November 11, 2019
10 Steps to Successful Insurance Program
by CJ Lotter
Spinning up an insurance program is a lot like baking a cake. This post introduces the 10 steps to creating a successful program.
This is the first in a series of posts in which CJ Lotter, a 15-year industry veteran, shares lessons learned in the form of guidance to MGAs on the steps required to build a successful program.
Creating a successful insurance program requires the execution of 10 essential steps that take advantage of market conditions, skills, partnerships and technologies.
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 the 10 steps to creating a successful 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 solution. Ideally, you want to compete against an old school company that can’t rapidly adjust.
See also: Insurance Innovation’s Growth Challenge
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 service.
4. Spot and Attack ‘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. Perceived distress is the key here. Perceived distress essentially boils down to a gap in the insurance offerings available to your market that can be exploited by technology, underwriting advantage or better customer service.
5. Assemble Relevant Expertise
Identifying a strategic direction for your program establishes your road map. You hope 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 program. Ideally, you want underwriters with direct experience in the industry you are targeting.
6. Select the Right 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 perceived distress sooner than your competition – especially if the competition is a big, slow-moving, legacy insurance company.
7. Establish the Distribution Network
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 new thing? 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. Build 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 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. Set the 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 program launch.
See also: Is Buying Insurance Like Ordering Food?
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 such as pension funds and hedge funds, 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 the 10-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, you can just go out and buy one.
Excerpted with permission from Instec. A complete collection of Instec’s insurance industry insights can be found here.