Making MGAs work

Managing general agents (MGAs) are “on the move”, according to analysis by broker Aon published in March 2022. The MGA model was “resurgent”, it found, with incumbents growing their share and start-ups increasing in number.

Aon estimates that the US MGA market alone accounts for $62.5 billion in direct written premium and, in the last decade, has been the fastest-growing insurance segment in the global market. Meanwhile, over 300 MGAs currently underwrite over 10 percent of the UK’s £47 billion ($59 billion) general insurance market premiums in the UK market, according to industry group the Managing General Agents’ Association ( MGAA).

To discover what’s behind that success—and what the future holds, Intelligent Insurer brought together three industry experts: Michael Keating (pictured, left), chief executive officer of the MGAA, which counts over 170 MGAs as members; John McNally (pictured, bottom right), president of global managing general underwriter (MGU) Palisade Insurance Partners; and Philippe Gouraud (pictured, top right), chief executive of Rising Edge.

According to Gouraud, there are several factors required for MGAs’ success. They include a focus on their primary fiduciary duty to capacity providers.

“If there’s no capacity, then there’s no business,” as he put it.

That’s likely to be increasingly important as hard markets make insurers less tolerant of poor performance from MGAs and in light of the sheer numbers of new MGAs in some markets.

“There are so many MGAs and MGUs looking for capacity right now that the key factor is getting people’s attention,” said McNally.

Related to that is another aspect needed for success Gouraud identified: innovation.

“You have to bring something different,” he said. “There’s no point in replicating something that already exists, particularly if it’s already a legacy carrier offering it.”

Computer says ‘maybe’

MGAs can mark themselves out in several ways, whether through underwriting expertise or a focus on a specific sector. Often it can be in their use of technology.
It’s an area where MGAs have distinct advantages over big insurers with established systems, said Gouraud.

“MGAs have that nimbleness allows them to access technology in better, faster ways than larger established organisations that deal with a legacy they have to account for.”

At its simplest, technology helps reduce the cost of bringing the risk premium to capacity providers through cutting the MGA’s operating expenses and the cost of delivering products downstream to brokers and clients. More fundamentally, it can improve service and bring innovation to market more quickly.

“Insurtech in the UK is extremely strong,” said Keating. “There’s no shortage of insurtechs still wanting to come into the MGA market, and insurers are very interested in them because they bring innovation and speed to market that those capacity partners cannot replicate.”

Of course, not all MGAs can take advantage of technology in the same ways. In his niche, McNally is careful to distinguish between data and technology. Some of the efficiencies technology provides for processing high volume business aren’t available for lines such as contingent legal risks where policies are highly bespoke.

“Every deal is different,” said McNally. Even in terms of data analytics, some markets have taken longer than others to mature.

“It’s only in the last three or four years that we’re getting to a point where we have enough historical claims data to drive direction on pricing and retentions,” added McNally.

Even where MGAs can leverage innovation, there are no guarantees of success. Inflation, interest rates and the war in Ukraine are just a few of the new challenges facing new MGAs, in addition to the competition for capacity. Some of the new insurtechs will inevitably fail, said Keating. However, others will succeed, and the strengths of the MGA sector in the past give optimism for the future.

“There are storm clouds on the horizon, but one key thing with MGAs is that they find a way of navigating through them,” he said. “Their agility and nimbleness will enable them to get to the other side.”

And that perhaps relates to the final characteristic that Gouraud identifies as key to successful MGAs: “a touch of madness”.

“You need to be courageous,” said Gouraud. “You have to be a bit mad to launch a business, and that’s what makes it a fantastic space to be in. Your peers are a great bunch of people, coming from diverse backgrounds, but they have that in common—the drive and courage to innovate.”