The underwriting management agency (UMA) concept is uniquely South African.  Where similar structures are encountered in other parts of the world they are typically referred to as underwriting and claims binder facilities. In the simplest possible terms a UMA is an agent of an insurer.

An appetite for extraordinary risks

UMAs and the characters that run them are viewed by many as non-conformists, mad extremists or ‘cowboys’ – and rightly so! That’s because managers at underwriting agencies are usually entrepreneurial by nature and instinctively view risks through different coloured glasses.

By risks, I do not mean everyday risks such as a building burning down or a motor car being involved in an accident. Rather the risks that UMAs find intriguing are the ones associated with complex and often high value commercial activities.

We might, for example, concern ourselves with what might go wrong when a manufacturing firm has to ship uniquely-designed pipes from Vanderbijlpark to a remote location in Uganda; or when a multimillion dollar aircraft is used to herd animals in the Drakensberg.

A client that needs to insure an unconventional risk turns to a UMA that specialises in a particular field – whether that risk arises from aviation, broad-form liability, engineering or a myriad other niche areas.

The UMA is and will always provide a ‘bridge’ between the specialist entrepreneur underwriter and the large scale ‘mass production’ insurance company. The latter needs to have systems, procedures and fixed processes in place in order to accurately rate and underwrite general risks, contain costs and remain competitive. Specialised or niche areas are better underwritten by UMAs.

Adding ‘colour’ to the insurance market

The UMA entrepreneur – by his or her nature and character – cannot be constrained by a ‘tick box’ environment. UMAs are specialists in niche lines of insurance business and as such have no desire to run the full scale compliance department that a registered and licensed insurer must. They prefer also to steer clear of the difficulties in managing the ‘float’ and meeting solvency requirements.

The insurer, on the other hand, enjoys the option to contract with UMA specialists because they add value and products to the insurer’s general offering. The structure is compliance-heavy, but in most cases totally worth it. It is, after all, for the protection of both the policyholder and the insurer (who is liable for the actions of the UMA) that the UMA complies with all regulatory requirements.

Clearly defined roles

A clear distinction must be made between an administrator and a UMA. An administrator is an outsourced administration division of an insurer and acts as if it were a branch of the insurer, issuing policies under the terms and conditions of the insurer’s risk and rating ‘black box’. A UMA meanwhile analyses specific individual risks and attaches custom rates, terms and conditions to each risk, with the approval of the insurer of course.

It is not cost effective to run a commoditised insurance product (such as personal lines motor) via a UMA. Market rates are so competitive and the profit margins so thin that the UMA cannot survive on the income generated whilst competing against companies that write billions via automatically-rated systems at marginal underwriting profits.

On the other hand large insurers cannot adapt their systems and processes to cater for the vast and diverse variables surrounding specialised and complex risks which form part of the product offering of UMAs.

The UMA has a clear and distinct role to fulfil and will continue to be an integral part of the South African insurance landscape for as long as it remains focused on the specialised risks it underwrites.