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Trust… Make or break for brokers, insurer and UMAs

02 August 2021 Gareth Stokes

Brokers, insurers and underwriting management agencies (UMAs) have their work cut out to rebuild trust relationships with their clients following the often disappointing insurance outcomes during the pandemic year. Doug Laburn, Executive Head of Lombard Partnerships, told the audience at the 2021 SAUMA Conference that the industry had suffered “extreme trust erosion” due to the handling of various obligations arising from Covid-19. “Trust underpins our industry; but we emerged from 2020 less trusted than we were before, which is a real pity,” he said. Lombard was commenting during a discussion about UMA relationships within the broader insurance market, held as part of the 2021 SAUMA Conference.

A three-link trust chain

UMAs face a unique trust challenge because they are part of a three-link ‘trust chain’ that connects the promises made in a contract for insurance with the end client. This chain comprises the insurer, the UMA and the broker. “In the UMA context you are usually dealing with a small group of individuals who have staked their personal reputations on the promises they make to you [brokers] and your clients,” said Laburn. “This level of personal ‘skin in the game’ is often lost at the insurer level”. He added that brokers who partner with high-quality UMAs will benefit from a greater level of commitment than they would typically receive from an insurer, especially during tough times. The conversation, ably steered by editor of Cover Magazine, Tony van Niekerk, soon turned to some of the main themes dominating the domestic UMA landscape. 

Theme 1: Changing regulatory environment

Tough market conditions coupled with changes to the regulatory environment were singled out as the main contributors to a decade-long decline in the number of UMAs plying their trade in South Africa. SAUMA has seen its member base contract from around 80 members in 2010 to just 60 today. “The role of the UMA has been diminished somewhat by the in-force regulatory regime not appropriately differentiating UMA binders in the market,” said Laburn. According to Laburn, an unintended consequence of the new binder and outsourcing regulations is that UMAs are left competing against broker binder agreements without being able to respond as insurers can insofar the outsourcing of administrative functions. The outcome is an unlevel playing field that is seeing the UMA market narrowing. 

Theme 2: Dramatic impact of technology

The accelerated adoption of new technology during pandemic has been a game changer for all insurance stakeholders. According to Laburn, brokers and UMAs have had to re-evaluate long-held assumptions about how business is conducted, from simple platform-based policy administration systems to the complex embedding of artificial intelligence (AI) algorithms in the underwriting process. “An example of the [technology revolution] is the need for the accurate and timeous exchange of granular data between the UMA and the insurer … we meet this requirement today, but it has not been without significant time, effort and investment on something that, on the face of it, seems fairly simple,” he said. 

Theme 3: Pressure in the distribution channel

UMAs, who are completely reliant on intermediaries to represent their specialist insurance offering to clients, are facing increasing pressure due to the proliferation of broker binders and the growing inroads that direct insurers are making into the market place. “There is channel pressure and opportunity,” said Laburn. “There will always be a place for UMAs that deliver a differentiated offering that enables brokers to deliver better outcomes to their clients; but how we deliver this differentiation will be critical to ensure a thriving UMA and broker market”. 

Theme 4: Skills on the wane; a ‘technical succession’ failure

The lack of skills in specialist insurance classes is an issue that crops up at every presentation we attend, whether hosted by insurers, reinsurers or risk managers. There is broad consensus that the insurance sector has struggled to grow and retain skills in a number of disciplines, going back more than a decade. UMAs will have to make their businesses more attractive to lure in the many entrepreneurs, experts and innovators who are doing great things in re-inventing traditional distribution and insurance processes for the digital age. 

Theme 5: Insurers’ capital woes…

Another ‘big impact’ change has been the introduction of the Solvency Assessment and Management (SAM) capital regime, which requires insurers to think carefully about how they apply their capital. “The SAM capital regime makes return hurdles more difficult to reach and made diversified portfolios and scale more important than before,” said Laburn. “There are basic costs of running an insurance license that you cannot manage down beyond a certain point, which makes it difficult for the smaller and more innovative insurers who have historically been very strong supporters of the UMA model”. The decision by many large insurers to bring UMAs in-house has also reduce the number of insurers that support UMAs. 

Brokers and UMAs still have a role to play

There are a few non-negotiables that will ensure UMA success over the coming decade. One is for UMAs to work closely with brokers to achieve cost-effective distribution channels. Another critical factor is for UMAs to excel at data management. “A UMA that is not highly competent at data management, operating  from the cloud and able to embed technology in their underwriting, claims and risk management processes, will struggle in the future,” said Laburn. Those who employ excellent people and leverage technology to offer a differentiated underwriting experience will stand out from the crowd. 

Finally, the UMA must offer a level of agility, responsive service, speed of decision making, specialist knowledge and personal connection that is difficult for large insurers to respond to. “Many of these points centre around people, relationship and skill and these remain the critical threads in our industry,” concluded Laburn. “Technology is a means to enabling effective relationships and delivery of skill to our brokers and their clients; a UMA that delivers these things enables brokers to represent their clients more effectively from a service, quality of cover and claims handling perspective”. 

Writer’s thoughts:
It can take months or even years for the impact caused by changes to insurance regulation to filter through to the market. If regulators get things wrong by making it difficult for certain business models to operate profitably, they could inadvertently render an entire category of financial services provider obsolete… Do you think that the current regulatory position re binder agreements makes it difficult for UMAs to compete on equal footing with broker binder holders insofar administrative outsourcing? Please comment below, interact with us on Twitter at @fanews_online or email us your thoughts [email protected].


Added by Humphrey, 02 Aug 2021
Nothing the Regulators do make things easy for business or entrepreneurs to flourish, grow the economy and create jobs. In this respect they are value destroyers. A careful analysis at the masses of legislation and draconian laws and obligations placed on business will reveal very little benefit to the consumer (despite the stated intent) - yes some of it is required for consumer protection but it could have been done sooooo much simpler for all concerned and yet achieved a better result. My thinking is still that the drafters of legislation get paid per page they produce.
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