Delegated underwriting authority growing in Europe despite hard market challenges

Delegated underwriting authority enterprises (DUAEs) are playing an increasingly significant role in insurance markets across Europe, but face challenges with inflation and are under more pressure to demonstrate their value to carriers in the face of hard market conditions.

This is according to AM Best, which said its research suggests DUAEs account for an increasing share of premium written in Europe, as existing players expand and new DUAEs emerge in untapped areas. But the ratings agency said it is not a consistent picture across Europe, with a well-established and developed DUAE presence in some markets, “while in other jurisdictions, the DUAE sector remains nascent, albeit with considerable potential for growth”.

The UK, including the London market, is Europe’s biggest and most sophisticated DUAE market, said Best, noting that DUAEs in the UK typically target commercial and complex retail/individual risks, adding value by providing business access and leveraging specialist expertise. DUAEs also play an important role in several other European insurance markets including Belgium, Germany, Ireland, Italy, the Netherlands and Spain. By contrast, DUAE activity in central, and eastern Europe remains largely nascent.

Best said DUAEs account for an increasing share of premium written in Europe, as existing players expand and new DUAEs emerge in untapped areas. This growth had been underpinned by a combination of underwriting expertise, technology and a broader range of capacity providers.

However, hardening market conditions across the (re)insurance sphere generally have driven more challenging discussions and negotiations between DUAEs and carriers in recent renewal periods, although Best said it has not yet witnessed a sector-wide pullback of DUAE capacity in Europe.

DUAEs have faced similar challenges to insurers with the reinsurance market: tightening of terms and conditions, increased retentions, reduced limits and lower ceding commissions. “Hard market conditions are often seen as a true test of the measurable value that DUAEs create for their carrier partners. Actual underwriting experience versus initial targets are likely to be the main area in the spotlight,” said Best.

It added: “DUAEs with a track record of underwriting profitability and diversity across their business lines/product offerings should be in a stronger position to retain or expand capacity relationships through hard markets. At the same time, having a range of capacity providers across programmes should reduce the impact of any unexpected single-capacity provider pullback.”

Best said the competitive advantages DUAEs have been able to demonstrate through technology and data-driven analytics, as well as specific areas of underwriting expertise and business access “are seen as valuable in soft markets, but really come into their own in hard markets when they are seen as a critical part of carrier capacity negotiations”.

Best said it has observed a trend of established DUAE players in the US and UK looking to extend their operations, by growing and diversifying into other European countries. This has led to a number of new start-ups and acquisitions of existing businesses by overseas DUAE groups. Best said it expects this trend to continue and to drive further growth in European markets.