Underwriting managers: The good, the bad and the ugly

The advent of underwriting managers has been a godsend to insurers, to but not all underwriting managers are created equal.

The existence of underwriting managers (UMAs) goes back some 30 years. Historically, UMAs proved most useful by providing products only available via a Lloyd’s broker, to the local market. Lloyd’s brokers would only accept business from South Africa if the annual premium exceeded £20 000. So when the first UMA was set up, brokers could place large risks locally with underwriting managers who understood the risks better than most Lloyd’s Syndicate Underwriters.

Evolving roles

Then, in the early 1990s, many UMAs were set up, in part due to the consolidation within the insurance industry. These UMAs ensured that brokers and their clients had a greater product choice in an industry with fewer insurers, which also kept premiums in check. In addition, the skills and expertise of many underwriting and claims staff, which might have been lost due to mergers and retrenchments, were retained.

The emergence of UMAs dovetailed a business trend gaining popularity at the time: outsourcing. The practice of outsourcing certain specialist functions offered many benefits to companies. In the insurance industry, insurers no longer had to employ and train underwriting staff, at great expense, to have knowledge of many specialised risks - the risk of understanding the subject matter could now be outsourced to experts – UMAs.

Unique proposition

It is this expertise in a niched market which not only made UMAs necessary, but also very successful. The most successful UMAs are those who offer insurers an opportunity to extend their reach into a niche market, by offering a scarce resource: specialist industry knowledge and highly skilled underwriting management.

Of course, a UMA originates following extensive research to establish if a need exists for knowledgeable underwriting in a particular industry. Just some of the industries in which a need was identified and successful addressed by a UMA include sectional title properties, vehicle tyre replacement, motor traders, jewellers, timber merchants, motor cycles and haulage contractors. I am still regularly involved in developing products for UMAs, and new opportunities continue to arise – such as a revolutionary new product based on the Consumer Protection Act.

Experts or rogues?

Lately, I have come across a few UMAs with seemingly very little knowledge of their selected market niche, which can only cause hardship for the broker, the insured and the insurer – which remains ultimately responsible for the actions of the UMA. It is concerning that in these cases, the insurer, as the risk carrier, has failed to establish the expertise of the owners of the UMA.

A recent case in point is a newish UMA that wanted to deny liability for broken window glass, because the premises were vacated after the event!

Choose your UMA carefully

The UMA is the agent of the insurer, and represents only that insurer. Nevertheless,
well-respected UMAs seem to go out of their way to settle claims fairly and intelligently, based on their expertise in an market segment.

A hospitality UMA recently received notification that the insured’s water purification plant had broken down. The purification plant itself was not insured, but the UMA immediately arranged for a local bottled water supplier to divert their truck to deliver bottled water to the insured’s premises, at the UMAs expense. The UMA, demonstrating an understanding of the industry it serves, made a sound commercial decision to act on an event that was not insured, to prevent possible food poisoning claims. It no doubt served to cement the insured’s relationship with the UMA.