Carriers who have MGAs pitching new programs to them are more likely to accept programs with proven track records as opposed to startup programs for which loss ratio cannot be calculated because of lack of track history. As a result, getting a carrier on board for a new program has always been a challenge for MGAs. Unless carriers can accurately assess a program’s future success based on prior loss experience, it’s less likely that a startup program will be considered. Besides, execution of a new program consumes considerable development time and investment in carrier’s part.Carriers’ areas of concern
Let us explore some of the key carrier concerns with startup programs and how MGAs can address those:
Product expertise – MGAs need to demonstrate and convince carrier on their expertise on the proposed program, especially in areas of administrative system skills and underwriting. Carriers usually prefer to partner with MGAs who have expertise in underwriting and policy administration.
Accounting capability – MGAs need to prove their capability to handle various facets of accounting for the proposed program.
Claims administration – If an MGA is proposing to include claims adjudication, they should provide a solution for claims administration services, and explain how they are going to manage various claims related aspects of the proposed program.
Loss Control – Clarify the safety practices which are part of your loss control program. If there are no safety practices necessary for the program, explain why so.
Compliance – Declare the rates/rules/forms, selection criteria, underwriting guidelines, audit guidelines, etc. that will be needed and explain how you are going to manage those.
Data Collection and Transfer – Explain what different types of data you will be collecting for management of the proposed program and explain your capability to transfer data to the carrier & vice versa.
Data Security and Personal Information – Explain how you store and safeguard carriers’ sensitive information.
Disaster Recovery – Demonstrate to the carrier various provisions in place in the event of a disaster and your ability to carry on with the business.
Reasonable sales volume and profit – MGAs need to address and convince carriers with existing sales figures while proposing a new program. MGA’s program proposal must include a tangible strategy to show how carriers can achieve that volume of business and profit.
How can you overcome the need for a loss ratio projection without a track record?
As startup programs lack historical data to back its loss ratio performance, MGAs have to overcome this hurdle by presenting a set of logical arguments to convince carriers that there are measures that can make the program profitable over time.
- Argument 1 – You write only for those accounts in a class that produces lower loss ratio as compared to industry average based on market pricing.
- Argument 2 – Have an effective safety & loss control plan that covers all risks and eventually generate a lower loss ratio than the class average.
- Argument 3 – Have a uniquely low expense structure to write the business at a lesser loss ratio, and you still manage to generate an acceptable ROI for the carrier over time.
- Argument 4 – Have an ability to manage results of your book by adjusting rate and selection criteria over time.
- Argument 5 – Prove rate adequacy of your pricing model by presenting industry or trade data.
- Argument 6 – You can manage claims to achieve a lower per claim value than the average in the class.
Let us take an example of an automated business auto program written on a “commodity class of business at industry average prices. They can show how to generate a long term profitable book” in the case to the carrier:
Your solution for the proposed program:
- Create a unique rating structure that includes risk factors, which are usually not anticipated by the industry.
- Provide an in-house software solution for the producers to rate, quote, bind, and issue policies.
- Build a classification system to monitor loss ratios by finite classification & causation difference. Benchmark results and make adjustments to manage the book for profitability over time.
This is how you can achieve the above:
Rating plan - Analyze the ISO rating plan to determine the key elements of risks not addressed and then based on industry statistics, develop weighted tables for those key elements and deviate from the ISO plan wherever appropriate.
Software platform -
- Provide a secure web-based portal solution for the producers
- Integrate the completion of an application to the rating process for immediate quoting of risks and policy issuance
- Provide auto referral of risks to underwriter that fall outside the guidelines
- Have a provision for tracking producers’ activity to monitor their usage
- Integrate rating, issuance, & claims system to track detailed loss causation patterns
- Provide full report capability to the producers
Classification System - Build a classification system to be able to break down loss costs by risk characteristics over time. The initial data derived will help to manage the book for future results.
Getting a carrier convinced for a new programs may not be easy, but at the same time, program business has its own advantages and is one of the fastest growing and profitable segment of P&C market. If MGAs are able to hit all the right notes while proposing a program, getting a carrier on-board won’t be impossible.