Certain brokers, MGAs, and coverholders become the most valuable partners of commercial line carriers in an ever more competitive market. Here is how!

While it’s true that combined ratios have improved in commercial lines over the years, much of that is due to the higher rates of the hard market since 2018? The flip side of that hard market — lower capacity — seems here to stay for the foreseeable future.

As a result, offering greater value to capacity providers is more vital than ever for intermediaries. Indeed, in order to achieve the required outcomes, brokers, MGAs, and coverholders should look to advanced and emerging technology to help deliver the very business results, insurers want.

This article examines why scarce capacity is increasing the pressure on brokers, MGAs, and coverholders to provide ever more value to capacity providers. It then examines the challenges facing capacity providers in a rapidly evolving commercial lines market before highlighting how intermediaries can help to solve those challenges, thereby becoming trusted and valuable partners and beating their competitors in the war for capacity.

Commercial lines insurance capacity remains scarce.

Thanks to the recent hard market, many insurers have returned to profit in the last couple of years. This is partly due to a reduced risk appetite and “through focusing on their core sectors, which they understand in depth and know from experience and data that they can underwrite profitability over the long term,” according to Towergate.

In other words, carriers continue to be selective with the risks they decide to underwrite. This means that intermediaries must be able to provide clear value — and prove that value — to compete for less capacity.

According to Marco del Carlo, CEO of Capacity Place and Director of the UK’s Managing General Agents’ Association: “Securing capacity for MGAs, particularly new MGAs, remains a challenging process with a lot of pitfalls. Each capacity provider has its own risk appetite in terms of classes of business and territories they write… Capacity providers seek to avoid duplication and competing against themselves and are generally seeking MGAs with a track record of underwriting profitability.”

Of course, insurance carriers are no longer the only game in town when it comes to providing capacity. In recent years, many MGAs have secured investment from private equity firms and alternative capacity from reinsurers. At the same time, PE investment has driven M&A activity in the US and UK broking markets since at least 2019.

According to the latest figures, however, both these sources of capital are also drying up. Private equity investment is down across the board, thanks to rising interest rates increasing the cost of capital. As a result, in 2022, “deal volume decreased 26 percent to $2.4 trillion, while deal count fell 15 percent to just under 60,000,” according to McKinsey.

When it comes to reinsurance, despite balance sheets looking robust at the beginning of 2023, reported capital declined by 14% in 2022, and Gallagher Re reports “a conspicuous absence of new capacity, despite the potential attraction of much-tightened pricing and terms and conditions.”

This means that intermediaries are competing for capacity in an uncertain market in which commercial lines carriers face several significant challenges: “These challenges are exacerbated by tightening capacity in both traditional reinsurance capital and alternative capital markets, and the full extent and duration of the capacity squeeze are still uncertain given the strong hardening observed in January 2023 renewals.”

The brokers, MGAs, and coverholders best able to help solve those challenges are the ones winning the war for capacity in 2023. The most successful intermediaries will be the ones that embrace modern technology to achieve their goals. There are solutions that can help them better vet clients and prospects to find submissions to send to insurers that are aligned with their risk appetite and, therefore capacity.

Challenges facing carriers in 2023.

Commercial lines insurers are facing a rapidly changing market. As McKinsey puts it: “Commercial carriers find themselves at an inflection point as they face a continuing cycle of economic uncertainties, including inflation, geopolitical headwinds, environmental challenges, and capital constraints.

With record levels of inflation, rising interest rates, post-Covid disruption to supply chains, and weaker-than-expected economic growth in China, the global economy is uncertain.

The regulatory environment is becoming more challenging to navigate, as “many commercial insurance players are starting to find the regulatory landscape more fractured and complicated than ever before.

According to KPMG, commercial insurers now see regulation as a bigger risk than any other, including crime and cybersecurity. Making sure they are leveraging a modern, secure cloud-based platform is a great way to ensure security and compliance.

New technologies are challenging insurers to improve the way they do business, from everything from underwriting more accurately to paying claims more efficiently. Then there’s the impact of environmental, social, and governance (ESG) principles. This is threatening brand reputations thanks to increasing scrutiny from activists highlighting greenwashing activities while also representing an emerging risk — both for insurers themselves and a potential new line of business.

Mixed in with all these challenges are several emerging risks, the biggest of which McKinsey identifies as: “natural catastrophes (NatCats), the net-zero transition, and supply chain and cyber risks.

On top of everything already mentioned, the expectations of commercial lines clients have also never been higher. In a post-Covid world, everyone has become used to excellent levels of online service, and customers now demand the same from their insurance providers. This rise in direct, self-service insurance means that intermediaries need to utilize modern technology to deliver the instant customer service consumers are demanding. According to a Forrester survey commissioned by KPMG, 83% of prominent commercial insurance decision-makers list their customer-centric strategy as “a high or top priority.”

The urgent question facing intermediaries in this market is how they can become more valuable partners for their capacity providers, so let’s take a deeper dive into that.

How brokers can increase their value to insurance capacity providers.

It’s clear that insurers are keen to work with brokers, says Bob Pottle, chief strategic operations officer at Philadelphia Insurance Companies: “The independent agent and broker is really the backbone of the industry. They’re the primary distribution channel for commercial property casualty insurance.

We know that insurers value those brokers who can provide insights into customer needs and trends. In a challenging market where the price of premiums has risen, capacity has contracted, and insurers are being more selective with risk, brokers must do more to unearth and understand new customer segments to help insurers see the potential profit in those segments.

Brokers can take advantage of modern software solutions to gain instant access to dashboards and reports to help discover the strategic insights their insurer partners are seeking. This, in turn, is valuable in helping carriers to price existing risks more effectively while also helping them to innovate by developing new products and serving new segments.

Carriers also value brokers’ expertise and client networks in specialty lines and emerging risks such as marine, aviation, and cyber insurance, where the experience needed to do a good job is highly specialized.

Plus, of course, leading brokers build a loyal customer base by using their expertise to provide their clients with tailored guidance on the right risk management strategies for them and minimizing their exposure to potential risks. Carriers highly value this affinity with customers and are more likely to commit capacity to those brokers with an excellent track record of building a loyal base of repeat customers.

This means that those brokers who can build the biggest base of loyal commercial lines clients in order to:

● provide the best and most accurate market data around new client segments and emerging markets,

● offer the most accurate information, and

● help develop new and profitable products,

will find it easiest to secure capacity from grateful carriers.

How MGAs can increase their value to insurance capacity providers.

MGAs have benefitted to some extent from the hard market, as they have been able to specialize in underwriting new and emerging risks where commercial line carriers lack the necessary expertise. Yet, even though specialty MGAs can reduce the risk of market entry for insurers while also providing them with pre-existing underwriting specialist talent and bringing insurers profitable business at a fraction of the overheads of doing it themselves, securing capacity can still be a struggle.

The answer is for MGAs to ensure they can prove their value to capacity providers. According to Martin Hall, Chief Underwriting Officer of Pen Underwriting: “Access to distribution and expertise in niche classes of business are the two key advantages [for carriers of working with MGAs], but successful MGAs are also synonymous with the strength and longevity of customer relationships, robust performance monitoring, and investment in meaningful management information, all of which are highly valued by carriers.

So, robust data around performance and the ability to present it to carriers is critical for those MGAs who want to stand out from the crowd and build stronger relationships with insurers. Having real-time, high-quality data processes and insights allows MGAs to make better underwriting decisions faster and scale without needing to hire many extra people. There are software solutions that can help brokers achieve this with real-time insights and actionable intelligence into the performance of their operations. With the correct management information (MI) to hand, MGAs can react more quickly to changing market conditions as well as adjust premiums, underwriting criteria, and coverage accordingly.

How coverholders can increase their value to insurance capacity providers.

Lloyd’s coverholders face very similar challenges to those of MGAs. According to Deloitte: “Delegated propositions and distribution that lack a niche will lose attractiveness to capacity providers and may prove ineffective or uneconomical to MGAs in the market.

One way for coverholders to set themselves apart is to ensure they fully understand the risks they choose to underwrite — and can demonstrate that understanding to their existing or prospective capacity providers.

According to Charles Taylor: “Coverholders will need to prove they understand and are able to manage the risks if they are to convince their capacity providers they merit ongoing support. For the capacity providers, if they are in Lloyd’s, being able to evidence that understanding will go a long way should they wish to extend the scheme and increase the capacity. The primary market will also need to reassure their reinsurance partners they understand the business when it comes to their treaty placement.”[1]

As we’ve already seen, carriers want to know that their coverholders are bringing in the right business with the right margins, usually by leveraging the specific expertise that the carrier lacks. What they want most of all is proof that they can trust their coverholders to continue to underwrite risks profitably. This is part of the process when future-proofing a relationship.

How Novidea can help

The common thread in a lot of the challenges we’ve explored is data. Clearly, to help provide extra value to insurance capacity providers — as well as prove it — brokers, MGAs, and coverholders must be able to collect, cleanse, and analyze data to a much greater extent than ever before. For some, this will involve finding ways to digitalize existing processes and collect client and carrier data in one place where it’s possible to get a 360-degree view based on client, policy, insurance capacity provider, or line of business. This requires some level of agility within operations but also the internal flexibility to adapt practices to deliver on required revenue targets.

As Howard Lickens, CEO of Clear Insurance, puts it: “Brokers have data sitting in pockets all over the place and never being reconciled. There must be huge efficiency gains but also extra insights that can be gained from all this data. The chaotic way that commercial brokers have been managing their data should not continue. Tech is fundamental.

Let’s take a look at the ways Novidea helps intermediaries to make better use of their data, which not only helps them to provide more value to insurance carriers but to prove it too.

❖ Integrates all data into one location.

With the Novidea platform and its modern, open architecture and robust APIs, companies can integrate all their customer, policy, and client data in one place. This includes being able to access data from CRM and the Insurance Distribution Platform. As a complete end-to-end solution, companies can integrate every part of the insurance distribution life cycle from quote to claim.

Because Novidea is a secure cloud-native platform hosted on Salesforce, this also means companies can flexibly access that data securely from any device in any location.

“There is a big advantage to collecting data in consistent ways and bringing it together. There are so many types of analyses that can be done that you can only do when you get the data organized first. When you have a really good data set at your fingertips, as a broker, you are then transformed, and your role becomes more valuable.” Ben Rose AON Inpoint

A single view of the truth – Novidea

❖ Optimizes performance management and profitability analysis.

The platform offers visibility into all key business metrics. This means that managers can track employee performance or underwriting performance, as well as the profitability of specific policies, clients, or business lines — all in real time.

Integration with Outlook offers automated time-tracking of customer hours, including meetings and travel. Companies can generate profitability reports based on salary costs, commissions, and customer analysis to prioritize resources effectively. The automated cross-sell and up-sell module suggests relevant product recommendations based on client needs.

“Novidea puts a lot of valuable insight information at our brokers’ fingertips, enhancing their ability to sell and advise customers in a way that is both efficient and lucrative for our business.” José Manuel González, Howden Iberia

Centralized insight at your fingertips – Novidea

❖ Boosts underwriting efficiency.

Novidea’s platform calculates premiums and assesses risk, and generates comparison quotes while also providing all necessary document management, workflows, and underwriting functionalities to take out the repetitive tasks involved with the process. This frees up underwriters to focus on what they do best — underwriting. The easy access to data also ensures that underwriters have all the information they need, never more than a few clicks away.

Novidea’s platform enabled us to streamline policy lifecycle management and provide unprecedented real-time visibility and control of every aspect of our business. It is a holistic solution that enables us to compete in an ever-changing, dynamic environment and grow our business. Shai Simkin, Managing Director, Howden.

❖ Offers excellent data visibility, transparency, and actionable intelligence.

Companies get real-time secure access to clients’ data at the point of need across the entire insurance lifecycle, along with analytics and dashboards for real-time insights into clients, policies, carriers, and more. So, they can see the bottom-line impact and value at a glance.

Data-driven analytics delivers personalized experiences, boosting leads and customer retention.

At the same time, pre-built report templates mean that brokers, MGAs, and coverholders can quickly and easily create custom reports from any data field across the entire platform.

“Novidea’s Brokerage Management Platform enabled us to revolutionize our working patterns. It has helped streamline the policy lifecycle management and visibility across every aspect of our business. It is a holistic solution that enables us to grow our business easily without growing in human resources.” Shay Simkin ACII, Managing Director, Howden Israel

Optimise employees’ working patterns via transparency and visibility – Novidea

❖ Helps improve customer service.

With easy access to client, policy, and carrier data, brokers can offer the best value and most relevant products to clients anywhere in real time. They can also launch products directly to clients using a self-service portal that tracks client activity, engages clients, and allows them to request changes to their accounts.

“It’s important to us that we can keep up with our growth through the data that we are collecting, in conversations with clients, adding value as we bring new MI to our clients, reaching into the data to see opportunities to cross-sell or up-sell.” Lyn Grobler, CIO, Hyperion Insurance

Information management and customer portfolio analysis – Novidea

Brokers, MGAs, Coverholders: Are you ready to increase your value to capacity providers?

Many brokers, MGAs, and coverholders quoted in this article use technology to transform how they use data in their businesses, boost underwriting performance, offer unparalleled customer service, and track the impact on their bottom line. They need access to capabilities that have been future-proofed to drive growth and ensure the resiliency of their business.

All of this helps them to build more compelling and valuable propositions and flexibly manage portfolios of business based on the value generated by each book while increasing the amount of capacity they have access to safely in an otherwise difficult market.