A promising future for disciplined MGAs

On the back of hardening rates and plentiful capacity in many lines of business combined with new technologies making operations more efficient, this is a buoyant time for many managing general agents (MGAs). But challenges remain in some lines—and for some MGAs not keeping pace with change.

Those were some of the discussion points that came out of a panel discussion delivered by Intelligent Insurer, in partnership with the Managing General Agents’ Association (MGAA) and hosted on the Re/insurance Lounge, the publication’s online, on-demand platform for debate and discussion.

In attendance were Philippe Gouraud, chief executive officer, Rising Edge; Michael Keating, chief executive officer, MGAA; Ian Lloyd, chief executive officer, iprism Underwriting; Katherine Snedden, chief risk officer at DUAL Corporate Risks and a member of the advisory board at the British Insurance Brokers Association (BIBA); Kenneth Underhill, compliance, risk and corporate governance specialist and director of risk and compliance consulting firm Implement Compliance Solutions and Resources (ICSR); and Richard Webb, director, Manchester Underwriting.

Hard, buoyant, and challenging

We are still in a hard market and the rate environment remains strong in many lines of business, said Keating, who added that MGAA members across the board are still enjoying improved rates. “We are seeing 15 to 20 percent rate increases in real estate and up to 60 percent in cyber,” he said. “How strongly and for how long will those increases continue, is the question.”

The panel agreed that many MGAs have worked very successfully with capacity providers during the hard market—in ways that benefit both parties. One of these is Manchester Underwriting.

“For us, this is partially because we have been able to achieve the rate increases that that our capacity providers wanted us to push for,” said Webb. “It is also because the areas that we write, such as casualty and professional indemnity, have seen substantial rate increases.”

Not all MGAs have seen rate increases to the same degree as those focused on casualty and financial lines. “We also deal with the small business end of the market and while we are still very much in a competitive place, we have not seen the same degree of rate increases in that space,” said Webb.

“We have seen a hardening of rates, double digits in some instances, but that only keeps pace with claims inflation and increasing costs including the additional costs of sourcing materials and labour.”

He added that it is a mixed picture overall, however, and it has been a tough market for some MGAs as well as some of the wider insurance community. “In doing business with brokers and through our work with BIBA, we are aware that some have found this period to be very challenging.”

Constrained capacity

For some MGAs covering certain lines of business, capacity has been a challenge, the panel agreed. They also concurred that it has been more of a challenge for MGAs that have not looked after and collaborated with their insurers.

“I have a view that if MGAs are collaborating with their capacity providers and being proactive in addressing poor performing areas in their portfolio, the market conditions are irrelevant,” said Keating. “Look after your capacity and your capacity will look after you.”

Webb agreed, arguing that good underwriting was the key to success, regardless of market conditions. “You need to get back to basics; that means if you are a good MGA that delivers good underwriting results, you will always attract capacity—it is down to you and the discipline of your underwriting to produce results,” remarked Webb.

Gouraud remarked that sometimes it takes a little more than a strong underwriting track record to secure capacity in a tough market.

“When you have what we refer to as a hard market, capacity providers often seem to contract,” he said. “So, you need to provide something different—you offer either specific underwriting expertise or specific distribution channels.”

Gouraud added that, in addition to offering something unique to capacity providers, the best MGAs will offer something different for brokers and clients. But he said that in recent months he had observed far greater underwriting discipline and that the market has “rationalised” itself.

“When it comes to capacity, we don’t believe in an ‘us versus them’ scenario,” he said. “We need to remember that first and foremost our fiduciary duty is to our capacity providers and that we are an extension of them.”

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Service and consistency

Commenting on the general wellbeing of the MGA sector, Snedden said: “Client service has been paramount during the pandemic, and this has been heavily discussed by the BIBA board.”

Lloyd remarked that the current market conditions have called for consistent and excellent service, which is “where MGAs have really shone through a very difficult period,” he said. “It could be size of an MGA that accelerates that agility but, in many instances, MGAs have been quicker, and more efficient and able to pick up new broker relationships with ease to meet client needs more competently.

“One of the advantages that MGAs have been able to bring is not just service during the likes of the pandemic but also the fact that the MGAs were better able to produce more granular data, drill down and look at the performance of the book and the risks themselves,” he added.

Growth and opportunity

Despite challenging market conditions, the future of the sector is very promising, the panel agreed, while adding there remains a great deal of work to be done in terms of leveraging technology more effectively and improving claims management.

Commenting on the overall state of the sector, Underhill added that the market is exceptionally busy. “There is a great deal of capital available leading to growth and new opportunities for startups,” he said. “The MGA market looks set to continue its overall growth but faces a number of challenges in terms of attracting talent. For those MGAs struggling with capacity there are alternative means of securing capacity,” he concluded.

To view an excerpt of the Re/insurance Lounge panel discussion click here