So I have thought about doing something over this field for quite awhile but didn't know how much to go into and whatever. Depending on the response I will depends on whether I will expand further.
I really wanted to talk about the position of Commercial Underwriter.
Specifically property and casualty dealing with the major companies (AIG, LibertyMutual, etc.)
What is a commercial underwriter?
A commercial underwriter is the liason between the insurance broker and the insurance company, which prices the policy for the coverages requested by the broker. They do not calculate the pricing formulas (job of actuaries) however they piece together the prices, create relationships with brokers and then bind the policy. They command a "book of business" which is all of their policies they have approved and are reviewed by the P&L of their book as well as new business being wrote. There is little financial knowledge required being known other than possibly claims amounts, and other types of metric and has quite a bit of legal understanding (most of insurance is just a legally binding contract which mitigates the financial cost of risk).
What does a commercial underwriter get paid?
This is for Dallas, TX. Most majors start out their underwriters at 51-60k. The latter is for the higher named companies (AIG) and for specialty lines (will describe later). This is comparable to Big 4 starting pay however for much less hours (normal 40 hour work week). You'll see pretty normal pay raises, good PTO, holidays, etc. After 3 or so years you will be promoted to a Sr level and then after about 3 years you will have a manager promotion. After that it depends on your desire to move around/develop skills, but you could easily hit Chief Underwriting Officer by 35ish if you're aggressive.
The normal progression goes:
Commercial Underwriter (2-3 years, obtain CPCU) mid-50's
Sr. Commercial Underwriter (2-3 years) low 80's
Underwriting Manager (2-5 years) break 6 figures
Jr. VP of Underwriting (3-5 years) 125+
Chief Underwriting Officer (xxx) 200k
Insurance really gives lots of merit to performance and experience over politics unlike many other business facets. Although this is the normal progression, many never reach about the Sr. Underwriter normally because of lack of desire (tons of Type B in underwriting). A go-getter going into underwriting could easily expect the lower end of that time frame to progress.
Exit Opps:
There aren't many honestly. I'd say the three biggest exit opps is specialty underwriting, brokerage and risk management.
Specialty underwriting is writing commercial insurance coverages for specialized liabilities. For energy (tons of pollution and transportation liabilities needing to be wrote) for construction (hoisting/rigging and equipment costs which can get complex with the blurred lines between equipment/vehicles and tools) and even cyber insurance (Target/Home Depot had huge losses in cyber attacks which recouped a large penny from having cyber protection insurance.
- In these lines you normally have 1-3 years in normal underwriting writing general risks and then you lateral to a specialty firm or to a different specialty division and you will see salary increase of approximately 15-20% of the above mentioned salary progression. Then you have a better opportunity of going to a brokerage working with these clients or to industry handling the risk/insurance management for an industry leader.
- Then the next leader in specialty lines in reinsurance which is underwriting billions of dollars of coverage (it's pricing the risk for entire portfolios of insurance).
Brokerage is another route taken by many. After getting a foundational knowledge of commercial insurance, you develop a better position to meet with and sell insurance to those who you were originally underwriting. You will have a strong idea of insurance gaps, missing coverage, ideal coverage and be able to up-sell to your clients appropriately. The salary in commercial insurance brokerage is majorly commission based and after 2-3 years in the business you could easily expect 100k+ salaries nearing 200k-300k if you're good at what you do. The top 1% in this field do EXTREMELY well.
Lastly risk management seems to be a less obvious career which is assumed by underwriters. Either going to get an MBA or directly after receiving your CPCU you will have the opportunity to become a risk manager for many in-house risk departments at F500/F1000 companies. There will be a financial component of knowledge required where you may have a deficiency but a MBA in Finance or possibly a CFA type certification normally can help you transition into more high level jobs. Large portions of a risk department are dedicated to the corporate insurance culture.
Why I Am Considering This Career?
A solid 40 hour week without much overtime, mixed with strong resources to learn very specialized information in a very under-manned industry is what draws me to this stuff. My goal is to get into a general commercial underwriting gig (or energy if able out of undergrad). Work for 3-5 years obtaining my CPCU, ARM and then going to a top regional MBA and landing a gig at a top commercial brokerage as an energy insurance broker.
I currently work in risk and insurance and have researched this stuff and met with individuals in this and related to fields. If you have any questions feel free to ask.
Just chiming into your thread to to add some more information on the brokerage segment of the industry for those who may be interested.
Brokers don't underwrite and don't take insurance risk. They are, not surprisingly, brokers. They deal with the clients, assess the clients needs (often quite a bit of work, particularly in commercial P&C - see below) and then deal with the big insurers (aka "carriers") to get an adequate policy.
In this deal, the insured is notionally the broker's client.
The broker gets a fat commission from the carrier (% of premium) when the client signs up a policy with the carrier.
But that's not it. The broker then gets a further commission (different % of premium, lower from memory) every year that the client sticks with the carrier.
People don't change insurance companies all that often. So the broker builds up a big FAT book that pays commissions long after the broker does the work arranging the policy in the first place.
However, people will shop around, so the broker maintains a relationship with the client to ensure that the client either sticks with the current carrier or, if the client switches to a new carrier, the client does that via the broker. The broker gets another "sign on" commission in that case, plus protects his/her ongoing commission tail. The client retention rates I've seen are typically 90 - 95%.
In the broking businesses I've seen, the recurring commission tail often makes up ~90% of revenue.
In the personal insurance space (eg health, auto insurance, home insurance), a lot of insurance product is largely commoditised, disintermediation is a big theme and brokers' share of the market has taken big hits in the last 10 years, commissions have been squeezed.
However, in the commercial insurance space - largely property and casualty ("P&C") - the insurance policy are highly tailored and bespoke. The carriers need someone kicking the tires on the business, assessing the risks, doing some actuarial work and making sure that the insurance policies are appropriate. Similarly, the client needs access to someone who ensures that the insurance coverage covers the business risks appropriately and is a good price.
Carriers don't want to bear the cost of a sales force out in the market doing this. They'd much rather pay brokers to do this.
Clients want an adviser who gives them access to a range of different options at decent prices, rather than a company shill selling just one carrier's products. They want an independent broker.
This is not a commoditised product and, despite the efforts of some businesses, it does not lend itself well to commoditised insurance products or online processes. Few can see that disintermediation happening in the next decade.
Accordingly, commission %s look fairly stable, although premium pricing may vary (particularly following catastrophes). Bear in mind that commission revenue = commission % x policy volumes generated by the broker x policy premiums.
In the GFC, policy volumes were reasonably resilient (eg the listed co's below largely suffered only single digit declines in organic revenues).
So you have an industry of small brokers out there who, after years of hard work building relationships, are sitting on nice fat commission books that pay recurring revenues. A good pay off for years of sweating it as an insurance salesman.
Often, a better pay off than you'll see as an investment banker.
One current theme in the market is there are quite a few companies pursuing roll up strategies, buying up small commercial P&C insurance brokers, typically at around 7 - 10x EBITDA. Some are listed (eg Marsh & McLennan, Aon, AJ Gallagher and Willis), while others are PE sponsor backed (eg AmWins, Hub).
Despite these roll up players out there looking for acquisition targets, prices paid aren't overheated, as the industry is hugely fragmented. I've seen numbers suggesting there are currently >35k small to medium size brokerages.
Roll ups are assisted by other theme in the industry, which is that many of the owners of the small and medium sized insurance broker shops are baby boomers who are looking to cash out. Selling up to one of the roll up companies is a good way (often the only way) to cash out.
However, the broker business is a relationship business and the roll up companies don't want to buy a book, have the charismatic sales guy walk out the door and then lose all the clients (hence lose the value of the fat commissions). So normally you see buy out terms that include something like a 2 year earn out, plus the seller gets part of the purchase price (25 - 35%) in equity in the buyer.
What do these roll up companies do? Not that much in the client-facing part of the business. Generally, the insurance broker keeps trading under the same name with the same staff. The buyer doesn't want to interfere with the sales magic. Often the buyer just offers centralised back office functions that make the front office brokerage operations cheaper to run. This is particularly the case post-Obamacare, as many of the small mom & pop shops don't want to pay the high cost of legal advice on compliance with the new regime. A large roll up player already has that advice and can provide a bought shop with policies/procedures/training to comply.