Is It a Program or a Package’ Here’s How to Tell the Difference

If both programs and packages combine necessary, traditional lines of coverages into a “package,” how can you really tell one from the other?

“You could write a package program for a program—that’s how confusing it can get,” said Andy Barile, president of Arrowhead Commercial Division.

Basically, a package is an insurance policy that combines both property and liability coverages in one contract or policy. “Any time you have a monoline coverage, such as general liability (GL), property, personal auto and workers’ compensation, and you add one or more of those coverages together—usually GL and property—it’s considered a package,” said Ron Abram, president of Abram Interstate.

A program, on the other hand, considers all of the various risks and exposures that are involved in a certain operation. It includes all the “bells and whistles” (GL, property, enhancements, etc.) tailored to a particular type of risk or class of business.

“The fact of the matter is that programs can be structured for both homogenous (a group of like insureds) or heterogeneous (unlike insureds) books of business,” said Richard Look, vice president-field marketing, Commonwealth Risk, a company that specializes in creating programs.

Typically, homogenous-based programs are industry-specific while heterogeneous-based programs are coverage specific, Look said.

“Everyone in the insurance industry defines the term ‘program’ in their own way, though we’ve found that when agents think of programs, they think of a group of homogenous or like insureds controlled by a production source [like an MGA] where the book of business is leveraged to a carrier in exchange for back-end return based on performance.

“Our company looks at programs much differently than others. We consider a ‘program’ to be a structure of coverage designed for a controlled book of business—which can be heterogeneous or homogenous—whereby someone other than the insured is taking part in the risk—whether it be the production source, carrier or reinsurer or some combination of any of these entities,” Look said.

The difference lies in the fact that Commonwealth Risk’s programs may range from offering one coverage to a multitude of industries that may have difficulty obtaining that coverage (such as employment services and workers’ comp) to offering a complete package of products and services for a particular industry.

“In most cases, the program administrator should also have a claims administrator and loss control or risk management service available to that industry class,” Look said. “The loss control and risk management service makes the program more acceptable to reinsurers while the claim service enables a full-cycle solution from the client’s perspective.”

According to Arrowhead’s Barile, a program is when you take a group of insureds, put them together and design an insurance coverage for them. “For example, professional liability insurance could be a coverage, but if you wrote it only for security guards, that becomes a program,” he said. “The program is equal to the number of security guard companies that are in California that you can write the professional liability policy for—the same way you could do it for wineries or hotels, etc.”

Are you in or are you out?

Abram feels that there are few retailers that have the ability to generate enough of a particular type of program that would be appealing to a wholesale agency. And the reason for that? “It’s a numbers game,” he said. “Most companies aren’t interested in putting together a program if it doesn’t generate ‘x’ amount of premium dollars for them, and that’s because there is only so much in resources that they can allocate to something.”

In other words, the program better be worth generating a sizeable book of premium and profit for the insurer, because if not, they just won’t be interested, Abram explained. “Instead, they can allocate their resources to other programs that they already have going on and grow those, rather than going out looking for a new
program,” he said.

On the flip side, a wholesaler deals with lots of retailers, and therefore, he or she can easily put together a program. “For example, a wholesaler can put together a social services program, which might be all-inclusive of lots of different classes of businesses and coverages,” Abram said. “And it might appeal to a number of different agents that have that kind of business, but individually, they don’t have enough clout to take it to a company.”

In this situation, the wholesaler puts the risks all together and approaches the insurer with a program. “The bottom line is that the retailer likely won’t have program business that would be attractive to a company because he has only a few [risks] versus a wholesaler who does business with many agents who collectively then would be able to provide several of those same kinds of risks,” Abram said.

Everybody loves discounts

Once a package is put together, discounts can come into play. Abram used the social service example again to explain the possible discount. A halfway house needs GL coverage to operate. The building is rented, not owned, so they really don’t need the property coverage. They just need the liability coverage to operate the house, and therefore it’s a monoline GL coverage.

“Now, if the owner of the property operates the halfway house, the property needs coverage too,” he said. “By doing the property and the liability I’ve packaged the two, and usually the company that I’m packaging it with has filed it in that fashion—so they can write either monoline GL or monoline property or the combination of the two.”

The premium might be $1,000 for the GL monoline and $1,000 for the property, but if the two coverages are packaged, the premium would be $2,000 less a 15 percent discount. “Ideally, if you can go to a wholesaler that has both a monoline GL and a monoline property, versus a wholesaler that has one company that has GL and property packaged together, you should go to the package carrier,” Abram said.

Breeding stables are another example of how a program would differ from a package. “If I had a package available to me, I might have a carrier that would be willing to write the liability, and they might be willing to write the property, but they likely wouldn’t have the coverages designed specifically for the horse breeding operation,” Abram said. And by simply using an ISO form for property and one for GL, the amount of coverages available for that breeder would most likely be limited, Abram said.

Conversely, by writing a program for horse farms, liability for care, custody and control (CCC) of other animals, coverage for fences, automobile coverage—all of the various risks and exposures that are involved in that operation will be considered.

“It may include coverages for occasional people coming on and off premise because they’re bringing their horses on and off premise to breed there…because you are really designing the policy to address all of those things,” Abram said. “And although it may not be 100 percent inclusive, the
majority of those exposures are covered.”

Location, location, location

Cindy Langbehn, executive vice president, The Gorst Company, said that depending on the location, certain programs are more effective in one part of the state than in another. For example, Gorst has an exterminator program—a program designed specifically for pest control operations. “And in the Central Valley of California that’s a really big thing,” she said.

And in Southern California, Gorst has found a large number of clothing manufacturers, making their sewing contractor program a big hit there. “It happens to be a class of business that a lot of the standard markets don’t want to touch because there have been horrendous theft results in that area,” she said. “But we have a program—and have been pretty successful at it.”

In an effort to control claims, Gorst does things such as putting warranties on alarms and putting a sublimit on theft coverage, “so you are able to write the risk,” Langbehn explained.

A program is often, although not necessarily, sponsored by an association or trade group. The coverages will be customized based on what most of the members of the association need.

“It’s good for the associations, it’s good for the wholesaler or the company, and hopefully, the guy who joins the association wins too,” Abram said. “Because it’s a way for him to access something that he would otherwise be unable to.”

Associations are a good target for program business because the demographics of the group are clearly spelled out. “You can go out there as a company or a wholesaler and build a product that tailors the coverage specifically, and hopefully it gives you a marketing advantage, because you’ve got all of the bells and whistles,” Abram said.

Topics California Property