Facility digitisation helping brokers capture more of value chain, says Artificial's Howkins

By Henry Gale

July 17 - (The Insurer) - While the softening market is one of the drivers of facilitisation in the London market, brokers also see digital facilities as a strategic play that will last through market cycles, Artificial Labs' Ed Howkins told The Insurer.

"What lots of technology plays in the brokerages are doing at the moment is capturing more of that underwriting value chain within a broker," said Howkins, chief growth officer at technology firm Artificial, which he said works with seven of the top 10 brokers in the London market.

"The traditional balance sheet business loses in that, but the client and the person that is providing capital arguably will do better in the long run."

Brokers have "built up this incredibly dominant market position in the last five years in particular, and a huge amount of data around that", Howkins said. "Technology affords them the ability to do something with that, both that market positioning and the data they've built up."

Howkins cited the increase in size of large tracker facilities such as Aon Client Treaty (ACT) and Marsh Fast Track. In December, Aon said ACT would offer 28.5% co-insurance for core lines of business in 2025, up from 22.5% in 2024. Marsh expanded Fast Track to offer up to 10% automatic capacity across clients' entire P&C portfolios and specialty risks from March 2025.

"They are both in the position to take meaningful percentages of each placement now, and they can only do that because they control such a large portion of the market," Howkins said.

He added that brokers that digitise their facilities are finding they can do more business through them.

According to the Lloyd's Market Association's 2024 report on enhanced underwriting, digital facilities are distinguished from traditional facilities by being integrated into a broker's workflow platform, so all eligible risks flow through them, and by providing real-time data to carriers. More advanced, algorithmic facilities allow for each insurer to set a more precise risk appetite and flexible line sizes, with risks then allocated to the appropriate markets by an algorithm.

Brokers operating digital facilities can provide better analytics to their carrier partners, Howkins said, enabling them to sign up more carriers to facilities and apply facilities to more risks.

Howkins added that digital facilities are also beginning to help brokers advise their clients on risk mitigation measures. "If you're doing, effectively, digital underwriting on behalf of your capital providers (through a facility), you're seeing what's driving risk quality for your customer," he said.

"So you can then start to push information back upstream to your customer to say, 'You've given us this statement of values and it's got 1,000 locations; 15 of them are not sprinklered, and five of those have got a wooden frame. If you amend those things – you put sprinklers in or you add a steel roof – then the quality of your risk goes up exponentially and this is going to be easier to place and therefore cheaper to place for you.'"

Howkins said the softening market was one of the factors behind the recent surge of brokers launching and expanding facilities. But a "bigger driving factor" is brokers' longer-term strategy.

"I think facilities will be around forever now. They're too powerful, and they're too advantageous for customers and brokers for them to be taken out in five years' time. And I think brokers will have built up such big positions in the market that it'll be much harder for carriers to stop supporting facilities in the future."