In search of the ‘special blend’
Readers of a certain vintage might remember the famous Nescafé adverts of the late 1970s and early 1980s. Alongside the now extremely dated shtick there was usually a play on the ‘special blend’ of coffee beans that Nescafé claimed went into every cup of coffee. So what? Without making too much of a leap here, it strikes me that today’s insurers have something in common. Not with Nescafé of course, but in their ability to deliver that ‘special blend’ when it comes to how they look at the distribution of their products. Despite a market seemingly on the turn after a long period of softening, the insurers who will win in this tricky environment and deliver genuine and profitable premium growth for the long term are those that can deliver a blended approach to their distribution.
Tools in the box
The good news when it comes to distribution, is that carriers should be feeling their cup is already half full rather than half empty. There are a range of options out there beyond waiting for a broker to call by and hand business over on a plate (or slip): whether it’s working with a managing general agent (MGA) to delegate underwriting authority; broker facilities; internal cross selling; alternative distribution; or working with other carriers to help them expand their product offering. The variety of choice however doesn’t guarantee success. While there are lots of distribution routes it’s about being smart in how to select the right ones for the right parts of the business.
Let’s start with MGA business. It’s a thriving model in the US and is ripe with opportunity. But an MGA must add value and deliver access to genuine new markets rather than just bringing existing business to Lloyd’s via a different funnel. It’s an easy ambition to talk about but a harder one to execute. With MGAs, it pays to have fewer, better friends. Insurers must have a clear, core strategy and work out the best people to partner with. A clear rule is does an MGA have access to something an insurer wouldn’t have in terms of expertise, territorial access, and data efficiency? Are they relevant? Can they be creative, nimble, and quick?
MGAs are under a great deal of regulatory pressure and they’re having to adapt and survive as the market turns. They in turn must work out which carrier or syndicate to work with and be convinced that a long-term relationship is on the agenda for both parties. Smaller Lloyd’s syndicates for example may strive for immediate growth but that capacity may be withdrawn in a couple of years.
Turning to broker facilities, they are still relevant in the market despite being a feature of the now receding soft market. While these facilities homogenise risk from an underwriter’s perspective and seemingly remove their discretion to accept or reject risks, they can be used as a great tool in terms of a distribution strategy. But finding the equilibrium is important; what works what doesn’t? Does the facility give access to business that a carrier wouldn’t normally see? Does it enable the insurer to write in a more economical and efficient manner?
What about working with other carriers who might be competitors in one area but have no presence in other lines? If they have a great book of homeowners or accident and health business for example there might be scope to offer kidnap and ransom cover. Again, it’s all about how a carrier can add value along the chain and ultimately to the end customer; bringing in new premium rather than siphoning it off from somewhere else.
A great time to be an underwriter
All these distribution tools means that it has never been a better time to be an underwriter but it requires more creative thinking and insurers need to be agnostic about how to approach each one. There is no one size fits all strategy waiting to be plucked off the shelf. It’s about making smart informed decisions with the available data; working out what works best for the carrier, the broker and, of course, the insured.
Insurers should be looking to come away from this next phase of the cycle not only having added value to the customer but also having added real value in terms of underwriting profitability and bottom line growth. The right distribution strategy can deliver exactly that but it’s all in the ‘special blend’.