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Bright futures in underwriting

13 July 2022 Gareth Stokes

South African non-life insurance stakeholders with sound, technical underwriting skills can benefit from a wealth of expansion opportunities offshore, without turning their backs on their beloved homeland. Steve Murphy, Head of Reinsurance at Santam Re, used his opening address to the 2022 South African Underwriting Managers Association (SAUMA) Conference to commend the country’s underwriting management agencies (UMAs) for their contribution to the economy over almost five decades, and to challenge them to reimagine the journey ahead.

From the 1970s until present day

“The classes of cover the early underwriters wrote were not mainstream to day-to-day insurance businesses at the time; but the businesses were managed by strong technical underwriters who knew what they were doing,” said Murphy, as he transported the 800-plus virtual conference attendees back to the late-1970s and early- to mid-1980s. Back then, there were only two or three SA-based UMAs that were focused on the types of covers that many now specialise in. As Murphy recalled: there was a liability-focused UMA owned and directed by Don Carey, a Lloyd’s underwriter, headed by Angus Hutchison and Tony Stalker; an agency called Marine Managers that wrote the marine accounts for five or so insurers; and Admiral, which operated as a professional indemnity (PI) underwriter. 

These UMAs, and the dozens that have since followed, have made immense contributions to South Africa’s economic development by demonstrating how complex and difficult insurance covers can be sustainably underwritten, as long as care is taken to put the right people, principles and processes in place. The UMA market has grown from relatively humble beginnings, where ZAR10 million in premium was enough to get by, to represent an estimated ZAR20 billion per annum in gross written premium in 2021. “The development of the UMA model [and market] is a wonderful expression of entrepreneurial thinking and activity in South Africa,” said Murphy, before singling out primary insurers Discovery Insure and OUTsurance for exhibiting similar entrepreneurial flair. 

An unappreciated role

Despite their obvious successes, UMAs are still seen as the poor cousins of the industry. “Our UMA businesses have become the custodians of difficult and unusual risks, especially those risks that others want to avoid, and have shown that with care and responsibility such risk can be underwritten on a profitable basis,” said Murphy. “Yet the regulators do not [recognise] UMAs in the same way as they do intermediaries”. An obvious example is that UMAs are not allowed to deal directly with clients. This writer has often picked up a level of unhappiness among UMA stalwarts insofar as the regulatory recognition given this segment of the non-life insurance industry. It is as if the regulators are not 100% sure as to how they want to approach UMAs, with the result the regulation of same has become a bit unclear. 

Concerns over recognition and regulation quickly made way for a more pragmatic assessment of South Africa Inc and prospects for UMAs domestically. And the verdict, dear reader, was kind of gloomy. Murphy commented that the South African insurance market offered relatively little in terms of growth opportunities in the near term. His view is hardly surprising given the country’s GDP growth outlook for 2022 and the following three to five years. “We are dealing with an economy that is struggling to grow at 1% to 2.5% per year; those are not numbers that should excite anyone,” he said. To make matters worse, the economy has yet to recover to its pre-pandemic levels, and that on top of almost a decade of lacklustre GDP growth in the run up to the 2020-21 COVID-19 crisis. There are operational constraints that impact insurers, reinsurers and UMAs too, for example the “legislative restrictions around the number of similar agencies in a licenced insurer”. These negatives aside, there are still opportunities for UMAs and individuals with sound, technical underwriting skills to prosper. 

Underwriting opportunities for miles

The trick, according to Murphy, is for UMAs to match their credibility, consistency and reliability with one of the many risk carriers looking to diversify their risks. He added that UMAs that “know their stuff” and offer expertise and great service are no longer limited by geographical boundaries to doing deals in South Africa only. “Knowing how to technically assess and underwrite a complex or somewhat different risk is a competitive advantage; and it is transportable,” he said. More importantly, “international markets are looking for people who know their area, are experts in their particular field of risk specialisation and have a track record proving same”. 

UMAs keen to explore offshore opportunities need to familiarise themselves with their preferred offshore markets as well as the financial and insurance regulatory frameworks that apply, both tasks made easier in partnership with an insurer or reinsurer. The good news is that certain offshore destinations are screaming for the expertise that many South African UMAs have to offer. “Europe, the Middle East and, to a lesser extent, South-east Asia, are looking for underwriting expertise, especially from local midsize companies that need help to grow their books in different risk pools,” noted Murphy. “Stop thinking that your careers end at the border; there is a world of opportunity for you”. 

Yes, it can be done

Before you throw up your hands and exclaim “it cannot be done,” you should consider that Murphy was attending the virtual conference from Dubai, where a Southern African UMA had been meeting with Dubai-based companies “with a view to offering their expertise so that a product range could be launched in [that] part of the world”. Judging by the virtual applause, the insurance stakeholders in the room were long-overdue some positive encouragement… What this writer enjoyed about the call for UMAs to seek out offshore opportunities was that it went hand-in-hand with encouragement to grow and expand businesses from a strong base in South Africa rather than close up shop and seeking new beginnings. 

The challenge, concluded Murphy, is “to build on the entrepreneurial innovative thinking that is on display in so many [South African insurance and underwriting firms] in starting their own businesses [by] going outside of the country to generate risk pool premium for those who want to write it within the South African market, or at least generate the earnings for that expertise by helping offshore insurers and reinsurers [diversify their risks]”. The writer apologises for tampering with the concluding quote, but reckons the sentiment is spot on… The time is ripe for SA-based underwriting experts to reap the reward on offer offshore! 

Writer’s thoughts:
It was refreshing to attend an insurance presentation that focused on the industry’s opportunities and strengths rather than dwelling on its challenges and weaknesses. Did you attend the 2022 SAUMA Conference, and do you agree that competent, skilled, technical underwriters will find many opportunities outside South Africa’s borders? Please comment below, interact with us on Twitter at @fanews_online or email us your thoughts


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