Recently I had the pleasure of moderating a session on best practices for carrier and administrator relations at the VSCAC conference in Las Vegas with representatives from both leading carriers and administrators.
Before discussing the best practices of maintaining a fruitful relationship between these parties, let’s briefly review the structure of the industry.
An administrator will generally design and market a service contract program, as well as administer the contracts by providing customer service and claims services.
While there are many administrators, there are a limited number of carriers which regularly service the independent administrators.
A carrier’s primary role is, of course, providing an insurance component to the service contract.
In addition, a carrier can provide valuable assistance with all aspects of the program because carriers will have experience with a large number of programs. For example, carriers can potentially provide analytical, actuarial or legal support in the design of the program.
In evaluating a program or administrator, what do carriers typically desire?
Profitability
Obviously, programs need to be profitable for both parties.
Transparency
In discussions with carriers, transparency is always mentioned as a key. Because carriers have limited information about a specific program, it is important that there be complete transparency in all aspects of the service contract – from design, administration, claims, and financial reporting. Carriers may have different metrics than the administrator for evaluating programs – this is due to having a different role in the business as well as standard metrics so they can evaluate a large number of programs.
For example, consider a new program which is meeting volume expectations but the loss ratio is higher than projected. If a carrier has access to all information, they can form an opinion on whether the adverse experience is due to claims settlement, pricing issues, bad luck, or perhaps an early surge of claims due to preexisting conditions.
Trust
As in any relationship, trust is key. Trust and transparency are critical in solving any problems that arise with the management of a service contract program.
Compliance
Compliance is critical for carriers. Administrators should be vigilant in being compliant with the many regulations and laws regarding service contracts. Of course, most carriers can assist in being compliant.
For administrators, the key factors are similar but differ in a few ways:
Marketable program
Administrators need marketable programs. Programs are expensive to develop and market and administrators will need volume to offset the fixed expenses of administration and hopefully make a profit.
Profitability
Of course, administrators are also concerned with the profitability of a program. While volume may be key initially, it is the overall profitability which will ensure that the program is a success. Administrators often have significant participation in the overall results of the program.
Flexibility
Administrators need carriers to be flexible in the rapidly changing world of service contracts. New products are rapidly being developed and marketed. A good carrier will be responsive to an administrator’s needs.
Partnership
Good administrators look for long-term partners and relationships. Administrators want carriers who are committed to the service contract market and the independent administrator business model. Similarly, carriers also seek long term relationships and not administrators who look to move books simply to gain a few commission points.
For administrators, the benefits of maintaining good relationships are clear — a steady reliable carrier for your products.
Carriers need administrators to be profitable, trustworthy, transparent and compliant – kind of like boy scouts!
While the independent administrator market is currently healthy, it is important to realize that this market only exists due to the willingness of the insurance carriers to provide their services.
It is critical that the general state of relationships remain good between the parties since the “independent administrator” model is not viable without carriers.
