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Transforming the MGA Underwriting Approach

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With the right data and processes could peer reviews help transform MGAs’ underwriting performance?

Peer reviews of an MGA’s underwriting book aren’t new, and neither are their benefits: they’re known to identify both efficiencies and areas of improvement.

In early 2020, Aventum’s management team began retaining independent consultant Conor Finn to continually monitor the underwriting teams at Rokstone, its recently restructured (re)insurance MGA. Strengthening oversight over this part of the business is a core part of Aventum’s long term goals, explains one of its executives.

I learnt about a better way of managing businesses, so it wasn’t just a game of chance.
Conor Finn, independent consultant

“This is different to other MGAs as they just write the business, and they don’t do the other processes a syndicate would do,” says Tom Downs, chief operating officer at Aventum. “It’s all about protecting the capital which we are authorised to write on behalf of. That’s our USP. We are writing for the long term with our capital partners, rather than just for income.”

In his 40-year career Finn has held several senior underwriting roles, including managing director of Markel’s property division, and says he learnt a lot from working under Tony Markel himself.

“I was mentored for years by him,” recalls Finn. “I learnt about a better way of managing businesses, so it wasn’t just a game of chance. It was about steering a portfolio and making it more strategic. He showed me that while I was a good underwriter, I had never really looked at portfolios. This was a completely different approach, which I then used for many years.”

Efficiency and Profitability

At Aventum, Finn’s role is to work closely with the business’s underwriting teams and get a detailed understanding of how they manage their portfolios.

“I take a holistic view of the portfolio and make suggestions for how it can be improved,” says Finn. “I’m very much about helping people work better. I’m not an auditor, I’m an underwriter and trader by background.”

This involves the underwriters explaining to Finn how decisions were made, talking him through line deployment and effectively develop a more holistic view of their portfolios.

Evaluating a portfolio from a slightly different angle could skim off any marginal costs.
Tom Downs, Chief Operating Officer, Aventum

The approach means that executives gain a better understanding of the business’s risk exposure and how day-to-day underwriting is being conducted, which should lead to more profitable business.

“The objective has been to create more profit,” says Downs. “To make loss ratios better and ensure that we hit targets. With peer reviews, you must have a strategic objective.

“If a peer review works, you should drive efficiencies into your book and underwriting processes that will have a direct contribution to the figures. Evaluating a portfolio from a slightly different angle could skim off any marginal costs. It all adds up to more profit for the company.”

Beyond Aventum

Could this become a strategy used by others? On the surface, the advantages are clear according to Inez Cooper, founder and managing director at specialist expat insurer William Russell. Her business does not use independent consultants in this way, but she recognises the benefits.

“The right independent consultant with the relevant experience can be a real asset to an MGA so it should not be discounted,” she says. “Independent consultants can bring a wealth of experience and highlight in an open and unbiased way how you can make improvements. Effective independent consultants have seen what does and doesn’t work at other organisations but also know how to engage staff and gain buy-in.”

Aventum brought in these processes without legacy technology issues, something Downs points to as an advantage. Others will have to invest heavily in this, says Cooper, to ensure underwriters have the best data possible.

“This is where technology really comes into the picture,” she says. “Online app forms that the client can complete completely and accurately first time, with portals that allow information to be updated securely and in real time as well as tracking decisions, will make underwriting much more efficient.

“Direct contact between underwriters and clients is also an effective way of improving decision making and efficiency where information is complex or unclear.”

“Other firms would struggle with this,” adds Downs. “You have to make sure you have the data. You need the data right from the initial enquiry, and a good few years of it so you can identify trends.”

The process also relies upon independence with the peer reviewer being able to work without bias. Finn is retained by Aventum, and works closely with their teams, but he is clear that remaining independent are vital to giving the arrangement any value.

“Underwriters have egos,” says Downs. “For them to be told they have been told they’ve done something wrong, or could have done it better, they don’t take kindly to that. You have to make sure you get buy in early and explain the rationale of why you are doing it.”

The events of 2020 have done little to dampen the enthusiasm of MGAs. A survey by global law firm Clyde & Co found 69% of MGAs expect partnerships to increase in 2022, with 84% reflecting positively or neutrally on the impacts of the pandemic. Ambition is returning to the sector, and Finn sees repairing underwriting performance as a key focus for MGAs like Aventum.

“Some of these guys just want to be an MGA, selling a niche product and using someone else’s capital,” Finn says. “For someone like Aventum, it’s a different ball game. They could effectively be the next Markel and people forget they began life as an MGA.

“[Markel] were successful because they had such great control over their underwriting. For an MGA like Aventum, that wants to get their own capital and run their own insurance carrier, [independent peer reviews] help them on that journey.”