In this month’s issue we talk to Stephen Leeret, senior vice president of Allied World’s North America programs division, about key dynamics driving the sector and what it was like coming in to run the unit in the middle of Covid-19…
You started life at Allied World in the midst of the pandemic. How has Covid-19 shaped your first eight months in the job?
I was unable to meet the majority of the 30 individuals who work in our program business division, but the technology and culture at Allied World made me feel connected with the team and the broader organisation.
It was impressive how quickly the company transitioned to working from home.
Of course, from a business perspective we’ve had to adapt to the lack of personal client interaction. We’ve tried to stay connected to partners and have hosted virtual events to stay engaged.
The impact of Covid-19 on specific program administrators (PAs) really comes down to how diverse they are. A PA with one program in a segment badly affected by the pandemic will naturally have a more challenging situation than a diversified PA with multiple classes and product offerings.
In terms of new programs, we’re still conducting due diligence on site during Covid-19 – which is imperative – but with a smaller team. We’re a data-driven organisation and use analytics whenever possible. We want to make sure we are using clean and accurate data.
What’s driving growth in the US program market?
One of the reasons for growth has been the influx of capital in the space. PAs generating high returns on investment attract more capital to the sector. Start-up MGAs and PAs are entering the space for niche classes and products which leads to increased innovation.
Also, as the market changes, premiums grow and rates and margins begin to improve, program distribution and specialty markets become more attractive. As pricing gets to a more sustainable level, retail brokers are looking for the relationship and the service that PAs provide.
As part of the due diligence process on new PA opportunities, we review retention ratios, service turnaround time, distribution channels, technology, underwriting expertise and sales versus underwriting structure.
We’re looking to grow our programs portfolios through long-term relationships with best-in-class PAs.
How would you characterise the current pricing environment in the program sector?
We’re seeing price increases across the platform – especially on some of the more distressed products in the marketplace such as excess casualty, property cat and auto.
The sector is facing increased severity fuelled by social inflation, nuclear verdicts, litigation funding, emerging risks such as climate change, pandemics and civil unrest, all of which have contributed to pricing increases.
How is the pipeline looking for new programs?
We are seeing several opportunities for new programs, especially in the professional space and in management lines. Our quote ratios are low because we’re looking at portfolios not individual accounts.
We look for non-correlated risks to add to our current portfolio. We do see a fair number of opportunities from start-up PAs, although those can be more difficult to turn into new programs.
We also see some insurtech platforms, but mostly it’s opportunities in the traditional space with start-up PAs or start-up programs within existing PAs.
Has the balance of your portfolio shifted between admitted and non-admitted offerings?
There hasn’t been a shift in the existing portfolio, but we’re seeing more E&S portfolios and that’s a function of where the market is. Traditional carriers are changing pricing, terms and conditions, and they’re limiting their underwriting appetite. The E&S space allows greater flexibility from a pricing and terms and conditions perspective. E&S also allows a carrier to move quickly within a changing risk environment.
How do you evaluate which programs to support and what do you think are the key characteristics that make a program successful for a carrier?
It’s a three-pronged approach. We underwrite the PA, the portfolio and the product and class. Data and analytics are a key component, we want clean consistent data and we evaluate the competition in the space. Partnerships are based on trust, track record and historical familiarity with the PA, or with team members within the operation.
We want to see a separation between sales and underwriting – that’s an important component of what we look for in a partner.
We look for strong underwriting management, good systems capabilities and specialised distribution platforms. From our perspective, those are the keys to a successful program.
What role do you see insurtech playing in the space going forward, both as a means of improving efficiencies in the program sector’s existing offerings and in developing new products and distribution channels?
The biggest role I see for insurtech is the confluence of traditional program insurance with a technology platform, where a PA uses insurtech to distribute their business and reach a broader marketplace, either from a retail or direct-to-consumer perspective. That’s where there is tremendous room for growth.
Allied World has a bespoke programs business model. We rely on our program partners for their knowledge, back-office expertise and technology. We perform our due diligence on their operation but don’t require that they use our systems, claims handling or risk management platforms.
We look favourably on PAs with advanced technology whether it’s a simple rate, quote, bind, issue system; additional data and analytics capabilities; or even a portal or platform that allows them to take the traditional program model and distribute more efficiently or broadly to consumers.