See you later, Allocator

Photo by Jan Antonin Kolar on Unsplash

I went to give a talk at a really interesting after-work gathering the other day. It was a get-together to unveil the latest Insurindex rankings to the heads of marketing of insurance businesses in the London Market.

Insurindex is a joint venture between well-known insurance market researcher Gracechurch and longstanding media agency Brandex. This was its fifth year. The evening culminates in a rundown of the top 20 insurance brands. Think of it as a kind of London Market Brand Awards ceremony.

I was there to make a short speech. I decided that I was really there to give a bit of light relief to break the tension before the nerve-wracking and competitive part of the evening got underway in the form of the top 20 countdown.

After I finished my introductions, this is the gist of what I said:

To date all of the members of the Insurindex top twenty have been traditional balance-sheet insurance companies. That makes perfect sense; insurance companies have to advertise to be at the front of brokers’ minds and the minds of their clients.

They have to try and differentiate themselves from each other and stand out and investing to create a strong brand identity is the best way of doing that.

That’s all great, but I was wondering how long it would be before the strongest brand in the London Market wasn’t a traditional insurance company, but that of an MGA, a hybrid carrier or some new structure we haven’t thought of yet.

To get some perspective, I think it’s helpful to think back over twenty-year time periods.

Twenty years ago we were all incredibly excited about Convergence. For those of you who have forgotten or are lucky enough to be too young to remember, this was the much-vaunted marriage between the capital markets and insurance. Cat bonds and all that.

Securitising things was the height of fashion. Everything was being securitised. Proof of its ultra-hipness was confirmed with the news that even David Bowie was at it.

There were hundreds of Convergence conferences everywhere. We couldn’t sell tickets fast enough. It was the Insurtech and AI of its day.

The projections were scary – the amount of potential capital available made the whole reinsurance industry look like a speck of dust that could be blown away on a whim.

A few short years later, legendary reinsurance broker and founder of Tiger Risk, Rod Fox spoke at an Insurance Insider event and used a video of Godzilla to symbolise the ravaging power of the Insurance-Linked Securities (ILS) beast that was going to come for us.

By 2014 Reinsurers were so worried that I was asked to chair a panel at a behind-closed-doors event organised by the Reinsurance Association of America. I think they asked me because as an outsider I could ask the tough existential question: are any of you people sitting here going to be here in ten years’ time if it carries on like it is?

Then we got an old-fashioned hard reinsurance market and everyone forgot about ILS for a bit.

It turns out Godzilla didn’t bite anyone’s heads off. We’re all still here. But things have fundamentally changed in ways we weren’t expecting.

Now’s a good time to talk about Amara’s law. Roy Amara was a Stanford computer scientist in the 1960s. He came up with the idea that we overestimate the impact of things in the short-term but underestimate the effect in the long run.

He was talking specifically about technology. But his idea works for most things, insurance included.

We thought that ILS was a terrifying monster coming to trample us and our traditional insurance civilisation underfoot. It turns out we were wrong. So, what was really going on?

True to Amara’s Law, we had failed to recognise that this was a long-term process. We had also failed to understand what the real process was.

The ILS revolution was really a symptom of the process of separating the skill of insuring things from the business of making sure you have the money to do the insuring.

ILS was just the first obvious manifestation of the money people doing the money stuff and the insurance people doing the insuring stuff.

Up until then the only way to put capital to work in insurance was to set up an insurance company, buy some shares in an insurance company or lend money to an insurance company.

Suddenly there was another option on the table. The capital was being separated from the other bits.

Journalism is quite easy really: you ask a load of people the same question and the amazing thing is that if the question is good enough, different people will give you completely different answers.

Regular listeners to The Voice of Insurance podcast will notice that there are some topical questions of the day that I ask almost all my guests once all the company- and person-specific topics have been dealt with.

Obviously these have to evolve with the times. I don’t ask people about the pandemic anymore and, despite being compulsory as recently as 2024, ESG quietly dropped itself from the agenda after the Trump second term loomed into view.

The next question I am going to have to retire is the one where I ask if the MGA boom is a permanent thing or not.

Two years ago people still occasionally disagreed on this, now it is just a given. There is no point asking a question once it becomes consensus.

Hundreds of billions of premium dollars are now flowing this way and everyone knows that this isn’t just a change in the ebbs and flows of business which will reverse back one day, it’s a fundamental deviation in the course of the insurance river itself.

I was interviewing Richard Brindle of the Fidelis Partnership at Monte Carlo last year. During the course of our chat he came out with a phrase that he would never have said twenty years ago that shows us how far we have come.

He said “I am a risk allocator”

I was gobsmacked, in fact I was so shocked I couldn’t think of anything to ask him at the time. I’ll definitely make sure we spend longer on this topic next time I interview him.

Twenty years ago this would have been complete heresy.

I am sure that two decades ago Mr Brindle would have said “the buck stops with me. I am a risk taker. I shoulder the financial burden so you don’t have to. I go and get the capital and then I take your worries away for a fee.”

But in 2025 here was one of the best underwriters of his generation coming out and saying that he only allocates risk. The buck doesn’t stop with him. His job is simply to send it down the right chute to meet the right kind of capital with the right kind of appetite. Like a hot potato, it doesn’t hang about, it just gets dispatched to it where it needs to go.

This is a fundamental revolution.

Early last week came the branding news that the Fidelis Partnership’s twin capital business, Fidelis Insurance Group, was re-branding to Pelagos.

This is perfectly sensible as both parties to the old Fidelis gradually stake out their slowly increasing degree of mutual independence, but hidden in the press release was another fall-off-your-chair phrase that jumped right out at me.

There it was: “CAPITAL ALLOCATOR”.

Dan Burrows’ Pelagos is now describing itself as a matchmaker for capital, wading through digital business flows like a carefree singleton on a dating app, metaphorically swiping right and left as appetite dictates.

The world is changing from underwriters to risk and capital allocators.

If I had suggested this to Brindle in 2005 when he was starting Lancashire, I think he would have set his labrador on me!

But here we are twenty years later and two of the smartest people in the business are talking like this with a straight face.

Twenty years ago MGAs were still a little racy and the business of originating, allocating and distributing risk without retaining it was just about to get a battering after the Global Financial Crisis.

So what has changed?

Technology has changed everything. Opacity has turned to transparency. Now everyone in the chain can see what everyone else is doing.

Tech has also removed friction, so adding multiple links to the chain doesn’t necessarily add any extra cost.

In fact, you can argue that since everyone in the chain now knows exactly which part they are responsible for, and are more expert at doing that bit alone, they know with much greater detail how much that task should cost and whether or not they are adding enough value to pay for it.

Today everyone can specialise in the thing they are good at.

Everyone can analyse and gain insights, share them with their clients and suppliers and help them design and sell more profitable products, grow their markets and meet unmet demand.

We will all be happier and make more money!

Take journalism. Fifty years ago someone like me would be tied to a printing press and the publisher who could afford to pay for it.

Then we went digital and now I can isolate one of the things I particularly enjoy - talking to people - and make a decent living out of it.

Being so highly-regulated means it’s taken a lot longer in insurance than it did in journalism, but today a talented underwriter has finally been given the same freedom that I have. Now they can live by their wits and do more of what they enjoy.

Twenty years ago to break out on their own they would need to find a friendly investor with at least $500m spare to deposit into the Bank of Bermuda. Now they just need a strong reputation and a credible business plan and there is a vast competitive ecosystem vying to do everything else for them.

Let’s get back to the Insurindex top twenty.

My bold prediction for twenty years’ time is that this ranking will be topped by an allocator of some description.

If this prediction comes true, it will only be because it has turned out better for everyone that way.

Clients will be getting better products and service at better prices, brokers and risk and capital allocators will have more interesting and fulfilling careers and capital itself will be happier and better served.

And if it turns out it isn’t, the old ways will hold and my prediction will be wrong.

But wouldn’t you rather do more of what you like?

After all, the more you do of what you like, the better you become at doing it. The better you become at it, the more you enjoy it, and so on.

Of course, this doesn’t mean that the laws of mathematics have been usurped. Bad allocators of risk or capital will still lose support and fail.

Indeed, since underwriters will live and die on their underwriting skill alone, the process of selection will be faster and more meritocratic. Once the balance sheet is divorced from the underwriting pen, a windfall from unexpectedly good investment returns can no longer come to the rescue of poor-quality work. That’s now solely the capital peoples’ domain.

I feel sure Adam Smith and Charles Darwin would have approved.

But never mind Messrs Smith and Darwin, I know it works for me – now it’s over to you.