Aaron DiCaprio is the US Member Relationships Director at Accelerant, a technology-fueled insurance platform that empowers MGUs to more effectively and confidently serve small and medium enterprises (“SMEs”). Aaron was interviewed by Michael Fiedel, a Managing Director at InsurTech Ohio and Partner at PolicyFly, Inc.
Aaron, when vetting whether an MGA has developed a true specialty, what are you looking for?
“We're looking for underwriting expertise and distribution. Those are the two pillars that we like to deeply explore. Underwriting acumen is necessary, so the business can be profitable and sustainable long-term. Ultimately, we want them to eat, sleep and breathe their niche. The most successful MGAs are the ones that are 10 inches wide and a mile deep in a space.
Distribution is indispensable. Without that component, the business won’t scale. We’ve often seen very talented underwriters leave a carrier to work for an MGA in building out a specialty division only to have the business fail because they didn’t have distribution.”
How do MGA's look at a niche industry, break various types of business down into categories and understand the risk performance of those categories?
“That’s a great question. For example, let’s look at contractors. Contractors in Texas will be treated differently from contractors in New York. Different legal climate. Different laws. Different juries.
When we're talking with potential member partners, we're certainly going to test them on their knowledge regarding the various risk-related issues and laws in the geographies where they’ll be underwriting. In the contractor's example, our Accelerant team will closely scrutinize an MGA’s experience in New York Labor Law and how they’ve adapted their underwriting of construction risks to account for that exposure.
What we often see with true specialist MGAs is an alignment of industry specific services including law firms, loss control, TPAs, etc., in the same niche. Each specialized service should increase the likelihood of maintaining the program’s profitability. That’s what you want, experts working with other experts. In all instances, there’s an alignment of expertise throughout the entire chain that defines a clear and concrete focus.”
Have you seen MGA's get distracted in trying to fully comprehend the concept of building a niche program?
“Yes, I’ve seen it fairly frequently. They’re so used to being a generalist MGA that it’s tough for them to pivot and become highly specialized. Lack of underwriting expertise, low premium volume and lucrative profit sharing agreements all contribute to the inability to switch from generalist to specialist.
Deep underwriting expertise is crucial. In a prior life at another organization, we had a carrier ask us to build an equine liability program for them. We already had a small, profitable book of this business to build from and more importantly, had an underwriter who rode horses and whose boyfriend worked in the rodeo. Talk about the stars aligning. She could walk-the-walk so to speak and knew firsthand the risks affecting this segment. The program performed wonderfully. Unfortunately, an MGA may not have access to that talent or cannot attract them, so transitioning to a specialist MGA ends up getting tabled.
Additionally, generalists underwrite so many classes of business that they often don’t have enough premium volume in a specific niche to support becoming a specialist MGA. What they need to do is incubate that business until they have sufficient premium, typically $2,000,000 to $3,000,000; collect all of the loss data on that business, and then present it to a specialty carrier that will ultimately decide whether to support them.
The economics need to work in the MGA’s favor too. A lot of MGAs are paid hefty profit sharing checks by their current carrier partners and are reluctant to move to a specialist model because they may lose that income. However, the most salient, long-term benefits of being a specialist rather than a generalist needs to be underscored. Specialists do a better job of creating barriers to entry for competitors, and they fetch higher multiples when selling their business. And by the way, specialty carriers pay profit-sharing too!”
How do you see digital transformation driving value for MGA's?
“Digitalization can make much of the application, underwriting and binding process more seamless. It's good to have people reviewing and making the tough calls on certain aspects of risk and business, but you don't have to always do that. You could spend more of your brain power on things that are more impactful to revenue, underwriting and claims. Digitalization really takes a lot of the rudimentary insurance tasks off of your plate. That way you could focus on things that require intellectual capital or more independent judgment. It's more strategic in nature and will help throughout the entire organization.
Moreover, digital advancements can speed up the underwriting and claims processes, preserve the underwriting expertise of the MGA and enhance risk selection and claims management through data enrichment. It can also cut the cost of distribution, while offering enhanced broker services and/or a direct channel, and ensure nimble responses to new distribution opportunities like ecosystems and marketplaces.
Lastly, digitalization reduces the cost of back-end operations, both in-house and for brokers. This reduces the cost and time taken to introduce new products and expand distribution.”
What does customer journey mean to you and what does its digitization bring in terms of value?
“I'm not a very patient person, and I've gotten used to instant gratification when shopping online. For example, Amazon Prime. You swipe and boom, it shows up at your doorstep. More and more people are used to that model. By utilizing digitization and incorporating third-party data into the platform, the underwriting, application and quoting process become a much better experience.
Like me, the customer doesn’t want to wait. They're deciding to purchase insurance right at that moment, at a time that’s convenient for them. Insurance platforms should be able to capitalize on that moment and provide the customer with a bindable quote - which is hopefully embedded in the transaction flow - that they could purchase electronically with a credit card, bank account, app or through some other digital means.
Part of the customer journey is having your questions answered quickly and accurately. Carefully crafted FAQs are certainly helpful and chatbots have been extremely useful. While one should never discount speaking to a live person, in this day and age, it’s more convenient to have the information you need a few swipes away.
In short, there’s tremendous value in making the customer journey quick and easy. You get repeat customers and also referrals! Do yourself a favor, and hire a data scientist or two. They’ll be a worthwhile investment.”
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