Carriers continue to support MGA model, says Clyde & Co

There is increasing confidence in the global MGA market, with 90% of MGAs and 80% of carriers expecting to increase or hold steady their partnerships, according to the latest edition of global law firm Clyde & Co’s MGA report.

It finds that 45% of carriers and 44% of MGAs expect to increase their number of partnerships this year. But the report also reveals some challenges, including legal and regulatory scrutiny, the economic environment, and an expected increase in claims volume.

Clyde & Co said the survey showed that carriers’ enthusiasm for the MGA model remained high. Rob Crossingham, partner at Clyde & Co, said: “Against the backdrop of a hard market for many lines of insurance, carriers have clearly signalled their intention to continue to back the MGA model, which remains an attractive place to invest. The results are there. Carriers have seen positive returns and our survey findings show that they retain great faith in MGAs as a route to market, highlighting their nimbleness and flexibility as key attributes.”

More than half of carriers (55%) and 59% of MGAs surveyed said that the economic environment had a neutral effect on capacity allocation for 2023. But at the same time, 65% of carriers say their reliance on technology and data has increased because of the economic environment.

Clyde & Co noted that carriers said that reliance on technology and data to ensure good risk selection and pricing was their top requirement of their MGA partners, reflecting an increasing focus on disciplined underwriting in the light of economic challenges. More than three-quarters of MGAs (80%) said they had invested in some form of technology or insurtech over the past year, compared with 55% of carriers.

“Good risk selection and pricing remain key to the success of MGAs, and carriers increasingly rely on MGAs’ ability to deliver this through the use of data and technology, as well as technical underwriting ability and expertise,” said Crossingham. “Proportionally, MGAs’ investment in technology last year far outstripped that of their carrier counterparts, reflecting the fact that MGAs are less encumbered by legacy systems and processes. This bodes well for their ability to continue to meet their carrier partners’ requirements.”

Legal and regulatory scrutiny is to increase in 2023 according to 90% of MGAs, and more than a third of respondents to the survey said regulatory barriers could deter MGA start-ups or existing MGAs entering new markets in the current climate.

Crossingham said: “It’s clear that there’s an expectation that regulatory oversight will increase. But contributors to our report said they believed that despite a potentially heavier compliance burden, improved standards and behaviours in the MGA sector will serve to increase customer trust still further.”

More than half of carriers (55%) and 46% of MGAs said they expected claims to increase over the coming 12 months. And 59% of MGAs say there is still room for improvement in the claims process.

“The expected likelihood of an uptick in claims volume as economic conditions bite will increase still further carriers’ focus on the risk selection, disciplined underwriting, and wordings clarity of their MGA partners,” said Crossingham. “Many of the contributors to the report also highlighted a looming talent shortage as an additional challenge on the horizon, which is a test for the whole of the insurance market. MGAs will seek to exploit their entrepreneurial and nimble nature as a key way to attract talent – on both the underwriting and claims sides.”

Looking to the future, the survey shows that MGAs and carriers are exploring new lines of business and new territories as they seek to diversify, with many MGAs highlighting Europe as a market in which they saw potential for growth.

Crossingham said: “MGAs represent a great vehicle for carriers seeking to diversify into new markets or lines of business. We are seeing increasing appetite for MGAs overseas, notably in Europe where they can be set up relatively quickly in most jurisdictions. Post-Brexit, interest in MGAs is accelerating as it offers a good route into writing business in the EU. As the sector matures and develops, we expect even more interest in MGAs in other territories too, including the Middle East.”

He concluded: “There are many opportunities for MGAs to grow and expand into new areas – both geographically and in terms of business lines and developing new coverages and products to address the ever-changing risks their clients face. Those MGAs that can demonstrate a clear and disciplined underwriting strategy will be the ones to fare well in the face of continuing economic uncertainty.”