Managing general agents (MGAs) are one of the fastest-growing segments of the global insurance industry, particularly in Europe. They have long been an important feature of the US market, but in Europe and the rest of the world, the sector is growing rapidly and MGAs are becoming much more structured and sophisticated. As a result, insurers are increasingly looking at partnering with MGAs to develop and distribute new products.
Working with MGAs
There are many different reasons for an insurer to work with MGAs. There is the ability to access markets where the insurer is not physically present, and to tap into alternative distribution for products that might not be available in the insurer’s product offerings. So they represent an additional way to look at distribution for insurers, on top of the traditional channels.
MGAs also tend to be very creative in responding to market needs with new products, either tailored to a specific category or to a new risk. They also personalise existing products to specific customer groups or a specific target risk. For an insurer, this provides the ability to tap into new product lines without having to build underwriting capabilities and infrastructure internally.
So from an insurer’s perspective, MGAs not only provide an alternative distribution channel, they also offer access to expertise, regional knowledge, and innovative products and technologies.
MGAs come in a variety of forms, from niche specialists focusing on just one product, to more sophisticated underwriting platforms that have activities across a wide spectrum of products. In recent years, especially in the London market, there is a third kind of MGA. While organised as separate legal entities, these MGAs can operate as incubators that provide the infrastructure to underwriters to be able to operate as MGA cells within the protected environment of the incubator. This allows underwriters to be able to satisfy all the regulatory requirements and to begin operating in a relatively short period of time.
In Europe, MGAs have been around for 20 years or so, and in the early days were used more for insurers to deploy capacity to markets where they did not have a presence, without the need to establish a full subsidiary. But over time the proposition has changed and now the more sophisticated MGAs are becoming true partners of insurers, in terms of developing and distributing new products, and even proposing new products to insurers. This has partly been driven by regulatory requirements, Solvency II in particular, with MGAs needing to be able to demonstrate to their insurers that they have the ability to manage their business in the same way as an insurer, and to show that they have robust reporting capabilities to be able to share the data with insurers in real time.
Technology is playing a very important role. Notably, APIs are beginning to enable insurers to be connected in real time with MGAs, and the market is quickly moving towards the point where, with every new risk underwritten by an MGA, the data relating to that risk can be transferred directly to the insurer’s systems.
This will improve dramatically the equation between insurers and MGAs. While legally still a third party, MGAs can become, both physically and practically, extensions of insurers. As a result, insurers will be able to monitor the business in real time, creating stronger controls around the business. It also means that MGAs can reduce much of the regulatory burden in terms of reporting to insurers, dealing with audits and so on, and instead focus on what they are good at, which is developing new products, distribution, and handling claims efficiently.
However, this will likely mean that there will be a reduced space for the less sophisticated MGAs that are not prepared to invest in technology or operate as full extensions of insurers, and they may not have much of a future in the market.
The relationship between an insurer and an MGA is a contractual relationship between two separate parties. In its business nature though, the parties need to cooperate closely in the form of a partnership, so it is important for both parties to be proactively involved in the ongoing management of that relationship. The challenge for us as insurers is to identify the MGAs that have the right technology, the right people and the right distribution and products, and then build a long-term relationship with them.
Where the insurer has a strong brand and reputation, it has to be very selective in the way it chooses MGA partners, and this requires a culture of looking for long-term relationships. This is also important for MGAs because they require certainty when it comes to capacity or they are out of business. MGAs want to be in business with an insurer that is willing to have a long-term relationship, and which has a strong brand.
However large an insurer is, there will always be some products or markets where it may need to join forces with MGA partners. The MGA proposition is growing stronger but it does require MGAs to invest in technology and seek long-term partnerships with insurers, so that both parties can ultimately benefit and thrive in the insurance world.
Contributed by Enrico Bertagna, global head MGA network, commercial insurance, Zurich Insurance Group