Pioneering MGA: algorithmic underwriting for SMEs

On November 14, 2022, managing general agent (MGA) Aurora went live with a digital commercial insurance platform based on what some would call a pioneering underwriting process.

The platform, aimed at micro, small and medium-sized businesses (SMEs), has a simple goal: to give SMEs access to the kind of premium insurance products previously available only to larger businesses.

The execution of this goal is less simple and relies on algorithmic underwriting.

Speaking to Intelligent Insurer prior to the launch, Aurora co-founder and chief executive officer Jan-Vincent Finn said he got the idea for the business when he was working as the head of marine cargo for Willis Towers Watson.

During this time, he identified a lot of “pain points” within the system, from a dearth of data-driven insight to a lack of transparency around what you actually buy.

He was frustrated and said others in the insurance ecosystem were frustrated too.

“It got to a point where I thought, maybe I can be the one who helps to support the ecosystem to do better. And that’s what I decided to do,” Finn said.

Another catalyst for the creation of this MGA was the “strange times” we are all living through. The COVID-19 pandemic highlighted the importance of insurance to business owners, Finn said, and revealed serious levels of underinsurance among smaller businesses.

“One out of every two businesses is underinsured today—most are unknowingly underinsured. We saw that with the UK Financial Conduct Authority involvement with business interruption as an example,” he said.

Finn saw a greater demand for insurance than ever before, particularly around more flexible insurance, for example, by giving business owners an option to dial down the price of insurance as a business grows.

Why algorithmic underwriting?

Finn and fellow co-founder and chief technical officer Bijal Patel chose to tackle these issues with algorithmic underwriting because it effectively enables the MGA to take the cost out of transacting business by removing case underwriting.

“We’ve built a framework that involves the automation of underwriting rules and the type of pricing. Instead of case underwriting at an individual risk level, underwriting sits at a higher level, a portfolio level, and our algorithm is able to make decisions at that level,” he explained.

“With this framework we have a consistent feedback loop between underwriting pricing and claims. It’s a data-driven feedback loop, which allows us to have a granular understanding of our portfolio performance and monitor it in real time. The system also enables us to make changes in real time for pricing and underwriting.”

Making fine adjustments in real time at portfolio level is no mean feat and requires very particular skills. This created a different, but equally tough, challenge for the MGA.

Finn said the skillset needed for this work doesn’t exist in the mainstream industry today.

“The talent pool for people with this skillset is very shallow,” he said. “The individuals more so than ever before come from an actuarial background.”

In spite of this challenge, Aurora secured hires from Munich Re, RSA and AXA, not to mention John Lewis and WTW, to develop the business. The team consists of very experienced innovators and specialists across a multitude of specialties, such as actuaries, data scientists, underwriters, brokers and technologists, he said.

One way the startup managed to sign up its desired talent was by making “a conscious decision to be a remote-working-first business”.

“As a small business startup where there’s a huge amount of uncertainty it’s harder to attract talent. But what I can say is, remote working first has been a contributing factor in assembling the team that we have in many different countries.”

The MGA has attracted some big-ticket backers in the form of Axis, AIG and Munich Re, as well as a partnership with Swiss Re.

With Swiss Re it’s a “long-term partnership”, Finn said, that is across a multitude of different products and services. He said the partnership fits with the company’s strategy to look at distribution points for products as well as potentially augmenting them.

By working with Swiss Re, Aurora plans to provide greater cover to reduce underinsurance and to change products through better understanding, for example via data enrichment.

“With Swiss Re we’re starting on data and analytics. We’re starting with liability exposure, which is one of the more intangible types of exposures out there. Its intangible nature makes it harder for insurance to gain insights and then to transfer that insight into value for their stakeholders.”

With big ambitions, this startup has its eye fixed firmly on the future. The team will continue to build out its omnichannel strategy working with industry partners.

“We’re obsessed with understanding the fair price of risk transfer,” Finn said. “Our real vision for the future is educating the insured and/or the broker to understand the options they have around risk transfer. We’ll do this by looking at analytics a lot more and providing options that are based on data-driven insights and education.”