risk. If you are developing a program, you can never express the company WIIFM often enough – it bears repeating at every meeting with the carrier.

For the Agency — There is only one reason for any agency to consider Program Management – PROFIT. On more than one instance we have been asked to analyze existing programs only to find that the revenue level provided to the agent did not meet the cost of services provided in a program. The more successful the program became, the closer the agency came to bankruptcy. Be certain that you pro-forma a budget for any program to identify the revenue level necessary to make a profit.


In order to become a Program Manager, the first requirement is a back office that is capable of handling the work effort. If you are the “Lone Ranger” managing every aspect of your agency with your hands in a dozen pots at any given time, you will not do a good job by adding another, time consuming, division. However, if you have sufficient support and have the time to devote to a start-up operation you may be a candidate for developing a program.

Another consideration for program development is the search for something in which you already have considerable expertise. If you have 50 accounts of a similar type, you may have already built sufficient expertise to be considered a specialist in that type of business. Being a specialist is one ingredient of building a successful program. Being a friend of an association president is certainly another method and ingredient of a potentially successful program (being a relative of one is even better). Either of these conditions will give you a head start against those using the next ingredient to penetrate programs.

If you aren’t already a program specialist – if you aren’t best friends (or a brother-in-law) of an association president – and you still want to get into the program business, you must be willing to prospect for groups just as you would prospect for clients. In today’s business environment hundreds of general and specialty lists of associations and other groups exist throughout the U.S. It is extremely important to approach and interest a group in a product before developing it and before approaching carriers.


1. Conceptualize the program – Lay out (in general or specific terms) what you would like to provide and to which groups this concept should appeal. This is the creative and innovative exercise in which you should identify the “hot buttons” that will help you sell the program to the sponsor and its members. The hot buttons always involve coverage enhancements, cost control, and/or speed of claims service.

2. Contact (or prospect) target groups and sell the concept to them. If you would prepare a complete proposal for presentation to a prospective client, you should certainly do so for a program sponsor. Prominent in your proposal should be benefits of the program to the sponsor, as well as product benefits to the members (remember the WIIFM’s, above?). Favored benefits are unique coverage not available to the general public, beneficial pricing to members for products that would cost more if purchased outside of the program, and services provided by the Program Manager that would not normally be available for the type of product or client in the general marketplace (i.e. special claims handling, payment plans for small businesses, etc.).

3. Develop a full presentation that will be given to both the sponsor and to the carrier in the implementation phase. Included in this presentation should be:

a. Group demographics – This may be the hardest (and most critical) part of the program development effort. Once you have completed the creative and innovative efforts in the program design and have a sponsoring organization, you must convince a company that there is sufficient gross premium and a sufficiently limited potential loss ratio in the potential program to make it profitable. That takes demographic analysis. There are two good ways of conducting a demographic study that will provide sufficient information upon which to base your volume assumptions:

1) Survey the organization’s membership with a supporting letter by the sponsoring organization, and

2) Select a significant sample of organization members and survey their insurance history through personal contact.

3) Get loss runs from a significant number of individual members or from the group (if a Program existed prior to your contact)

The first option may require re-contact to assure a sufficient return of information. The second option may be conducted on the organization’s officers or board members – those members who understand the program and will provide sufficient data to draw logical conclusions for the entire organization.

Please be aware that most carriers will find a program viable if they can foresee a $2 Million premium level within a year or two and a larger potential premium volume within five years.

b. Proposed role of the Agency – This part of the presentation evolves the added value of the Program Manager. The least valuable benefit is its ability to bring the sponsor to the carrier. Many agents could perform that function. More valuable is unique knowledge of the type of business conducted by the program participants as well as full knowledge of the insurance products used to provide coverage for them. Most valuable to the carriers are program managers who can assume roles and administration that would normally fall to the carrier. The ability of the Program Manager to issue policies, file and administer claims and input new business, endorsement and renewals into the carrier’s system is invaluable to a company because it eliminates costs of program administration and justifies the fees charged by the Program Manager. The best program that we have encountered left the company only with an audit function with the Program Manager holding the legal files, managing all but the highest value claims, issuing policies, endorsements, renewals and cancellations and reinstatements. The carrier performed the legal filing efforts and audited the efforts of the Program Manager. This was truly a partnership between agent and company.

c. Proposed role of the carrier – This section is the reflection of the previous section. If you, as the Program Manager, recommends limited roles (and costs) to a carrier with protection for them against the chance of high loss ratios, the carrier will view you as a potential partner, rather than as an agent trying to “sell” them something.

d. Product and pricing needs – You have previously analyzed the needs of the program participants and of the sponsor. You have negotiated with them and sold them on these expectations and benefits. This section of the proposal reveals the product and pricing needs to the carrier for their approval. If a carrier is not willing to flex to the product needs of the client, seek other carriers.

e. A marketing plan for the first year of the program and expectations of results – This is a critical part of the program proposal. If you have prepared a marketing plan that begins with program implementation, continues through the marketing and sales activities proposed during the first year and concludes with the target premium for the program in the short term (long term expectations are covered within the demographic study).

f. A budget must be constructed as a working tool for you and as evidence to the carrier of your expected income and costs associated with the first year of the Program. The first year budget will certainly contain additional costs associated with initiation and marketing of the Program.

Program design and management is not a simple task. It is NOT simply selling the use of your agency to an association. It is NOT target marketing a carrier’s products to a specific type of client. Programs created properly puts the Program Manager in CONTROL of the program using the carrier as a true partner. Most agents (and most carriers) are used to a relationship that is sometimes more adversarial than partnership. The future of insurance for a significant portion of the U.S. commercial marketplace lies in programs. The programs are the Health Care Plans of the insurance industry. They will offer group pricing at lower administrative costs than providing individual insurance programs for each client by different agencies and carriers. If we can avoid the degradation of service associated with Health Care Plans, Programs can be a Win/Win/Win/Win scenario for clients, groups, agencies and carriers. If a Program Manager’s service degrades below the level of service expectation of the clients, they will leave for other programs or for individual policies elsewhere. If a Program Manager’s service to the sponsor degrades, it will seek other Program Managers. If loss ratio is uncontrolled, the Program will find itself without a carrier. There are many pitfalls requiring a professional approach to Program Management.

A Final Word

Program Management is expected to be the lead-in to risk-sharing on the part of forward thinking Program Managers. Agents who direct themselves to program management will have the potential of assuming a part of the underwriting risk from the carrier (and sharing in the underwriting profits). We are encountering a growing number of programs that are being designed as self-perpetuating entities with risk only partially (if at all) in the hands of the insurance company. As programs mature, they are becoming self-sufficient using carrier paper and re-insurance to cover excess risk while normal risk is covered by the Program’s own reserves. This is the future of P&C insurance for many groups in the U.S. They will eventually combine for the same economy of scale that permits carriers to profit from insuring them. They will use the carriers for the functions that are best served by those companies and keep other administrative tasks within the Program Manager’s domain.