Growth in smart follow brings opportunities for specialist leads: panel

By Henry Gale

April 10 - (The Insurer) - The increased use of smart follow approaches to underwriting in the London market is creating opportunities for lead underwriters to differentiate, a panel of smart follow specialists told The Insurer TV.

If insurers can offer not only great underwriting capabilities, but also a larger block of capacity through partnerships with smart followers, they can become more relevant on the global stage, InsurX CEO Gilbert Harrap said.

"We think there's a big opportunity with this technology for the mid-sized firms to go, 'Let's be a really specialist leader in a particular niche or subsegment of a class of business,'" Harrap said. For example, an insurer could specialise in property risks for the mining sector in the Asia Pacific region, rather than simply specialising in international property.

"That's great for the clients because it means they have real expert leaders who really understand them in their particular kind of subsegment," Harrap said. "And actually, it's great for the insurers, so they're now really relevant in a particular space, and not just trying to compete on a generalist basis."

Max Deacon, principal at Oxbow Partners, said the smart follow trend had prompted London market insurers to bolster their lead propositions, while traditional open-market followers are starting to be squeezed by capacity from smart follow specialists.

Keith Trivitt, underwriting director of Amwins' tracker facility Amplify, agreed that smart follow initiatives are putting traditional follow underwriters under pressure. "Increasingly what we hear from our brokers is that they … try to get a larger percentage of that slip filled by true lead experts, highly efficient follow capacity and then the others come in the back, but that means that coming in the back is getting squeezed now," said Trivitt.

"For the client, that's a block of 40% or 60% follow capacity that you already have filled, meaning you have greater certainty around your placement in London, and it doesn't require the broker to chase around for all these other follow markets that aren't necessarily always providing a lot of value into the chain, which is expensive in London, as we know."

MARKET CYCLES

There are mixed opinions about how insurers' support for tracker facilities established by brokers could be affected by market cycles, Deacon said.

"Some (are) really excited about it and excited about the opportunity of diversification, of building that broader relationship that impacts the rest of the business, and of the data opportunities as well, and the improvements in indexation rates have really driven that," he said.

"And then others are more worried about it, and worried about what would happen if they sign up to taking a slice of everything through the cycle, and what would happen if later they change their mind and want to pull out of that."

Trivitt said he believed the model would work over the duration of the cycle, partly because of the better availability of data and increased underwriting discipline.

"Everything you've seen in the smart follow space is typically done from a multiclass view and partly from the premise of, you can ride through different market cycles, but you can do that in such a way in which there's enough buffer, enough profitability and sustainability in the model," he said.

"The capacity that we work with, and we've been fortunate to secure around that, they're very long-term in this model and they have clear strategies, they have their own underwriting teams just dedicated to this space, and they see this over the long term of the cycle."

Data and technology are what differentiate the current crop of broker follow facilities, Harrap said. "When some of these facilities were being built, Willis G360 and Aon Client Treaty to some extent, in the last softening market, ultimately the facilities broke apart because there wasn't the data to allow people to do the right portfolio underwriting on it.

"That, now we fast-forward 10 years, has fundamentally changed, and carriers and these portfolio underwriting teams can get very high-quality data on near-real-time feeds, and so they can really understand what's happening."

Harrap added that he expected there would be a collaborative relationship between brokers and insurers to ensure that fast follow capacity is structured in a way that is sustainable for the insurers underwriting the risks.

For more insights into the growing adoption of different smart follow models and predictions for the future, watch the full panel discussion.