October 8th, 2009

Guy Carpenter Fifth Annual Specialty Insurance Program Issuing Carrier Survey, Part II: Operations

Posted at 12:30 AM ET

Carl Bach, Managing Director and John Barrows, Vice President
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Operating Platform

Carriers are still flexible with regard to the services that PAs/MGAs provide, including system use and claim handling. Ninety-five percent of respondents expect the PA/MGA to underwrite, rate, quote and bind the business, as well as issue and service policies, up from 80 percent in 2008. Loss control and premium audit services remain important to some carriers, securing 40 percent and 42 percent, respectively — roughly unchanged year-over-year.

mga_chart_5

The buyers’ market continues, but the desire for new business while maintaining rate levels remains critical. This year’s respondents continue to have robust procedures in place to monitor results and control the processes involved in working with PAs/MGAs. Sixty-seven percent of all respondents conduct two or more underwriting and operational audits of the PA/MGA each year, which is down from 92 percent in 2008 and 86 percent in 2007.

Reinsurance Purchasing

Reinsurance continues to play an important role for program issuing carriers. No respondents this year indicated that they work exclusively with direct reinsurers. Rather, 37 percent work with reinsurance intermediaries, and 63 percent use a combination of intermediaries and direct reinsurers. This represents a substantial shift from 2008, in which 83 percent used both intermediaries and direct reinsurers.

Structural preferences have changed, as well. Last year, 50 percent of respondents indicated that they prefer quota share. This year, quota share dropped to 33 percent, commensurate with the 30 percent indicated in 2007. Excess of loss grew from 50 percent last year to 67 percent in 2009, putting it ahead of the 2007 response rate of 61 percent.

Tighter financial conditions have had a slight impact on MGAs’ willingness to compensate reinsurance intermediaries when program-specific reinsurance is not purchased. Last year, all respondents indicated that they would compensate intermediaries either by paying a finders fee or increasing MGA commissions. This year, 18 percent said they would do neither. Forty-eight percent are willing to pay a finders fee (down from 69 percent in 2008), and 45 percent would increase the MGA commission so they can pay the intermediary (up from 31 percent).

Click here to read Guy Carpenter Fifth Annual Specialty Insurance Program Issuing Carrier Survey, Part I >>

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