The unstoppable third force

The unstoppable third force

They bonded with brokers during the pandemic. Now underwriting agencies aim to grow the relationship

By Bernice Han

Tight underwriting in the insurance market over the past few years has meant frustration and hard work for brokers as they tried to wrangle reasonable rates and conditions for clients with risks best described as non-vanilla.

While they’ve had their own capacity problems, underwriting agencies have stepped up to the challenges of hard-to-place risks. The agencies are seldom in the spotlight, and their role as the “third force” in insurance isn’t well understood by most outside the industry –like brokers’ clients.

They might initially find the concept confusing when their broker raises the option, but the agencies’ specialist focus has been a godsend for many. Think about unusual risks like vintage wine collections, museum artefacts or even covid vaccine shipments. Or hard-to-place risks like entertainment or amusement parks.

It’s not only their willingness to work on hard-to-place or unusual risks that encouraged brokers to turn to underwriting agencies for relief when the going got tough. Specialist underwriters bring to the equation niche skills that are not easily available in the broader market.

Each agency is a specialist, arranging insurance for risks in which they have considerable expertise. What sets them apart is their pricing acumen and knowhow in tailoring bespoke solutions.

As one broker put it to Insurance News, clients struggling to obtain insurance have come to regard agency underwriters as “problem solvers” for complex and hard-toplace risks – a category that isn’t getting any smaller.

Not all risks have been covered by the agencies because many have capacity issues. But business has nevertheless boomed.

Underwriting Agencies Council (UAC) Chairman Kurt Nilsen estimates underwriting agencies wrote around $8-9 billion in gross written premium last year.

While some have no doubt found the past few years tough, he says that “overall, UAC member agencies have all seen an increase in business and growth”.

And the agencies are continuing to find capacity to build business. Mr Nilsen’s own company Lion Underwriting is an example. In 2019 he accused Lloyd’s of lacking “consistency and enthusiasm” in covering Australian marine-related risks, but found ready support with Hong Kong-listed China Taiping Insurance.

Another that found capacity when the chips were down is Coversure, an underwriting agency “that went above and beyond” for the beleaguered amusement, leisure and entertainment industry – a higher-risk group which has had ongoing problems obtaining affordable, or even available, public liability insurance.

Many theme park operators or associated businesses were pushed to the brink by the insurance crunch. Some closed down. Premiums increased by as much as 200% in some cases, with the situation exacerbated by a scarcity of willing insurance providers.

Coversure set out to find a new partner after its previous binder with Lloyd’s ended in February 2020. It returned to the market in August last year, offering public liability insurance for the industry again after securing a line slip facility with a new capacity provider – Aviva, the UK’s largest general insurer.

The agency’s General Manager, Adrian Gamble, says the agreement with Aviva initially allowed for the placement of up to $10 million for each policy that is

accepted. In November it increased the limit for Coversure to write up to $20 million for most risks it accepts from amusement, leisure and entertainment clients.

“This was an opportunity we developed with one underwriter with the detailed data we had on file and by both parties working professionally and co-operatively to look for solutions in limited occupations,” Mr Gamble tells Insurance News.

He says Coversure, which works with a select group of broking partners on amusement risks, has seen a strong response since it started offering public liability insurance again. “We’re just struggling to keep up.”

Underwriting agencies have the niche expertise to drill down on brokers’ submissions, and Coversure places a strong emphasis on risk management to ensure the businesses they are considering are taking their own steps to minimise risks.

Mr Gamble says the work involves more than just going through applications submitted by prospective clients.

“An insured whose submission for public liability insurance has been accepted has to have demonstrated they have met the risk safety settings criteria set by Coversure and our security provider.”

Compliance documents aren’t enough. Coverforce’s list of requirements include proof that the client has up-to-date mitigation measures in place and that staff undergo regular safety training refreshers.

Applications that did not make it past the first round of assessment are usually not rejected immediately, Mr Gamble says. The agency often takes another look to ascertain if solutions can be found.

He says the agency recently received a submission in which it could only provide about two-thirds of the public liability insurance coverage needed, so it worked with the client’s broker to find another agency that could provide the rest.

“We’ve managed to come up with something where there’ll be a policy. There’ll be two policies but it gives them a cover for everything they do.

“I’d like to think we are problem-solvers. Even if we’re not going to cover everything, we will still look at coming with a solution.”

Mr Nilsen says Coversure’s success “is a fine example of an agency that is able to work through the challenges of the market and then provide a solution”.

“Thinking outside the square and looking at alternative solutions – that’s what underwriting agencies do,” says Mr Nilsen, who set up Lion Underwriting in 2015.

He says UAC members have “pushed on” despite more than two years of covid restrictions and economic uncertainties caused by the pandemic, and he believes the sector is capable of scaling greater heights in the coming years.

“The underwriting agency market will continue to grow,” he says. “More and more brokers have come to appreciate our expertise.

“Some brokers wouldn’t deal with agencies in the past but now they do. They have learned to trust agencies a lot more. It’s a sector that a lot of brokers can’t ignore.”

Mr Nilsen, who retained his UAC chairmanship in December, is now looking to prepare the sector for the post-covid world. This will include a return to in-person training seminars as well as the resumption of UAC expos without capacity restrictions.

Since last year UAC has held several expos, usually in collaboration with the National Insurance Brokers Association. It has abided by all covid-safe protocols, and the response from brokers who attended has been “very positive”.

“The most important thing is we will be getting back to what we consider our normal trading environment post-covid,” Mr Nilsen says.

“We will be focusing on providing value to our members agencies, and that is primarily through our underwriting expos. That’s where our members get to engage with brokers.”

Mr Nilsen says the UAC board is also busy working on a strategic plan for the next three years.

“We’re putting covid behind us, because it’s time to start looking forward and not backwards,” he says. “We will continue to grow the agency sector and our brands, which are already strong and well received in the market – but we know we can do more.”

Lloyd’s General Representative in Australia Chris Mackinnon agrees, saying there will be no turning back for the agency sector.

He says underwriting agencies are “specialty risk solutions craftsmen who rely on more than just algorithms to write niche risks”.

Innovation runs deep in the sector, and that’s an area where Lloyd’s is lending plenty of support to its distribution partners.

Mr Mackinnon lists parametric products as one way Lloyd’s is putting in significant effort and reaping dividends. Unlike traditional insurance solutions, parametric payouts are triggered if pre-set conditions are met, as opposed to meeting actual losses experienced.

Last November Redicova, a Lloyd’s coverholder based in northern Australia, started offering retail parametric insurance for tropical cyclones.

Another two parametric offerings are in the works, he says – one for hail and the other for covid-related recovery.

Mr Mackinnon says the Australian market for Lloyd’s has been “continually and consistently” growing, except for a small hiatus during covid.

The market has received a “significant” number of new coverholder applications, on top of new entrants that have already set up shop in Australia.

“We’re ready, we’re fired up and looking forward to strong opportunities and innovative new growth,” Mr Mackinnon says. 0

Positive future

Lloyd’s, the biggest security provider to Australia’s underwriting agencies, predicts its business in Australia will keep growing.

The venerable market draws its optimism from several trends. They include the way its business has bounced back after more than two years of covid interruption, and the remediation work the business has undertaken in the past few years to strengthen its books.

The trend of more businesses turning to underwriting agencies for insurance solutions is also fuelling Lloyd’s upbeat outlook.

Lloyd’s General Representative in Australia Chris Mackinnon says the Australian business recorded gross written premium (GWP) of $3.4 billion last year. In 2020, GWP flatlined at $3 billion because of the pandemic. Before covid, Lloyds’ GWP expanded by about $1 billion in the five years between 2015-19.

“The next couple of years are going to be an extremely positive story for Lloyd’s in Australia,” Mr Mackinnon tells Insurance News. “We’re seeing an increasing appetite by the market to put more capacity in Australia because they are getting the returns.”

“[Underwriting agencies in Australia] have stabilised, and we’ve now got strong, sustainable underwriting agencies that are able to produce quality portfolios – well underwritten profitable business. They will absolutely thrive.”