Industry Implications of the DUAE Assessment

Video Transcription

Hello, I’m George Bucur, a director, and co-lead within MarshBerry’s specialty practice. Serving specialty firms such as MGA’s (managing general agent), MGU’s (managing general underwriter), wholesale brokers, and program managers, we are here today to continue on the theme of trends that are impacting specialty distributors.

One of those advancing trends is that of additional regulatory burden via AM Best in regards to their DUAE (delegated underwriting authority enterprise) assessment that is being applied to those delegated authority firms within the industry. Now why is this relevant to you? This is relevant because as specialty firms get to be more prevalent in the marketplace –as they start to get larger in terms of premium volume– they’re getting more and more attention, and in this situation, it’s from the regulators. Regulators want to make sure that their carriers are in the best position to partner with the best-in-class specialty firms that are out there, and therefore minimize risk, provide better underwriting results, etc.

Now the challenges that arise is that many of the specialty distributors in the marketplace are not that large. An additional regulatory burden means cost because any cost associated with this assessment gets bored by those specialty distributors. Other concerns are that this additional regulatory burden may create challenges for smaller MGAs to get off the ground. Putting additional cost on a structure that is already stressed could be detrimental, and this concept cuts into the thread of what we see specialty distribution being– the regeneration and the birth of new products in the marketplace. That is a potential concern and one that we are watching. To this point, there has not been too much activity on the DUAE front in terms of announcements. There have been a couple of large firms that said they went through the assessment and came through, frankly, with flying colors. The real fact of the matter and the teeth of what could potentially happen is if AM Best, when they go to assess their carrier rankings, takes into consideration that of the specialty distributors assessments that those carriers’ partner with. In that situation, if a rating of a carrier is potentially impacted, the assessment can become very much more mainstream and mandated by a lot of the carrier partners that are out there. This is one aspect of this assessment that we are specifically focusing on.

It is very early in the process and time will tell where we go with the overall assessment and the implications to the industry, but it is one that firms are inquiring about pretty regularly. If you have questions of how the assessment may impact your operations, please do not hesitate to reach out. Until next time, be well.