'Deliver underwriting profit, or risk the loss of capacity' - GRP Underwriting boss

GRP’s chief executive of the underwriting division, Clive Nathan, has given MGAs a stark warning over their futures, as the demand on them increases.

In the aftermath of Aspen’s collapse last month, Nathan said any MGA would struggle if it fails to deliver underwriting profit.

”I think where you can struggle as an MGA is if you don’t deliver an underwriting profit,” he said.

Nathan’s remit is to help and support the MGAs under the GRP umbrella to deliver underwriting profit and growth in specific areas.

He warned that if MGAs in the industry don’t deliver underwriting profit, they put themselves at the risk of losing vital capacity.

”You risk the loss of that capacity, particularly if you are reliant on one insurer, which is what Aspen suffered from.”

Managing the losses

When it comes to losses, Nathan said a balance needs to be achieved between the different types of loss an MGA can deal with.

“I think it also depends on whether they are attritional losses or large losses.

“If it is attritional losses, that would suggest that there is something fundamentally wrong with your book, in that you are not getting the right rate or are writing the wrong sort of policies.

“If you are getting the odd fortuitous large loss, you could argue that it could happen to anyone. But you need to make sure you are funding and putting enough into the pot to be able to fund for when that large loss happens.”

But he also warned that if large losses are not managed, and experienced too often, then that will cause a problem.

“If it happens every year, you’re going to struggle. If it happens every five years, you can probably cope with it. So it is really a combination of that attritional losses and large losses that determine whether or not you are struggling.”

Smaller companies struggling?

Nathan cited the increasing demand for investment in IT and the increasing regulation as the largest challenges for all companies in the insurance industry.

When speaking on IT, he said: ”What’s changing there is better information, more data enrichment. More insurers having a lot more data on clients, on performance, and MGAs need to do this as well.”

So, Plum Underwriting, part of GRP, has launched insurer-hosted pricing, which Nathan says allows them to “change pricing dynamically and in real time.”

But for other MGAs, Nathan said the increased demand could be too much.

He says larger brokers and insurers are making those necessary investments, but smaller companies without the capital behind them may not have it in their budget.

He said: “In the distribution chain, I think a lot of people are concerned about what it means for insurers and brokers, alike.

“I wouldn’t underestimate how much investment is going on in this space. Every insurer that I have spoken to is making big investments, and every broker that can afford it are doing it as well.

“But the important thing is having the scale to be able to make those investments, if you are very small you can’t make those investments.”

He said this problem is one to explain the rifeness of consolidation at the moment.

“It is difficult as a small company to have the funds and the management stretch to invest in all of the things that are needed, which I think is one of the reasons consolidation is so rife at the moment.

“People are recognising that if they want to compete, they have to make that investment, and if they are writing £5m-£10m of GWP then it is very difficult.”

Yesterday, GRP-owned Country Group announced another acquisition, when it bought fellow north-west broker, Meadons, a broker with a specialty in cricket clubs.

Middle companies can be squeezed out

However, Nathan claims that the companies most likely to be squeezed out are the ones operating in the middle ground between small insurtechs and larger insurance companies.

He said: “I’ll use football as an analogy. You have the big clubs with the big money and the smaller clubs who are operating on a shoe string, keeping things ticking over. The real challenge is for those clubs somewhere in the middle who have go aspirations but need that investment to get to that next level.

“To bring it back to insurance, you have startups and insurtechs who are operating very efficiently, and the big companies that have the capital already, it is those middle-companies that could find themselves being squeezed. And I think that is where consolidation is happening and can continue to happen.”