Getting the best from your UMA

The South African Underwriting Managers Association (SAUMA) has more than 80 registered members meaning there is more than sufficient choice for the broker who wishes to make use of the services of an underwriting manager...

The underwriting management agency (UMA) model in South Africa has grown substantially over the last decade. It has helped to reshape the local insurance industry through the development of innovative insurance products that cater to segments of the market that generalist insurers tend to avoid.

“The entrance of UMAs in the late 1980s was largely in reaction to falling service levels in the local insurance market,” says Dean Delport, Executive: Insurance at Compass Insurance. “There was a growing need for specialised and niche product offerings that weren’t being offered by insurance companies.” By focusing on a these niche products, UMAs provide superior service levels, highly focused on the needs of their target market.

Agent of the insurer

“A UMA is the agent of the insurer only, it does not sell policies directly to the insured and it does not operate in the broker’s space,” says Christine Rodrigues, Associate: Banking and Finance Department at Deneys Reitz. The UMA performs binder functions and other services on behalf of an insurer as an expert in a particular type of business. Its functions are regulated by insurance legislation and by a written agreement between the UMA and insurer.

Sydney James, Client Manager at Centriq Insurance expands on the concept: The UMA business model is a legal agreement between a principal (insurance company) and an agent (UMA) whereby the principal mandates the agent to perform certain underwriting and administration functions on its behalf. In other words, the agent needs to adhere to the terms of the mandate and account to the principal for all actions carried out in terms of that mandate. The insurer is ‘bound’ in respect of policies issued by the UMA. And the agreement is regulated and codified in various Acts in order to control the activities of UMAs and intermediaries acting under binding authorities from insurers...

He says there are two extreme views when it comes to the role and future of UMAs in the local insurance sector. The first is that UMAs exist to make profits at the expense of policyholders. Simply put they are remunerated based on their loss ratios – rewarded or penalised for the payment or non-payment of claims. A second view is that UMAs are a welcome consequence of the consolidation that has taken place in the insurance sector for years. They exist because there are fewer insurers and less choice for brokers and consumers as far as insurance products are concerned.

An ideal model

Why should a broker consider conducting its business via a UMA and what should a broker consider as strategically important when doing so? “The UMA model is ideal for those brokers who are looking to tap into niche areas,” says Delport. They deal with the same kinds of claims every day – whether that is a focus on thatched roofed houses, marine insurance or motor fleets – so they can provide the broker with expertise in what can be highly complex areas of insurance. The broker is then able to take this expert knowledge to the client and advise them properly on the risks that they may face, thereby ensuring they have an effective risk management strategy against a variety of potential risks.

Many brokers who partner with an agency deal exclusively with the UMA for a particular niche, so it is essential to partner with the right agency from the outset. While some entrepreneurs have been very successful in recognising opportunities to form UMAs, there have also been a number of failures due to poor understanding of the business model. One of the key factors for a broker to keep in mind is the skill set of those working at and running the UMA.

“The experience and expertise of the people within the UMA is essential to its success as they must understand the needs of their chosen niche and be able to provide a quality product that can cater uniquely to this target market,” says Delport.

From an operational and business perspective brokers are under pressure to offer flexible and efficient solutions to their clients. They have to provide insurance products to suit client needs without succumbing to increasing competitiveness within the market, especially from direct insurers. “A UMA could be the solution to offering the required flexibility in terms of product development and a less restrictive approach to client administration,” says Cris Laidlaw, Executive Manager: Strategic Development, Kestrel Insurance Brokers. He believes there are three pillars on which the modern broker should build their business.

Broker’s three pillars

The first pillar is good database management. For any broker this requirement lies within an effective, reliable and proper system that includes technologies such as the short message system and innovative communication methods. A broker should stipulate the most adaptable and flexible technology within the boundaries of cost and effectiveness enabling the broker to capitalise on acquiring new business and retaining existing clients.

The second pillar is product innovation which is a non-negotiable for the modern broker. “The specific market of the broker dictates the product required, and the UMA must be able to deliver a suitable solution,” he says.

The third pillar is the sharing of information between the broker and the UMA. Keeping the finger on the pulse of the industry is as important for the broker as for the UMA. A relationship based on good communication, trust, interaction and transparency is one of the most important requirements of a successful undertaking. “By ensuring the three pillars have a solid base the broker and UMA relationship may just prove to be a viable option for the modern broker aiming to provide its clients with a long term basis of innovation and flexibility,” says Laidlaw.

Quality is the key

What should you look for when using a UMA? According to research conducted by Blue Stream Marketing and Research (initiated by the FIA) the overarching criteria for choosing a UMA include quality of product, quality of service and the availability of staff. “In addition to the above, the relationship that exists between the UMA and its brokers is of paramount importance due the high premium on trust within the relationship,” says James.

“The reputation and sustainability of the UMA are key indicators,” agrees Rodrigues. “A real UMA is staffed by people who have stood the test of – those with years of experience either working for an insurer or UMA.” She suggests checking with the compliance officer of an insurer whether or not a specific UMA acts as their agent. Additional checks can be made with SAUMA, the FSB and the FIA.

The UMA business model is not without its risks. Reputation risks arise if there is a lack of alignment between the various parties’ interests. Fortunately professional UMAs understand that they will not stay in business if they gain a reputation of slow or non-payment of claims.