MGAs build confidence in a complex non-standard risk market

In a roundtable hosted by Geo Underwriting at Broker Expo 2024, industry professionals explored the challenges brokers face in placing non-standard risks. This article examines the key themes that emerged from that discussion.

Brokers increasingly face obstacles in placing non-standard risks due to limited market availability, complex underwriting requirements, and rigid insurer appetites. 

A roundtable hosted by Geo Underwriting brought together industry professionals at Broker Expo 2024 to explore these complexities, the evolving role of technology, and the changes needed to better support brokers and serve clients in an ever-changing risk landscape. This in-depth discussion shed light on the opportunities, challenges, and innovative solutions in the non-standard risk market.

Falling outside the box

The roundtable participants firstly set about defining non-standard risk. It was agreed that these risks do not necessarily involve exotic or high-risk activities but are often classified as non-standard due to rigid underwriting processes or narrow appetites from mainstream insurers. Participants explained that even familiar industries can fall into the non-standard category if insurers view them as complex or unfamiliar. 

One broker gave the example of community transport services, while another gave the example of vape shops. “You see people walking down the street smoking a vape all the time. The amount of people out there that won’t insure a vape shop or wholesaler – it suddenly becomes non-standard. For me, it’s the brokers who take the time to understand these nuances that succeed,” he argued.

The participants discussed how a business may become non-standard overnight if it introduces a new product or deviates from its original operations, especially if the change doesn’t align with insurers’ predefined categories. One broker said that perhaps non-standard risk was just something that falls outside the box. “You phone the usual carriers, and because the option isn’t listed, it suddenly becomes non-standard, even though the risk isn’t particularly unusual. It just doesn’t fit in a nice, neat box,” he suggested. 

You phone the usual carriers, and because the option isn’t listed, it suddenly becomes non-standard, even though the risk isn’t particularly unusual. It just doesn’t fit in a nice, neat box

He emphasised how brokers are stepping in to bridge the gap between the client and the insurer by framing the new product or operation in a way that makes sense to the market. “As brokers we have to make the effort to understand what a vape shop is and then try and articulate back into the market: Actually, I know you haven’t got it on your list, but it’s just like one of these. There’s no extra risk to you.“

These situations highlight the importance of flexible, specialised providers who can assess risks beyond standard parameters and provide coverage that meets clients’ evolving needs.

Capacity constraints

Participants expressed frustration with capacity shortages as insurers continue to pull back from certain markets. According to one broker, the convicted driver market has seen a significant withdrawal, leaving brokers scrambling to find affordable options for clients. “The convicted car market is almost entirely gone. Insurers pulled out, and what’s left is too expensive for clients. It’s the customer who suffers when they’re priced out of the market,” he warned.

One participant referenced the fallout from the Grenfell Tower fire, which caused insurers to avoid risks associated with cladding and fire safety issues. “It wasn’t just the buildings with dangerous cladding; even those where there was uncertainty got hit. The whole sector froze, and we’re still seeing the impact today,” he said.

He highlighted how challenging it is in construction with cladding. “One word mentioned in a claim, and suddenly the entire market stops writing that risk. It’s the reliance on data that’s making it hard for us to place these risks – it is either black or white, with no grey areas,” he said.

This rigidity forces brokers to seek solutions from alternative providers like managing general agents who are willing to take a more nuanced approach to underwriting.

Double-edged sword

Data plays a critical role in modern underwriting, but participants warned that over-reliance on standardised risk models and public data can create challenges in non-standard markets. In sectors with limited historical data, insurers tend to avoid risk altogether, leaving brokers with fewer placement options.

One MGA suggested that the challenge with non-standard risks lies in their bespoke nature, which makes them difficult to measure with conventional data models. He noted: “People say they’ve got great data, but non-standard risks don’t come with reams of it. That’s the problem – no one wants to underwrite what they can’t measure.”

This reliance on standardised data points limits insurers’ ability to assess unique risks or recognise emerging opportunities. One broker called for more flexible underwriting approaches that allow expert judgment to supplement data models. “We need underwriters who can think beyond the data points. Otherwise, the whole market freezes the moment the data doesn’t fit,” he cautioned.

Filling market gaps

MGAs emerged as indispensable partners for brokers dealing with non-standard risks. Unlike traditional insurers, MGAs are specialists in niche sectors and offer more flexible underwriting and faster responses. One broker said their business had shifted away from standard markets into MGAs. “They understand the risks better, and they’re not as dependent on rigid data models,” he explained.

They understand the risks better, and they’re not as dependent on rigid data models

Everyone emphasised the importance of carefully assessing MGA capacity, including whether the capacity is A-rated or not. A-rated capacity is preferred for greater financial security, but brokers are still willing to use non-A-rated capacity – as long as they perform due diligence and maintain transparency with clients.

The London Market, which traditionally handles large, complex risks, still plays a role for brokers in certain scenarios – for example, when the capacity needs to be very great. One participant noted that when they have turned to the London Market for high-value or intricate placements they have found its processes to be slower and less agile than MGAs. “For non-standard risks, we need fast answers – and that’s where MGAs are miles ahead,” he said.

The participants agreed that MGAs’ ability to provide quick decisions and tailored products often makes them more attractive than the London Market for niche risks. According to one broker, MGAs are starting to do what the London Market used to – fast decisions, niche expertise, and tailored products. “The big markets still matter, but they need to catch up,” he warned.

MGAs’ speed, specialisation, and flexibility are increasingly filling gaps that traditional insurance providers struggle to address efficiently.

Digital placement

The role of digital platforms in placing non-standard risks was another key topic. Participants noted that digital tools have improved efficiency for standard placements, but they acknowledged that complex risks still benefit from human intervention. They agreed that personal conversations with underwriters remain valuable, especially when risks don’t fit the predefined parameters of a digital platform. 

One broker acknowledged that they do have confidence in placing risks digitally, but qualified: “When it comes to non-standard risks, you still need that conversation with the underwriter. It’s not something a portal can handle on its own.”

Another participant reported positive experiences with digital placement. “Our business absolutely has confidence in placing non-standard risk digitally, as long as we trust the provider. For us, it’s all about confidence,” he explained.

Our business absolutely has confidence in placing non-standard risk digitally, as long as we trust the provider. For us, it’s all about confidence

The discussion also touched on innovation in risk management apps, with one broker sharing their experience of building a custom driver behaviour app to promote compliance and reduce risk exposure. He explained that they built their own app, which ensures drivers upload licenses, checks them in real-time, and ensures compliance. “We had to do it ourselves because insurers aren’t providing these tools and it’s frustrating because we think this is something insurers should already be doing,” he added.

This example illustrates how brokers are filling innovation gaps, stepping in to create solutions that insurers have yet to deliver.

Innovation and collaboration

The final part of the discussion focused on what needs to change to improve non-standard risk placement. Participants stressed the need for more flexible underwriting and innovative products to meet the demands of new markets, such as the gig economy. 

One broker explained the challenges faced by delivery drivers, noting that many are incorrectly insured under personal policies or priced out of expensive commercial insurance, leaving them exposed. “There’s a huge market for proper short-term insurance in the gig economy, but the industry hasn’t responded. There are only one or two solutions, and they’re too expensive,” he commented.

One broker described similar issues affecting car couriers – individuals using their personal vehicles to deliver goods part-time – highlighting that they are often misinsured or priced out of appropriate policies. “They might be used to paying £600 for their private car insurance. They want to do some part-time work delivering for whoever, and all we can offer is a short-term solution at £400 a month, or an annual policy starting at £1,800. It becomes completely unaffordable,” he said.

This lack of affordable solutions forces many couriers to operate with incorrect insurance, leaving them exposed and putting insurers at risk. As one broker put it, “There are probably hundreds of people right now delivering items with the wrong insurance. The reality is they’re still going to have accidents, and we’ll ultimately foot the bill on the RTA side.”

These examples highlight the urgent need for affordable, flexible insurance solutions that reflect the realities of gig economy workers. Without such products, both drivers and insurers remain exposed to significant risks.

Participants called on insurers to lead with innovation rather than waiting for competitors to act. One broker remarked: “Everyone’s waiting for the big boys to make a move, and it is stifling progress. We need insurers to step forward and set the pace.”

This was not the only area where clients are left vulnerable. One broker gave an example involving carpets installed in pubs, where the presence of certain materials, such as those containing non-compliant adhesives or flammable components, could void the insurance. “It can be as simple as what’s in the carpet. If there’s the wrong material in the carpet – whether it’s the glue or the fabric – it voids the whole insurance policy,” he said. 

This reflects the rigidity of underwriting standards, where seemingly minor details can result in policies being declined or invalidated. He argued that insurers often apply blanket exclusions without considering the specifics or how inaccessible they are to the layman. He noted: “The underwriters aren’t always looking into the detail, so it falls on us as brokers to know what could trip the policy up – something like the adhesive in the carpet.”

This underscores the need for greater collaboration between brokers, MGAs, and insurers to create more responsive solutions and ensure coverage isn’t compromised by overlooked technicalities.

Conclusion

The roundtable highlighted the complex nature of non-standard risks and the important role of MGAs in filling market gaps with specialised expertise, flexibility, and speed. Though the London Market remains relevant for high-value, intricate risks, MGAs are increasingly preferred for niche and fast-moving placements due to their agility. 

While digital solutions have improved efficiency, the placement of complex risks often still requires human expertise and direct conversations with underwriters. The discussion also pointed to the dangers of over-reliance on standardised data points, which can limit market opportunities for non-standard risks. 

Participants stressed the need for insurers to innovate proactively, rather than waiting for competitors, and called for greater collaboration between insurers, brokers, and MGAs to develop new products that respond to emerging markets and evolving client demands.

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