Is mounting regulation now just business as usual for MGAs?

The ongoing challenges of managing the consequences of Brexit combined with ever-greater regulatory hurdles present managing general agents (MGAs) with a complex set of challenges. While technology can overcome some of these, and make their lives easier, there is a sense of acceptance in the sector that this is now just part of doing business.

That was one of the conclusions of a panel discussion delivered by I ntelligent 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.

It all adds up

Underhill listed some of the governance requirements, including general insurance pricing practices, distribution requirements, fair value in the distribution chain requirements, and product governance. He noted a new regulation by the UK Financial Conduct Authority (FCA) regarding Appointed Representatives (ARs) which may or may not have an impact on MGAs who have ARs.

“MGAs have so much more to do now because there is so much going on in the regulatory space, as well as the changes to the legal environment with Brexit that are still impacting the industry,” said Underhill.

“It all adds up, and there is still more to come. There’s an enormous amount of legal and regulatory requirements, and the combination of these things could slow down any firm’s ability to innovate and grow,” he added.

Several members of the panel asserted that regulatory requirements were now just an accepted part of the MGA business model.

Gouraud said there is a reason regulators are implementing such standards—usually because they felt there was a problem. “While all that governance might be painful, and as a startup MGA we are experiencing much of that pain, there is usually a good reason for it,” he said.

He highlighted another challenge the industry faces, which he cannot understand, and which is particularly tricky for a startup to manage: the industry still operates a system where the payment of premium can arrive many months after coverage commences.

“What I fail to understand is why we cannot simply wave the magic ‘cash before cover’ wand. We are an industry that tolerates premium term payments of up to 120 days and then tolerates further delays on these payments.

“I don’t mind all the paperwork if it makes the industry work better, but it’s a pity that the industry requires regulation to discipline itself better,” Gouraud said.

On the regulatory point, Lloyd agreed that if the proper business practices are in place regulation should not be an overwhelming experience.

Snedden added that most regulations simply reflect everything that people should already be doing. “They want to inspect it because people only respect what is inspected, apparently,” she said.

She added that, ultimately, there is a need to ensure that a client is buying the best product for their needs, that the product is adequately supported and, ultimately, that claims can be paid when required.

“The thing with regulation is that we know it’s coming, and we are able to plan for it, so it’s something we just have to accept.

“However, I do believe that the FCA could be clearer on a few things. But that is why we have these forums like BIBA and the MGAA to debate and discuss regulatory requirements,” she said.

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People first

Snedden said that a far greater challenge for many MGAs was finding the right industry talent to help achieve business goals.

“One of the biggest industry challenges for us is integration of technology and data and making sure we are using it to the best of our ability, as well as finding the talent to do so,” she said.

Webb agreed, adding that regulation is an integral part of a successful MGA’s business model. “It’s just a part of running an MGA and you have to accept it,” he said.

“Industry compliance is not just a box you tick, it is now a constant part of our lives. As a business you must factor it into your day-to-day costs and accept that it will require more staff because you can’t do it just with a consultant, it needs to be an integral part of your business.

“There’s a constant balance of keeping your capacity provider happy as well as your clients and brokers, and that means you’ve got regulation on both sides,” Webb said. “It doesn’t matter what you do as an MGA now, the regulation just keeps coming so you need to factor it into your business model.”

Keating believes that the regulator does not engage with the industry as well as it should.

“I am not convinced that all MGAA members would agree with some of the comments that have been articulated by members of the panel,” he said. “There seems to be a massive dislocation between industry and the regulator itself.

“I am not always convinced that they are addressing all the correct issues, and neither are some of our members, but in the end regulation is important because we are here to deliver a good service and fair outcome for insurers,” he concluded.

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