MGAs: the new breed of insurtech firms

Managing general agents (MGAs) are increasingly partnering with technology companies to become smarter underwriting vehicles, learning from insurtech firms while also leveraging their expertise and experience in the sector.

That is the view of Peter Staddon, managing director of the Managing General Agents’ Association (MGAA). He says that MGAs are carefully watching insurtech firms such as Laka, which is taking an innovative approach to the insurance market, challenging the conventional insurance model and potentially revolutionising the insurance business.

Laka groups cyclists together based on their lifestyle and behaviour. Everyone in the group is covered against theft, accidental damage, and accidental loss as well as vandalism. Any claims by the group are picked up by Laka, which splits the cost across the group members at the end of the month. An individual member pays a proportional share of the claims cost plus a fee for Laka. The amount changes every month but is capped by Laka around market rate.

MGAs are particularly interested in such market developments because insurers are buying into the new ideas. Laka, for example, has partnered with Zurich UK.

Insurers are very active within the insurtech space, not only providing capital to build these insurtech businesses but also providing capacity to allow those businesses to underwrite risks, Staddon says. “MGAs will be in that space,” he adds.

Global insurtech transactions reached a record high in 2017, according to the fourth Quarterly InsurTech Briefing from Willis Towers Watson. Insurers and reinsurers made 120 private technology investments globally, the highest numbers recorded respectively in any quarter or year. In terms of the actual volume, the total was up 36 percent year on year at $2.3 billion in 2017, the second highest total for any year to date.

“There is so much money out there,” says Staddon. “A lot of the insurtechs will start to move into the insurance space. They are very good, technologically savvy, but not always up to speed in relation to regulated activities,” he adds.

According to an unpublished (at the time of writing) survey by the MGAA, MGAs believe they have a competitive advantage over insurtech businesses due to their deep industry knowledge and expertise.

“The competitive advantage comes from the fact that MGAs understand the market. And that is very important,” Staddon says.

“When you understand the market, you are actually slightly further down the line,” he explains. MGAs are lean organisations and can therefore react fast and adapt quickly when they see an opportunity, Staddon adds.

In order to foster innovation, the MGAA has established a dedicated group called Chrysalis which aims to encourage entrepreneurship through mentoring and provides a platform for individuals within the MGA community to share insight, knowledge and expertise.

A different way

The new breed of MGAS will be looking at insurance in a fundamentally different way, similarly to insurtech companies, Staddon notes.

Cooperation with insurtechs may also be an option for some, as the MGA sector believes that an insurtech business is the natural extension of an MGA.

MGAs are competing with the new breed of insurtech companies, but they are also learning from them and working with them because some of the insurtechs are looking at insurance in a fundamentally different way than the incumbents, Staddon explains.

Take Tapoly. The startup wants to offer flexible insurance to cover the risks of the new sharing economy. The firm aims to satisfy the need for on-demand insurance in fields such as freelancing, contracting, or part-time consulting, or for people who want to let a room or lend their bicycle to a neighbour.

“We are seeing that growth area,” Staddon says. MGAs are investing in technology to include fewer human touch points and add artificial intelligence (AI) in their operations, he notes. Firms are using their skillset within their chosen product space and backing that up with the technological support which allows the broker to have a much more interactive and faster response with the underwriting operation side, he explains.

At the same time, investments in technology and partnerships are set to allow the MGA sector to improve accessibility to products and create a more attractive offering for consumers, Staddon says.

The insurance products will also become more dynamic, allowing for example for pay-per- use options, he adds.

“The MGA market is very buoyant, there is a lot of activity within the space,” Staddon says, suggesting that a number of developments are driving the activity. For one, brokers are deciding to separate and segregate their underwriting activities from their broking activities, creating a new dynamic.

“Also, there is some consolidation taking place within the insurance sector, which is causing a fallout of very good underwriters.

“We are seeing teams of people joining MGAs and taking their skillsets, and they like the idea of having more flexibility than one might get in other components of the sector,” Staddon explains. The MGA sector in the UK grew turnover to £601 million ($828 million) in aggregate in 2016 from £558.3 million ($770 million) in 2015, according to Companies House data gathered by Intelligent Insurer. At the same time, pre-tax profit of the sample grew to £86.9 million from £75.4 million ($120 million from $104 million) over the period.

New lines

“Professional lines are growing quite rapidly,” says Staddon. Motor has always been a strong segment for MGAs both in commercial or personal lines, he adds, but new areas are moving in the MGA focus.

“The home and domestic personal insurance are also very popular for MGAs,” Staddon notes. Currently, most of the MGAs are targeting the small and medium-sized enterprise (SME) sector, in property or liability for example, but many are expanding into other areas such as marine or reinsurance, he says.

“Marine and reinsurance are two interesting ones beginning to be developed,” he says. Cyber is also offering opportunities for MGAs to expand. “Looking at a number of MGAs within cyber space they are growing quite significantly,” Staddon says.

CFC, for example, which specialises in emerging risk, niche markets and specialty lines, has launched a new version of its cyber insurance product for US healthcare providers.

The new policy enhances the cover for privacy and operational disruption with industry-specific features to help healthcare organisations prepare for and respond to cyber incidents as well as comply with industry regulations.

While MGAs are offering cyber predominantly in the SME sector, in the future this could expand to serve the domestic segment, Staddon notes.

“There is nothing the entrepreneurial MGA cannot turn its hand to,” he notes.

The sector is full of new ideas. Founded by former Cathedral Underwriting partner and underwriter Bruce Carman, Hive Aero launched in April specialising in aviation hull war insurance.

Hive Aero will initially operate in the aviation war market with a capacity of $50 million for any one aircraft, for the account of major Lloyd’s insurers Beazley, Arch, Chaucer and Dale.

While MGAs are predominantly a UK phenomenon driven by Lloyd’s market growth with some occurrence in the US, they are increasingly appearing in other places.

For example London-based insurance broker HWI International Group is launching a new MGA in Hong Kong to begin underwriting on July 1, 2018.

NuVu Underwriting Hong Kong will initially focus on property, marine, specie, fine art, personal accident and terrorism within the Asian region.

“There has been significant growth and success in the MGA space globally, and this is set to continue as more underwriters look to MGAs to control their own destiny,” Jeremy Austen, who will act as principal officer and CEO, commented at the launch.

Staddon believes that such new ventures will become more common in the future. “Territories that have either brokers or insurers may start to see MGAs,” he says.

“It is a model that seems to be working on a global platform,” he adds.