Delegated Underwriting Authority Enterprise Assessment: A Solution Looking for a Problem?

Video Transcription

Hello, my name is George Bucur. I’m a director within MarshBerry’s financial advisory practice, specializing in serving MGAs (managing general agent), MGUs (managing general underwriter), wholesale brokers, program managers, and general agents. Today we’re bringing you our update in regards to the Delegated Underwriting Authority Enterprise Assessment (DUAE) that’s proposed by AM Best.

Now, this is a little different of a piece that we’ll be doing today. It’s a little more editorial in nature, but we felt it’s important to educate you in regards to certain developments that we are seeing in the marketplace. You may have also seen this at target markets as they interviewed AM Best directly, as well as the Aon Ignition Forum where they had a similar type of conversation.

Now, when it comes to AM Best, it’s important to understand that they are a private organization, and they provide ratings generally for 16,000 carriers across the globe. Specifically, AM Best recently reported that they’re going to perform an assessment on any delegated firm, and what they will do is they will grade that firm effectively using qualitative and quantitative metrics to arrive at this general assessment. Note I’m saying assessment, not a rating, because this will vary in the fact that the terms that they’re going to be evaluating are a little more subjective in nature.

When you look at the overall pros and cons of this assessment, it is clear that carriers can benefit from additional knowledge. There’s no doubts about that. Also, they can take that and figure out what firms might be the right partners in the marketplace. From a con perspective, you’re going to have these delegated authority enterprises having to bear the cost of the overall assessment. And specifically, one of the challenges that resonates with me on that front is that a lot of the delegated authority firms are smaller in nature in the marketplace. One, either the cost may be onerous. Two, they may not be able to implement changes that will allow them to get a higher assessment from AM Best. Three, they just won’t go through the exercise at all. And could this potentially impact their carrier relationships or ability to access markets? That’s a big question.

Also, when it comes to the overall nature of the specialty distribution sector, specialty distribution creates the ability for firms to adapt to changing the changing marketplace and to create new products, to set up new markets, new relationships. It seems like this type of a of requirement, or an assessment, may hinder the overall foundation of what makes specialty distribution unique. In my opinion, this is somewhat of a solution looking for a problem in the fact that carriers today already have to go through a due diligence of their distribution partners. And frankly, we haven’t had a lot of issues on that front. Yes, underwriting results have not been that great, but we haven’t seen any catastrophic events happen. And ultimately, it seems that this might cut a little too deep to the foundation of what specialty distribution represents. There is no doubt that this is a changing landscape and there are more questions than answers.

We hope you found this overall commentary to be informative and if nothing else, keep you current on certain dynamics that are changing the marketplace today. If you have any other questions on how the marketplace is changing, please do not hesitate to reach out. We would love to have a conversation. Thank you.