Following the announcement this week that Beazley is to cease underwriting a range of UK marine risks, Gerry Sheehy, CEO of specialty MGA, Fiducia, warns underwriters to get tough to protect client interests.
The decision by Beazley to walk away from the UK marine market may have come as a surprise to many.
But those who have been working in the sector for some time are fully aware of the pressure underwriters have been under as brokers continue to squeeze margins.
Indeed in many cases it is the clients rather than their broker that one needs sympathy for.
For too long the brokers’ demands for excessive levels of commission have been a contributory factor in the demise of a number of these carriers with instances of brokerage nearer 40% representing the norm rather than the exception.
The Lloyd’s market has been toughening its stance on poorly performing business and the marine classes have been the forefront of those efforts.
I am aware that some national deals with a number of carriers where earnings which are in the form of commission/overriders/service agreements where payments to brokers are approaching 50%.
You have to question as to whether such agreement are disclosed to their clients and if not why not?
As a company Fiducia has been vocal about the fact that these levels of payments to brokers are unsustainable.
But it is not a one way street. Underwriters have to take their share of the blame for the state the market currently finds itself in.
There is a clear responsibility and burden on those underwriters who simply failed to stand up and resist the brokers’ demands.
The days when the market has been writing for volume at any costs have gone. Marine underwriters are fighting their corner with their underwriting peers in other classes for capacity and the result for those who failed to deliver a sustainable pricing is now clear for all to see.
The new reality is a market where capacity is scarce and there is a now a realisation that if you do not fight your corner in a hardening market then your future is likely to be short-lived.
As a business Fiducia has said from the outset of our formation that were would not look for distribution from the national brokers for that very reason. We are happy to work with them on our rather than their terms but brokers generally need to consider the underwrites position or they will have no access to capacity.
Our door is always open but there has to be a realistic expectation on both sides to ensure that the relationships we build with both brokers and their clients are sustainable in the long term.