Fixing the ‘misalignment’ between the interests of brokers and their clients

Fixing the ‘misalignment’ between the interests of brokers and their clients | Insurance Business

Fixing the ‘misalignment’ between the interests of brokers and their clients

When you see everybody in the insurance business moving in one direction, sometimes the best opportunity is to throw caution to the wind and go the other way. That was one of the driving principals behind the founding of COIN Re, a Florida-centric reinsurance provider set up in 2018 by industry veteran E.W. “Ted” Blanch.

After almost 60-years in the reinsurance business, Blanch envisioned a new course for the modern reinsurance industry. He saw opportunities for improvement in reinsurance brokerage relationships and transactions, creating “a new paradigm that will both make insurers more profitable and reduce cost to consumers” – and so, COIN Re was born.

COIN Re’s operations, according to Blanch, are governed by a set of basic broking goals and techniques. The brokerage will: connect clients with reinsurance opportunities for the limits sought, at the lowest market price; reduce frictional costs by lowering the bite taken by the broker; and actively intermediate the placement/underwriting of the reinsurance programs based on aggressive pursuit of the client’s interests.

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“I’ve been in the reinsurance industry in one way or another for nearly 60-years, and I’ve seen it through a lot of cycles,” said Blanch. “What I’m seeing right now is a pretty dedicated move to the idea of the reinsurance broker providing a lot of so-called ‘services’ to insurance companies, and these services seem to be gaining weight relative to the old-fashioned idea of creating architecture for reinsurance and doing the hard work of getting that reinsurance placed in the market on favourable terms for the client.”

Blanch believes this dynamic has resulted in a “fairly significant misaligning” between the interests of the brokers and their clients, primarily because the markets that the brokers are taking the business too are also clients of the brokers. The cycle continues “as the retrocession tumbles down,” he added.

To ensure the interests of COIN Re remain aligned with those of its clients, the brokerage is structured so that client investors collectively will own more than 50% of the company. By giving insurance companies significant ownership in COIN Re, Blanch hopes to tip market economics back to ceding companies and therefore improve reinsurance program pricing, lower frictional costs and revenue distribution, and provide equity value accumulation back to the insurance companies.

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“In reality, the most important thing a broker can do for a client is help them to reduce their reinsurance outlet. That dwarfs everything else, but in the process of that, we’re always looking at what else we can do,” Blanch told Insurance Business. “We can probably reduce friction costs. I enjoyed years of benefitting from the high brokerage commission rates and the rapidly expanding companies, particularly in Florida. Those companies kept getting bigger, the money kept going up, and if you were on the right side, it was wonderful – but it gets to a point where it doesn’t make any sense.

“We figured at COIN Re we could be competitive and profitable, all relative to other reinsurance brokers, with regard to how much we charge, as long as our mix of business isn’t diluted by handling collateral business which doesn’t make any money. When brokers try to deal with the issue of disintermediation, they often look at it in two ways: you can lower costs, or you can do more for what you’re charging. If you can manage both then you get the winning formula, and that’s what we’re trying to implement at COIN Re.”