The rise and rise of underwriting agencies

The rise and rise of underwriting agencies

Demand for bespoke solutions for increasingly complex risks is growing. Combined with a hard market, that puts agencies in a great spot

By Bernice Han

There’s a good reason why David McEwan, who runs a boutique broking firm in Sydney, turns to underwriting agencies just about every time he has clients in need of cover for a niche or difficult-to-place risk.

The agencies, he says, have the technical specialists and guidelines in place for arranging insurance contracts involving complex risks. Underwriting agencies typically specialise in niche fields of coverage, which Mr McEwan says gives them high levels of knowhow on what it takes to assess, price and insure such risks.

Not that his brokerage, Galvaniize Insurance, doesn’t work directly with mainstream insurance companies. It’s just that when it comes to risks that do not fall under the so-called “vanilla” category, underwriting agencies have very often emerged as the go-to providers.

At the moment about half of his business is conducted with underwriting agencies, and he works only with those who have security arrangements from capacity providers that have a minimum A-plus rating. In insurance parlance, an A-plus rating is an indication of strong financial strength.

Upbeat: UAC Chairman Kurt Nilsen

“A broker’s role is to help clients and solve problems that they may have,” Mr McEwan tells Insurance News. “There is a massive need, especially with boutique brokers like myself, where we get hard-to-place business and clients need solutions. Often it’s underwriting agencies which provide those solutions for us.

“Underwriting agencies fill the gaps and voids in the market that traditional insurers can’t offer us. That’s why we will use the agencies, because they have the skills and personnel to deliver what we need for our clients.

“They can solve problems that some of the big insurers can’t or don’t cater for.”

There are other benefits that Mr McEwan sees in working with underwriting agencies. Like many other brokers, he likes the fact that the agencies are “very clear” if they are unable to take on a particular risk.

When agencies are not keen, they arrive at a decision quickly most of the time, giving brokers enough notice to look for other alternatives.

It is no mere coincidence that the profile of underwriting agencies in Australia, as in most industrialised economies, is so high right now. Once referred to by Insurance News as “the third force” in insurance, an increasingly complex world and a global hard market has enabled the agencies to showcase the value to brokers – and insurers.

The ingredient that makes them so useful in placing specialised risks is expertise. In many cases, only bespoke solutions can fulfil a client’s needs, and it’s often only an underwriting agency that has the experts who can understand what’s needed.

That’s why underwriting agencies are often the place for brokers to go in their quest for alternative remedies on risks ranging from cyber to marine cargo, professional liability, energy infrastructure and even

private art collections. It’s a huge, diverse and unusual list where standard tick-a-box policies won’t cut it.

At the same time, insurers in recent years have embraced the concept of outsourcing difficult or unusual risks to agencies. They have worked out the maths and concluded it is more cost-effective to provide agencies with capacity and binding authorities to take on these risks.

Mr McEwan likes the fact that insurers are backing the underwriting agency sector. “It is important to have a blend,” he says. “I hope to see underwriting agencies receive more support from insurers.”

The Underwriting Agencies Council (UAC), the peak body for the sector in Australia, says the volume of business taken on by its members has grown significantly over the past decade or so. The increase has been accompanied by a rise in its membership base. In 10 years UAC’s member list has grown from 60 to 130.

Last financial year UAC members posted total gross written premium in excess of $7.5 billion – about three times that of the $2.5 billion transacted in 2009, according to the council’s long-serving General Manager, William Legge.

He says the past 10 years have seen the broking fraternity tilt “dramatically” towards the underwriting agency sector.

“This in part was occasioned by the need for the insurance companies to really analyse their portfolio to emphasise which direction that they needed to head into in the face of declining investment returns and an increase in the incidence of both very large and also catastrophic claims,” Mr Legge tells Insurance News.

“These reviews led to the broking market turning more and more to the underwriting agencies for answers to their need for an alternate market for clients’ insurance requirements.”

Agencies, for their part, have done their homework, building their operations to thrive in response to growing demand for their services. Not only do they possess specialised understanding of their offerings, they are also aware of the pressures facing brokers and clients.

Crucially, agencies operate with an innovative fervour typically associated with entrepreneurs. This has proved to be an asset as they constantly tweak and improve their offerings in response to the constantly evolving risk landscape.

Many of the agencies that have opened in recent years are owned and operated by specialist underwriters who spent years honing their knowledge. The motivation and freedom to run a business that blends with their specialised skills are often what drives them.

Jill Murphy, a marine insurance specialist who learned the ropes at companies like Aon and AIG, started RedSky Insurance in Sydney with former NTI corporate development specialist Heather Roberts.

“What it came down to was we were able to control our own destiny in the prime part of our careers,” Ms Murphy says. “Heather and I decided that doing our own thing was a better way to go.”

Mr Legge says the major difference that underwriting agencies bring to the table compared to the insurers is that they have a “much smaller and less tenuous” reference structure.

“So they are able to consider, negotiate and by applying their experience and underwriting skills, make a decision relatively quickly,” he says.

“This speed of response is a major benefit to the broking market and has assisted in enhancing the good reputation of the underwriting agency market in the minds of brokers. That boosts brokers’ comfort zone when dealing with the delegated underwriting authority market.”

Mr Legge says the term “delegated underwriting authority holder” is the formal name for underwriting agencies operating in Australia and New Zealand. In the United Kingdom they are called managing general agents (MGAs). They also go by the moniker “Lloyd’s Coverholder” if they have been authorised by the London-based market to enter into insurance contracts under a binding authority.

Like their overseas peers, Australia’s underwriting agencies are now regarded as a major part of the insurance distribution network in Australia. They hold a contract, or binder, from an insurance company that provides the security for an insured risk. They seek for, quote for and then bind and issue documentation on behalf of their insurance capacity providers. Many of these agencies deal only with brokers.

“We can also sometimes handle and settle claims on behalf of the insurance company,” Mr Legge says. “The binder sets out very fully which products and markets the agency may deal in and usually sets out a pricing template.

“In effect, we stand in the place of the insurance company.”

Lloyd’s is a key player in the Australian underwriting agency market. It’s the biggest capital provider to local underwriting agencies, according to Chris Mackinnon, its Regional Head of Australia and New Zealand.

In 2019 the venerable market had 147 coverholders writing $1.68 billion of business. This is a marked rise from 2006, when there were just 62 coverholders with portfolios valued at slightly over $350 million.

Mr Mackinnon says the underwriting agencies play a key role in providing new and emerging coverage solutions, being nimble and highly specialised in their respective fields.

And the current hard market conditions have underscored the critical role of agencies.

“The inherent value of an underwriting agency really comes to the fore in a hard market,” Mr Mackinnon tells Insurance News. “When there is limited capacity in the market, it’s not just the underwriting agencies that are affected.

“The general insurance industry is impacted as well, but the ability of the underwriting agencies to be nimble and adapt products to create the best possible solutions with what limited capacity is available is what separates them.”

A new report from AM Best says the agencies have demonstrated their worth to the insurance distribution model. They have long been an important part of the industry’s vast ecosystem, helping insurers identify risks that fit their appetite and potentially expanding their product offerings.

The ratings agency says the growth of delegated underwriting authorities has been fuelled by private investments, the accelerated growth of start-ups and operational expansions.

Providing capacity: Lloyd’s local representative Chris Mackinnon

Persistent competitive pressures have made it difficult for insurance companies to grow premiums organically, which is why insurers value the specialty product and the geographic expertise of delegated underwriting authorities.

By tying up with delegated intermediaries, insurers get access to the booming specialist risks market while at the same time enjoying potential savings, because they don’t have to set up in-house operations to underwrite the desired business.

“Many factors that are driving growth in the MGA market are global in nature,” AM Best Senior Director Greg Williams tells Insurance News. “Insurance has become competitive and as insurers are looking to achieve profitable growth, MGAs provide an avenue to grow.

“For example, MGAs have a local presence and have spent a lot of human capital building relationships with customers.

“This local knowledge makes them a very desirable partner for insurers looking for growth in an economy whose growth has been severely exacerbated by COVID-19.”

AM Best says the difficult economic environment has raised the profile of underwriting agencies with brokers and insurance carriers globally.

The Australian market has seen a number of significant deals for underwriting agencies, a sign of the long-term growth potential offered by the intermediary segment. In December last year listed brokerage AUB Group acquired 360 Underwriting Solutions.

And a few years earlier in 2016, XL Catlin – which was taken over in 2018 by French insurer Axa – acquired Brooklyn Underwriting.

Even QBE wants a piece of the action. Last October its investment arm, QBE Ventures, partnered with workplace inspection company SafetyCulture to set up Mitti, a tech-focused underwriting agency for small and medium-sized businesses.

Kurt Nilsen, who set up Lion Underwriting in 2015 and is Chairman of UAC, is fairly upbeat on what the future holds for underwriting agencies. He says the agencies have more than proved that they are capable distribution partners, particularly in the current hard market conditions.

“In a hard market there’s all the more need for expertise, experience and the ability to make decisions,” he says. “We can adapt quickly, being more nimble in our set-up than insurers. “We hold the pen and we make sure we are protecting our capacity providers.

“Agencies thrive because we are able to distribute capacity for the insurers a lot easier and a lot quicker. Plus we’re close to brokers who provide the opportunities from the client.”

Motoring on more strongly than ever

Specialist operator: Fleetsure General Manager Steven Hamilton

Specialise in one thing and do it really well. That’s exactly what Fleetsure has been doing since it started up some two decades ago.

The underwriting agency offers only solutions for commercial, heavy and mixed motor vehicle fleets. These include utes, vans, rigid trucks, prime movers, trailers and mobile plant, for example.

While other agencies have diversified, Fleetsure has instead decided to stick to its knitting, focusing on just one line. The strategy has paid off for the agency, which is recognised by its clients as one of the best in the business.

“Fleetsure has been operating for 20 years and specialises in commercial motor vehicle fleets,” General Manager Steven Hamilton tells Insurance News.

“Being a single-line agency, we have developed an intimate knowledge of our market space which allows us to continue to grow successfully.”

He says that over the years many other agencies have come and gone because they often “had a quick grab” for premium without fully understanding and appreciating that client service with acceptable underwriting results are of prime importance.

Fleetsure has invested in strengthening its all-round service offerings for clients.

For example, it earned recognition for the way it supported clients with their claims applications. The agency last year won the Sue Ronai Memorial Award for Excellence in Claims. It was the second year in a row that Fleetsure has taken the prize.

The award, presented by Austbrokers members in Victoria and Tasmania, recognises overall claims service.

“The motor vehicle space we participate in is an area of very high claims frequency and on a daily basis we assist our clients in what is a streamlined repair accident process,” Mr Hamilton says. “We also have more complex losses and repairs.

“Those – where our repair networks have ready access to spare parts and preferred service levels – allow for clients to achieve timely repair completion of the type that would not otherwise be available.

“This is particularly so in the COVID-19 environment where the supply chain has seen many other insurers’ clients waiting weeks and weeks for vehicles to be repaired.”

The motor fleet line is not the easiest of portfolios to manage, but Fleetsure says having a strong partnership with QBE, its long-standing capacity provider, has worked well for the business.

“Many other agencies have been seen as markets of last resort offering inferior products, whereas our relationship with QBE and product offering, is best of breed,” Mr Hamilton says.

Sky’s the limit for marine agency

Thriving: RedSky’s Jill Murphy, left, and Heather Roberts

Jill Murphy and Heather Roberts were under no illusions that setting up an underwriting agency was always going to be challenging, but they were ready for whatever came their way. They were game to take on new challenges and put in the hard yards to make their underwriting agency a success.

And the fruits of their labour have paid off. Some 12 months and a pandemic later, RedSky Insurance has found its niche and is thriving against the odds.

The founders stepped out of their comfort zones to build the dream of a customer-focused and nimble marine underwriting agency in late 2019.

“What it came down to was we were able to control our own destiny in the prime part of our careers. Heather and I decided that doing our own thing was a better way to go,” Ms Murphy tells Insurance News.

They have more than 50 years’ experience in the insurance industry between them, holding senior positions with leading broking houses and insurers in Australia and overseas. But it was Ms Murphy’s last role at Agile Underwriting that gave them the catalyst to strike out on their own.

With backing from Envest, an Australian insurance-focused private investment firm, the pair purchased the marine portfolio that Ms Murphy had built at Agile in an off-market transaction in December 2019.

That Envest came on board from the start was a “vote of confidence” in their vision for the business, they said.

“Starting an agency is hard work but the financial and advisory support from Envest combined with our collective knowledge and experience, passion for service; our relationships and networks, and the current state of the market has ultimately worked in our favour,” Ms Murphy says.

“I’m really proud of what we have achieved in just over 12 months. We only launched on December 2 2019 and three months later we had to navigate our business through a pandemic.”

The pandemic required some recalibration of their business plan but according to Ms Roberts, the team managed working remotely very well.

“You just have to get on with it,” Ms Roberts says. “Staying in touch and communicating has been important especially for a start-up. But as Jill says, it’s the passion that really kept us going. And we learned quickly how positive and adaptable we can be as an underwriting agency.”

Ms Murphy, who is based in her native New Zealand, says Zoom became the agency’s “best friend”. And despite being unable to see her team for more than a year or meet

with Australian clients, the agency has continued to grow and establish its presence nationally and in New Zealand. RedSky is also writing marine business in the Pacific islands and recently moved into some parts of Asia.

“I think our customers like that we are niche, we’re passionate and our more than 50 years’ of experience come through. We know what we’re talking about,” Ms Murphy says.

“The other milestone was becoming a coverholder at Lloyd’s. That was a big confidence boost. It took us a short six-month process to achieve coverholder status and in the middle of a pandemic.”

Mitti makes its mark

Exceeding expectations: from left, Mitti’s Stephanie MacRae, Danial Cummins and Megan Duckworth

The next generation is ready to make its mark in the insurance industry. Or in the case of the trio who manage Mitti, the mark has been made in the short time since they launched the underwriting agency in October last year.

Backed by QBE and workplace inspection company SafetyCulture, it took the agency founded by Danial Cummins, Megan Duckworth and Stephanie MacRae – who are in their mid-20s to early 30s – just six months to achieve some $2 million in gross written premium for business insurance policies. That was well ahead of the targets that had been set for the business.

“It caught us a little off guard, to be honest,” says Mr Cummins, the agency’s General Manager.

“I’m really proud that three young insurance professionals were able to start this underwriting agency, and to do it at the pace and speed that we have been able to do has been phenomenal,” he tells Insurance News.

“We’re three young insurance professionals trying to disrupt the market and trying to add value to the customer – all in the middle of a pandemic and in a hard market.

“It couldn’t get any harder, but I think if you look at all successful businesses over time, they tend to have come through difficult periods. A lot of successful businesses start during difficult times or they start by disrupting the market when the market is hard.”

The goal right at the start for Mitti, which is short for “mitigate”, was clear: to reimagine the relationship between risk and insurance and disrupt the market using SafetyCulturedeveloped technology and QBE security.

Mitti bills itself as a technology-first insurance company, meaning it will prioritise and invest in technology to benefit customers. The aim is to ensure clients get maximum benefit when they take up a small business insurance package from the agency.

What Mr Cummins sees setting the agency apart is that its clients will be provided with free risk management support in the form of iAuditor, an inspection app created by Townsville-based SafetyCulture. The app is used by 26,000 businesses worldwide to merge risk mitigation tech and insurance.

An example: A plumber in Western Australia, who was struggling to get insurance cover within his budget, was able to secure cover from Mitti after using the risk management tool to reduce the potential claims exposure facing his business.

“We want to break the mould of what an insurance company is,” Ms Duckworth, who is Head of Underwriting and Compliance, tells Insurance News. “The feedback we are getting from the market and our customers is really rewarding.” Ms MacRae, the other Mitti founder, is Head of Product and Finance.

QBE Ventures, the investment arm of QBE, says it is pleased with how Mitti is doing. The insurer is joint owner of the agency with SafetyCulture.

“Mitti is performing strongly and ahead of our initial expectations,” QBE Ventures Chief Executive James Orchard says.

“It’s a great example of what we’re trying to achieve within QBE Ventures, which is to work with innovative technology companies and leverage our own market expertise to ultimately reinvent what insurance looks like.”

Doors open at The Barn

Ideas man: David Porteous

In February 2019 the doors to The Barn Underwriting Agency opened. It was the brainchild of David Porteous, who found it simply too hard to just walk away from the industry.

He had previously been with Brooklyn Underwriting, spending some seven years with the agency including nearly five as director.

The little break he took in January 2018 after leaving the business – which was acquired by XL Catlin in 2016 – was where he realised his passion for insurance was still burning brightly.

“I just decided that what I really loved doing was creating ideas and finding insurance capital and brokers to get behind the idea,” Mr Porteous tells Insurance News. “When that happens, it’s a genuine thrill.

“I decided I’d like to do that under a new vehicle – like a fresh start. I was at a point in my life where I wanted to take that challenge.

“From a philosophical perspective, life is about taking risks. If you never take a risk in life, then you are never going to know what you are capable of.”

More than a year after its doors opened, Sydney-based The Barn, a Lloyd’s coverholder, has established itself as a specialty commercial insurance underwriter in the Australian market. It offers solutions for specialty property, general liability and loss prevention.

Making a difference is what motivates Mr Porteous and his team every day.

“We’ve got an outcomes-focused approach, so it’s delivering genuine outcomes for our clients,” he says. “We’re completely independent and we’re here for the long-term.”

When the agency started, the insurance cycle was already in a hardening phase. The market conditions have since become even tighter. It isn’t exactly ideal for a new entrant looking to have a crack at the market, but Mr Porteous has a different take.

“We entered at a good time as an agency,” Mr Porteous said. “There’s a pricing element to the hard market, and there is also a capacity element.

“Almost every business needs insurance and they need the additional capacity that we were bringing. They needed to protect their assets.

“At the moment we’ve got appetite and capital for specialty risks that a lot of insurers in the market are now walking away from. They are the segments in the market that we are seeking to add value.”