Markel- and Nephila-backed MGA Volante has rapidly grown its stable of underwriting platforms, but is now bedding down into ‘safe and silent’ mode, says founder Talbir Bains
Prior to founding Volante and heading up Dual, you had a long career in the underwriting space with QBE and, before that, Swiss Re. What advantages have you found through the MGA model in addressing (re)insurance risks when compared to traditional underwriting?
There should be little to no variation between the MGA and traditional insurer model when it comes to governance, compliance and due diligence. The primary advantage we have as an MGA is a more agile environment in which to make decisions.
We don’t take any shortcuts around the assessments of risk, but we are able to move more swiftly through the same process. We have the functionality and entrepreneurial spirit to get things done, to innovate, to move rapidly and to arrive at an innovative insurance structure.
The MGAs who are equipped with the best technology will have the advantage of accessing better underwriting data and information. The combination of enhanced data and a swifter process enables us to offer a quicker, more responsive solution to our brokers.
Are there advantages to the MGA model when underwriting niche specialty and facultative reinsurance risks?
This depends on the individual underwriter’s network and experience. Typically, if an underwriter has specialised in niche or specialty business during their career, they will be well-known for doing so by clients, brokers and capacity providers, and considered an expert in that field. This is a clear advantage.
Niche and specialty underwriters also tend to have frameworks with clearly defined processes and underwriting authority. These allow business to move more quickly than for generalist insurers, which are often slowed down by multiple processes, protocols, committee referrals and sign-off procedures.
Coverage is not usually any wider or broader under the MGA model, but the more disciplined MGAs now tighten the terms around their policies, even down to payments of premium. This brings superior efficiencies to a process that the traditional market has struggled with through the past decade.
Niche and specialist MGAs also often bring additional services to their policies, such as risk management, actuarial insight and bespoke coverage wordings.
Here the MGA might aim, for example, to mitigate the risk and enhance the product by ensuring the client adheres to a risk management protocol or policy project over the next 12 months and beyond. That can improve the risk exposure: the underwriter is better informed, the frequency or severity of the losses may reduce, and the premiums become more commensurate with the true nature of the exposure.
The structures and processes that underpin the MGA strategy also facilitate the introduction of risk management, marketing and other value-added services, as they promote a more flexible environment in which innovative approaches can thrive.
Volante utilises a unique model of remuneration for its capacity providers. What are the primary advantages of that model?
We are 100 percent contingent on profit commission. We have fixed commissions on each policy that simply cover operating costs. We commit to reduce those fixed commissions if operating costs come down but to cap them at the agreed rate if our operating costs inflate.
Our underwriters should never and will never make margins or profit on their fixed commission. It is there purely to keep the lights on across the business. They only make profit commission if they deliver profit – measured uniquely on a combined operating ratio (COR) basis – for their capacity provider.
A unique structure within Volante is that the binders are multi-year (usually three- or five-year binders) and the profit commissions are calculated over the term of the binder.
Volante has no annual profit commission arrangements. Only if the capacity provider is delivered a combined operating ratio of below 90 percent over the full term of their participation will Volante share in the profit.
It’s a unique approach and a significantly respectable COR hurdle to overcome. Volante partners with capacity providers who target a low COR – we strive to deliver an upper-quartile business performance on COR and that is our primary strategy. All other MGA parameters are a consequence of this primary and strategic focus.
The main advantage is that we enter long-term agreements with our partners. We’re not here to adopt passive capacity – we develop collaborative strategic partnerships with our capacity providers. We maintain a narrow panel of capacity with carriers that we trust and understand, and who understand and trust us.
We won’t shop around for new capacity every year looking for a more advantageous deal. We align ourselves with chosen partners that complement our offering and vision, who will also rigorously scrutinise and challenge our processes and performance.
We actively and continuously engage, evolve and optimise our products and distribution with our capacity providers’ input, in alignment with their strategic ambitions.
If we had multiple capacity providers, it would be harder to maintain and deliver strategic partnerships. Having a panel limited to no more than five carriers across the breadth of the Volante business is very serviceable – we can have deep-dive conversations with them through the annual cycle and over the full term of the partnerships.
So, the advantages of this approach to us as a business are operational efficiency, loyalty, sponsorship and strategic alignment.
How helpful has the remediation process at Lloyd’s and the re-underwriting of property and specialty books by major carriers been for Volante in terms of new opportunities?
My view is that it’s two-fold. The Lloyd’s remediation has been absolutely stellar and has had the desired effect without question. The market is moving in the right direction and we’re seeing a far more positive rating environment.
The pinch of salt is that there’s still a long way to go. The lines of business that are seeing double-digit rate increases probably could be seeing twice as much again before we, as a market, attain the right pricing adequacy.
In parallel, before the Lloyd’s remediation drive, the market had recognised that the cost of doing business for carriers – administering policies, broker commissions, internal expenses – was way too high. That side of the equation still needs to be addressed.
Rating environment strength alone cannot fix the ecosystem issues and the market cannot get caught up in the wave of this improved rating environment, write lots of new business and, in parallel, forget to address the operational efficiency issues that have plagued the bottom line outcomes for the past decade and more.
We also need to ensure that we do not leave ourselves exposed to yet another situation where rate increases are needed but we don’t drive them through at a time when we really can, here and now.
Discipline and focus are key, as is sticking to the original strategy of addressing the operational cost issues so inherent and debilitating to the industry. They must religiously be kept front and centre in our everyday practices.
What role does technology play in Volante’s offering?
Technology is one of our major assets. It’s very much at the heart of driving cost efficiency, optimising underwriter trading time and enriching our data.
Our system harnesses a combination of proprietary and third-party technology. The mainframe system was developed 100 percent in-house, is tailored to our business and addresses all aspects of the underwriting cycle and policy journey in real time.
We collect data from every submission that we’re shown, not just those policies we bind, meaning we capture much more data than most underwriting entities. Typically, an underwriter might quote on 30 percent of submissions, bind 5 percent and only capture data on the 5 percent it binds, meaning much of the information it receives is wasted.
Our technology is swift and efficient enough that we can capture all submission data to populate our databases. This allows us to then move to a framework where our decision tree is underpinned by empirical data and fewer underwriting decisions if any rely on traditional market intel that usually has no validation.
The efficiency of Volante’s operating system also means our underwriters spend far less time moving through the policy journey. Where they might have typically spent 25 to 30 minutes closing a risk at their previous entity, that process here at Volante takes merely 20 percent of that time.
The frequent market complaint is that underwriters spend less than 50 percent of their time underwriting, but at Volante our underwriters typically spend 90 percent or more of their time underwriting.
That’s not through dilution of any governance or compliance. Our technology is API [application programming interface]-linked, allowing us to integrate with third-party systems on a modular basis. We’ve brought our TPA [third-party administrator] claims system into our own to give us real-time loss ratios, for example, and API links us to Companies House, the DVLA [Driver and Vehicle Licensing Agency] and various other third-party systems, allowing us to automate many processes.
Our risk management framework is Solvency II-compliant and our underwriting standards match Lloyd’s Minimum Standards. It was our vision for the Volante business that we should be as rigorous as an insurance carrier in every aspect of our business.
What’s next for Volante in terms of new underwriting platforms/classes of business? Do you have any expansion plans in the near future?
Since launching the Volante business in October 2017, we’ve come a long way very quickly. We have 13 underwriting teams and 45 people across our company. We now have offices in Switzerland, Stockholm, Toronto and London, and eight distinct classes of business including a mix of insurance and reinsurance portfolios.
Our focus for the next 12 months is simply to bed down a very rapidly evolving business into a robust, safe and silent operating mode.
Yes, there are very compelling new opportunities and we will look at them, but the primary focus right now is to deliver on the plan and the commitments we have made to all of our stakeholders in the Volante framework – our people in the Volante Group, our external capacity partners and of course our owners, Markel and Nephila Capital.
Of course, it was always a primary strategy that Volante was never under a private equity growth-centred model – our aim has always been to be the exemplary underwriting institution in the market. In this context, we are right at home in the Markel family.