An avid follower of all insurtech startups and a critical thinker, he has also contributed several papers in organization wide technical paper contests.
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I was reading an article today about a new carrier being constituted by a partnership between an existing insurance carrier and its agency. I think it had several important terms and aspects to be discussed and understood. This article will dive into those. Hopefully, it will help people who want to understand it better
Specialty Underwriter
The article talks about the Agency (“Orchid Underwriter Agency”) as a specialty underwriter of catastrophe exposed property insurance. What is a specialty underwriter and why is it formed. A standard insurance carrier can decide to write risks of all types based on its operational strategy and the licenses it can secure from each state DOI (Dept. of Insurance) for writing business as an admitted carrier in the state. However, some carriers decide to keep their accounting books separated for risks which are standard vs. specialty. The specialty risks are those risks that are not written by most carriers as they require either specialized underwriting skills, are capital intensive requiring facultative risk transfers, or have had a bad loss history owing to a hazardous class of operation.
To do this effectively, carriers form specialty writing companies/MGA’s that are called specialty underwriters. In the article, Orchid was a specialty underwriter for catastrophe-exposed properties, which means that they write risks specifically exposed to catastrophes, maybe earthquake risks in the California region or coastal risks in Florida or others wind risks that can be catastrophic in nature.
Domiciled
In the US insurance market, insurance companies need to be licensed in each state where they intend to write business. These are called admitted carriers in the state. The state where they are first licensed is called their state of domicile, after which they can further get licensed in other states and be termed as “foreign” carriers in that state as they are not domiciled in that state. This is starkly different from India insurance market where the registration with IRDA (Insurance Regulatory and Development Authority of India) licenses the carrier to write business across the country
Private Flood Solution
The article talks about the new carrier being formed providing owner-occupied properties homeowner insurance and provide private flood insurance for medium-high value homes. But what is this private flood solution? Because of flood risk being catastrophic in nature, government agency FEMA constituted a flood insurance provider offering flood insurance across the country by NFIP (National Flood Insurance Program). Homeowner policies do not cover flood risk in general and a separate flood insurance policy needs to be purchased via NFIP. A private flood solution would be akin to flood risk coverage from a private carrier, though the insured’s need to consider what efficacy are they achieving through that other than the expected service efficiency from the new carrier
Reciprocal Insurance Company
The new carrier is structure as a reciprocal insurance company. In the US, several insurance companies are structured as a reciprocal exchange. E.g. AAA, Erie Insurance Group, PURE, USAA. This unincorporated entity works in a subscription model where each policyholder is a member of the exchange and pays a deposit (think premium in standard insurance terms). If there is a surplus at the end of the assessment year, the surplus is divided proportionally between the members and is generally kept in an escrow account for each member. The members share each other’s risk and the company is managed by an Attorney-in-fact (AIF), which, in the case of this new carrier, is a company called Trusted Resource Underwriters.
Other important notes in the article
- A prior CFO becoming the CEO of the new carrier
- A prior Chief Actuary becoming the CUO (Chief Underwriting Officer) of the new carrier
References
- https://en.wikipedia.org/wiki/Reciprocal_inter-insurance_exchange
- https://www.irmi.com/term/insurance-definitions/specialty-risks
- https://www.fema.gov/flood-insurance
- https://www.iii.org/publications/a-firm-foundation-how-insurance-supports-the-economy/a-50-state-commitment/insurance-companies-by-state
