How important is data to what you do?
This is a simple question nearly every delegated underwriting authority firm, such as Managing General Agents (MGAs), will have the same reply to: “Critical.” However, when the natural follow up question is asked, “Do you control your data?” a wide disparity in responses tends to follow, with most answers trending towards “no” or “sort of.”
The elephant in the room is that most MGAs do not have contractual rights and/or may not be able to access the claims underwriting data of the policies they place. This presents a significant issue as most independent MGAs have concentrated business partnerships, dealing with a limited number of carrier partners (oftentimes only one). As such, a shift in market risk factors, poor underwriting results, or just changes in carrier appetite could have significant negative implications for MGAs.
Generally speaking, carriers have historically set a strong precedence on controlling underwriting data and owning the ultimate say on pricing and/or product structure (e.g., deductibles, limits, etc.). From the carrier’s perspective, this is a reasonable approach when partnering with MGAs, as carriers are effectively “outsourcing” traditional responsibilities of the risk taker. The issue is that claims data is the lifeblood of most MGAs. Despite this, MGAs tend to take a passive approach when it comes to contractual rights around claims data, often citing strong, longstanding carrier relationships or stating how effectively they underwrite regardless of who controls the data. However, a firm has clear competitive advantages when it can easily access this data.
Data is more than just “good to have.”
For starters, in a constantly changing and dynamic underwriting environment, where carriers’ appetite for risk may shift quickly, having the data readily available to respond to these changes is paramount. The delays that come with requests from carrier partners and their actuarial teams can have a significant impact on an underwriter’s ability to properly interpret and react to market fluctuations. The ultimate result of having this data, and making fluid adjustments to underwriting standards, may benefit carrier partners through deeper product understanding and expertise, as well as improved loss results.
On a more selfish note, delegated authority firms should want to seek control of their data to help enhance the value of their business. From a buyer’s perspective, an MGA not having ownership of their data heightens an already significant risk of that firm losing their carrier partner, thus diminishing the value of the business. Additionally, should a firm ever need to pivot to a new carrier partner, it is imperative to have this underwriting analysis readily available. Lastly, should any profit share arrangement be in place (or if you wish to negotiate one), having the data allows MGAs to understand the ultimate underwriting profit they have earned, versus accepting what a carrier (often conservatively) volunteers to pay. This can be critical to driving cash flow back to shareholders.
What options do delegated authority firms have to take control of their data?
There are two primary routes firms can take to control their data:
- Contractually negotiate the right with your carriers to have access to the data. (In pre-existing contractual arrangements, carriers will likely be hesitant to do so, but worth trying.)
- Perform the claims administration services yourself to take ownership of claims data and loss results.
While neither option is simple, and the latter has ongoing expenses tied to the services (along with incremental revenue). The third option is to do nothing. This is the status quo situation for firms without control, and one that needs to change in MarshBerry’s opinion.
Once ownership of underwriting data is obtained, the next step is to partner with an actuarial firm to help analyze and make sense of this data, transforming it into valuable knowledge. While this approach may be complex and will create additional expenses, the benefits can outweigh any downside.
While many delegated authority firms currently are not in control of their data, this trend will not continue for long. So rather than sit on the sidelines of the game, find your way to a seat at the table. Because before long, having control of your data will be viewed as table stakes.
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