Some dismiss the recent spate of start-up underwriting agencies as unnecessary, so does the market need them? Verity Adams reports
Recent months have seen a flurry of underwriting vehicles launched by some of the insurance industry's luminaries. Targeting the SME sector, these ventures, such as Churchill founder Martin Long's M4 Under-writing, and Charles Earle's InSynergy, are hoping to take advantage of the opportunities that the composite insurers are too unwieldy to exploit.
The start-ups claim to offer brokers more choice and greater efficiency. Many predict that the flood of start-ups is set to continue for some time.
But is there a danger of the market becoming saturated? Some brokers say there are already too many underwriting agencies scrambling for business which the brokers cannot provide.
Stuart Reid, chief executive of City-based broker Stuart Alexander, says the overwhelming numbers of newcomers are simply not needed.
"I think it's fundamentally flawed, we don't need them. The appeal may be to the smaller broker. A broker of our size tends to consult one or two insurers."
Reid says he has already had eight visits from underwriting ventures over the past month.
"It's difficult for us to look after them now," he says, although he adds that when the market gets hard they may have something to offer.
He does, however concede that the new ventures are right to focus on service quality: "They have a point on service; the service from insurers is very poor."
Eric Galbraith, chief executive of Biba, is more optimistic about the growth of SME underwriting ventures.
"Once you can get SME business on board it can stick better than other business. In a soft market lots of people are trying to chase premium."
He denied that brokers were dismissive of the new ventures, saying he had not encountered any brokers who felt there was no need for them.
John O'Roarke, founder of start-up ABC Insurance Solutions, defends the growth of SME-focused underwriting ventures saying brokers have "always demanded distribution in the SME sector".
He says the surge of new underwriting agencies "gives them more choice instead of dealing with the bigger players", adding that the smaller players will probably be able to invest more time in relationships and brokers will find this more refreshing.
O'Roarke, who is managing director designate of Liverpool Victoria's (LVIC) general insurance business after it acquired ABC Insurance Solutions last month, says it would be "unwise to suggest there won't be any more" start-up ventures.
He says that consolidation is a major factor in the sudden interest in new ventures. "If you go back 10 years there were probably 200 companies active in the market. But with so much consolidation there are four or five that now represent two thirds of the market."
Steve Coates, UK financial and development manager at Allianz Cornhill agrees. "If you go back a number of years ago there was a situation where brokers might have had a choice of up to 25 companies.
"That reduced with mergers to the point where a few years ago, in the last hard market and with the employers' liability crisis, there was not so much choice.
"A gap has been spotted in the market where they can provide something slightly different. They don't have the ability to start an insurance company and the alternative is to get backing from an insurer."
Coates says agencies, such as M4 Underwriting, are able to spot opportunities that big insurers, such as Allianz Cornhill, may have had more difficulty in securing.
InSynergy's Charles Earle also rejects suggestions that there is not enough room for the sudden flood of new underwriting agencies. InSynergy Insurance, which is backed by Lloyd's insurer Canopius and Equity Insurance Group, is aiming to have a capacity of more than £250m by 2011.
Earle says: "This isn't just something that's happened this year. It takes a long time to put this together. I think there's room between the big companies and, in my view, room that's not occupied by other companies.
He argues these new ventures will put "pressure on large companies to raise their game where brokers don't think it's high enough", as the smaller sized companies will be able to create a better understanding of the customer and to build close relations with brokers.
"There's no way those running large companies could do that. My belief is that our company is to be taken as a serious alternative." IT
