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Insurance Executive

Six Questions for Michael Sillat

Ethos Specialty Insurance is launching into the competitive, but potentially lucrative program business as an MGA. R&I queried Michael Sillat, the CEO of this Ascot Group subsidiary, on his hopes for the launch.
By: | March 12, 2018 • 6 min read

R&I: The program business, as we know, is a growth area in insurance. Why are you enthused to be heading up an MGA in 2018 and beyond?

Michael Sillat: It is very much an opportune time to enter into the MGA space, especially if you can do so with some compelling advantages in terms of the business partners supporting such a venture. Ethos is a subsidiary of the Ascot Group Ltd. (AGL) which is owned by the Canada Pension Plan Investment Board (CPPIB). Ethos operates as a separate entity to the other AGL businesses, namely Ascot Underwriting Limited (Syndicate 1414 at Lloyd’s) and Ascot Reinsurance Company Ltd. (Bermuda), we have very strong capital backing and that’s quite important when you’re building out an underwriting infrastructure and need not only the time but also the resources to build that foundation properly and for scale.

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Ethos is independent and while we sit alongside the Ascot Syndicate and Ascot Re, we are not mandated to trade with each other, in fact, and Ethos was founded with the express intent of engaging third party capital providers for capacity, which we are doing today. That being said, when we are in the London marketplace or any of our carriers are seeking to buy reinsurance, we are happy to show either AGL entity the business just as we would any other capacity provider, whether it be directly or through the many intermediaries we have great relationships with.

R&I: What sectors or types of businesses are attractive to you from an underwriting perspective?

MS: The best way to answer that would be to look at what we have already built in terms of business units. Currently we are engaged in three verticals: M&A transactional Liability Insurance, E&S Primary, and Excess Property and Specialty Business. The M&A line is led by Navine Aggarwal, who has with him a team of 9 underwriters. This team is in the market writing R&W business and select specific tax liability and contingent liability products.

On the property side, we have a senior leader, Michael Carr. As Michael executes his property strategy, it will consist of a bifurcated approach between shared and layered and middle market business, written both on a primary and excess basis and covering myriad classes of property business.

Every one of our staff was chosen for a specific reason. They come from either a long standing career in the MGA world, or a successful career within the insurance carrier space, whether it be underwriting, actuarial experience or administration.

Our third business unit, headed by Joe Calise, focuses on a wide array of unique opportunities in the specialty sector. Products in this sector can range from niche single-peril or single-class products to large scale programs requiring specific underwriting expertise. When fully built out, this business unit will cater to a wide variety of products that will serve to address the “specialty” needs of our clients.

R&I: It’s an interesting time to be starting up any insurance business, with price increases starting to filter into the mix for the first time in a long time. How is the pricing dynamic influencing your thinking at this time?

MS: Pricing is no doubt an important component of underwriting, but we feel even more important is risk selection and the intelligence we utilize in allowing the underwriter to being as well informed about the risks being contemplated as possible. For this, technology and utilization of third party data is critical and something we have taken great advantage of.

Looking ahead, as prices fluctuate, we plan to be in lines of business where our infrastructure and underwriting strategy can produce profits in any pricing environment. To that end, if we feel a market is getting to a point where it isn’t sustainable and able to return the underwriting results we seek, then we will not waver in exiting that space. Conversely, when a market hardens, we will be there to provide capacity, and that’s important for our clients to know now and in the future.

All in all, however, we take a long-term view in terms of our pricing strategy and are pleased that as we enter into the market and start building books of business in 2018, we are well positioned in terms of the current market cycle supporting our underwriting efforts as we grow our portfolios.

R&I: One might conclude from the company’s name that you will be an E&S player. Can you help us understand how much admitted business you will be doing?

MS: Certainly, we are primarily engaging in the E&S sector as you can see from the products mentioned as we enter the market place. But by no means will that mean we will exclusively stay in that insurance sector. Our growth strategy is twofold: We will, on the one hand, seek to employ individuals and teams to build out an organic strategy pursuing lines of business we will have strategically decided to enter.

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While many of those could be in the E&S space, they don’t have to be. We could and likely will engage a line of business or an individual that will require an admitted market. That could be in the SME space or middle market space. On the other hand, the AGL group has an M&A team that focuses on potential acquisitions of MGAs. With few exceptions, we can consider MGAs from all walks of life, and as such, it could be quite possible that some of these MGAs deal in the admitted market.

Essentially, whether it be via organic growth or through acquisitions, we do see ourselves engaging in the standard markets as well as the E&S sector and are prepared in terms of our operating systems to handle that business just as much as we are already executing within the surplus lines arena.

R&I: What’s the biggest challenge you face in launching this business?

MS: Our biggest challenge is that we are a new MGA, and as such, we have to earn our way into the marketplace. That comes through taking the right amount of time and investing the required resources to build a strong and capable infrastructure. We have, today, completed that and are operative with a scalable underwriting and admin system as well as a team of senior leaders covering underwriting, actuarial, human resources and finance. Now, we need to earn the trust of our clients and execute a comprehensive marketing/PR strategy so that we can not only introduce our products to the marketplace but also identify the clients and capacity providers that we seek to partner with as we begin underwriting.

R&I: How do you feel your career prepared you for this moment? Why do you know in your gut that you’ll be successful?

MS: I direct your attention to the team that has been and continues to be assembled. Every one of our staff was chosen for a specific reason. They come from either a long standing career in the MGA world or a successful career within the insurance carrier space, whether it be underwriting, actuarial experience or administration. These are people that have seen the soft and hard market cycles; they make decisions that come from a wealth of experience; and most importantly, at Ethos, they foster a culture of “we,” and in doing so, our teams are constantly communicating and learning from each other’s specific skill sets.

In all my years in this business, if you can get that part right and bring the right people together, success is almost assured. &

Dan Reynolds is editor-in-chief of Risk & Insurance. He can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Risk Report: Manufacturing

More Robots Enter Into Manufacturing Industry

With more jobs utilizing technology advancements, manufacturing turns to cobots to help ease talent gaps.
By: | May 1, 2018 • 6 min read

The U.S. manufacturing industry is at a crossroads.

Faced with a shortfall of as many as two million workers between now and 2025, the sector needs to either reinvent itself by making it a more attractive career choice for college and high school graduates or face extinction. It also needs to shed its image as a dull, unfashionable place to work, where employees are stuck in dead-end repetitive jobs.

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Added to that are the multiple risks caused by the increasing use of automation, sensors and collaborative robots (cobots) in the manufacturing process, including product defects and worker injuries. That’s not to mention the increased exposure to cyber attacks as manufacturers and their facilities become more globally interconnected through the use of smart technology.

If the industry wishes to continue to move forward at its current rapid pace, then manufacturers need to work with schools, governments and the community to provide educational outreach and apprenticeship programs. They must change the perception of the industry and attract new talent. They also need to understand and to mitigate the risks presented by the increased use of technology in the manufacturing process.

“Loss of knowledge due to movement of experienced workers, negative perception of the manufacturing industry and shortages of STEM (science, technology, engineering and math) and skilled production workers are driving the talent gap,” said Ben Dollar, principal, Deloitte Consulting.

“The risks associated with this are broad and span the entire value chain — [including]  limitations to innovation, product development, meeting production goals, developing suppliers, meeting customer demand and quality.”

The Talent Gap

Manufacturing companies are rapidly expanding. With too few skilled workers coming in to fill newly created positions, the talent gap is widening. That has been exacerbated by the gradual drain of knowledge and expertise as baby boomers retire and a decline in technical education programs in public high schools.

Ben Dollar, principal, Deloitte Consulting

“Most of the millennials want to work for an Amazon, Google or Yahoo, because they seem like fun places to work and there’s a real sense of community involvement,” said Dan Holden, manager of corporate risk and insurance, Daimler Trucks North America. “In contrast, the manufacturing industry represents the ‘old school’ where your father and grandfather used to work.

“But nothing could be further from the truth: We offer almost limitless opportunities in engineering and IT, working in fields such as electric cars and autonomous driving.”

To dispel this myth, Holden said Daimler’s Educational Outreach Program assists qualified organizations that support public high school educational programs in STEM, CTE (career technical education) and skilled trades’ career development.

It also runs weeklong technology schools in its manufacturing facilities to encourage students to consider manufacturing as a vocation, he said.

“It’s all essentially a way of introducing ourselves to the younger generation and to present them with an alternative and rewarding career choice,” he said. “It also gives us the opportunity to get across the message that just because we make heavy duty equipment doesn’t mean we can’t be a fun and educational place to work.”

Rise of the Cobot

Automation undoubtedly helps manufacturers increase output and improve efficiency by streamlining production lines. But it’s fraught with its own set of risks, including technical failure, a compromised manufacturing process or worse — shutting down entire assembly lines.

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More technologically advanced machines also require more skilled workers to operate and maintain them. Their absence can in turn hinder the development of new manufacturing products and processes.

Christina Villena, vice president of risk solutions, The Hanover Insurance Group, said the main risk of using cobots is bodily injury to their human coworkers. These cobots are robots that share a physical workspace and interact with humans. To overcome the problem of potential injury, Villena said, cobots are placed in safety cages or use force-limited technology to prevent hazardous contact.

“With advancements in technology, such as the Cloud, there are going to be a host of cyber and other risks associated with them.” — David Carlson, U.S. manufacturing and automobile practice leader, Marsh

“Technology must be in place to prevent cobots from exerting excessive force against a human or exposing them to hazardous tools or chemicals,” she said. “Traditional robots operate within a safety cage to prevent dangerous contact. Failure or absence of these guards has led to injuries and even fatalities.”

The increasing use of interconnected devices and the Cloud to control and collect data from industrial control systems can also leave manufacturers exposed to hacking, said David Carlson, Marsh’s U.S. manufacturing and automobile practice leader. Given the relatively new nature of cyber as a risk, however, he said coverage is still a gray area that must be assessed further.

“With advancements in technology, such as the Cloud, there are going to be a host of cyber and other risks associated with them,” he said. “Therefore, companies need to think beyond the traditional risks, such as workers’ compensation and product liability.”

Another threat, said Bill Spiers, vice president, risk control consulting practice leader, Lockton Companies, is any malfunction of the software used to operate cobots. Then there is the machine not being able to cope with the increased workload when production is ramped up, he said.

“If your software goes wrong, it can stop the machine working or indeed the whole manufacturing process,” he said. “[Or] you might have a worker who is paid by how much they can produce in an hour who decides to turn up the dial, causing the machine to go into overdrive and malfunction.”

Potential Solutions

Spiers said risk managers need to produce a heatmap of their potential exposures in the workplace attached to the use of cobots in the manufacturing process, including safety and business interruption. This can also extend to cyber liability, he said.

“You need to understand the risk, if it’s controllable and, indeed, if it’s insurable,” he said. “By carrying out a full risk assessment, you can determine all of the relevant issues and prioritize them accordingly.”

By using collective learning to understand these issues, Joseph Mayo, president, JW Mayo Consulting, said companies can improve their safety and manufacturing processes.

“Companies need to work collaboratively as an industry to understand this new technology and the problems associated with it.” — Joseph Mayo, president, JW Mayo Consulting

“Companies need to work collaboratively as an industry to understand this new technology and the problems associated with it,” Mayo said. “They can also use detective controls to anticipate these issues and react accordingly by ensuring they have the appropriate controls and coverage in place to deal with them.”

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Manufacturing risks today extend beyond traditional coverage, like workers’ compensation, property, equipment breakdown, automobile, general liability and business interruption, to new risks, such as cyber liability.

It’s key to use a specialized broker and carrier with extensive knowledge and experience of the industry’s unique risks.

Stacie Graham, senior vice president and general manager, Liberty Mutual’s national insurance central division, said there are five key steps companies need to take to protect themselves and their employees against these risks. They include teaching them how to use the equipment properly, maintaining the same high quality of product and having a back-up location, as well as having the right contractual insurance policy language in place and plugging any potential coverage gaps.

“Risk managers need to work closely with their broker and carrier to make sure that they have the right contractual controls in place,” she said. “Secondly, they need to carry out on-site visits to make sure that they have the right safety practices and to identify the potential claims that they need to mitigate against.” &

Alex Wright is a U.K.-based business journalist, who previously was deputy business editor at The Royal Gazette in Bermuda. You can reach him at [email protected]