RPS’ Duffey: PAs must demonstrate improved risk selection and UW in challenging market

In a market where securing capacity in many areas of the P&C sector is difficult, expertise in a line of business is not enough on its own, with program administrators (PAs) also needing to demonstrate they can use that knowledge to improve risk selection and underwriting, according to RPS Signature Programs president Russell Duffey.

Duffey – who took up the role six months ago – was speaking to Program Manager’s sister platform The Insurer TV and said that in the current environment “acquiring capacity of any kind certainly feels more difficult”.

He highlighted property cat, transportation, healthcare and high hazard long-tail casualty as areas that can be “extremely challenging” for MGAs, MGUs and PAs.

“Couple that with capital providers that can be very slow and deliberate when making decisions on program opportunities they want to support and I can tell you – if a capacity provider doesn’t believe your opportunity is going to improve their current portfolio position, you’re pretty much not getting past the word go. It’s pretty much dead on arrival,” Duffey commented.

He described capital providers as all having a different view of risk, based on their own portfolio makeup and the return they need to generate on their capital.

The executive said that RPS Signature Programs – which has around 36 programs in its line-up – looks to differentiate itself through its knowledge and expertise in its various areas of practice.

“That said, you can be knowledgeable about a space you operate in, but that expertise has to lead to improved risk selection and underwriting and you have to be able to demonstrate that.

“Additionally we would point to the investments we’ve been making in the past years and continue to make in technology and data management as a differentiator to our capacity providers,” said Duffey.

He explained that the goal of the investments is to allow the firm to better analyse its portfolio as well as individual risks.

“But it also helps us to identify exposure and risk quicker that we’re missing out on and those become new program opportunities for us that we can present to capacity providers.

“That’s a new program for them and a solution for us and that makes us more valuable to our retail client base that is continuing to seek new solutions,” the executive continued.

Aligned interests and strategic partnerships

Duffey also suggested that strategic carrier relationships and alignment of interest among the parties in a program relationship have become increasingly important in the current marketplace.

“To me it’s all about alignment of interests; relationships where you can lay out your initiatives maybe not only for this year, but for the next three to five years. Aligned interests almost always promote stronger partnerships,” he observed.

He highlighted the crucial role that fronting carriers, reinsurers and alternative capital play in the current program space.

“Increasingly, full-stack insurance carriers may be running into channel conflict when they look at program opportunities. But more importantly they have their own individual views of risks that may limit their desire to support a PA opportunity that I bring to them.

“Then think about the fact that the majority of fronting carriers are now taking some percentage of risk. That helps to promote alignment interest as they have more skin in the game,” Duffey observed.

He also noted that fronted arrangements allow reinsurers to get closer and be more involved with the transactions they support.

Meanwhile, faced by tightened capacity availability in the traditional market, Duffey said most PAs are looking at alternative capacity as a means to match risk and capital.

“We’re no different there. The only concern we would want to address there is what the long-term strategy is for that capital.

“We’re in the business for the long haul. So again, hitting on alignment of interest, it’s important to understand if there’s an exit strategy for that alternative capital. But if you can find alignment with that strategy, then you can have a successful formula,” Duffey suggested.

Tech advancements a driver of secular shift

The theory that the significant growth in the US programs space of recent years represents a secular rather than a cyclical shift is subscribed to by many in the sector, although there is an acknowledgment that the generationally buoyant conditions in the E&S market in particular have been a boon which may fall away in time.

Nevertheless, Duffey pointed to a number of factors he believes position the programs space for longevity of success when it comes to attracting business.

One is technological advancements, with a much greater ability to analyse data from a granular to a macro level.

“The PAs historically have been proven to be more nimble and able to take advantage of those opportunities and to put products out there and take advantage.

“So the tech advancements that are happening are allowing the expertise that’s always been found in the space to shine and allow a PA to build a better mousetrap,” he suggested.

He also pointed to growing threats such as weather-related events as a catalyst for the need for specialised solutions, an area the programs sector excels in.

“The volatility of risk in the world seems to be increasing and that requires an innovative solution. This creates opportunities to supply our clients with specialised and unique solutions, and those opportunities are driving growth in the space,” he concluded.