Clear blue water ahead for MGAs

Mike Keating, CEO of the London-based Managing General Agents’ Association (MGAA), tells GRM’s Garry Booth that the outlook for managing general agents (MGAs) is bright

MGA numbers keep rising: is it sustainable? Is there a saturation point?
We are nowhere near saturation point yet. Emerging insurtech MGAs that are focused on the changing purchase behaviours of customers still have clear blue water ahead of them. Established MGAs meanwhile have been good at working with brokers to change their proposition to meet customers’ requirements in terms of product design and service delivery.

There could an increase in competition in some product lines, such as cyber, but MGAs are entrepreneurial operations by nature and are able quickly to identify niche and specialist segments where there’s a requirement.

Is capacity providers’ appetite for MGA partnership undiminished?
An MGA that can demonstrate differentiation, underwriting expertise, actuarial insight and excellent data management capabilities will always attract capacity in any market cycle.

An MGA that doesn’t have these attributes will inevitably come under pressure in a hard rate environment. In a hard market, insurers’ top lines are grow organically, resulting in their tolerance for marginally performing portfolios being reduced.

In a soft market, it follows that unless you significantly reduce expenses to combat a top-line shortfall, a greater tolerance to turning around marginal portfolios is applied.

What (market) factors could cause carriers to look into partnerships with MGAs?
Insurers continue to try to improve their service levels, but progress is unfortunately slow. Access to decision-makers remains challenging for brokers and this is one facet that is driving the attractiveness of MGAs.

MGAs, through their agility and speed of action, traded through lockdown more effectively than many carriers. MGAA members increased the number of brokers they dealt with; retention levels and new business levels increased as MGAs filled the vacuum left by insurers.

Which markets have growth potential for MGA and carrier partners?
There’s an uptick of activity in the motor segment, where the MGA can help reduce the expense base and improve the customer journey. More new MGAs will emerge in this space.

There are opportunities emerging for MGAs in financial lines like PI and D&O, where capacity has been restricted during the last two years. The contingency market (event cancellation, non-appearance, etc) contracted during the pandemic as carriers exited the market.

MGAs are adept at spotting opportunities and at being quick to get the investment and support from carriers to satisfy emerging coverage demands. In tandem with a suitable partner, they have the key advantage of speed to market.

Access to Europe for MGAs
Some of our members that were active in EU countries before Brexit have made all the arrangements needed to continue; other members are still looking at challenges around access before making a decision over whether to have a presence in Europe.

Gibraltar’s profile is growing among MGAs as they look to create suitable vehicles. [Post-Brexit, Gibraltar has secured continuous market access to the UK insurance market.]

What must individual MGAs do (better) to remain relevant?
Capacity is always the overriding concern for any MGA: without capacity you don’t have a business. The MGAA is growing its Market Practitioners membership tier to give a broad range of insurer members for MGA members to engage with. It’s a critical part of what we do.

Actuarial expertise and data analytics are crucial. Larger members have the resources and liquidity needed to satisfy this prerequisite – but smaller/medium-sized MGAs sometimes don’t have the resources to invest in their own actuarial support.

We want all our members to have access to such resources so they can work collaboratively with insurers on portfolio performance. The MGAA is able to source independent consultants that can provide analytical and actuarial resources, and also attend insurer meetings. It’s an area we are actively developing.

Is compliance an issue for MGAs?
The seemingly constant directives from the FCA are adding significant costs and impairing the ability of everyone along the value chain – MGAs, brokers and carriers – to service their customers effectively. It’s counterproductive to what the regulator is trying to achieve.

The requirement to demonstrate product value is particularly onerous and we, in partnership with other associations, are developing a market template.