Is technology a silver bullet for MGAs?

For the most part, the managing general agent (MGA) market is in bullish mood at the moment. Rates remain robust in many lines of business, capacity is abundant and there is ample disruption in the market to create new opportunities for shops willing to work hard and innovative.

But growing MGAs face some nasty headaches. The first of those is around talent: it is increasingly difficult to find and keep good people. The second, which some might characterise as more of a migraine, is around the regulatory burden. It is getting bigger and more costly to manage.

These challenges were clear to see in the results of a survey conducted by Intelligent Insurer in partnership with the Managing General Agents’ Association (MGAA). On the question of talent, some 70 percent of respondents said getting the talent required has been more difficult in the past 12 months, although this figure falls slightly when the data is examined for MGAs alone.

This has many consequences for businesses, but one of those is increased costs. Around 85 percent of respondents said they expected the costs associated with the acquisition of talent to increase, with MGAs that responded mirroring this sentiment.

Some of the comments around this issue made for interesting reading, with some stressing that it is retention, as opposed to acquisition, of talent that is the challenge and others suggesting long-term solutions such as offering equity.

“Acquisition is not so difficult, but like in any good business retention is always a challenge,” one said. Another added: “Be more generous with equity. Skin in the game is the best retainer of staff and makes for a virtuous circle.”

Another suggested: “We as a sector need to offer MGA training for underwriters and a fantastic career path to attract school leavers and graduates—we need to improve our image and how we talk about insurance as an opportunity.”
Others suggested MGAs take a more long-term approach and consider the culture of their business.

“The foremost factor is the MGA’s long-term philosophy. If it is a short-term player and commission-oriented, that attitude will reflect upon staff, even senior executives.

“Conversely, if the long-term objectives are toward portfolio management and niche leadership in the long-term, that attitude will reflect upon the staff.”

More rules

On regulation, some 60 percent of all respondents indicated that the regulatory burden had increased, although this figure was higher for MGAs alone.

The following comment summed up the overall sentiment: “If they don’t stop regulating to the lowest common denominators in the financial services market they will throw the baby out with the bath water as fewer people will tolerate it and decide to leave to do something else.

“This does not serve consumers—it depletes their choices. We need to return to more proportionate regulation quickly as companies battle other societal challenges which we need to concentrate on adapting to such as cyber risks, ESG changes and autonomous vehicles.”

While most MGAs considered themselves over-regulated, others were more philosophical. “It’s a fact of life. We need to accept that it is here to stay and, in the grand scheme of things, it’s good overall for our industry because it is ultimately good for our customers.”

These are challenges indeed, but there might be a solution. The MGA market has been at the vanguard of embracing technology for several years. This is showing no sign of abating—and technology can certainly help alleviate some of the pressures on firms.

Some 85 percent of respondents said they had invested in some form of technology in the past 12 months while more than 70 percent said that insurtechs and technology were more important than ever. Some 90 percent of all respondents agreed that MGAs willing to do this would be either more likely, or a little more likely, to succeed.

There must be insurtech

There was an element of a split in the market around this issue. A majority advocated embracing technology but there was some dissent. The former cohort made comments such as the following: “In my opinion, it is a vital and existential business decision. If you’re not embracing and investing in tech you are seriously leaving yourself exposed.”

Another added: “It’s a key differentiator and an area where MGAs can bring innovation and increase speed to market and significantly improve the broker and client experience.”

Some brought nuance to the debate. “Understanding risk is the most important thing to any underwriter. Technology makes it cheaper to distribute and to understand the outcomes but, on its own, insurtech does not understand claims cycles or particular risk exposures, or have the ability to refine underwriting, terms and conditions and levels of deductible, all of which, in combination, are necessary to underwrite for the long term on a profitable basis,” one said.

The consensus seemed to be that technology is a must to gain a competitive advantage in the long term. Said one respondent: “There is still a number of MGAs that do not invest in the technology and do not insist on collecting more data during the underwriting process, which puts them at a slight competitive advantage in the short term as some brokers view them as easier to do business with.

“But the hope is that those that invest and work with insurtechs now gain the benefits in the longer term through greater efficiency, improved loss ratios and a better understanding of their portfolios.”