Data discipline will drive market reform

26th March 2021

The drive to enhance the levels and flow of data across the London market will continue to test the abilities of delegated authority business in the months to come.

Coverholders and MGAs are set to be tasked with creating a new range of skill sets as the drive for process reform continues across Lloyd’s and the London company market. Data and how it will be delivered is seen as the foundation for the market’s process reform. The use of data and its delivery will only grow in importance as the market looks to greater digitalisation.

Recently, one newly formed MGA revealed they have employed more actuaries and data scientists than underwriters and it’s indicative that there will be a need for new skills sets in the future. MGAs and coverholders have had the issue of how to collect the necessary data and then seek to satisfy the market, and its hugely different approaches to how that data should be delivered.

Our team have long supported coverholders and MGAs across the full life cycle of their business and have the expertise and resources to work with firms to take their data, repurpose it and deliver it to stakeholders in the way that meets their changing demands. For new coverholders we have been working to support their onboarding process at Lloyd’s and with company market capacity providers, along with all the data requirements it entails. We know the Lloyd’s market inside out, from the premium & claims bordereau, and audit perspectives.

The data issue will not go away. Insurers and capacity providers are incurring costs when receiving data in a range of different styles and formats. They then need to repurpose the data into a form that best suits their internal systems. We’re already seeing pressure on MGAs and coverholders to deliver data in ways that also suit the capacity provider.

For the capacity providers, the effective delivery of data saves significant amounts of time, reduces the risks that come with rekeying and speeds up the ability for the data to be integrated. It remains the case for the market that you cannot consume data with any confidence if you do not know how it’s been entered in the systems. The more effective coverholders are now viewing it as a real opportunity to access capacity by focusing on the way they deliver their data. Getting the IT and the data flow right first time is making them attractive to businesses.

For many however, the ability to manage data remains difficult and the challenges around data delivery can be complex. Our team have invested in the expertise and breadth of resources to support firms across a range of pinch points. From onboarding, due diligence, and the use of data repositories, we help and support the process for MGA’s and coverholders.

Coverholders and MGAs are also receiving requests from carriers around conduct requirements. This is an area we have seen a considerable increase in enquiries for specialist support and have invested in a portal that provides consistent structured data. MGAs are facing rising levels of regulatory scrutiny, driven by economic uncertainty, which is changing their relationships with investors and capacity providers. Those seeking to start an MGA have been faced with demands for more data on how the business would manage being forced into runoff, as the risk appetite from capacity providers and corporate investors has significantly changed.

The change in attitude has not been confined to start ups – we are seeing large corporate investors becoming sceptical around the current market conditions, and the longer-term impact of the pandemic on the economy. It has had an impact for those MGAs that are looking for capacity to support their business plans. Insurers are becoming more prescriptive in terms of the data and detail they require from the MGAs before they consider any level or form of support.

As a result, MGAs are being asked for greater detail, not only on the risks and classes of business they are seeking to underwrite, but also on the structure behind the company, its ability to meet compliance requirements and details of their plans should they need to go into runoff. It has led to a situation where in these discussions with prospective MGAs, we are also including members of our runoff team to discuss exit strategies in order to assure the insurer that all eventualities have been considered. Those plans need to be detailed and clearly demonstrate the structures are in place to ensure regulatory compliance.

This trend has not gone unnoticed by the regulators. The Financial Conduct Authority (FCA) is concerned about how the market’s stability is currently affected by the change in risk appetite from investors and capacity providers. They’re fully aware that this can create regulatory uncertainty and conduct issues. The regulator needs to be assured that MGAs are always acting in the best interest of their customers.

In summary, coverholders and MGAs are facing the need for expertise and new skills in a range of areas around compliance and data. Given our record and expertise in supporting MGAs and coverholders in all stages of their lifecycle, we are aware of the demands on and benefits we can deliver to our clients. Market engagement with the Lloyd’s ‘blueprint for future’ process reform is increasing and the momentum for change continues to gather pace. Our team will continue to play our part in supporting the insurance market and those reforms by delivering a wide range of services for coverholders and MGAs, as the demands placed upon them increase.

For more information on how we can support your business, please contact Robert Dewen, Managing Director of Insurer & Market Services on Robert.Dewen@davies-group.com.

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