City Insurance Brokers Ltd and Compass Underwriting have collaboratively launched a new catastrophe profit protection scheme aimed at managing general agents (MGAs) and brokers with delegated binding authorities.
The new scheme, called Profit Commission Coverholder Protection (PCCP), will indemnify Coverholders’ profit commissions against the impact of a single large loss, up to a selected limit of indemnity.
City Insurance Brokers and Compass disclosed that the PCCP scheme was underwritten by “certain international A rated re/insurers”.
Andrew Briant, Managing Director at Compass Underwriting, explained: “In simple terms, PCCP can remove a single large loss from the profit commission calculation. It is similar in concept to insurers purchasing catastrophe reinsurance.
“MGAs often base their business model around the risk commission covering the operating costs, and profit commissions forming the profit of the business. PCCP is a particularly good match for this type of MGA especially where the MGA may not be aligned in terms of reinsurance protection purchased by their capacity, and yet still has to contribute towards the insurer’s operating costs. Deficit clauses can then destroy the on-going profit share arrangements even though the underlying insurer may have been reinsured.”
David Goodley, Chief Executive Officer (CEO) of City Insurance Brokers, also commented: “Having worked as a compliance consultant for numerous small MGAs, I have seen both the benefit and extreme difficulties that profit commissions bring.
“The benefits from years of careful underwriting can be wiped out in an instant by a single large loss. PCCP enables those distributing or underwriting to remove this potential and secures the ongoing benefits of their disciplined and careful underwriting.”