How to overcome one of the toughest property markets in history
Ross Bowie, chief underwriting officer at Orchid Insurance, is celebrating his company’s recent 5-Star MGA and wholesale broker success. Here he explains how rising catastrophic weather has impacted the market, how tough the property market has become and how his firm is providing coverage where many companies have pulled out.
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Bethan: [00:00:11] Hi everyone and welcome to Insurance Business TV. I'm Bethan Moorcraft, senior editor at Insurance Business. And in this episode I am delighted to welcome Ross Bowie, the Chief Underwriting Officer at Orchid Insurance, which was recently named one of insurance business, America's five star MGAs over the course of the episode. Ross and I are going to be talking about orchid solutions for catastrophe prone states. I'm going to chat a little bit about what it takes to be a standout MBA in a very challenging property market. And with that, Ross, welcome to IBTV.
Ross: [00:00:45] Oh, thank you. Appreciate it.
Bethan: [00:00:47] So Ross Orchid provides personal property insurance in catastrophe prone states. How has the rising frequency and severity of cat weather impacted this market in recent years?
Ross: [00:01:00] Yeah, yeah. So it's been really interesting. So I think you kind of start with what we've seen historically and then work my way forward to how we handle it. So as we came out of the decade between 2000 and 2009, we had one of the highest frequency periods of almost 24 events hitting the US. And then you went into this lull. It's one of this law between 2010 and 2019 where we only had nine events hit the US and it kind of created this whole sense of, hey, do storms not happen every year? And we've always kind of as we build portfolios from the orchid side, we build portfolios to be resilient even in a year that we have events. So we've always assumed that based on the historical average, we'll get anywhere between 1 to 2 landfalling events a year. So if we think about profitability, we think about pricing, we always bake in that level of frequency. So there was a period there from 2011, 2012 to 2017 where our pricing view really didn't work because we were still pricing in a much higher frequency than what I think the market was expecting. And now that we're getting back into this period of, I would say, average frequency, you're starting to see our pricing model work a lot better. So I would say that we don't really attribute it to any type of specific change. We really view it as as the market or even the weather kind of reverting back to the mean and putting us back to where we're frequency has historically been.
Bethan: [00:02:24] That's interesting. The as I mentioned in my intro, Orchid was recently named one of our five star MGAs. And Ross, what enables you as a as a top MGA to help partners navigate some of these toughest property insurance markets?
Ross: [00:02:41] Yeah, so a couple of pieces. So one is experience. I think going back to there's a lot of people in the business that have never seen these kind of events. This is especially if you look at years like 2017, 2020, there's a lot of people that haven't really worked through that type of frequency and those type of losses. The fact that we have underwriters, a lot of our underwriters have ten year well north of ten years. They've been in Florida, they've been in Alabama, they've been in Texas. They understand how these kind 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. So I think it comes down to one is our people. We have really great underwriters who know the business, they know the markets and they know the construction types. But then two are our tools, right? I mean, it comes down to it. Well, we know we can pick the best risk when a Category five comes through and there's 180 mile per hour winds, it's going to cause damage. So it all comes down to exposure management. So over the last year and a half or maybe two years, we really focused on building out tools to understand how we 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. So it 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 and have an outsized loss.
Bethan: [00:04:06] Well, it's all becoming sort of very important to be that granular these days. Ross what are Orchid's, core product strengths.
Ross: [00:04:14] Yeah. I think what makes us a differentiator in this market and why so many agency partners have chosen chosen to do business with Orchid, is that we have a wide array of carriers. So outside of having just one or two carriers that we're able to place business with, Orchid Total has about eight carriers that we can leverage. So whether the risk is old frame house and right on the water or brand new masonry home, we have different carriers that can provide different products and different solutions for any risk that that an agency can give us. So it helps provide the agency comfort knowing that, hey, if they have a risk coming to the door, they have they can go to Orchid. We'll have some carrier that has that type of appetite and has a price for it. And it can help solve that, solve that that solution for that client. So from our side, it's pricing sophistication. So a lot of a lot of the technology advancements that we've seen over the last, I would say 3 to 4 years has been around different APIs. So we can now leverage the models on our best air as well as some proprietary views all upfront. So historically, the way pricing has been done is, hey, we can kind of guess on what kind of margin and what the losses may be. And here's our price. And we model it kind of retroactively after we've already bound the policy. Now, with the way APIs are on the technology we have today, everything is done real time. It's done before we ever release a quote. And so we're able to get our technical pricing and our model pricing really dialed in before anybody even sees the rate. And what that allows us to do is not have those kind of odd reactions in the back end say, no, no, now we're underpriced in Miami or underpriced in Lee or Collier County. All that pricing validated before an agent ever sees a rate. And then the tough part in personal lines is that our agent and our agency partners expect us to be able to deliver that rate in 5 seconds. So it's it's a different conversation than the commercial side, where they get 24 or 36 hours to develop a rate. We have to do it in nanoseconds. So a lot of the technologies and a lot of the strengths that we've been able to bring through from the from the API side and kind of validating pricing upfront has allowed us to want remain stable but then offer a rate that the agent knows that it's not going to change.
Bethan: [00:06:19] One of the products that Orchid provides is wind coverage, and you're able to do this in cat prone states at a time when quite a lot of other carriers have pulled back a little bit. Kind of what enables you to to do that?
Ross: [00:06:35] Yeah. So I think it comes back to our original view on pricing. Right. So we our business model is not to only make money in years when there's no events. I think that there was a period in time, especially in 2011, 2012, when a lot of companies came into the market where the entire business model was based around, Hey, we're going to make a lot of money and years. We don't have any events. That's never been our view and it's never been the way we operate our business. We operate our business saying, Hey, we're going to build a portfolio that regardless of the event that comes through, we're going to still try to finish within our pricing range of an 85 combined ratio and being able to pick out risks. It seems like a lot of events that come through, people always get these great learnings. Right now we learn 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. So we're really quick to have an event. We take our claims data, we learn from it, we implement it into underwriting and pricing. So we know what the portfolio we're going to go into. The next hurricane season already has a lot of learnings baked into it, and we see our losses just continue to improve and prove to the point that even when we have an event like an IDA or a Sally or any of those, we're still delivering profitable portfolios for our carrier partners.
Bethan: [00:07:45] That's great. So Ross, you've spoken a bit about how you're using technology to better understand risks, to kind of build your portfolio and price risk more appropriately. What if we could dive into that in a bit more detail in terms of how Orchid is using technology? Can you give me some examples of tools and things that you're using to kind of really sort of shore up your underwriting practices?
Ross: [00:08:12] I think it's a it's a mix of of new technology and also a mix of old. So there's areas where we have been on the innovative front and moved on to things like the API direct into arms and air getting real time pricing all the way, all the way down to our exposure management where we're using one square kilometer grid. We can pull up any grid across the country and know exactly what are the homes we have in them. How does that grid model, what is our pricing margin? How does it perform from the AOP standpoint? So I'd say from the pricing and exposure management piece, we've done a really good job on staying on the forefront of technology where we actually I would say we've chosen to stay away from as on the inspection side. So we still inspect every single property we write. So whether it be new business or renewal and we use traditional inspections, I think we haven't really quite bought into the business case yet to move that to aerial imagery or anything else, because the level of data that we get by having somebody on the ground really assessing the home in real time and in real life really allows us to use those pieces in underwriting. So while we continue to push advancement on the modeling and pricing side from underwriting, we still have underwriters that are talking directly to agents, talking directly to customers, and we still have inspectors that are on the on the ground looking at properties, looking at the properties and really assessing the condition they're in. And we just found that I find that to be incredibly valuable and another good reason and another piece that we use to continue to outperform the market.
Bethan: [00:09:40] That last point, Ross, is interesting. Obviously, we're talking after a couple of years of the COVID 19 pandemic where there were sort of challenges around being in person and kind of sending out people to do in-person inspections. But how did you get through those challenges with sort of that strategy?
Ross: [00:09:58] Yeah, so we had to pull back on interior inspections, I'll say that, and we had to actually quite a few customers allowed us to come in the door. There are a lot of customers, especially as you get to high value homes. You're talking to three or $4 million homes. We want to make sure that home is properly insured from a value standpoint. So having somebody walk to the inside, understanding what the flooring type is, the different finishes allows us to do that. And a lot of those customers continue to allow folks into their homes with the proper with the proper masking and proper validation prior to. But we leverage more external inspections. So we continue to look at the external parts of the property, validate the condition that that was in. But now that things have started to loosen up, we're getting back into our normal cadence. But overall, even with COVID 19, the team was was pretty resilient and making sure we continued our processes around the underwriting side.
Bethan: [00:10:48] One of the things that I have read about recently in terms of Orchid Insurance is your Merlin rating platform. Now, I know this ties into some of the things you've been talking about already with using technology to help with pricing and things like that. But can you tell me a bit about the platform and how it's enabled you to build a balanced sort of portfolio in these challenging areas?
Ross: [00:11:12] Yeah. So Merlin has been one of our greatest advancements, I would say, over the last two years and it really solved two big pieces for us. One, I'll start with on risk segmentation. So we know that there's properties that perform better in event than than other properties and there are certain characteristics that drive that outperformance and historically, especially from the inside, inside has really lacked that pricing, sophistication and segmentation that you would even see on the admitted side today. So what we did was kind of what we call a hybrid buyer program, but we built a hybrid buy rating program that takes the beauty of the really ultra complex rating view and the simplicity, because we're adjusting rates almost every other week now, but allows us to be really precise in the type of risk that we like. And the other key point to that is we know we have a lot of capital providers or carrier partners that have different model views, whether it be full view on air or a full view on RMs or some type of blend. We wanted to get away from this single model view and single model view of pricing. So when we built Merlin, we actually built it to be model agnostic, where it can take in any type of model view, it can take in capital allocations, they can take in reinsurance pricing. Anything we give it, we can get it all the way down to that grid level. So we're able to, one, take the model view regardless of, of, of the specialty and air in our mess. We're able to take the carriers reinsurance costs or existing concentration and price that through the different grids. And then from a risk segmentation, we're able to really focus on whether it be routes under ten years old or homes only that are fully shuttered. We're just really able to get surgical and the risk that we like and then we price competitively.
Bethan: [00:12:53] Sounds like a great tool. So, Ross, one more question to finish. I'd like to look ahead, if you don't mind. What would you say are some of your kind of future growth goals at Orchid Insurance?
Ross: [00:13:05] So we're continuing to advance and I think continue to expand our marketplace. So obviously the dislocation of the emitted market, especially in a state like Florida, has helped drive a lot more customers to the ENS. And we're seeing more agencies that have traditionally not written enough business actually reach out to us and say, hey, we need access to paper because the emitted market is just not a solution for us anymore. So we see more and more people start to migrate to the space where they're getting a great product, they're getting the competitive rate and they're getting great service, right? A lot of the E&F carriers that we write with today are all AA rated, which is better than a lot of the demo tech rated companies that a lot of insurance sit with today in the state of Florida. So they get a good product, they're getting a good price, and they're getting a really, really reputable balance sheet. But as we look forward to growth, we're really focusing on continue to expand the the experience that agents are used to on the embedded side or even direct the consumer side into the space. So we're trying to solve for, hey, how do we know? We know some of our agents may not access our system every 30 days or every 60 days. How do we make the coding and binding process so simple that regardless of the last time they were in there, they can pop in, give us an address, we'll find a solution for them, and they'll be in and out of there in less than a couple of minutes.
Bethan: [00:14:22] Well, I mean, just from other interviews and things like that, that sounds like a lot of positive momentum in the inner space at the moment, and I'm sure that's going to come over to Orchid as well. So. Best of luck with all of that. Ross, thank you very much for joining us on IBTV. It's been great having you on the show and congratulations once again on being named one of our five star MGAs.
Ross: [00:14:46] No, thank you. Really appreciate the writing and look forward to continue supporting our agency and carrier partners.
Bethan: [00:14:52] That's great. Thanks also to our viewers for tuning in. I'm Beth Moorcraft, senior editor at Insurance Business. Make sure you check out the rest of the IBTV episodes. IB talk podcasts and daily news at www.insurancebusinessmag.com/us. Thanks everyone.