It’s been more than 60 years since underwriting agencies began writing specialist risks on behalf of Australian insurers. Today, the agency sector’s annual gross written premium is estimated to be more $2.5 billion. The agile nature of niche underwriters is highly regarded by brokers, which may explain their increasing appetite for acquisition.

Figures from the latest survey by the Underwriting Agencies Council (UAC) in 2009 show that most UAC member companies are independently owned. Only 9% are majority-owned by insurers and 17% are majority-owned by brokers. However, UAC General Manager William Legge says this last figure could have since doubled, due to the number of agencies being purchased by the broking fraternity.

Legge says an increase in broker-owned agencies may be due to a desire for diversification. “Many are owned by broking houses that saw the opportunity to do both sides of the coin rather than just one,” Legge says, adding that a desire for greater speed and agility is also driving the growth. “It’s the nimbleness, the agility, and the ability to take advantage of circumstances, which has always been the hallmark and the strength of the underwriting agency network,” Legge says.

Speeding the process

Robert Kelly, CEO and Managing Director of industry giant Steadfast, says the brokerage set up its network of underwriters 12 years ago to provide a faster service to brokers. “If an insurer had a refer marking on a piece of business, we found at that stage that the referral protocols were sometimes elongated and, in fact, that some of the people that had to do the referrals were busy,” he says.

It’s the nimbleness, the agility, and the ability to take advantage of circumstances, which has always been the hallmark and the strength of the underwriting agency network.

“So brokers who wanted to get quick answers were getting mucked around.” Steadfast set up a liability and material damage underwriting division to provide expeditious answers on non-automated business. “The brokers could rely upon making a call and getting a decision pretty quickly,” Kelly says. The agency division of Steadfast generated more than $5 billion in insurance sales during the past financial year.

The December acquisition of eight agencies owned by the Calliden Group makes Steadfast one of Australia’s largest underwriting agency groups, earning gross written premium (GWP) of $310 million, with Calliden contributing $104 million of that total.

Staying pure

Steadfast’s underwriting network operates independently of the brokerage. “It has its own board and independent chairman and it pitches for business across a broad spectrum of brokers,” Kelly says. Steadfast brokers, however, do benefit from being close to the capital it provides. “They understand your business and they understand the desire to be able to react to market trends quickly. Sometimes it can take an insurer a year to do something that an underwriting capital provider can take a week to
change their position on.”

Going it alone: it’s not just the cluster groups that can play underwriter

Another significant industry player, Austbrokers established its specialist underwriter arm, Austagencies, in the early 2000s and now has more than 20 underwriting agencies in the group, earning GWP of $280 million. Austagencies Managing Director Craig Patterson says ownership is less important than the ability to develop new niches within the market. “It’s [about] bringing in people with particular expertise that will build a differentiated product proposition,” he says.

Like Steadfast, Austagencies operates independently of its broker division. “I look at it from a perspective that Austbrokers is a shareholder,” Patterson says. “While its formation was around broking, in this context it really is an investor.”

Patterson says that 55% of Austagencies’ business comes from brokers outside the cluster group. “The products we’re developing and the niches we’re interested in exploiting are not distribution-specific. We might develop a line or class of business that is predominately the domain of the international broker or specialist areas,” he says, citing Austagencies’ partnership with CGU in 2013 to launch NewSurety, a new underwriting division specialising in surety bonds.

“Our relationships with Austbroker members are very good, as they are in different distribution channels. I don’t think it’s limited to one particular player.”

Patterson says that the advantage for broking firms owning underwriting agencies depends on how the division is viewed within the larger group. “If you regard it to be a cheap and cheerful bucket and you pour everything down it, then it’s probably a short-lived proposition.”

Specialised obstacles

UAC’s William Legge says independence of operation is essential for broker-owned agencies. “One of the risks, especially when one of the larger groups starts purchasing, is the cultural thing where they want everybody to sing from the same hymn sheet,” he says. “That’s understandable, but it can actually destroy the whole song. The reputation we have and the reason we are growing so well is that we are able to move fast because we don’t have to go through a whole chain of checks and balances. The checks and balances are there, but they are almost immediate rather than having to wait for committees to form.”

If you regard it to be a cheap and cheerful bucket and you pour everything down it, then it’s probably a short-lived proposition.

Kelly says Steadfast intends to expand its underwriting offering to provide services in more niche areas. The acquisition of Calliden, for example, has seen Steadfast pick up a classic car division and a specialised farm division, among others. “It makes sense to have specialised underwriters who only deal in one class and can react quickly and have authority and understanding of what they’re underwriting, rather than adding it to the mix.”

Patterson says a rebrand is a top priority for Austagencies. “By virtue of acquisition and development, we’re a house of many brands.” The agency is looking to rebrand the majority of its business to be called Sura. “I think you’ll see, through the course of the next 12 months, a rebranding of our specialisation so the broking community can recognise the one brand specialisation in which we operate.” Austagencies will continue to look at acquisitions that complement and add to its existing business. “That’s been a great growth vehicle for us,” he says.

Patterson adds that brokers should be strategic in their acquisition of underwriting agencies. “At the end of the day, our masters are the security providers and if we get that wrong, we don’t have a business. Just opening your doors to one distribution channel is pretty dangerous. This game’s about making an underwriting result; it’s not about how big you become.”