Best’s Market Segment Report: Delegated Underwriting Authority Enterprises Prove Their Worth Across Insurance Distribution Model

Increases in the number of managing general agents (MGAs) and the amount of MGA-generated premium in recent years highlight the rising prominence of the delegated underwriting authority enterprise (DUAE) model in the insurance industry distribution ecosystem, according to a new AM Best report.

A delegated authority relationship is formed when an insurer permits a distribution partner to act on its behalf, typically in an underwriting capacity, and is executed through many types of entities in the insurance distribution channel, including MGAs, managing general underwriters and program administrators. In the London market, Lloyd’s refers to entities with delegated authority as coverholders; in Australia, they are known as underwriting agencies.

In its new Best’s Market Segment Report, “Delegated Underwriting Authority Enterprises Prove Their Worth Across the Insurance Distribution Model,” AM Best states that private investments, the accelerated growth of startups and operational expansion have fueled the growth of DUAEs. Recognizing the increasing use of DUAEs and how their decisions could financially impact their insurance partners, AM Best released a draft methodology in March 2021 with the intent of assessing DUAEs to provide transparency to the market and inform the industry of a DUAE’s ability to perform services on behalf of its insurance partners (see related press release). This draft methodology is available at http://www.ambest.com/ratings/assessmentMethodology.html.

Given the competitive challenges of the last several years, insurers have worked to stimulate premium growth by acquiring quality books of business and expanding their portfolio offerings by enhancing their distribution network. As a result, premium growth opportunities in the United States have been plentiful for MGAs. The increase in U.S. MGA-generated premium to $44 billion in 2019 is tied in part to the growth in the number of MGAs, which rose to 688 in 2019, compared with 577 in 2017. Sizable capital investments from reinsurers and fronting insurers, among others, are also sparking growth and transforming the MGA market.

“Newer DUAEs are using technology platforms that enhance operational efficiencies, which is tremendously valuable to insurance carriers seeking different ways to cut costs and augment bottom-line profitability in highly competitive markets,” said David Blades, associate director, industry research and analytics. “Insurtech advancements have not only furthered DUAEs’ effectiveness, but also have boosted their productivity.”

From a risk management perspective, AM Best believes that it is critical that insurance carriers ensure that DUAEs are writing risks within specified expectations by conducting regular and frequent audits. DUAEs generally have been insulated from the financial distress inflicted by COVID-19 because their specific niches were not vulnerable to the related economic downturn. As the effects of the COVID-19 market disruptions ease and the economy recovers, managing agents should remain a popular and efficient business model.

“As the business of insurance evolves, the value a carrier may seek may be rooted in a DUAE’s other qualities or advantages, such as the ability to effect strategic changes via distribution partners providing access to a profitable book of business,” said Sridhar Manyem, director, industry research and analytics.

To access the full copy of this report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=306961.

A video discussion about this report with Blades is available at http://www.ambest.com/v.asp?v=mgacriteriareport321.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

Copyright © 2021 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

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