steven-crabb-ceo-davies-insurance-services
Steven Crabb, CEO, Davies Insurance Services
2 March 2022Insurance

Innovation: look to MGA startups to reveal hidden business

As the insurance industry continues to develop its digital evolution, one market expert warns that insurers need to make sure they back the innovative managing general agents (MGAs) who can access business that incumbents wouldn’t ordinarily see.

This was the view of Steven Crabb, chief executive officer of Davies Insurance Services, speaking to Intelligentinsurer.com, the website and digital hub for news, interviews, analysis and debate.

Commenting on how the ongoing shift to digitisation and greater use of technology was changing things for underwriters and insurers, Crabb said: “Our take on this is that the innovation is coming from startups rather than some of the incumbents. So it’s the insurers who need to make sure they back the MGAs who can access business they wouldn’t ordinarily come across.”

He said insurers need to have better portfolio management viewpoints, they need to check their books and look at how they can access this previously overlooked business via clever startup MGAs.

Crabb acknowledged that insurtech continues to dominate the news, adding that his company is working with many startup MGAs in that space.

“We’re seeing a focus on niche or liability classes by MGA entrepreneurs using new distribution models to access business usually out of the reach of their capacity providers.

“We’re seeing a focus on niche or liability classes by MGA entrepreneurs using new distribution models.” Steven Crabb, Davies Insurance Services

“Some established MGAs are seeking to write part of their own risk by setting up a captive to sit alongside their regular insurer panel giving them better opportunities and options to manage rate volatility.”

Crabb highlighted his firm’s joined-up capability in this space as being “very helpful to our customers as they transform into this partial risk-carrying capability themselves”.

In the UK, Crabb said, he is keeping an eye on the Financial Conduct Authority review into the appointed representatives regime. In the main, requirements have remained unchanged for 35 years he said, adding: “It’s now due an overhaul.”

He also welcomed any future strengthening of regulation that allows Davies to offer its clients the most relevant services.

Responding to market changes

Crabb explained that Davies has been tracking the Future at Lloyd’s initiative for a couple of years and is responding to some of the market transformation challenges set out in Blueprint 2 by investing in technology and making sure its services stay relevant.

“As one of the main suppliers of delegated authority services in the market, we see a good opportunity for the market to improve the way it does business with its coverholders,” he said. “We’re hoping that Blueprint 2 will continue to push this agenda.”

Although the “syndicate in a box” (SIAB) initiative had a slow start, it has now picked up pace and it’s good to see more SIABs approved by the corporation, he said.

In addition to this, the market is seeing more MGAs transitioning into risk capability either by repurposing some of their book into a SIAB or by using their own captives to take some of that risk, and Davies is already helping its customers with this type of transformation.

Crabb had a front row seat at the World Captive Forum in Miami in February 2022 as lead sponsor at the event. He said that attendees including captive owners, actuarial firms, brokers and reinsurers were all talking about the continued hard market for US commercial insurance, particularly for the liability lines.

“Brokers and their clients are increasingly looking to cede more exposures to their captives with potentially deeper primary layers or using access to layers of coverage to help with their risk management. That was one of the key themes that came out of that conference,” he said.

This is an area of growth Davies is geared up for, he said, as the company provides captive management services out of Bermuda and the US and supplies actuarial claims services across the US.

Another interesting captive insurance trend highlighted by Crabb was that startup MGAs for niche classes, such as cryptocurrency and cyber, are turning to captive solutions for their difficult-to-place risks. However, one of the challenges for the niche classes is the availability of reinsurance to support captives. In response to this, Davies is actively working with stakeholders in that space to ensure a joined-up solution.

“Regulators are going to have a bigger part to play in the UK this year and across the global P&C markets.”

“We’re tracking some more interest in Europe for self-insurance, so we expect some growth and interest levels rising for captive managers in domiciles such as Guernsey and Gibraltar.

“Traditionally self-insurance wasn’t a big feature in the UK and Europe but I think that’s trending across the Atlantic now and we’re expecting to see some new interest in that space through 2022 and 2023,” he added.

Looking ahead, Crabb said the next 12 months would be “an exciting time” with London, Bermuda and the US continuing to be Davies’ key markets for the next few years.

“In particular, Lloyd’s has shown its appetite for controlled growth with a 13 percent increase in stamp capacity for 2022 and we forecast that continuing through 2023 and onwards.

“The mood music coming out of Lime Street is that the stamp growth should continue through 2023 and 2024, so that’s good for our customers and good for us tracking that.”

In terms of a more general observation for the next 12 to 18 months, Crabb said that as the global economies emerge from the COVID-19 pandemic, he expected to see even more innovation in the non-traditional distribution models, particularly in the gig economy and digital currency in crypto markets.

He pointed to some of the positive results enjoyed by Lloyd’s in 2021 and through 2022 saying they would “help lift the market”.

In conclusion, he said: “Regulators are going to have a bigger part to play in the UK this year and across the global P&C markets.

“The innovation in distribution, insurtech-stimulated distribution or people getting clever with niche lines, franchise and affinity distribution, are going to be the drivers for change through this year and next.”

Steven Crabb is the chief executive officer of Davies Insurance Services. He can be contacted at: steven.crabb@davies-group.com

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