A mandate by which an insurer entrusts a third party with the power to underwrite risks in its name, within defined limits, to gain agility and access niches.
Delegated underwriting authority is the mechanism by which an insurer, or a syndicate on the London market, entrusts a third party with the power to underwrite risks in its name and on its account, within a precise mandate that sets the limits, types of risk, amounts, geographies and pricing rules. The delegated party, often a managing general agent, or MGA, thus acts as an external underwriter, the document framing this delegation being called a binder or binding authority. This model offers notable advantages, agility and speed to market, access to specialist skills and to niches the insurer would not cover directly, and the deployment of capacity without building a dedicated in-house team. It has grown markedly in cyber, where specialist MGAs have brought sharp technical expertise and risk-assessment tools that traditional insurers did not possess. The trade-off lies in control, since the insurer delegates its core function, the selection of risks, and must therefore closely monitor the underwriting quality of its delegate, failing which it may discover too late a deteriorated portfolio that it nonetheless carries on its balance sheet.
An insurer wishing to enter the cyber market quickly without building an in-house team grants a binder to a specialist MGA, which underwrites in its name within strict limits. The portfolio's performance will depend closely on the delegate's underwriting discipline.
MGA, managing general agent, binder, binding authority, agent souscripteur