Data analytics - how carriers can help MGAs raise the bar

Insurance carriers and their MGA partners are facing an unprecedented intensity of competition and the ensuing effect on rate adequacy is an existential threat.

As if this wasn’t challenging enough, events such as the financial crisis, financial product mis-selling, misuse of private data and data breaches has meant that regulators have come riding to the rescue of the consumer imposing ever more stringent regulations.

Few insurance industry professionals would deny that the ability to successfully leverage the vast quantity of internal and external data now available is becoming an ever more important strategic priority.

Data analytics with the right tools in the right hands can help MGAs and carriers find smart ways to segment their customer base and develop new products with new delivery mechanisms for today’s customers and the risks they face.  It can also help them to match the appropriate price to such risks.

For MGAs, the recent poor results of many carriers – especially in the Lloyd’s market – has compounded their difficulties.  Understandably such results increase the level of scrutiny on underperforming books and business plans (both internally and in the case of syndicates, by Lloyd’s performance management team).  Unfortunately for them, delegated underwriting authority business will often be at or near the top of the list, whether or not it bears any responsibility for the poor results.  Consequently, there is a flight to quality and for MGAs, maintaining existing carrier relationships and building new ones gets more difficult.

There will certainly be many underwriters working at carriers who are convinced of the merits of supporting a particular MGA but unless they are unable to provide a sufficiently compelling data driven business case to their management, they may be prevented from doing so.

It seems that all to often the two parties operate in siloes when it comes to data and management information.  Carriers request raw data in some generic bordereau format (generic to itself but subtly different from every other carrier!) and MGAs do their best to meet the low expectations.  Both parties separately waste precious time, money and effort cutting and pasting and fiddling with spreadsheets to meet basic reporting requirements.

So perhaps MGAs and carriers should offer more support to each other.  The MGA should make it easier for their carrier to make the business case to support them, but in turn the carrier could help the MGA raise the bar in terms of its own capabilities.

Raising the bar

By raising the bar, we mean providing MGAs with a data analytics platform which collects, stores and organises data from multiple sources in multiple formats – underwriting systems, transactional systems, spreadsheets, external databases – in such a way that it is instantly available for rich analysis via custom built dashboards.

It would provide the full array of reporting required by both the MGA and their carrier at the touch of a button with data which is rigorously checked and verified during the regular loading process.

Each MGA employee would have their own dashboard with which to view metrics and KPI’s relevant to their role.  Rather than wasting valuable time manipulating data, they would have time to actually understand it and to create meaningful actionable insights to improve the business.

Alerting could be set up to provide employees or other stakeholders (e.g. carriers or brokers) instant information in the event of a threshold breach whether it be claim size, premium written, time to settle claims etc.

Carriers could be given their own secure access to the platform (obviously they would only see data relevant to them) and could create their own reports directly rather than having to manipulate cumbersome bordereaux.

Key broker partners could also be given access to data relevant to their relationship with the MGA.

Such access to carriers and/or brokers could form the basis of a uniquely collaborative relationship across the value chain.

Barriers

During our many conversations with MGAs, we have seen little evidence (Giroux clients excepted) of sophistication in data and analytics.

What has stopped MGAs from making this investment historically?

The perception that the cost in terms of money, time and effort is prohibitive. Many people will have experienced directly or at least heard about data warehouse projects in the past running over budget, and over time, sucking resources out of the business before falling well short of expectations.

• The lack of understanding of the benefits this could bring, particularly if an MGA has been running for many years with the same old systems and processes.
• The demands of the day job with competing priorities make it very difficult to step back and make a strategic change.
• The low expectations of carriers. We would expect this to change with the flight to quality discussed earlier.  A sophisticated data analytic capability with the ability to share MI with carriers will become an important differentiator.

Cost is of course a perfectly understandable concern for an MGA in such a challenging market environment.  However technology has moved on and data analytics platforms can now be deployed rapidly, hosted in a cloud and delivered “as a service” for a relatively affordable monthly cost.  More on that later.

Benefits

We believe that tangible benefits will quickly outweigh the costs with the critical (and obvious) prerequisite of active user engagement both during design and deployment and after it goes live.

With such active engagement, MGA employees will have the ability to rapidly visualise, analyse and identify trends in metrics such as premium, claims, loss ratios, quote take up by attributes such as broker, product, geography, loss type, customer segment etc (limited only by what data is collected)

It is not hard to imagine how these employees can combine their expertise with such insights to start making a real difference to growth and profitability…. For example a new or tweaked product to a particular customer segment, rate changes to a certain product, increased commission to a broker for a profitable niche etc

In doing so they will have, over time, saved countless man-hours because no one will have had to sit for hours extracting data from multiple sources and manipulating cumbersome spreadsheets… It is already at their fingertips and it can be trusted.

We discussed earlier the potential to share and collaborate with carrier and broker partners.  This level of sophistication and ability to help reinforce the underwriting case should certainly increase the likelihood of a carrier being willing and able to commit capacity, perhaps with a higher rate of commission than it would otherwise.  Equally it should increase the likelihood of the broker trusting the MGA with its book of business.

On the Giroux website we have an ROI calculator page which attempts shows how relatively incremental increases in premium, improvements in loss ratio or improvements in commission attributed to having a Giroux platform along with the inevitable time saving, imply a very high return on the investment.

But back to cost.  Whilst some benefits should manifest themselves pretty much immediately such as time and effort saved by employees, other less direct benefits arising from enhanced business performance will take longer.  So there is still an initial outlay, which can be difficult for an MGA operating on tight margins.

Solution?

Perhaps then, there is a case for carriers to help break the stalemate and they could do so via the deal economics of the binding authority agreements.

Up to 0.5% of GWPI should in most cases comfortably cover the cost of providing Giroux’s analytics-as-a-service platform.  This could be subsidised, partially or wholly via an increase in MGA commission on the proviso that it is to be used exclusively for this purpose.

Obviously, the carrier is foregoing some margin in the short term. However, in doing so, it truly establishes itself as a strategic partner of the MGA, will get access to the vastly improved MI generated by the platform and of course should ultimately benefit from enhanced underwriting returns and profitable premium growth as discussed above.

Clearly real life is more complicated in that MGA’s will often have multiple carriers over multiple lines, with many binding authority agreements.  Perhaps intermediaries (between MGAs and carriers) also have a role to play in co-ordinating the effort.  They would see the benefits too as their role in matching up capacity to MGAs would be made far easier with access to superior data and MI.

The point is that the bar needs to be raised throughout the MGA sector and when it is, the benefits should come to every party in the supply chain from the original customer all the way up to the carrier and their reinsurers.  But somebody needs to help break the stalemate.

Please contact GIROUX if you would like to discuss further.

‍