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Underwriting agencies spur ‘evolution’ of specialty market: AM Best

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A new AM Best report on underwriting agencies says the sector has played an important role in the “evolution” of the specialty insurance market in the last ten years.

The ratings agency says the delegation of underwriting authority to third party risk specialists by insurers has long been an important part of the insurance value chain.

This has helped insurers identify risks that fit their risk appetite and potentially expand their product offerings, in addition to contributing to bottom-line profits.

Known formally as delegated underwriting authority enterprises (DUAEs), AM Best says these entities entail specialised agents or brokers underwriting risks on behalf of insurers or other capital providers using delegated authority.

In many cases they may also bind policies, manage claims administration, or buy reinsurance depending on the authority they are granted by the insurer.

“Given the competitive challenges of the last several years, insurers have worked to stimulate premium growth by acquiring quality books of business and expanding their portfolio offerings by enhancing their distribution network,” AM Best said.

“Since DUAEs can handle many time-consuming policy processing and servicing functions, insurers have traditionally used them to help expand capacity, diversify portfolios either geographically or by line of business, and even to enhance their market agility.

“The access to specialised underwriting talent has long been viewed as perhaps the most critical service DUAEs provide.”

AM Best says the intermediaries provider insurers and reinsurers with a cost effective way to access niche or emerging risks since building such services and capabilities from scratch requires a significant investment.

“DUAEs can therefore supply carriers with profitable business for only a fraction of the expense and investment required to establish the necessary expertise in-house,” the ratings agency said.

“Aligning with DUAEs also allows capital investments by risk-bearing entities to be withdrawn relatively quickly if performance does not meet expectations.”

Looking ahead, AM Best says the DUAEs of the future will need to be leaner, more cost-effective, and tech-enabled, and they will need to provide unrivalled expertise and distribution as adroitly as possible.