This article was produced with Munich Re Specialty.
Gia Snape of Insurance Business America sat down with Tom Wallace, chief underwriting officer, binding authorities and Hayley Todd, head of digital underwriting, binding authorities, at Munich Re Specialty – North America to discuss emerging trends and technology in the binding authority space.
As the insurance landscape evolves due to advancements in technology, shifting regulatory environments, and growing catastrophic risks, binding authority is playing a larger role in covering risks that traditional insurance markets won’t. Growing sophistication, both on the cover holder and carrier side, with increased use of data, analytics, and technology for risk selection and pricing, has made binding authority policies an alternative option.
Specialists from Munich Re Specialty – North America spoke to Insurance Business about where the binding authority business is headed, its advantages over traditional single-risk specialty underwriting, and how technology is reshaping the game.
“Looking ahead, we anticipate shifts in the broader market as additional capacity enters the property space,” said Tom Wallace (pictured on the left), chief underwriting officer, Binding Authorities at Munich Re Specialty – North America.
“We expect this capacity to flow from direct, larger D&F (Direct and Facultative) placements down the distribution chain into the delegated space. This will likely increase pressure on delegated/binding authority model and the larger segment of our portfolio.”
Unlike single-risk underwriting, which relies heavily on the resources and bandwidth of in-house teams at a given time, binding authority leverages third parties, or coverholders, to underwrite within predefined controls. This model allows insurers to expand or contract their appetite as needed.
“A critical factor for us is ensuring a collective understanding of our underwriting appetite, our definition of profit, and the ability to analyze and review data,” Wallace said. “This ensures we have consistency and alignment with our clients and coverholders. Advances in technology, improved data transfer and data analytics are making this easier to track, monitor and implement.”
Binding authority works particularly well for smaller, more homogeneous risks. In Munich Re Specialty’s case, the portfolio consists of non-admitted homeowners, small commercial package and transportation policies, said Wallace. These smaller lines also make it easier to manage portfolio volatility.
In contrast, single-risk business typically involves one-off, high-value properties, where insurers must use their own sophisticated pricing models to account for the significant exposures involved.
According to Hayley Todd (pictured on the right), head of digital underwriting, binding authorities, at Munich Re Specialty – North America, the continued contraction of the admitted market has led to an increase in business flowing into the excess and surplus (E&S) space.
“This shift has allowed E&S markets to capitalize on a profitable environment over the past few years, benefiting from the ability to offer favorable pricing for the capacity,” Todd said. “However, this period of an improved pricing environment has likely approached its peak.”
However, the market remains challenged by a deteriorating peril environment, she said, characterized by an increased frequency and severity of secondary peril events such as severe convective storms and wildfires. The industry is observing an increased density of hail with greater damage factors. Despite the improved pricing conditions of recent years, these escalating risks pose significant challenges for the E&S market.
“Overall, the market has shown responsible behavior and maintained stability during the favorable periods,” Todd added. “However, carriers must carefully manage their exposure to navigate the evolving risk landscape effectively. Alongside accumulation management, a critical control for binding authority business, carriers also have a responsibility to support community-led initiatives that mitigate risk, such as defensible wildfire spaces.”
For Wallace, the market has seen a mix of challenges and opportunities, which has led to some frustration. “Looking back, 2023 was a relatively clean year, offering a somewhat optimistic perspective,” Wallace said.
On a positive note, there have been improvements in underlying terms and better loss ratios, signaling the beginning of a market cycle shift. Pricing increases are starting to moderate, while terms and conditions, including deductibles, are holding steady. This stability helps alleviate some strain on the market, added Wallace.
Other challenges this past year include a series of hurricanes and the implementation of RMS version 23, which has raised capital requirements for businesses to support their operations. Wallace said these factors present additional headwinds as the market navigates the evolving landscape.
Delegated authority underwriting is advancing through technology. Beyond just streamlining operations, technology tools are transforming the nature of risk selection and portfolio management.
“Tools like aerial imagery and other geospatial technologies are becoming more prevalent, providing greater insight into individual risk characteristics,” Todd noted. “With the growing availability of data and third-party vendors, risk selection is becoming more informed and precise across all levels of property risk assessment.”
Other advances in data science and data engineering are improving the understanding of historical portfolio performance and are providing better insights into per-risk and portfolio technical pricing.
Third-party data and its accessibility will remain a key focus in the coming year. “Advanced technologies are transforming traditional underwriting methods, with APIs replacing outdated Excel raters; Munich Re Specialty can provide risk selection and pricing in real-time,” said Todd.
At the same time, carriers across the industry, are leveraging AI and machine learning to process submissions, analyze scenarios, and even automate responses to brokers. The goal is not just efficiency but also precision, giving underwriters the tools to make better decisions faster.
“Increasingly, underwriters are using digital tools to compare rates, offering customers multiple quotes with a single data entry point, particularly for smaller, homogeneous, and delegated portfolios,” Todd said.
Portfolio management is another area of focus, with better tools allowing companies to manage their spread and volatility more effectively. Data scientists, software developers and engineers are likely to become essential hires in underwriting teams.
As technology continues to evolve, so does the sophistication of coverholders. Todd observed that many are building their own technology stacks, investing in platforms that allow API integrations and digital pricing tools and creating a more dynamic, interconnected ecosystem where insurers and coverholders can collaborate seamlessly.
Despite the advancements, certain fundamentals remain unchanged. Delegated authority thrives on stability, particularly when it comes to terms and conditions. Maintaining these standards is critical, especially in a volatile environment.
For those considering entering the delegated authority space, Munich Re Specialty offers a compelling case as a partner. The firm combines decades of experience with access to a broad range of markets and a robust balance sheet.
“Our team has over 40 years of experience,” said Wallace. “We've been involved since the early days of the binding authority and delegated market, and we aim to leverage these longstanding relationships alongside Munich Re’s global scale and enterprise-level sophistication.
Beyond its financial stability, the company prides itself on its ability to deliver tailored solutions and its adaptability to risks in a segment often buffeted by change.
From its strategic position in London, Munich Re Specialty – North America, Binding Authority offers diverse pathways to meet client requirements, wielding a combination of local and international strengths.
“We are uniquely positioned in London, offering a wide range of solutions. We have access to non-Lloyd’s capacity, with European and US Munich Re paper, as well as the Lloyd’s market, through our own Lloyd’s Broker or other London Brokers,” said Todd.
Whilst benefitting from Munich Re European balance sheets, the Binding Authority team remains deeply connected to North American talent and resources. This global access to capacity, expertise, and resources allows Munich Re Specialty to help customers efficiently access the products they need.
Navigating today's dynamic landscape of specialty insurance takes deep expertise, enduring financial strength, and partnerships you can rely on. Learn more about Munich Re Specialty’s binding authority solutions here.