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FOR IMMEDIATE RELEASE
OLDWICK - MARCH 02, 2022 08:57 AM (EST)
Delegated underwriting authority enterprises (DUAE) have become an increasingly relevant part of the property/casualty insurance market, punctuated by growth in annual direct premium written generated by managing general agents (MGA), according to an AM Best report.
In addition to MGAs, DUAEs include managing general underwriters, coverholders, program administrators, program underwriters, underwriting agencies, direct authorizations and appointed representatives; MGAs are the most common form in the U.S. market. A new Best’s Market Segment Report, titled, “Delegated Underwriting Authority Enterprises Gaining Market Traction,” notes that as insurers have developed partnerships with DUAEs, they have been able to diversify risks better, in line with their risk appetites. “Not only have these new avenues allowed insurers to expand their product offerings and provide solutions for a wider range of risk classes, but they also have provided growth opportunities and added to bottom-line profitability for many carriers,” said Sridhar Manyem, director, industry research and analytics, AM Best.
According to the report, hardening insurance rates in different segments of the commercial lines market drove premium growth by MGAs from 2017-2020, including year-over-year growth of 5.5% to $49.4 billion in 2020. The growing number of MGAs collaborating with insurers to write specialty business is helping to fuel the increase in U.S. property/casualty premium generated by MGAs.
AM Best identified 663 distinct MGAs as part of its analysis, and notes that this does not represent the entire universe of MGAs as many generate annual premiums for insurers that fall below the 5% of surplus threshold. Of the 663, just 28% are affiliated MGAs, or ones that are 100% owned by an insurer; however, they accounted for 62% of direct premium written in 2020. At the same time, the percentage of total MGA premium generated by unaffiliated entities has risen over the past several years as insurers have sought to achieve organic growth via expanded distribution channels.
Because of inflation, DUAEs could face a financial squeeze if their costs rise and become disproportionate to their commissions and fees. In addition, if profitability dampens, contingent commissions may suffer as well. If revenues remain level, AM Best believes DUAEs could feel pressure to expand their product base to stay on par with increasing expenses. DUAEs with diversified fee and commission sources should fare better in withstanding the difficulties of inflationary trends.
“The current, challenging economic conditions, coupled with the so-called Great Resignation, could be problematic for DUAEs that do not have adequate staffing and lack a strong pipeline for new hires,” said David Blades, associate director, industry research and analytics, AM Best. “These DUAEs could face tough times if they were to lose key management or staff members, especially if there is not a good succession plan in place. In addition, retaining top talent could impact the expenses of lean, newer DUAEs.”
As the industry gets further away from the market disruptions caused by COVID-19 and closer to economic recovery, AM Best believes DUAEs of all types will continue to be a relevant part of the insurance value chain. Recognizing the growing importance of DUAEs, AM Best recently introduced the Best’s Performance Assessment, which provides a framework for differentiating among DUAEs. For additional information, please go to https://www.ambest.com/assessment/methodology.html .
To access the full copy of this market segment report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=317836 .
AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City.