Positive mood for MGA market despite impact of Covid-19, Clyde & Co survey reveals

The MGA market remains positive in mood, with insurance carriers seeing more value in MGAs, according to Clyde & Co’s latest survey of the market. The law firm surveyed more than 100 insurers and MGAs in early 2020, and while carriers and MGAs are overwhelmingly in agreement that setting up a new MGA will be harder this year, two thirds of carriers and MGAs think the number of relationships will hold steady or increase in the 2020 renewals season, even in a hardening market. The report, Proceeding with Caution, which includes subsequent additions to the research looking specifically at the impact of Covid-19, reveals that just over half (51%) of carriers felt the impact of the pandemic would be neutral or positive, and although MGAs were split, many commented that any negative impact was likely to be short term. Strong MGAs see an upside even among the challenges posed by Covid-19, the report notes. Jennette Newman, partner at Clyde & Co, commented: “Our survey shows that while the overwhelming majority of carriers and MGAs agree there will be more competition for capacity and a real flight to quality, they do not see the volume of capacity or the number of partnerships diminishing. In fact, broadly two thirds of MGAs and carriers believe relationships will hold steady or even increase, [while more than] half of carriers believe the impact of Covid-19 will be neutral or even positive for MGA capacity.” She added: “Our research suggests that good MGA players will do better – they have read the mood of Lloyd’s reform, they have their house in order, they ‘own’ their niche and can deliver for brokers who can’t now always get the underwriters’ attention. Big MGAs will also see an opportunity to increase capacity and accelerate growth. But the smaller players, those with poor claims records or high expense ratios, may struggle to demonstrate their value. As we approach the 1 January renewal, this may translate into challenges renewing capacity, because carriers’ newfound caution cuts two ways – not just in the business they underwrite, but also in extending their paper to MGAs.” The view from carriers is that MGAs can add value in niche markets, but costs need to be kept in check. “For carriers, the ability to hold ‘risky business’ at arm’s length via an MGA binder agreement is more obvious than ever, but it must be balanced by tightly controlled costs. Perhaps unsurprisingly, for carriers the focus is very much on efficient access to new markets and on technical insight and capability. MGAs need to add value by opening up new opportunities rather than simply amplifying existing carrier competencies. Strong performers that can add value in niche markets are valued highly,” the report states. The survey revealed that carriers have three ‘top asks’ of MGAs (cited by more than 50% of carrier respondents): access, insight and conduct. “In a world where regulation is only increasing, excellent risk management and a strong conduct record have also grown rapidly in importance,” the report states. Ms Newman commented: “It is clear that carriers have borne the brunt of the claims and reputational impact of Covid-19, and this has impacted their appetite for new business. Their focus has been on renewals and blue-chip ‘secure’ business. But with carriers losing appetite for anything but standard renewals, bright MGAs have seen an opportunity. They report that they are receiving more enquiries and writing more new business and they are continuing to capitalise on their ability to be responsive to brokers in a market where many carriers have become more cautious.” According to the report, the London company market remains the preferred option for developing MGA business, but there is support for Lloyd’s’ Blueprint One initiative among MGAs (50% are positive about its impact on the MGA market, but just 41% of carriers). The survey reveals that MGAs (89%) and carriers (82%) both strongly believe there will be more legal and regulatory scrutiny over MGA businesses as part of Blueprint One, but at the same time, MGAs (75%) and carriers (82%) are both positive that Blueprint One will help drive progress towards standardising application and compliance processes at Lloyd’s. “This has been an extraordinary year in which the appeal of Lloyd's as a market for MGA business has been impacted by Covid-19, in addition to the market reforms focused on profitability, cost reduction and enhanced underwriting discipline. However, our research demonstrates that MGAs remain a popular and efficient business model, and we anticipate that appetite to operate within Lloyd’s will return longer term as the reforms bed in and softer market conditions return,” said Ms Newman.

Positive mood for MGA market despite impact of Covid-19, Clyde & Co survey reveals

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