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Going Direct

It’s not what everyone thought it would be. I know I just struck fear into many brokers who read the title, but in many cases it has already begun. No, it’s not advancements in IT or smart phones that have made it easier to have only one contact for the insureds’ to access the markets. What many don’t yet realize is that it’s the brokers that have gone direct. It appears that a majority of underwriting markets have given up any resemblance of actual underwriting and simply sign on to broker slips at offered premiums. No longer are underwriters evaluating exposures, risk factors, regulatory factors, or it seems even using a calculator. They simply get to agree to a premium by the broker based on 3, 5, 10, or 11 years of loss ratios or whatever provides the best picture of the client.

Sure, there are companies using software to develop premiums, and they quote their terms to the broker. But the broker has all of the leverage since they simply load it into a spreadsheet with everyone’s quote removing any further discussion on actual exposures. Submissions have become four line pieces of irrelevant underwriting information; name, city, state, limit needed, value, pilot name, and some hours. Quote it or don’t because there are several other companies willing to offer terms!

If I were a capital provider today and I was asked to get into the aviation market, I would jump on it. But I would do it much differently, I wouldn’t hire a single underwriter. I would hire an accountant to make sure I was collecting the premiums that were agreed to and the ones I was told I could get from the broker. If you think this is dramatic just think of the lineslips each of the large brokerage firms have. They simply provide bordereaux reports of the risks the company has contractually accepted. Is there any underwriting going on?

A big announcement was made last year by Google. They have entered the insurance market with an unbelievable amount of data. They didn’t jump into the insurance company side, they simply became an aggregator of quotes. They provide a spreadsheet with 10 different quotes. Sound familiar? If we can’t provide value to a transaction what is our value. Aviation specialists are part of the highest paid teams in the insurance market, which makes them the easiest target from the capital providers to cut.

We talk about excess capital and how that has changed everything. But I would argue that underwriting companies haven’t adapted fast enough to understand the implications of increased competition. Are underwriters focused on the bottom line or short-term job preservation?

The underwriter is dead. Long live the broker!

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