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Many Insurers Can Improve Bottom Line Through "Virtual Company Model"

Two executives of companies related to U.S. RE told a recent conference in Boston that many insurers can improve efficiency and profitability by adopting the "virtual insurance company model."Mark Harris is President of AMG/Quadrant Insurance Managers, a national program development and managing general agency with extensive experience in virtual operations. Jim Brown is Director of Marketing for QualSure Insurance Company, a Florida homeowners insurer, which began operations two years ago utilizing the virtual model. U.S. RE is a substantial shareholder in both companies.

Prescribing "virtual insurance companies as a recipe for change," Mr. Harris said, "the alternative model for insurance programs without bricks and mortar is an innovative approach that can achieve a higher level of service to clients and improve profit to insurance carriers."

Mr. Brown defined a virtual company as one in which "the enterprise is conducted through a small management team that oversees the work of one or more vendors or other organizations." He said the model is working well for QualSure which began operations with 83,000 policies previously underwritten by two State insurance pools. "We didn't have an existing internal organization to manage such a large number of policies so we partnered with established leaders in their fields to provide essential services. This freed up the management team to concentrate on strategic planning and business development," Mr. Brown explained.

Mr. Harris said the virtual approach can also be effective for larger established insurers. "Outsourcing to professionals who can meet or exceed your service standards can keep a company competitive by reducing overhead," he told the conference. "The keys to successful outsourcing are to communicate frequently and openly with vendors, challenge them with incentives, and monitor their performance at regular intervals. Use of the Internet to facilitate communication between buyers and risk takers upgrades performance and satisfaction for both parties," according to Mr. Harris.

"Managing general agents with detailed knowledge of targeted industries know the best risks and can provide insurers with profit opportunities at lower costs. When underwriting is seated with the MGAs, they should be tied to the profitability of the business written. Having them take some risk is often desirable," he added. He also advised participants "to seek reinsurers who understand and buy-in to the underwriting goals."

Mr. Brown concluded that a well planned and executed virtual company operation will provide substantial benefits, including "paying fees for services without costly overhead, tapping into expertise that might not otherwise be available, especially to a start-up, and overcoming the impediments that existing infrastructures always put in the path of creative ideas no matter how promising." He offered 10 lessons from experience with virtual operations. They can be found in the Research and Analysis section of www.usre.com. Visit www.quadrant-us.com for more information on Quadrant operations.