Playing the underwriting game

Since the early 1990's, a new wave of insurance specialists emerged in the insurance industry – underwriting managers. FAnews spoke to Bob Standen, Chairman of the South African Underwriting Managers Association (SAUMA) about how underwriting managers have changed the face of modern insurance.

Currently, there are around 200 underwriting managers in South Africa, who specialise in a diverse range of insurance risks. Their impact on the insurance industry has been profound, bringing about a great change in the way insurers and brokers write business and extending the cover available to consumers.

Way back then

Originally, an underwriter was a person who wrote his name under the line on the document that detailed the cargo on a ship ready to sail into the new world. In signing his name, the underwriter indicated that he understood the risks involved and that he had the capacity to carry a share of this risk, in return for a share of the spoils should the ship return successfully. Most of these transactions were effected in coffee shops around London.

The modern version

Underwriters evolved from the specialist areas of the insurance companies and underwrite specialist risks within the insurance market. An underwriting manager is in effect a mini insurance company, with the ability to do many of the functions a traditional insurer performs. Underwriting managers have a unique understanding of the particular risk involved, are prepared to take on some of this risk subject to certain conditions and terms, can arrange reinsurance required for the risk and take on and have the ability to handle the claims that arise.

Underwriting managers are not just specialists in certain niche classes of insurance, but also specialise in certain niche groupings of clients. As a result, underwriting managers might focus on a specific type of insurance, such as aviation, agriculture, jewellery or events, or may specialise in a certain consumer segment, such as high net worth clients or engineers.

Market access

In addition to their specialist knowledge in a certain risk area, underwriting managers often also have preferential access to a certain market. As such, they combine technical expertise with focussed market access to provide solutions for a niche market.

Underwriting managers may also have a following of people who support their unique idea in an established class of business such as personal lines, for example, insuring executive women.

Thus, underwriting managers create capacity in a certain class of risk, by creating a pool of insurable risks in a niche, which a larger, general insurer may not be able to service cost-effectively. They bring to the party expertise in that niche, direct access to the niche market, the technical capacity to underwrite the risks correctly and the ability to manage the claims in a hands-on manner.

Niched expertise

The real benefit that underwriting managers bring to the industry is their understanding of what is required in a niche market. They have a clear picture of what a niche group of clients need in terms of their insurance, and understand the intricacies and nuances involved in specialised risks. They can harness their technical ability to underwrite risks intelligently and to manage claims ratios effectively.

Underwriting managers operate under the licence of an insurer or as agencies for Lloyds of London. Most major insurers accept business from underwriting managers and have come to appreciate the fact that underwriting managers can assist them in maintaining a profitable book.

Underwriting managers take the responsibility for servicing the client base and staying in touch with their unique changing needs, keeping abreast with the peculiar changes in the specific niche market and maintaining a finger on the pulse of the changing reinsurance requirements.

SAUMA's role

SAUMA came into being during the period when underwriting management resembled the Wild West and many companies were calling themselves underwriting managers, without adhering to the principles and ethics that make underwriting managers the dependable and trustworthy partners that they ought to be to insurers, brokers and clients. Some of these 'underwriting managers' were also not operating under licence to an insurer.

As a result, underwriting managers in general were getting a bad name and SAUMA stepped in to ensure there was a way that insurers and brokers could ascertain whether the underwriting manager they were using was trustworthy and conducted their business with integrity. SAUMA has around 70 members. While not all underwriting managers are members of SAUMA, the organisation does play an important role in the industry, setting standards and blazing the trail in terms of service levels and innovations.

Peer recognition

Although the Fit & Proper requirements under FAIS ensure, to some extent, that companies operate with integrity, knowledge and the required skill, SAUMA membership goes a step further and adds an elite element of recognition from their peers to their credentials. SAUMA conducts credit checks and ensures the underwriting managers are licenced to take on business on behalf of an insurer, serving as it were, as the eyes and ears of the industry.

Win-win solutions

Underwriting managers create the capacity for insurers to underwrite certain risks that they would not otherwise be able to underwrite, due to a lack of the necessary expertise within their own organisations. Brokers need to offer their clients best advice. The expertise of underwriting managers within their niche environment cannot be ignored if the broker is to satisfactorily service his client base.