Twenty years ago or so, brokers began swallowing each other up, insurers merged and grew, and all the time buyers were told this was a good thing. The bigger the supplier, the more they can do. And so the dozens and dozens of brokers turned into the big three, and very nearly ended up a two. And, to a slightly lesser extent, the same happened with insurance companies.
In the M&A frenzy of the last quarter of a century, choice seems to have been a forgotten word, to be replaced by newer words like ‘one-stop shop’, leverage, economies of scale and resilience. And of course, all of these are valid benefits.
Undoubtedly, size and reach is important. For brokers, being near to the client and all their operations worldwide, and being able to provide the full range of services on the ground, is vital. And no doubt when it comes to negotiations over programmes, covers, renewals and the like, a strong broker able to match the big multinational insurers is also a clear benefit.
For insurers, especially those servicing multinationals, regional spread is again crucial. The ability to provide admitted insurance around the globe is a minimum requirement for a global programme insurer. As is the ability to provide as many as possible of the specialty insurances that clients need.
Not to mention the need to have all the backup services covering risk analysis, risk engineering, claims specialists, crisis management services and so on that clients of brokers and insurers may require. And the finances to invest in new systems and IT that will speed up and improve the whole insurance process.
Perhaps also playing a part in the M&A free-for-all was the sustained soft market, hindering innovation and putting off new entrants. But as new risks have emerged, as the market has hardened dramatically, and as the industry has struggled to provide solutions for some newer risks, choice has started to return to the market, but in a different form: managing general agents (MGAs), coverholders and other forms of delegated authority, together with insurtechs.
As insurers have pulled out of some lines and reigned in their risk appetite, they have turned to MGAs and insurtechs to provide the expertise, technological knowhow and innovation to come up with new specialty products and take on distressed lines and new or difficult risks. Technology is key, as is the lack of legacy problems and the ability to be fast and agile when taking advantage of hard market conditions.
The statistics back up this view. A report from AM Best shows that a surge in the number of MGAs has doubled US premium revenue written under delegated authority in the past ten years, to $44bn in 2019.
New specialist MGAs have appeared in the last year, including Rising Edge, specialising in D&O, Falcon Risk Holdings in the US offering financial and cyber lines, London-based Arrow Risk Management operating across specialty lines, to name just a few. MGA Volante Capital has launched a new Lloyd’s syndicate to open for the 2022 year of account.
MGA revenues earned worldwide had a value of about $12.5bn in 2020, according to Insuramore. It said the figure implies that premiums intermediated by MGAs, MGUs and coverholder groups last year reached about $100bn.
Meanwhile, insurtechs are also growing rapidly as insurers turn to them to help them create innovative products going forward and digitally transform the industry. Global investment in insurtech startups totalled $10.5bn during the first nine months of 2021. Willis Towers Watson says this is just $12m short of the total invested in insurtechs globally during 2018 and 2019 combined. It adds that there were 421 deals in the period, an annual record.
And Juniper Research notes that insurtech platforms will more than double the amount of business they underwrite in the next five years to $556bn in 2025, from £250bn last year. Such growth will increase the market share of insurtech business to 8% of global insurance premiums by 2025.
Clearly, the big brokers and insurers recognise the value of MGAs and insurtechs. Indeed, they fund and invest in some of them, and collaborate and partner with many MGAs. In many ways, MGAs are the incubators of the insurance world, developing new solutions and providing innovation. So the insurance sector, including the big insurers and brokers, clearly owes a debt of gratitude to MGAs and insurtechs for shaking up a traditional industry and providing solutions to many of the issues faced by the market. And for providing much of the innovation, expertise and technical ability that corporate buyers have been looking for.