InsurTech enables Ventus to provide “superior risk” to the ILS space: Interview

by Artemis on May 19, 2017

In an interview with Artemis, Founders of Ventus Risk Management, Stuart Mercer and George Reeth, discussed the MGA’s themes and goals in respect of the current ILS and broader re/insurance market environment.

Ventus logoThe pair were eager to discuss the rise and influence of InsurTech and how this trend has driven the ongoing restructuring of Ventus as both an underwriting platform and a technology company.

Stuart Mercer is President of Ventus and alongside Chief Executive Officer (CEO), George Reeth, founded the MGA in January 2016, with Ventus underwriting its first policy on May 1st, 2016. On January 1st, 2017 Ventus launched its main underwriting office in Atlanta, U.S., and is now fully staffed at 25 with offices in New York, Columbia (South Carolina), as well as in Atlanta.

The MGA has a focus on sourcing and underwriting property catastrophe risks, alongside utilising advanced technology and analytics with backing directly from the capital markets and ILS investors, and Artemis was keen to learn what prompted the pair to establish the MGA.

To them, explained Mercer, it was clear that ILS capital is here to stay.

“At this point few would argue that ILS is the marginal capital in the catastrophe insurance and reinsurance space. As the rapid growth continues, ILS managers are quite simply in search of more and better risk. Our second observation is that the traditional insurance marketplace for property is functioning in largely the same manual inefficient way it has been for 25 years. This leads to a suboptimal underwriting process with data quality moderate at best and sub-par often. This leads to incomplete risk analysis.”

Reeth, added; “The reinsurance marketplace leads the insurance marketplace in systems and analytics. In our previous roles we were able to contribute to the building of a sophisticated analytical platform at Validus Re and now feel there is an opportunity to bring an even more robust analytical platform to the insurance industry. We are very grateful to the leadership of XL Catlin who shared our vision and supported us through our startup phase.”

In summary, Mercer and Reeth outlined the main themes at Ventus from its launch and as it continues into its second year of operations.

They told Artemis that Ventus aims to “Source superior (property cat) insurance risk for the ILS market place through better data collection and analytics; Create market leading technology to facilitate the underwriting and risk management process in a far more efficient manner; Provide access to vastly superior data quality providing better risk analysis to our ILS/reinsurance partners in real time; and, substantially improve our operational and underwriting efficiencies, ultimately resulting in 10-20 times greater efficiency.”

A notable goal from the themes outlined by Ventus is to provide “superior risk” to the ILS marketplace, and Artemis pressed the pair to expand on this point, specifically addressing how this benefits the ILS capital.

“What we mean by superior risk is underlying insurance exposure with more detail and better quality data,” said Mercer.

“For instance, we collect many additional data fields usually referred to as “secondary modifiers.” Additionally, we have the ability to report complete and extensive risk analytics to our reinsurance partners in real time. One of the reasons that most insurers don’t do this is the original policy level data is extremely poor. Cleaning this data is a time consuming and expensive process. We use a variety of techniques to assist this process. We have proprietary algorithms and additionally, we use numerous 3rd party data sources to augment the data we collect. We know this often changes our view of the risk and in many cases we become less competitive, but we are happy to lose those risks to less sophisticated competitors.

“In other cases, the insights we gain allow us to be more competitive while still pricing at or above our technical price. In all cases the risk is better understood and we believe results in better quality risk as we mentioned before,” he continued.

It’s clear that Ventus has a strong focus on the utilization of advanced technology that aims to simplify and improve risk analysis, leading Artemis to question whether the firm was more than just an MGA.

“We are currently in the process of restructuring the company into two distinct entities under Ventus Holdings. Ventus MGA which will remain as the underwriting company. Our new company called iCubed will be our technology company. Currently there is tremendous interest in InsurTech and we believe there is an opportunity for us to leverage our technology platform beyond a traditional underwriting organization. Separating the two entities will allow us to pursue other strategic relationships leveraging our technology platform, when appropriate,” said Reeth.

InsurTech has become one of, if not the most talked about trend across the risk transfer universe. With technology advancing all the time and increasingly looking to disrupt the insurance value chain, Mercer and Reeth elaborated on how the technology trend benefits both Ventus and its ILS capacity providers.

“It is important to understand how difficult the data collection and data management process is. The standard in the industry is still spreadsheet based and the details required for thorough underwriting is difficult and time consuming to obtain. The client provided data is often incomplete and/or incorrect. This is a highly manual process for the most part. As we mentioned, we are developing our own proprietary techniques to substantially enhance this process This is significant as we do not require our producers to gather any additional data or spend manual time to enter data into cumbersome web portals.

“We also access many 3rd party data sources to augment the basic data provided in most standard submissions. Ultimately, the technology benefits our capacity providers with much better risk information and risk selection. Immediately, it benefits Ventus as we realize significant operational efficiencies. In the longer term, we believe we will have opportunities to monetize our technology in many other ways,” explained Mercer.

“Our observation about the InsurTech space is that there are many people with interesting and creative ideas but limited knowledge of how arcane the insurance space is. And there are many people in the insurance industry with little knowledge of the technology space. In our case, we are fortunate to have very talented technology people working with us.

“Lastly, having XL Catlin as a partner has been instrumental as we believe they are one of a handful of companies that get the vision of applied technology in the insurance space,” added Reeth.

The development of such unique software relative to the more traditional technology platforms in the global insurance space clearly takes expertise, and Mercer explained how they were fortunate to be part of Validus Re at the beginning, which provided valuable experience.

“We learned from experience that creating an entirely new process in a traditional industry is quite difficult and requires new and different resources. We have purposely targeted technology experts from outside of the insurance industry. Our resources come from fields such as data science, machine learning, facial recognition etc.”

Reeth continued to explain some of the high points of Ventus’ technology, providing some examples of how it helps the company and its clients.

“Our system is called VIKI, which stands for Ventus Insurance Knowledge Interface. In the current form, VIKI provides tremendous value but is only accomplishing a fraction of what it will once we implement future capabilities. Currently, we have fully automated 3rd party and proprietary data augmentation taking place. Almost all of our underwriting process is automated, from submission receipt, to data augmentation, to catastrophe modeling, to rate, quote, and bind,” said Reeth, continuing to explain how this compares to traditional writers of excess & surplus (E&S) property business.

“They have less automation and substantial human resources either here in the States or in India, providing underwriting support: this usually consists of a clearance team to assist with broker specific risk reservation, underwriting assistants performing quote, binder, policy, and endorsement issuance and a team of data scrubbers. In addition, separate cat modeling resources are usually maintained.

“We use a single technology environment that fully replaces these roles turning many man hours and 2-3 business units into a much shorter data rich exercise. We believe this is a first in the SME business and currently provides us with a 3-4X improvement in efficiency. We will continue to realize more efficiencies in the future. Additional benefits include automated real-time aggregations and a detailed data environment for data analysis. You can imagine how significant these capabilities will be to the ILS market.”

Currently, Ventus targets coastal small-to-medium enterprise business, with an average premium of approximately $75,000. Mercer and Reeth told Artemis that regarding distribution, “we are a wholesale broker market where we have purposely limited producers.

“The reason for this is to allow us to better service select brokers that cover a broad range of risk types and geography. As our platform continues to develop, we will continue to expand our production sources,” said Reeth.

After recently completing its first collateralized reinsurance transactions with one of the world’s largest ILS funds, Ventus will look to expand this placement as its portfolio develops and is seeking to add another two-three carriers that share the Ventus vision and appreciate the value of superior data, said Mercer and Reeth.

As an MGA and technology firm in its infancy, Artemis asked the pair where they see Ventus in five years, and what growth targets they might have.

“We believe we will be the leader in technology assisted underwriting and automation for the E&S property market. With regard to size, we don’t publish our premium goals but we plan to be a significant source of cat risk for the ILS market and a leading provider of net underwriting profit for our issuing companies.

“We are looking at adding homeowners and west coast quake in the future as our technology is suited for all types of cat exposed property risk,” said Mercer.

While Reeth, added; “Interesting enough, we have been approached about potentially “white labeling” our technology for specific insurance operations. As we expand our products to other areas and begin to monetize our technology in other ways, we believe we have substantially more growth ahead.”

Our thanks to Stuart Mercer and George Reeth for their time.

Read previous Artemis interviews here. If you feel you have something interesting to say to the global ILS market contact us.

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