In a new report, rating agency AM Best has noted the “rising prominence” of the delegated underwriting authority enterprise (DUAE) model in the insurance industry distribution ecosystem.
Analysts said that the success of this model was evident in the growing number of managing general agents (MGAs) and the amount of MGA-generated premium in recent years.
A delegated authority relationship is formed when an insurer permits a distribution partner to act on its behalf, typically in an underwriting capacity, and is executed through many types of entities in the insurance distribution channel.
AM Best believes that private investments, the accelerated growth of startups and operational expansion have fueled the growth of DUAEs in recent years.
For re/insurance partners, AM Best maintains that it is important to recognise how the increasing use of DUAEs could have financial impacts.
“Newer DUAEs are using technology platforms that enhance operational efficiencies, which is tremendously valuable to insurance carriers seeking different ways to cut costs and augment bottom-line profitability in highly competitive markets,” said David Blades, associate director, industry research and analytics.
“Insurtech advancements have not only furthered DUAEs’ effectiveness, but also have boosted their productivity.”
From a risk management perspective, AM Best believes that it is critical that insurance carriers ensure that DUAEs are writing risks within specified expectations by conducting regular and frequent audits.
DUAEs generally have been insulated from the financial distress inflicted by COVID-19, meaning that managing agents should remain a popular and efficient business model as market disruptions ease and the economy recovers.
“As the business of insurance evolves, the value a carrier may seek may be rooted in a DUAE’s other qualities or advantages, such as the ability to effect strategic changes via distribution partners providing access to a profitable book of business,” said Sridhar Manyem, director, industry research and analytics.