Beyond traditional broking

For anyone disillusioned with siloed, product-constrained re/insurance broking, the latest Voice of Insurance podcast presents a fresh proposition for a holistic client- and capital-focused broker.

The latest Voice of Insurance guest is a rare breed of broker looking to build a sophisticated new intermediary operating at the higher end of the market. Mark Geoghegan interviewed Andrew Matson, CEO of Augment Risk Holdings.

Matson poses the question to clients: “How can we build a transaction for you that differentiates you against your peer group?”

Answering it poses a challenge to the incumbent, consolidated, big broking community.

“If every single client is buying the same products from the same small number of brokers, it shouldn’t be a great surprise to any of us that there is an average outcome,” he said.

As Mark emphasised, Augment offers a brand-new approach to insurance broking – which won’t be for everyone – but in the past two years has gone from a standing start to handling around $1.6bn in premiums and a headcount of just under 50, all of whom are frontline.

Matson and Augment Risk have done this by being very targeted and very progressive, breaking insurance and reinsurance down to its core element – capital. At a fundamental level insurance is a tool for capital protection and capital management.

The host summed up Augment as “a smart, joined-up insurance and capital markets broker”, phrasing Matson did not disagree with. Matson wants to design transactions designed to differentiate from a client’s peers, whether by growth, return on capital, or return on equity (ROE) terms.

If designed and executed well this is a tool that produces better outcomes for clients and these benefits are ultimately measurable in improved ROE. However, this approach is about as far removed from the traditional broker model as it is possible to be, typically focused on finding out as many risk transfer avenues as possible when engaging with a new client.

Matson approaches things, much as a rating agency or regulatory compliance expert might, by talking about capital in assets over liabilities terms.

“We like to start by putting capital at the beginning of the conversation, and the solutions follow from there.”

His approach involves “disrupting the traditional procurement process” and talking to the C-suite or people close to it.

The re/insurance transactions tend to be larger with this approach, he acknowledges, and requires “capturing the imagination” of reinsurer CEOs, too, as they seek to raise their own ROEs and partner with “high quality ceding firms on a diversified basis”.

Of Augment’s $1.6bn premium book, the bulk is structured reinsurance, and about 20% is made up of legacy re/insurance transactions (i.e. business in run-off), but not for “toxic liabilities”, but building annually renewing portfolio structures that add scale and capital efficiency.

What he wants to avoid, Matson stressed is the traditional insurance product approach of “drawing a box within a box”, by geography and line of business.

“We wanted creative, talented people that were able to craft solutions for clients to put the legacy and the prospective solution together optimum capital efficiency. Most clients can’t find a broker built to deliver it in that way,” he said.

The episode also touched on parametric insurance, another facet of Matson’s “thinking differently” focus. Such index-based products offer “a surgical approach” and operate best for “professional purchases” and suited to the high level that Augment is positioning itself at, Matson suggested.

Augment has settled more than $100m of parametric claims in the past few months, he emphasised. Parametric covers mean clients “get the cash in their account” within 14 days, he noted, crucial for cashflow and “driving better outcomes”.

Mark asked about the need for exclusions and tightening of wordings in parametric covers, citing the example of hotel occupancy coverages, tested by the Covid-19 pandemic, which caught insurers off-guard, for protections designed with events, such as terrorism, in mind.

“Probably not yet…demonstrated by  many other brokers following into this space,” Matson suggested, suggesting opportunities in Florida hurricane business would keep parametric business growing, in general terms, rather than being constrained.

“This is an area of real creativity and market demand,” Matson said. “We helped a utility company that was debt leveraged, and the impact of our product wasn’t so much repairing damage done; it was making sure that we preserve that company’s ability not to breach debt covenants, as an example.”