5 reasons MGAs choose the wrong IT suppliers

In their vendor selection and management presentation, one of Gartner’s Research Directors, Dayla Sullivan, recognises that we now live in a world where we are ‘super-fast consumers’. She goes as far as to say that speed can trump SLAs, pricing, ROI measures and even the importance of strategic partnerships when choosing an IT provider.

For the growing insurance MGA market, selecting the right IT system can be time consuming. Especially when led by business or underwriter-side decision makers who may not have first-hand experience of a full, comprehensive RFP process.

The basics are obvious, what they all do, prioritising what you need (chances are you can’t have it all on the specific budget, timeframe and capabilities available) and making the best decision based on the future plans for your business.

So aside from following a checklist, like the resources detailed below, what else could you look out for?

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Useful supplier selection resources:

Nine steps to successful information technology vendor selection, TechWRITE, Inc. blog

The Successful Vendor Selection Process:  Five Steps, About.com – Operations / Technology. Authored by James Bucki, Director of Computing Technology, Genesee Community College

Gartner Vendor Selection – Latest Vendor Selection Trends‎ – Sourcing & strategic vendor relationships,  presented by Gayla Sullivan, Research Director, Gartner’s IT Asset Management, Vendor Management and Procurement team

Gartner report for members or purchase: Agenda Overview for IT Services Sourcing, 2014

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After discussing some of the main challenges of insurance technology selection with industry contacts, it appears there are some reasons people may choose the wrong supplier. They won’t affect all, but these have been highlighted as some of the uniquely insurance-related IT selection pitfalls:

  1. Short sightedness

Judgements based on only what a system can do now. Once it’s implemented what then? Can you control your operations and how quickly products get to market? Was the supplier product roadmap factored into selection? Was your business strategy for the next 5-10 years one of the key decision making factors? It may appear the ‘best’ decision at the time but if you are forking out additional funds next year to support a new distribution channel or scheme, what’s that term? Own goal.

  1. Blagging it

Are the people doing the selection process qualified enough? Do the selection panel know IT, your business and insurance well as a whole? Sometimes, especially in MGAs, only one or two people are truly leading the selection process and therefore may only have one or two areas of expertise – perhaps not enough to consider all of the selection implications.

  1. Image is everything

As a supplier we update our UIs, but in a technology forward world we are used to consuming good looking technology.

It’s very easy to show a simple, clean user interface quickly on a smaller device. Does ‘it looked just like a website’ during that demo take into account all of the functionality?

What lies beneath the technology? Is it built for the web instead of web enabled as an afterthought? Is the user interface stuck on top of lots of mashed together systems, (think putting lipstick on a pig), and what could that mean for future development, releases and support?

Don’t let how it looks in a flash on an iPad take priority over business benefits.

It sounds absurd but often people appear to put ‘brand’ and ‘image’ before features and functionality.  This is common of business-side decision makers who, rightly so, may be thinking of their staff, broker or end user customers at the time.

But once in the process should it not be centred on the top level basics?

Like:

o   What do the supplier’s clients say about the operational benefits?

o   Where are the suppliers investing their money, product R & D and functionality? Etc…

  1. Keeping up with the Joneses

Ahh the bandwagon, I jumped on several during my school years in the form of Doc Martins and a perm. There seems to be a wave of enthusiasm for certain systems at certain times, often following a big marketing push or people copying one another – thanks to the close proximity of the London Market in particular.

Some people feel that if your competitor has a system, you should select the same system. The word being ‘select’ not copy. You don’t copy their business strategy entirely, perhaps you want to differentiate yourself and could benefit even more so from different tools to achieve that.

Competitors may not even have made the best selection (the negatives likely not to be promoted).  Can your independent solution choice then make that difference to your operating ratio and profit next year, meaning you move up the Top 50 table ahead of them?

  1. The ‘experienced’ influencer

Somewhere along the way you may have recruited one:  A political, self-serving person masquerading as experienced.  Thought processes may include:

‘I know how to use this system, I’ve implemented it before, and I’ll push for it because it’ll be easiest’

‘If I don’t rock the boat and keep my head down I can leave in five years without having to change any systems’

‘My mate owns that company; I’ll give him my lead so we can go for beers together every week’

Some of these thought processes make sense – if you’ve implemented it before you are aware of the challenges. If you like someone within the supplier company, chances are you trust them and they’ll try and ensure a good job is done for you.

However, if persuasive, these types may lead you to a supplier decision, not based on company centric, future profit based reasoning.

Your experiences

What are your experiences of supplier selection challenges within the insurance MGA market?

And what have suppliers done, or not done, to help or hinder the process?

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Want to find out about eInsurance system RiskWrite to see if it qualifies for your RFP process?

Then book a meeting or ask a question today 01923 312366 / marketing@sabrefish.com

Sabrefish’s RiskWrite solution is a line of business neutral, full life-cycle underwriting system with accounts, claims and an intuitive, multi-section product builder. An integrated broker portal and optional web front ends mean you can distribute your products in the way you choose, from one point of origin. Clients benefit from quote & bind, workflow referrals, auto-documents, bordereau management, auto-rating, multiple languages, currencies and taxes, product build and subscription business features; so they can process more business with less resource for a scalable future.

Infographic; 12 RiskWrite facts you may not know

What really goes on behind the scenes in insurance technology

What really goes on behind the scenes in insurance technology

Sabrefish’s RiskWrite solution is a line of business neutral, full life-cycle underwriting system with accounts, claims and an intuitive, multi-section product builder. RiskWrite enables you to distribute your products, how you choose, from one point of origin due to an integrated broker portal and optional B2C and B2B web front ends.

Clients include; DUAL Group, Novae Group, Nexus Underwriting Management and W.R.Berkley Europe.

Enquiries: marketing@sabrefish.com, 01923 31236601923 312366

Sabrefish sponsor the first London Market Group Forum of 2014

Sabrefish were proud to sponsor the first London Market Group Forum of the year, promoting our full life-cycle, multichannel underwriting system, RiskWrite.

The London Market Group (LMG), supported by the Lloyd’s Market Association (LMA), is a senior market wide body with the primary function to act as champion of the modernisation agenda in the London Market.  Monthly informative LMG Forums take place for insurers, brokers, suppliers and influencers in London’s Willis building, welcoming speakers from influential organisations, which this month included; Willis, Marsh and Catlin.

Christopher Croft, Head of LMG Secretariat, opened 2014’s first LMG Forum with his usual wit. And as this month’s sponsor, I was on the receiving end (but wouldn’t expect any less!).

Click here to download the LMG Forum presentation slides.

The forum began with the usual round up of eAccounting and Non Bureau Accounting volumes and accuracy.

eAccounts accuracy is still 15% more accurate first time in comparison to IMR A&S submissions. This is true of both the Lloyd’s and companies market, as it was throughout 2013.

Non Bureau Accounting numbers are increasing year-on-year; it’s conceivable we may see a 100% adoption increase in 2014, judging by last year’s 80% increase.

Year

Average

Year-on-year % increase

2011 – 12

400

2012 – 13

1600

25%

2013 – 14 so far

2000

80%

The Board of Placing Platform Ltd (PPL) has defined their ‘workstreams’ for progress which include ‘Planning, review and governance’ through to ‘Market commitment and roll out’. Placing resources can be found here on the LMG website.

And the LMA, International Underwriting Association (IUA) and London & International Insurance Brokers’ Association (Liiba) continue to work together as the ‘Central Services Refresh Programme’, to make Central Services easier and more attractive to use by moving London market specific administration tasks, or “Londonisms”, away from the broker. Their agenda is as follows:

  • Defining a number of potential deliverables for 2014
  • Working with LIIBA to validate the operation of EBOT and ECOT in a subscription market
  • Developing metrics with carriers for how Market Submission can improve service performance

As the sponsor it was a pleasure providing the prizes for this month’s winners, congratulations to:

Richard Hayes, Head of ITAscot Underwriting

Charles Brown, PMOJLT

Event speakers & topics for the session included:

Shirine Khoury-Haq of Catlin; who chairs the TMEL Board and also represents the International Underwriting Association (IUA). Shirine presented on:

 “Delivering the foundation of the future: The Message Exchange Limited in 2014 and beyond”

Simon Harker, Global Chairman and CEO, Aviation and Aerospace Practice of Marsh Ltd presented on:

“Electronic Support for Endorsements – Aviation Initiative” – Sharing the work to increase usage for Aviation endorsements.

And…

Richard Brame, Director of Accounting and Settlement at Willis presented on:

“E-Accounting Expansion 2014 and Beyond” – Including a look at non bureau accounting from the broker perspective and how they will build on the 23 new business partnerships that went live in 2013.

The LMG is set to take on an even more influential role in London’s place on the global stage. Sabrefish look forward to observing and being a part of its progress.  

To view the full presentation, click here.

Commercial brokers; adapt or die?

The 2012 Datamonitor UK Commercial Distribution report stated brokers still held 83% of the distribution of commercial insurance in the marketplace.  In modern, competitive insurance new intermediaries are fighting for capital and commission as sales distribution channels become more varied. The result is brokers have to consider ways to stay stable amidst a flexible, soft market. The wider adoptions of digital and online technologies, too, pose a challenge for brokers that don’t adapt.

“58% of brokers said the level of commercial insurance they trade electronically had increased”
Insurance Times, 16/10/2013 edition

Is there really a threat to the very people who currently own relationships with the end customer? And are the changes personal lines a sign post for changes to be expected within commercial lines? With Insurance Times recently highlighting the ‘broker squeeze’ on commissions, innovative ways of increasing profit margins are fast becoming brokers’ priorities. With this in mind I’ve laid out some of the potential broker threats and opportunities to arise from them:


MGAs

MGAs are one of the (no longer ‘new’) intermediaries in the insurance chain. There are no hard rules on who this affects and how as it is on a case by case basis – some carriers profit share with MGAs as they take on the work, other brokers may feel a pinch on their commissions.

X Can be a threat to brokers who handle high volume, low value commercial business as a possible commission reducer

Could be an opportunity to start an MGA or bring coverholders in house, especially niche area brokers:

Brokers are increasingly bringing coverholder or MGA business in house; Lockton/ Mapledown and Arthur J Gallagher/ OIM Underwriting etc.  MGAs are able to quickly make rate changes, be entrepreneurial and take on new lines and books and retain control further along the customer chain – it is easy to see why the trend is not subsiding. Coverholders/MGAs grew by 275 in total from 2007 – 2012, now we are seeing ‘steady growth’ with 31 new MGAs from 2010 – 2012 according to Lloyd’s. However some of these new MGAs do fail and Saxon East of Insurance Times warns “Broker MGAs need a unique selling point”.


BINDING AUTHORITY

Binding is proving to be a revenue differentiator for medium to larger brokers. I.T is key for brokers and insurers to work together to process large volumes of policies in this way. Passing one document around 8 people before approval and labouring on spread sheets doesn’t add to anyone’s bottom line. Efficient processes free up manpower, meaning your staff could process double the amount instead of you having to cut costs, jobs and endure the subsequent negative PR.

X Is binding a threat if you don’t have a dedicated team? Ask your carrier partners.

Lack of binding or ‘account handling’ capabilities may or may not be an immediate threat to you take the lead from the insurers you work with. Do other broking companies they work with have dedicated binder/account handler teams to serve some of their schemes, or binding authority/coverholders to process books of business? How much business are they planning on processing this way in the future?

Binding is an opportunity for medium to large brokers to become or remain the preferred broker.

WHITE LABELLING

White labelling in personal lines is established; eliminating some personal lines brokers and enabling carriers to increase margins and undercut brokers. A recent example of the trust in white labelling is Brightside – turning to big brands ASDA and Debenhams in times of need.

X Threat to SME commercial insurance  

Is the diversity of white label adoption into bigger brands and niche markets a sign it will slowly become more widely used for other types of commercial insurance? Big or niche brands come the benefits of up and cross selling to a mass or targeted audience, so it is easy to see how this may grow in an ever brand dominated world.

Opportunity to get in there first for SME insurance and others?

You could offer white labelling as part of your broking service to retain some business and increase sales whilst taking away the leg work from not only carriers, but yourselves.

 

E-TRADING/ ONLINE

Retail/ B2C has officially sold direct since 1985, thanks to the infamous, Direct Line. Direct selling was, of course, then catapulted by the birth of the internet and now we see the influx of the likes of ‘cover4mobilephones.co.uk’ and ‘cover4travel.com’ from UK and Ireland Insurance Services for example.

Direct online and intermediary aggregator sites have been used for high volume, low value business for some time. The squeeze comes now as wholesale B2B start to look at online as a sales tool, will e-trading cut out brokers and how can you gain more inclusivity to these channels?

X The Broker Market in UK has been transformed by consolidation and the advent of disruptive ‘Online’ Models”Lloyd’s Market Review Presentation, 2012

Opportunity to all brokers

Create an online channel for your customers to engage with you, or join a B2B aggregator. Commercial lines aggregators already exist (iprism) and there are many ways to utilise online. ‘Marketplaces’ for products are another ‘channel’ increasing competition however – therefore pushing brokerage down in an already soft market; judging which ones will increase your product’s profit is vital.

We would recommend building products with the channels they are going to be sold via in mind. When opting for an online traded solution for example, minimising referrals should be a priority. This allows you to keep the cost of sale as low as possible and in turn, make pricing attractive.

Brokers are starting to view carriers more as customers –are you making the most of your carriers multi channel offering (if they have one)? Do your brokers make full use of their web-based portals or preferred channels to remain favourable, and in some instances get preferential rates?

Online is ever growing and can’t be ignored. Next it will be mobile and iPads, so web-based systems will facilitate what will be an even more an even more tech-savvy workforce– here is some research evidence of demand courtesy of IBM: The successful insurer will be digital – IBM Infographic.


CONCLUSION

Commercial insurance is now an ‘offline’ and ‘online’ market place.

There are many options to automate; messaging, policy admin and bordereaux systems. Or a multi channel system so you can open new distribution channels from one core system –  opening and closing channels for different schemes offers flexibility and is strategically (and financially) safer for medium-large, growing organisations.

If you lack a niche offering or strong enough relationships you could move more into carrier territory as Vantage have done – for whom broking now only accounts for 10% of their business. But realistically threats are not happening at the speed of light. Commercial brokers still hold power and relationships with end customers.

The threat, for now, is more about being competitive, strategically diversifying, automation and knowing BOTH your audiences, carriers and customers.

“Automation is still a choice in the current market but soon it will be a necessity, as technology is becoming part of the decision making process when people select a broker, MGA or underwriter as a partner.” Peter Montenaro, Head of Delegated Authority, Lloyd’s – 2012

After speaking with senior executives at both broking and carrier companies I’ve heard of a mutual respect – both seeing one another as a customer – this can only pave the way for collaboration on the best ways to stay competitive for one another.

 

Did you miss the Sabrefish launch party?

Last Thursday 28th February saw the good, the bad (Michael Jackson version, meaning good) and the attractive (!) gather to raise a glass to celebrate the launch of Sabrefish; following its acquisition out of Salmon – including the entire eInsurance business, RiskWrite software and staff.

Attendees from the likes of Aviva, Canopius, Drivenlower, Harel, Insurance Insider, LIIBA, Tysers, Towers Watson, T H March and Sabrefish clients and friends from DUAL Corporate Risks, Novae, Nexus Underwriting Management, W R Berkley and more came to Minster Exchange for the occasion!

Simon Ball, two-time RiskWrite customer and Director of Quotall said on the night;

‘I bought RiskWrite not once, but twice! Because why change a winning game. If there is a better solution out there – I’ve not seen it.’

The Sabrefish gang

The Sabrefish gang

Revellers

Revellers

The refreshments and nibbles were plentiful and a good time was had by all. Sorry to those who were unable to join us – we look forward to inviting you next time!

About Sabrefish

Design & build for your business     RiskWrite     Multi channel insurance     Clients      Case studies

Want to ask us a question?

Contact us on +44 (0)1923 312 366 or marketing@sabrefish.com.

Bed time

Bed time

 

Bon voyage! Salmon and Sabrefish swim to separate seas

Sabrefish, eInsurance specialists, announced today that it has acquired Salmon’s insurance business, including RiskWrite software and staff. The eInsurance team originated as part of Salmon in 1989. Salmon has developed commerce oriented projects for leading names in retail, insurance and retail finance over the last 23 years.

As of January 2013 the eInsurance side of the business, RiskWrite software,  it’s staff and some new additions separated from Salmon and is now a fully independant global insurance technology provider named Sabrefish.

Commenting on the news, Chris Harvey, CEO of Sabrefish said, “The acquisition of Salmon’s insurance business marks an exciting new chapter in the development of RiskWrite. This follows on from last year’s announcements of major new features in RiskWrite Enterprise Version 3 and the launch of RiskWrite Managed Service aimed at intermediaries and smaller carriers.”

When the insurance team operated under the Salmon brand they worked separately but alongside the retail team – sharing the same on budget, on time, customer oriented values which will continue to be upheld by both Sabrefish and Salmon. Salmon will retain it’s retail and manufacturing clients and Sabrefish its insurance clients and expertise.

With fond memories and excitement for the future, Sabrefish wish Salmon every success!

What are the key differentiators for a successful MGA and what are the opportunities and threats going into 2013?

On 26th September 2012 senior executives from the likes of Aon, Allied World Insurance, Axis, Chartis, Dual International, Hiscox, Marsh, the MGAA, Novae, Torus, Sagicor and WR Berkley Syndicate attended an Executive Briefing entitled ”What are the key differentiators for a successful MGA and what are the opportunities and threats going into 2013?’.

The event coincided with the launch of RiskWrite Managed Service, the addition to RiskWrite Enterprise, Sabrefish’s multi channel eInsurance software.

Feedback from attendees was very positive so I thought I’d summarise the presentations. If you would like to put forward any areas of interest for future briefings and content, make a recommendation,  or read more about RiskWrite see Sabrefish’s multi channel insurance software here.

Dan Martin, Head of UK Regional Development at Catlin Underwriting Agencies Ltd

Neil Hodges, Salmon’s Insurance Client Executive introduced the first speaker, Dan Martin, Head of UK Regional Development at Catlin Underwriting Agencies Ltd, as a ‘mere boy’ having only spent twenty years in the industry! Dan commenced his presentation on ‘Distribution is a key factor but an MGA needs to add value in order to break into new and existing markets – the underwriter’s viewpoint’. Dan addressed the current options for MGA’s to access the market looking at traditional channels such as retail, wholesale, strategic partnerships and modern channels such as online, mobile, price comparison websites. He questioned whether customers are tiring of social networking as a distribution channel and whether share prices are indicative of the value of Facebook. Dan cited the hefty financial investments required for price comparison websites and online as a medium – but their growing necessity alongside mobile apps – and recognised the most unproven traditional channel of sub-delegated, calling it a ‘leap of faith’.

Most notable of these insights was the separation between traditional and modern channels. For example the move to online, social and mobile and the news that Google is now partaking in the price comparison motor market.  The high cost and resource investment required in technology, time and the new generation of specialised talent were recognised as key profit generating factors. Dan said to not deviate from basing your multi channel distribution strategy on your customer’s behaviour.

“Are we planning an IT business, a marketing business or an insurance business?”

Dan said the opposite of a highly structured multi channel distribution strategy and the natural partner of many distribution channels is acquisition costs. Whenever removing acquisition costs from the chain, be careful you are not exposing greater structural costs such as IT, marketing and compliance. An underwriter’s role is to write profitable business – overall profitability relies upon a high level of stability.

As an underwriter Dan reminded the audience that MGAs are an underwriting proposition, the MGAs are acting as an agent to insurer and it is not just about filling a book of business as quickly as possible with exceptionally high conversion rates.

Dan concluded ‘’It is imperative you get multi channel distribution correct, understand the relative importance of each channel and be intuitive to the future purchasing decisions of your customers –  as well as investing time and energy in a unique proposition that adds genuine value and therefore provides longevity through beyond the market cycle…’’

Top 6 macro-economic considerations for gratifying and enacting MGA purchasing decisions – Less trust: in banks, FS and insurance – Increasing regulatory change: advice importance/ transparency – Innovations in IT – cloud and mobile technology – How do your channels inter-relate and which take priority – Rare to be price setter, often following the market – Slim margins outside of risk exposed premiums

Top questions to ask yourself when setting up an MGAs – Are you sticking with the business plan? – Do you have due diligence, do you know who you are getting involved with and in what way? – Is communication clear? Shout if there is a failure of disclosure from the underwriter or in the instance of unheard disclosure – Do you have the appropriate referral channels? – Access to decision makers? – Is bordereaux received and paid on time? – Is the market moving around you and are you responding?

 

John Holm, Commercial Director at Capita Insurance Services

Neil Hodges then introduced John Holm Commercial Director at Capita Insurance Services as having 30 years experience – but within banking, in particular analysing risk. John then took the floor to present on ‘Market opportunity is a starting point however finding the team, raising capital and seeking outsourcing partners all need to be addressed’.

John’s presentation promoted Capita’s investment in MGAs, he started by emphasising evidence of the quality and sustainability of the underwriting, involving a risk analysis of any MGA business plan and underwriting results from previous years. The most favoured types of MGAs for investment are niche businesses with a profitable track record. John referred to the value of ‘skin in the game’ i.e. financial investment from the MGA management/owners, in particular cash, those that are asset rich and cash poor would need some kind of guarantee. Capita, John highlighted, are investors that would only request a negotiable minority share.

Financing growth is usually via a loan or acquisition and Capita are an alternative. Also if a bank pays half, for example, and Capita is an option for assist with the other half.

John concluded that as with all good businesses the key differentiator from his experience is the people. The quality of the people who run the business as there will always be threats and opportunities and good people know how to deal with threats and take advantage of those opportunities.

 

Mike Walton, Case Study – setting up an MGA

Neil Hodges then introduced the final speaker Mike Walton referring to his senior roles at Nexus, Novae and PRI Group. Mike then commenced his presentation, ‘A Case study – a current MGA project – the key drivers and challenges’. Mike started stating he is currently evaluating a new start up opportunity. Mike shared his view that MGAs were easy to set up and became profitable as they are attractive to disenfranchised corporate underwriters. He mused about MGA’s increased popularity and the regulators attempts to create more resistant regulatory structures to better manage the market.

Simple components –  what is needed in order to set up an MGA; – Regulatory environment – insurance capacity – An underwriter – A distribution platform – Brokers to promote the product – Initial capital – TPA (Trading Partner Agreements)

Mike shared his key challenges and the many questions he asked himself. Questions such as; ‘I want to do it now and cheaply – do I outsource or keep in house?’, ‘How to put in little money for the greatest return?’, ‘Whether to use a carrier or sell direct?’, ‘Whether to set up one’s own carrier or sell into insurers and brokers that want it?. Mike acknowledged that the whole process will be based on value creation, but ultimately the bottom line – underwriting profit; a talented underwriter who gets the right price and creates profit.

Mike Walton’s regulatory requirement cost as a percentage of income

Regulatory CapitalMike shared his experience that regulatory capital is ‘not going to break the bank’ and gave this quick breakdown of regulatory requirement cost as a percentage of income.

Mike said regulators are not interested in regulatory capital but cash flow forecasts, as proof you can satisfy the business liabilities as and when they are due. Another challenge is that the overrider can’t really exceed costs, it needs to equate to costs. Also that owners shouldn’t make a profit on business written irrespective of profit commissions, otherwise the loss is felt by the underwriter and insurers are becoming ‘wise to this’. According to Mike, MGA owners should expect the business to break even for approximately two years.

 

 

Working capital costs six months prior to trading as an MGA

Working capital

 

Mike’s top 3 cash flow forecast insights

• Premium income never arrives as quickly as the plan indicates

• Deficit will exceed £500,000 before business revenue flows steady

• Reasonable to assume that working capital requirements will equate to 6 months of annualised cost base

Financing your MGA

BROKERS – Brokers within your specialism will  contribute funds – loans to fund the start up of the business – to secure you as capacity for their products.

SPECIALIST OUTSOURCERS – Outsourcers provide intelligent money, they see and know deals. They are good long term partners, if the deal is right they will also be focused on exit. Some will fund the working capital up front, so it can be a cheap opportunity to start making money but you don’t really want to give them more than 20% and they must deliver.

INSURERS – Insurers will give you an advanced overrider, however he emphasised the seriousness of this transaction saying that he knows of insurers that have lent money to MGAs and they have never underwritten a pound of business, it is not free money and can impact your career!

BANKS – Banks not looking to lend money now; whereas three or five years ago they would. Last year, for example, they would not invest in a binder business which had large books of guaranteed business and guaranteed commissions, they will no longer ‘touch’ future streams. If they do it is requires personal guarantees = unnecessary pressure?

INTER-MANAGEMENT LOANS – People lending one another money within the management team can result in uneven traction when it comes to business decision making. Means tested is one option. Those who don’t want to invest means tested are likely to have the most money!

Mike covered his experience of Lloyd’s vs. the FSA regulatory frameworks (see Regulatory Framework slide).  Mike shared his insights saying Lloyd’s comprehensive questioning around why you will win the business is reassuring, they are reputable and to be Lloyd’s approved you must detail a niche product, service proposition or strength of personal relationship that will move a portfolio from one insurer to another without reducing profit. Benefits such as security and licences prove attractive and they are dogmatic in expecting an IT strategy and platform and disaster recovery.

The FSA is an easier environment as they don’t have Lloyd’s additional responsibility to protect the franchise – they will just look at the business plan.

For the full event presentation, click here to download from Sabrefish’s resources

 

In a troubled global economy, how are brokers and underwriters responding to the threats and opportunities in 2012?

On 22nd May 2012 senior executives from the likes of Novae, Axis, Chartis, Hiscox, Markel, Mitsui, Torus, Liberty, Marsh, Cooper Gay, and Allied World Insurance attended an Executive Briefing on the theme of ‘In a troubled global economy, how are brokers and underwriters responding to the threats and opportunities in 2012?’.

Feedback from attendees was very positive so I thought I’d summarise a few of the key points here.  If you want to read more about RiskWrite, Salmon’s multi channel insurance software here.

Peter Montanaro, Head of Delegated Authorities at Lloyd’s addressed the question of  ”The number of MGAs has grown rapidly in the last two years – is this the quickest route to leveraging global opportunities?”

Peter started by saying ‘No they haven’t and yes, so thank you very much’, proceeding to mock leave the podium. Luckily for us he was joking, and returned to go on ‘I don’t know maybe the number of MGAs have grown, but in Lloyd’s our numbers have stayed stable.’  Peter was challenging the common perception of rapid growth of MGAs and coverholders and shared the losses they’ve experienced as well as the growth; “Since 2007 the total number of coverholders has gone up by 275, but only by 31 in the last 2 years”. He acknowledged the growth and market presence of the ‘coverholder model’ but emphasised Lloyd’s growth rate is steady, with losses.

Peter then gave examples of what Lloyd’s reps thought when asked  whether coverholders are ‘the quickest route to leveraging global opportunities’ in their territories. The Italian rep said MGAs represent the best gateway to the market through technology, good market access and efficiency. By contrast, the German rep, thought it may be the quickest route but questioned the sustainability, profit long term and quality.

“I think at the moment automation is still a choice for each stakeholder but it will become a necessity’’

Peter recounted a scenario when an Hawaiian coverholder had been approved by Lloyd’s and told him they were going to have a party, a bemused Peter remarked on their excitability only to discover they had been ‘waiting’ a year and a half to be approved. The Lloyd’s Performance Management Directorate (PMD) is committed to the market as Lloyd’s turn approvals round in five weeks as long as they’ve received the necessary documents – it turned out the application had been sat with the broker all that time. Peter emphasised their punctuality and flexibility on a case by case basis; welcoming feedback on the compliance questions Lloyd’s ask on MGA/coverholder applications.

The role of technology as a competitive tool emerged as Peter emphasised the need for automation; how it is still a choice in the current market but soon will be a necessity as technology is becoming part of the decision making process when people select a broker, MGA or underwriter as a partner.

 

Simon Wilson, Director of International Development at Markel tackled ‘Distribution strategy for specialty insurers”

Simon marvelled at the unique nature of London market geography compared to its international counterparts. When working for Lloyd’s Asia he recalled his surprise when during a business trip he not only had to walk what he thought would be a ‘a couple of blocks’ to visit the Canadian coverholder; but travel 45 minutes. BY CAR.

Simon mapped the levels of risk complexity and premium size associated with different parts of the Insurance market (left hand slide). Simon noted that mass market retailers (low size and low complexity risks), motor, home owner and personal lines for example, are attempting to move into ever more complex lines.

He positions ‘classic London market play’ as high complexity and high size risks that are coming under pressure from two new groups – regional wholesale markets and specialist SME suppliers. Not only is the ‘classic London play’ coming under pressure from different types of insurance companies but international ‘regional hubs’ too are posing a threat, as they are underwriting more and more of the  large, complex risks in Singapore, Miami and Zurich.

Simon perceives segregating parts of your business into these four categories may, operationally, be more fruitful.  If you try to sell wholesale products through an international network of offices, for example, you may meet unnecessary internal discrepancies.

Simon emphasised this competitive landscape as ‘never still’ and questioned the avoidance of silos, where they are beneficial; however it seemed the stand out trend was a desire to increase the complexity of risks underwritten therefore increasing the mark up per policy.

 

 

Simon shared his experience of financing small MGAs and coverholders with niche propositions, particular products to particular markets, and that their fixed cost base is usually a minimum of two million dollars.  When operating these global entity MGAs and coverholders in a different territory he suggested that they need to write to a 35% loss ratio just to break even.

Simon drew similarities between supermarket retailers and underwriters in making a profit; considering overheads and getting the most out of suppliers.

For me, these were the key points from the event:

  • MGAs are the quickest route to market if effective systems and processes are in place
  • Speed should not be the only focus for coverholders; quality and sustainability should also be considered
  • The BRICS countries present huge growth and penetration opportunities in life, car and home insurance
  • Companies that have invested in developing in house systems can be opposed to new technologies and change
  • The traditional method of spreadsheets doesn’t do it anymore; systems are needed to cope with the demands of modern regulation

A Changed World – 6 Key Issues for insurers to consider

Manifesto

The world has changed.  The second half of 2008 saw events that previously would not have entered our wildest dreams. Who would have thought that one of the UK’s largest banks would pass into state ownership? Who would have thought that one of the longest periods of uninterrupted economic growth would stop dead in its tracks?

With this in mind, employees at Salmon recently put their heads together to author a manifesto (in 6 parts)  for Directors and Managers of Insurance companies, who have a responsibility for eCommerce and eBusiness.   Part 1 is available now as a downloadable .pdf, and considers “Will your Customers Change?”

It is our belief that at least six key issues need to be considered by insurers right now.  We will explore each in full in due course so register here to get each part of the manifesto emailed to you.

Here are the issues as we see them.  What do you think?

  • Issue #1:  Will your Customers Change? Even counter-cyclical industries, like general insurance, need to carefully consider this question.  After all, any business is only as stable as its customer base.  As we shall see, answering this question is not straightforward.  There are indications that we will have to think about meeting at least three shifts in customer demand and buying behaviour.
  • Issue #2:  Flexing our Cost Base Reducing operational costs has been a major component of most organisations’ plans over the last decade but there are new challenges.  Firstly, living through an economic downturn means that we have to rethink the minimum critical size of our operations.  Secondly, economic, political and social pressures may mean that we have to revisit past strategies based on outsourcing and offshoring.  These now established recipes might not serve us too well in the coming years.
  • Issue #3:  New Channel Relationships Emerging evidence points us to the fact that customers’ buying criteria – how they make purchasing decisions – may be changing both in commercial and consumer markets.  This means that current web based distribution will have to change if it is to deliver real value for both customers and suppliers.
  • Issue #4:  How to Unlock Markets Extending the reach of offerings into new markets is a commonly cited piece of advice for organisations facing an economic downturn.  A better and more astute move is to unlock markets that traditionally minded competitors think are either unprofitable or can only be served in one time established way.  To keep ahead of the game we have to consider how technology can act as a key to redefining markets that others pass by.
  • Issue #5:  Regulation – The Tool of Change:   There is no doubt that the current downturn will produce a globally co-ordinated push for new regulatory approaches to prevent another financial crisis.  November 2008’s first meeting of the G20 – the countries that will reshape the business world – put regulation right at the top of its global action plan.  All we know now is that the regulatory demands on organisations – especially in the financial services sector – will change.  The impact could range from more disclosure regarding investments, through to increased customer education and new roles for directors.  The demand for information will increase and new co-ordination and control systems will be needed.
  • Issue #6:  Information for Tough Times:  Research tells us that organisations that survived the last real downturn – in the early 1990s – managed their businesses in a totally different way to those that failed and disappeared.  Those that succeeded were closer to their customers and used a far broader range of management information than did the failures.  These winners were better at getting and using customer and market information.  So, systems for decision making have to go way beyond traditional financially based approaches if our businesses are to survive and grow in the current environment.

There is no doubt, rather than entrenchment, this is a time for innovation in how business processes and systems really deliver value. I hope you like the manifestos.  Please feel free to share and re-use.