Confidence is recovering fast in the MGA market despite the pandemic, according to Clyde & Co’s latest survey of the sector.
The survey of more than 50 insurers and MGAs in summer 2021 found that several factors are driving MGA confidence, not least the fact that many MGAs have not only survived but thrived following the highly testing conditions triggered by the Lloyd’s Decile 10 reform programme and compounded by the pandemic.
James Cooper, head of insurance at Clyde & Co, commented: “Our survey shows that MGA confidence has staged a significant recovery from its pandemic low in 2020 and is at its highest level in three years, with over two thirds of businesses expecting to expand carrier partnerships in 2022.”
According to the law firm’s report, 2021: A year of renewal for MGAs?, the impact of Covid-19 on capacity has not been long lasting for the industry. “While carriers remain cautious about expanding the number of partnerships in this space, sentiment is definitely improving. Eighty-four percent of MGAs say the impact has been neutral or positive, compared with 74% of carriers who feel the same way, a distinct improvement on last year,” states Clyde in the study.
Mr Cooper said: “Our research shows that while we are not yet back to normal in terms of capacity availability for MGAs, it is already clear that Covid-19 has not precipitated a wide-scale insurance disaster. The big threat of an economic armageddon has not materialised and confidence among the carrier and MGA community has improved.”
The popularity of the Lloyd’s market for MGA business was waning when the same research was conducted in 2019 and 2020, mostly due to the impact of the Decile 10 remediation process, but Clyde says this year has seen a significant reversal. The market is more popular than ever before, with 47% of carriers believing that it provides the best environment in which to grow and develop MGA business, versus only 12% last year, the survey found. The appeal is more muted for MGAs, with 20% favouring Lloyd’s, although still an improvement of three percentage points on last year.
The report notes that the appeal of the US is growing: “Historically, Lloyd’s has seen a lot of programme business through MGAs in the US. Participation in this business fell back as a result of Lloyd’s’ remediation focus, but with rates rising, our data shows that interest is once again increasing, with both carriers and MGAS citing the US as a strong market to grow and develop.”
It is a similar story in Europe. In 2020, just 6% of the carriers surveyed identified Europe as the best opportunity to grow, but this year the survey found the proportion has more than doubled to 13%.
Eva-Maria Barbosa, partner in Clyde & Co’s Munich office, said: “In Europe, we have seen a significant increase of interest around the MGA model for specialist risk and for distribution. Carriers see this as an opportunity to test products and technologies within underwriting or claims. It is also much easier to integrate AI or other technology into the underwriting process if it is conducted by an MGA, rather than across the full operations of a risk carrier. They can get to market quicker without cannibalising their own distribution channels.”
Mr Cooper added: “Both the US and Europe are seeing a revival in the MGA market. The US continues to be the world’s largest insurance market and as the economy improves, there are significant opportunities for all players in the market, from traditional MGAs to insurtech startups.”
On the claims side, 47% of carriers and 42% of MGAs think claims will increase in 2022, and 27% of carriers and 25% of MGAs also anticipate a greater incidence of fraudulent claims. But 87% of carriers and 67% of MGAs think the claims process needs improvement, and in terms of solutions, the majority cite faster communications and clearer processes, especially involving TPAs, as easy wins.
Mr Cooper said: “As we move forward there is likely to be enhanced scrutiny over wordings, more focus on due diligence when onboarding new relationships and greater attention paid to claims performance. While our research shows the industry considers that work remains to be done, it is clear that markets, including Lloyd’s, are receptive and opportunities are there for the MGAs that can deliver.”