How an award-winning MGA stays resilient in a difficult market

How an award-winning MGA stays resilient in a difficult market | Insurance Business America

How an award-winning MGA stays resilient in a difficult market

Orchid Insurance is known as a provider of personal property insurance in states that are vulnerable to disasters caused by extreme weather conditions. Due to its vision and business model, the company has been recognized as one of Insurance Business America’s 5-Star MGAs for 2022. In this interview, Orchid’s chief underwriting officer, Ross Bowie, talks about overcoming one of the toughest property insurance markets in history.

Considering the impact of frequent and severe catastrophic events on the market in recent years, Bowie said that Orchid “[builds] portfolios to be resilient” and has always assumed, based on the historical average, that one or two landfalling events would happen in a year.

The company applies its experience in previous natural catastrophes to help its partners cope with difficult market conditions, he said. Many of Orchid’s underwriters have over 10 years of experience in catastrophe-prone places like Florida, Alabama, and Texas, and their knowledge enables them to “understand how these kinds of risk react in weather events. And so, we’ve been able to kind of pick our way and find the right risk to perform close to our loss expectations.”

Because the underwriters are also familiar with the construction types in those vulnerable areas, Orchid Insurance can manage its risk exposure, for example, when a Category 5 hurricane causes damage. In recent years, the company has focused on “building tools to understand how we manage our exposure. So instead of looking at things like county or zip code, we do everything now down to a one square kilometer grid, [which] allows us to be very surgical and very precise on how we build a portfolio to help protect our carrier partners from any type of peak concentrations that they may get hit by and have an outsized loss,” Bowie said.

He added that Orchid’s business model is not about making money in years when there are no natural disasters. Instead, the company builds a portfolio regardless of events and tries to maintain a pricing range with an 85% combined ratio. It also offers products such as wind coverage even though many other insurers have been reluctant to do the same.

Another important factor in Orchid’s success is how it learns from catastrophic events like hurricanes. For example, the company found that “tile roofs don’t perform as well as we had originally expected, or roof age plays a much bigger impact than it has historically … We take our claims data, we learn from it, we implement it into underwriting and pricing.” By doing so, Orchid improves its loss ratio and ensures the profitability of its carrier partners’ portfolios. 

Furthermore, Bowie said that Orchid applies a combination of old and new technology to develop its portfolio and understand price risks. For example, the company uses a grid model to gather information about the conditions of homes in certain areas while its inspectors perform traditional assessments of properties on the ground. He finds this approach a valuable element of Orchid’s strategy to continue outperforming the market.

Watch the full interview here