MGA experts suggest that insurers may do without underwriters

Traditional insurers are too slow to react to trends in the sector and managing general agents (MGA’s) may be able to adapt more quickly and efficiently, offering the necessary expertise and potentially making the insurer’s underwriting capabilities become obsolete, according to a panel discussion at the 2017 Managing General Agents’ Association conference.

Insurers are looking for distribution and that includes technical distribution, said David Howden, CEO of Hyperion, an insurance intermediate. They will use MGA’s if these can offer cost-effective access to new markets, he explained. According to him, Lloyd’s is a case in point. Syndicates are looking at providing capital to third-party underwriting because they need to reduce costs.

“A lot of the business MGA’s underwrite is new business. We are actually creating markets,” Howden said. “The question that really comes to mind is why do insurers need underwriters.”

MGA’s have usually a lower cost basis and use more modern technology than insurers. Arguably, this puts them into a better position to react to new trends in the insurance sector.

At the same time, large insurers are increasingly forced to focus on regulation as capital requirements become ever more complex. As a result, they are growing their capabilities for managing their capital and regulators like the Prudential Regulation Authority (PRA) in the UK are going to continue to focus on it, said Olly Laughton-Scott, partner at advisory firm IMAS.

“There is long-term pressure to specialize in this one function and outsource,” Laughton-Scott said.

Some insurers tried to outsource the claims management to specialist firms, but it often turns out to be more complicated than planned and cost per claim did not fall as expected, he added.

Large insurers are aware of the fact that they need to reduce costs as they will otherwise lose business to new insurTech companies, Howden said. “Technology plays a big part in that. Most insurers struggle because of their legacy systems to really get up to speed with the new technologies,” he noted.

Karen Beales, CEO of UK General, agreed and suggested that large insurers are not prepared to cater for the rapidly changing customer needs. “Insurers have legacy systems, they are established to sell to the mass market.”

And that is where the MGA’s have an opportunity to do something slightly different, to tailor the product to the end consumer, to give the value to the customer, Beales explained.

This does, however, make it difficult for insurers to underwrite this business as the underwriters may not have the expertise to write those individual niche areas of business, she said.

The question if an insurer actually needs underwriters is probably a good one for some of the niche products, she said.

“Why have them? Insurers now use extensive computers capacity and databases to deliver pricing, she noted. “The expertise could sit within an MGA to individually write this risk,” Beales noted.

“Insurers assume the clients all want to buy the same thing, but that is certainly not the case. The products themselves will be designed by the end consumer,” Beales said.

Laughton-Scott agreed: “We are seeing ever increasing niches coming through.”

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