Legislation and mergers remain key trends for UMAs in 2012

Adapting to new industry legislation, a rise in the number of mergers and acquisitions and increasing competition from generalist insurers will be some of the key factors shaping the future of Underwriting Management Agencies (UMAs) in 2012.

This is according to Dean Delport, Executive: Underwriting & Claims at Compass Insurance, who says UMAs will continue to face the impact of new industry legislation in 2012. “One of the biggest legislative issues facing UMAs will be the forthcoming Binder Agreements, which have to be implemented within 12 months of inception. This will most likely result in more agencies becoming increasingly internally focused.”

Delport adds that other recent legislation will also have an effect on UMAs. “For example, the development of any new products will need to be closely aligned with the Consumer Protection Act. This will become a key requirement for those UMAs that aim to stay ahead of the game.”

He says 2011 was a particularly difficult year for many UMAs, largely as a result of the requirement to adapt to new industry regulation, such as Conflict of Interest and Binder Agreements, which paired with slow economic growth and worldwide economic pressures, had a negative impact on the morale of UMAs.

Delport says a likely trend in the current environment will see many of those UMAs operating within a similar space begin to merge in order to improve economies of scale. “Currently, there is a feeling of saturation in the UMA space, so acquisitions are likely to become more commonplace. This is not necessarily a negative consequence, as it could have a beneficial impact with the UMAs being able to offer a broader product offering, along with a wider range of expertise. However, there may be some challenges, as the UMAs face restructuring of strategies along with the mergers.”

“We are also beginning to see some of the general insurers showing more interest towards expanding into the UMA space, which creates increased competition for the specialist industry as a whole. Experience and expertise will be crucial in separating leading UMAs from the new start ups emerging from general insurers.”

Delport says a prevalent trend faced by UMAs during 2011, which will no doubt continue to be paramount this year and for the foreseeable future, is the impact of natural disasters both locally and internationally.

“Locally, we saw a number of floods and fires, which affected the general and agricultural insurance underwriters, in addition to a few very significant industrial fires. Internationally, there was also clear growth in the frequency of worldwide catastrophes in 2011, with devastating earthquakes in Japan and New Zealand and severe flooding in Thailand and Australia, which is likely to result in a general increase in the cost for catastrophe cover.”

“Those UMAs most likely to succeed in 2012, will be the ones that learn to embrace industry legislation and regulations, see the benefit in mergers and acquisitions and overcome competition created by general insurers. Although this may seem daunting, taking this step by step and learning to work together will be crucial,” concludes Delport.