Insurance is a conservative industry with a long history, which makes it less than intuitive to many outsiders. Unusual terms like “underwriter,” “carrier” and “managing general agent” can be confusing but are important to understanding how the insurance industry works. In this post, we’ll explain these roles and put them into perspective.
Even before buying a policy, the future policy holder is often referred to as “the insured”. We’ll start with Bob, our insured. Bob is the proud owner of Bobex a fast-growing crypto exchange. He’s nervous, seeing how often exchanges around him get hacked and their customers’ funds stolen, and he wants to protect against that happening to him by getting an insurance policy tailored specifically to his unique circumstances of Bobex. Bob does some searching, discovers Evertas, and reaches out to Head of Insurance Keith for more information.
Good choice, Bob. Evertas is the world’s first dedicated crypto insurance company and offers the best coverage, period. But more on that, later.
The Managing General Agent
Evertas is a managing general agent (MGA). In that role, Evertas uses its highly specialized knowledge of Web3 technologies to act on behalf of an insurance carrier, which is the entity that actually carries the burden of the financial risk of the insurance policy. We’ll also get deeper into the carrier’s role later.
Keith has a meeting with Bob, in which it’s determined that Evertas would be a good option for Bobex. However, regulations require that MGAs only sell through insurance brokers, not directly to insureds, so Keith asks Bob to find a broker and put them in touch.
The Insurance Brokerage
Bob contacts an insurance brokerage, which is a business specializing in acting on behalf of insureds to find and negotiate the best coverage possible. In return, the brokerage gets a commission in the form of a portion of the insured’s premium payment.
There are two kinds of insurance brokers: retail and wholesale.
A retail broker directly interacts with the insured, so that’s where Bob starts. Bob is referred to Alice, because she has some experience helping insureds find custodial crypto risk policies. She learns about Bobex’s operations, financial condition and the risks it faces as well as Bob’s risk tolerance. All this is to help her get Bobex the best and most appropriate insurance coverage.
Alice agrees with Bob that an Evertas policy is the best match.
If Alice had lacked experience finding custodial crypto insurance policies, she would have sought the help of wholesale brokers—specialists in finding coverage for challenging risks that are not broadly understood by the traditional market. Wholesale brokers add value by virtue of their relationships with the specialty insurers whose familiarity with these atypical risks make them more willing to take chances on insuring them.
Alice contacts Keith at Evertas and explains Bobex’s insurance needs. Keith then brings in Evertas underwriter Erik.
Underwriting is the process of assessing an insured’s business, technology and operations in order to determine an appropriate premium, given the risks they present. The title is a vestige of the days when the underwriter would sign (write) their name at the bottom of (under) the resulting policy contract, as a sort of guarantee.
The Evertas underwriting process is very detailed, looking in depth at dozens of risk areas. Indeed, an Evertas underwriting involves more effort than others, but produces a much better outcome as it does much to eliminate the kind of ambiguity that can create complications down the road when underwriting is less detailed.
Having assessed the risks and settled on a level of coverage and premium that all parties agree is fair, a policy is issued.
As an MGA, Evertas is acting on behalf of yet another entity: the carrier. When Evertas issues a policy, it’s backed by the carrier’s capital, which would be used to cover any claim. As mentioned above, one could say that it’s the carrier that ultimately carries the risk. AM Best gives carriers creditworthiness scores akin to a consumer’s credit score, in that it’s an estimate of how likely the carrier is to pay on a claim should one be made. According to AM Best, the carriers backing Evertas policies—and by extension Evertas policies themselves—have A+ (superior) and A-IX (excellent) scores.
One may wonder why the carrier doesn’t just do the work of the MGA and underwriter on its own. In the case of simple and well-understood risks, the carrier usually does issue policies directly. But when dealing with complex risks requiring deep levels of specialized knowledge—such as those confronting crypto custody and mining—the carrier often relies on an MGA and its underwriting.
The owner of a newly minted Evertas insurance policy, Bob and Bobex account holders now get to enjoy the peace of mind that comes from knowing the fruits of their hard work are protected by A+ rated coverage.