CTC 004: Can MGAs Succeed When Supported by Fronting Solutions with Paul Jewell
What are ‘fronting’ and ‘hybrid fronting’? How do they differ? And what unique opportunities can these solutions afford MGAs and the wider UK insurance market?
In this episode of Changing the Conversation, we are thrilled to be speaking with Paul Jewell, CEO of Bridgehaven Insurance, the first hybrid ‘fronter’ in the UK. At the forefront of this alternative distribution solution’s introduction to the UK market, Paul is well-placed to discuss the disrupting influence of fronting, having already made a sizeable impact across the pond in the US. He elucidates why fronting presents such a powerfully unique and profitable option to MGAs, and its benefits to the wider market.
Quote of the Episode
“Simplistically, [fronting] is just a term for capacity or an insurance solution… An insurance company acts on behalf of somebody else, usually a single, or multiple reinsurers. it’s very common for international companies, [such as] Pepsi Cola, a US-based company who may want an insurance solution in the UK, but they may have their own insurance solution provided by a US company. So, what they do is they have a ‘fronting partner’, a ‘fronter’, in the UK that ‘fronts’ for that business, i.e., issues the insurance policy, and they reinsure back to the US under the master agreement. That’s traditional fronting. It’s most common for multinationals and those types of organisations.”
Fronting is a hugely beneficial market solution, enabling multinationals to streamline their insurance provisions to ensure a continuity of cover across the various markets they operate in. Equally, this presents a big opportunity for those insurers, namely MGAs in the UK, who can provide this solution, as it grants them access to unique capacity derived from alternative markets they wouldn’t otherwise have operated within.
Key Takeaways
Hybrid Fronting slightly differs from the traditional approach outlined above. In contrast to the Pepsi example, in which the fronting company would reinsure 100% back to the US, a hybrid fronter would retain a variable amount of that risk themselves. Thus, through this model, the insurance company issuing the policy retains risk to their balance sheet. Furthermore, the hybrid fronting model is more focused on underwriting profit. Fronting for Pepsi and issuing a policy to reflect their US-based cover is a matter of compliance, as you’re not allowed to issue American policies in the UK. Meanwhile, a hybrid fronter retains some amount of that risk, so premiums and claims stay in the UK with that insurance company. Thus, hybrid fronters can benefit from hugely diversified portfolios, and a focus on profitability through partnership with a broad range of reinsurers.
Paul anticipates that fronting and hybrid fronting will become an increasingly powerful disruptor in the UK market. He argues that MGAs are particularly well-suited to operate in and benefit from this space by providing unique services and distribution in a more flexible and agile manner to traditional insurers, which aligns with the aims of prospective fronting partners such as Bridgehaven.
Additionally, he suggests that reinsurers themselves can also benefit from this type of distribution. If a reinsurer has relationships in other jurisdictions, and wishes to provide capacity to a particular customer group in an alternative market whilst remaining compliant in the UK, a partner can front for and retain risk on their behalf. Paul also notes that captives may be interested in this solution, particularly given the government’s recently asserted interest in making the UK a jurisdiction of choice for those subsidiaries.
Paul anticipates that many more fronters are likely to emerge in the UK in the next few years. The profitability of this approach has enormous potential in bringing new, diverse capacity to the UK market. He dismisses the notion that hybrid fronters will compete with one another for this capacity; by contrast, the disruption they will cause to the broader market through this solution will more powerfully hit the traditionally big insurance players.
Best Moments/Key Quotes
“MGAs are growing at a much faster pace than the traditional insurance sector because they're providing unique services, unique distribution, unique products, they're meeting customer demands, they're much more flexible and agile... So, we feel that over time, the hybrid fronting solution will actually be a quite an interesting disruptor for the UK market in providing different solutions that will fit some of the partners in the UK, particularly MGAs, which is growing space.”
“We have a dedicated model that supports MGAs. We are not attracting or targeting customer groups directly. We don’t service brokers directly, we only support through MGAs, so there’s a reduced conflict of interest.”
“I think hybrid fronting can bring alternative capital [and] advantages from additional commission profit shares. I think it gives much more flexibility to enable [MGAs] to grow the alignment of interest because there's reduced conflicts of interest with other distribution. I also think there's a potential better of transparency… Each party sees the same level of information. There’s no mystique.”
“Talk to us or talk to other fronting partners directly. There's nothing wrong with direct engagement. We don't have a prescribed way of doing it. The only thing I would encourage your listeners to understand is that there is a process to go through. Often, there needs to be things like business plans, data sharing, and information… [so] they need to be prepared for the conversation.”
Resources
Bridgehaven Insurance: https://www.bhvn-ins.com/
About the Guest
Paul Jewell is the CEO of Bridgehaven Insurance, with 35 years’ experience across various roles both UK-based and internationally.
About the Host
Sarah Myerscough is the Chief Ideas Officer at Macaii, formerly Boston Tullis. She hosts/co-hosts several podcasts and is known for her knack in connecting with people. Sarah excels in bringing out the best for video, podcast, and live events, helping clients showcase the human side of their business.
Sarah is passionate about the evolving dynamics of the insurance industry and enjoys conversing with innovators, trailblazers, and long-term advocates of change.
Website: www.macaii.co.uk
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