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The Future of Delegated Underwriting

A Deloitte Underwriting Transformation Blog Series, Part 1

Delegated Underwriting continues to play a significant role in the portfolio of many carriers and is set to continue, as capacity providers seek to achieve continued sustainable growth, alongside the abundance of new market opportunities. Coverholders and capacity providers are both in a unique position to innovate and differentiate.

Follow the bi-weekly blog series to understand how Delegated Underwriting and Coverholder operating models are being set up for future success.

Over recent years, the delegated market has and continues to face a wide array of opportunities but also challenges to profitability and reputation. From a global pandemic, capital ebbs and flows, regulator agenda changes, digital disruption and through to the ‘great resignation’, delegated insurers and coverholders alike, have faced headwinds in generating sustainable new business, whilst protecting portfolios and retention rates.

Successful delegated arrangements have typically acted to service specialist or unique risk pools, instilled with industry expertise for innovative product development and incremental distribution means. A would-be plug and play facility, Delegated Authorities were and generally still are, considered a cost-effective means of broadening distribution and market reach.

Delegated business currently represents over 40% of volumes at Lloyd’s and over 10% of the General Insurance market in the UK, written by over 300 MGAs or coverholders. These proportions are continuing to grow as capacity providers continue to look for opportunities to expand revenue streams, whilst retaining oversight of risk exposure and minimising operating expenses. It is unsurprising that the delegated market shows little sign of slowing down its pace of growth. However, are delegated underwriting arrangements still as attractive as they once were?

Across the market, underwriting appetite has been restricted and acquisition budgets reduced. Resource has been deployed to support existing business operations and actions taken to diminish trading and referral backlogs. For many delegated carriers, the typical separation from open market trading has shielded business from service and proposition extremities, however, delegated business is not exempt to disruption. Increasing regulatory controls, media coverage and a greater scrutiny of complaints and conduct, have amplified operational expectations. The distinct challenges contended with in the market are summarised by five key themes:

  • An evolving and constant threat of market competition
  • Talent and skills are constrained in the market for underwriting, as well as 'neo-skills' such as data and analytics
  • Capacity management and optimisation continues, enabling trading opportunities, but often leading to operational and technology overheads
  • A technology and data capability gap is forming between market participants - foundational technology and data capabilities continue to restrict ambitions for some coverholders and delegated carriers alike, whilst the more recent (typically digital-first) market entrants race to establish differentiator capabilities
  • The regulatory and governance agenda continues to require increased focus and investment

Over our latest Underwriting Transformation blog series, tackled from both a capacity provider and coverholder perspective, we shall explore how transformation programmes are embedding the five core focus areas in response to the changing face of the market:

  • The evolving nature of market competition, capacity management and capital allocation: Congested distribution, market disruptors and existing player consolidation – showcasing how the market is pivoting from a reactive to proactive future ready state
  • Operations, Technology and Data: Enabling underwriting excellence with the integration of technology and analytics solutions, carving out sustainable solutions for operational excellence
  • Delegated Underwriter and Coverholder 2.0: The evolving skill sets required to meet the needs of the future
  • Delegated Authorities in the Future London Market: How London Market stakeholders including brokers may need to adapt to meet the vision of the Future of Lloyd’s
  • The Regulatory Backdrop: Assessing the regulation surrounding delegated authorities and how technology solutions are supporting to meet oversight requirements via a practical case study

The Future of Delegated Underwriting?  With substantial GWP to be captured in the market, Delegated arrangements continue to be an attractive proposition for all parties. Binding agreements are continuing to form and increase in Delegated authority, but are these arrangements really equipped for sustainable growth?