Ex-Towergate founder of start-up opens up on shock collapse of backer LAMP

The founder of insurtech MGA Now4cover has revealed the business was making an underwriting profit before its capacity partner LAMP went into liquidation.

Michael Muzio worked with LAMP to build Now4cover’s home offering, which prided itself on providing a fully digital and flexible insurance contract, with no dual pricing.

Having started turning a profit in the last 12 months after only beginning to trade three years ago, Muzio said the business was performing strongly. But without prior warning the successful partnership came crashing down.

“We had no warning in relation to the insolvency,” Muzio said. “We found out at the same time as everyone else.”

Implications

The collapse left 13,500 policyholders without cover. Former Towergate head of pricing Muzio is currently in conversations with a number of insurers to provide replacement cover, but he confirmed some customers have now cancelled their policies to seek insurance elsewhere.

As the product was built together with Gibraltarian insurer LAMP, Muzio will require agreement with the new replacement capacity provider to continue offering the same product. Muzio said he wasn’t looking to make significant changes to the product.

Muzio confirmed he is also in communications with the FSCS to ensure policyholders are refunded for the time on their policies they are not covered, and for any outstanding claims unpaid.

He said: “There are a number of conversations ongoing. What we are finding is the regulatory environment doesn’t facilitate speed with insurer-delegated arrangements.”

Conservative UK insurers

On launching the product three years ago, Muzio told Insurance Times he had approached UK insurers to offer capacity, but that they had been too conservative to back him. In particular he said that UK insurers had been hesitant to allow Now4cover to control pricing through its own engine.

Muzio had first met the directors of unrated LAMP while he was working for Towergate, and having done due diligence on the company, it had seemed a secure capacity provider. As previously reported, LAMP had shown a strong solvency ratio prior to its failure.

“We did our own due diligence and looked at their solvency position every year,” he said. “There was a due diligence done on them by their reinsurance partners as well.

“They were perceived to be doing low risk low exposure business. What we did with them was also a low risk well managed portfolio, so all the indications were it was a good, sound, long-standing and sustainable proposition.”

Pricing

On top of the perceived low risk, Muzio explained LAMP also enabled the start-up to offer customers competitive prices.

“It’s an efficient lean capital structure,” he said. “There’s no big regional office overhead that we’re paying for indirectly.

“From our perspective it was good to partner with somebody where we had complementary skill sets, and there was limited duplication and crossover in expense.”

With the business successfully writing a profit for LAMP, and no reason to believe the insurer was experiencing difficulties, Muzio could have good reason for feeling unfortunate.

But he says he is confident in the quality of the product, and that there are lessons he will take from this experience going forward.

“The learning for us is have a good hard look at the capital that underpinned the solvency,” he said. “Rating may do some of that for us.

“If you’re doing due diligence on an insurer, have a more detailed look at what makes up the solvency position, as opposed to just the number. That goes the same for any insurer moving forward.”