2013-09-04 09:03:05 -
The movement toward insurers automatically taking a share of business through broker arrangements could result in the loosening of underwriting risk management practices and eventually lead to a deterioration in technical performance, according to a new briefing from A.M.
In a new Best’s Briefing titled, “London Market Placement Deals Represent New Stage of Evolution”, A.M. Best has noted the recent change in placement practices with the introduction of “mega” whole-account broker deals. While similar types of arrangements have existed in the marketplace for a number of years in many forms, the new developments by Aon and Willis, the world’s second and third largest brokers, represent a key departure from current approaches, not least in terms of scale.
For insurers that
are involved in the new contracts, A.M. Best would become concerned if they lose underwriting control. Stefan Holzberger, managing director, analytics, said: “A.M. Best would regard it as a negative development if insurers became over reliant on whole account broker deals as a source of business flow and if they become even more dependent on large brokers. Insurer margins may also be squeezed if brokers take some form of block commission on deals. While brokers’ management information has generally improved in many aspects over the past decade, there are potential questions over their ability to capture accurately, for example, reserves.”
A.M. Best also notes that these deals come at a time when excess capacity is chasing static volumes of business. Such arrangements could provide further opportunity for non-traditional capital to enter the market (including the primary market) and put further pressure on rates.
However, the report states for rated entities participating in such programmes, and other insurers more generally, the change in broker placements could have some positive implications. Yvette Essen, director, industry research - Europe and emerging markets, and author of the briefing, said: “Insurers that are part of the facilities may benefit from a reduction in acquisition costs. Such partnerships with brokers can result in good business flow and provide risk diversification. Furthermore, insurers may welcome the assistance of broker management information, such as historical data on portfolios – provided the information can be verified.”
To access a complimentary copy of this briefing, please visit www3.ambest.com/bestweek/purchase.asp?record_code=216385
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A.M. Best Co.Stefan Holzberger, +(44) 20 7397 0288Managing
Director, Analytics firstname.lastname@example.org
: mailto:email@example.com orRachelle
Morrow, +1-908-439-2200, ext. 5378Senior Manager, Public
: mailto:firstname.lastname@example.org orYvette
Essen, +(44) 20 7397 0322Director, Industry ResearchEurope
& Emerging Markets email@example.com
: mailto:firstname.lastname@example.org orJim
Peavy, +1-908-439-2200, ext. 5644Assistant Vice President,
Public Relations email@example.com