At the end of July this year, the Financial Services Board (FSB) published the latest version of the proposed amendments to the Regulations under the Short-Term Insurance Act with a call for further industry comments to be submitted on 4 August 2017.
The proposals followed from the process that began at the beginning of the year.
Of most significant interest to the Underwriting Manager (UMA) in the market today, is any anticipated changes to the UMA binder model that specifically relates to UMAs and the UMA model.
Much of the same
The amendments to the Binder Regulations from a UMA perspective continue with much of what is already in place for UMAs and the significant UMA specific issues they face.
The status quo also remains largely the same in terms of the following:
Biggest change
At this stage, I believe, one of the biggest changes we will see will pertain to the binder information that UMAs need to submit to their insurers.
As things currently stand, insurers need to receive binder data from UMAs within a maximum period of 60 days. Having said that, changes to the regulations would require UMAs to submit binder data to their insurers at least every 24 hours.
The request for binder information follows the current requirement where the information that is submitted by the UMA enables the insurer to identify and contact policyholders as well as assess its liability under the policies concerned.
Hard work ahead
My sense is that this requirement will require much work by those affected before it is implemented. There is no doubt that the current state of play in the market implies that:
– Not everybody is up to speed in terms of supplying the data required; and
– Most insurers get their data in various forms of quality, ranging from good to downright bad. This depends on the UMA concerned and the level of their technology and their system’s capabilities.
The regulator has made it clear that they – for good reason in a lot of circumstances – believe that conduct standards for binder type arrangements require significant strengthening. Further, the FSB is particularly concerned about the inadequate level of ongoing oversight exercised by insurers over binder holders as well as the poor quality of data currently being accessed by insurers from binder holders.
Quality is key
There can be little doubt that regardless of whatever minor tweaks are made to the current regulations, data (quality as well as accessibility) is going to be a given where there probably will not be any latitude for not doing things by the book.
If not already the case, the abovementioned scenario should be a top priority on UMA agendas. Forward thinking UMAs that want to be assured of a future in their space should ensure that they comply with this requirement as soon as possible.
Martin Le Roux
Managing Executive
Centriq Insurance
Types of UMA business models
When entering into a UMA agreement with an insurer, UMAs typically have two business models to choose from. One business model is that the UMA can underwrite business purely for a pre-
negotiated underwriting fee. The other business model is that the UMA can participate in the performance of the business they underwrite via a cell captive or other type of profit share model.
Depending on the type of UMA and its appointment, the UMA will usually perform more than one binder activity on behalf of the insurer. In fact, in most instances, the UMA’s activities include:
Naturally, the insurer also requires the UMA to report on and account for all the activities above. It is important to note that a UMA does not deal directly with the public or end-consumer and that all the UMA’s business is sourced via the independent intermediary.
UMAs in the making
UMAs are typically owned and run by business individuals and entrepreneurs who are experienced in the insurance industry, including the specific lines of business they underwrite.
Generally, a UMA will be formed after spotting a gap for a niche or specialist product in the insurance industry.
UMAs have contributed greatly to the growth and product innovation in the insurance market place. UMAs are often known for the niche, specialist skills and abilities they have and the superior service they provide, although one does not have to offer a niche product to become a UMA.
Advantages of partnering with a UMA
For insurers and brokers, there are many advantages that arise from partnering with a UMA. These include:
Sometimes, the only reason why insurers have capacity in certain lines of business, is because they have a specialist UMA underwriter that is responsible for that specific business segment; and
By Subashini Kallan, client manager at Centriq Insurance
CENTRIQ PARTNERS WITH AXXIS
Centriq Insurance is pleased to announce its underwriting management agency (UMA) partnership with AXXIS Risk Solutions, effective 1 July.
Specialising in property insurance for corporate and large commercial clients, AXXIS underwrites assets all risk insurance via the insurance and reinsurance broker market.
“This type of policies are bespoke contracts of insurance as it covers elements of property damage, business interruption and in some cases, machinery breakdown, which can have a severe impact on a client’s profit and market share if not adequately management or insured,” explains André van der Merwe, managing director of AXXIS – a solutions driven UMA that follows a holistic approach by focusing on strategic relationships with select brokers.
Commenting on their partnership with Centriq, van der Merwe says they proudly associate with the specialist insurer. “In our business, professionalism and financial stability are key. We get this and much more from Centriq.”
Peter Jennett, chief executive officer of Centriq Insurance, says they are excited about the road ahead. “We are pleased that such quality underwriters chose to partner with us and know that together we will deliver excellent insurance solutions to the market.”
Both partners share the same values as far as business integrity, ethics, transparency and client relations are concerned, “and these aspects are and will always remain fundamental to high-quality insurance products, services and success,” concludes Jennett.
Specialist insurer, Centriq Insurance, is pleased to announce that Global Credit Ratings (GCR) affirmed the company’s national scale claims paying ability rating of AA-(ZA) for the second consecutive year.
Prior to the above, Centriq maintained an A+(ZA) rating for six years.
“We are pleased that the company’s security has been confirmed for the benefit of our policyholders, cell owners, underwriting management agencies and intermediaries,” says Peter Jennett, chief executive officer of Centriq Insurance.
Continued strengths demonstrated by Centriq include:
In its report, GCR said Centriq’s rating is underpinned by its strong standalone credit profile, coupled with support derived from their parent company, Santam with regards to risk management oversight and financial flexibility by means of a capital drawdown facility.
According to GCR, Centriq exhibits a strong competitive profile, supported by its material share of the cell captive market. “The specialised nature of the business model is relatively difficult to replicate from start-up, providing a competitive edge.”
GCR accorded Centriq’s rating outlook as stable.
At the 2017 Insurance Conference (IISA) held at Sun City recently, Peter Jennett, chief executive officer of leading specialist insurer, Centriq Insurance, said the cell captive insurance model is going strong despite tough market conditions and ongoing regulatory challenges.
“We are seeing a good number of underwriting management agencies (UMAs) entering the market through cell captives with good reinsurer support for local role players wanting to put up capital as UMAs through the cell captive structure in South Africa,” said Jennett.
There is a steady, growing interest in cell captives worldwide. A recent global benchmarking report released by Marsh notes a steady pattern of growth in cell captives worldwide for the past 30 years, underpinning Jennett’s belief that “cell captives are sustainable, resilient and here to stay.”
Currently, the number of cell captives worldwide is estimated at 2 750 (Marsh), although it must be noted that these are mostly first-party cell captive business models.
Nonetheless, the fact of the matter is that the cell captive insurance business model as a non-traditional structure to insure and fund, transfer or retain risk is widely used because it is effective and viable.
Commenting on the current state and future of UMAs in SA, Jennett said that the current regulatory landscape that restricts UMAs to deal direct has proven to be quite a hurdle to jump for many UMAs in the market place. “This is especially true for insurance technology ventures wanting to take on more underwriting risks by selling insurance directly to customers,” said Jennett.
“However, should legislation change in this regard, and we are hopeful that it will, role players will be presented with more opportunities to optimise their businesses,” he said.
Overall, UMAs are healthy and turning out good results. “Service levels are high while those operating in niche lines of business are reaping the most rewards,” concluded Jennett.
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