Markel has built a business structure in which underwriters write for profit not for premium. Jeremy Brazil explains
Michael Wade's thoughtful Insurance Institute of London lecture of 23 October on integrated Lloyd's vehicles (ILVs) and the case for their consolidation raised a number of interesting points.
Wade referred to the challenge for management of creating an environment in which underwriters are "empowered" to work relatively autonomously, and are rewarded appropriately, while working within a larger, perhaps more bureaucratic organisation than the stereotypical Lloyd's syndicate.
This is indeed a challenge, but our experience shows that it is one that can be easily met.
Over the past three years, Markel's operations in London have been transformed from a comparatively loose collection of small syndicates, each with their own management teams, systems and underwriting strategies, to a unified organisation. This consists of one syndicate, one insurance company, and a single management and philosophy to guide underwriting practices.
In effect, Markel has undergone the sort of transformation described by Wade. And yet, Markel's experience has shown that with the right approach, the traditional creativity of Lloyd's underwriters has not been stifled - they can still be motivated, innovative and allowed to flourish.
Part of the key to Markel's success in creating a stable, motivated underwriting team relates to the structure of the company, which enables underwriters to focus on their specialisation and to have a clearly defined profit centre against which they can be remunerated.
Underwriting in London is carried out in five specialist divisions, each of which is further sub-divided along class of business lines.
Markel's underwriters are therefore still able to specialise and to work within profit centres as before. Reporting lines remain short, and underwriters have retained a considerable degree of autonomy.
Fundamental to the success of Markel Corporation, the parent company, has been the commitment to write for underwriting profit, not for premium.
In order to achieve and monitor this, Markel International's underwriters, in conjunction with its actuarial resources, has developed a pricing framework for all classes of business. Together with active monitoring of rates, this ensures that it writes only profitable business. It can also determine when pricing is down to a level that no longer meets the required levels of return which would lead to withdrawal from that line or class.
In return, the bonus structure for underwriters ensures that they are rewarded if they achieve the profitability targets established at the start of the year. Remuneration is closely linked to the ability to develop a book of business that is capable of delivering an underwriting profit over the long term.
All staff at Markel benefit if the company reaches its profitability target, so everyone is motivated to do their bit to ensure that it does.
Michael Wade correctly identified the need to balance the creativity of the Lloyd's underwriter with the discipline to ensure that the capital provider's interests are protected.
By rewarding underwriters on performance, achieved within a simple organisation, with small teams focused on specialist areas and within clear overall guidelines, Markel has shown that this relatively new environment can provide satisfying results for all concerned.
