MGAs have great data—they just don’t know it: Mulberry

Managing general agents (MGAs) have been in the headlines recently—from insurtech startups becoming unicorns and eclipsing incumbent insurers, to MGAs’ ability to be agile and provide outstanding service.

The weakness for MGAs has always been their reliance on their capacity agreements. This umbilical cord to their insurers has been stretched and severed, especially following the Lloyd’s decile 10 actions.

What is the 2022 outlook for MGAs? Let’s look back at what I would describe a turbulent few years from 2018, the start of decile 10.

The decile 10 actions taken by Lloyd’s forced syndicates to revisit their business plans. Many good MGAs were part of the cull of business which wasn’t performing, wrapped up in a market mired by some woeful underwriting decisions focused on growth rather than underwriting profit.

On top of this came lockdowns and the impact of COVID-19 claims.

Large insurers struggled to provide levels of service that their brokers expected, and MGAs mopped up opportunities, but had capacity challenges. It was difficult to get new capacity deals across the line or even expand existing binders.

The MGAs that succeeded in new or expanding capacity share some common traits:

1. An established track record;
2. A strong and experienced team;
3. A unique selling point that adds value to the insurance distribution chain; and
4. Control of their data and results—this one is key.

2022 has started with a bang. Insurers are now looking to write business through MGAs, but what they are looking for has changed.

An established track record and an experienced team are must-haves. Even for a startup, you need some track record of execution and success to win.

Your MGA proposition must add value to the distribution chain, and you need to clearly articulate that to your carrier. Failure to do so will raise questions.

MGAs have a rich source of data. Claims can be a bit challenging to match policies from the third party administrator, but generally you are in much better shape than you realise, and often in better shape than incumbent insurers. It’s how you collect, collate, and present the data that matters.

A secret weapon

I’ll add a new point to those four, which is proving to be the new common trait insurers are searching for:

1. Trust and likeability.

Trust doesn’t always go with likeability, and I believe that trust alone doesn’t always secure the deal. But if you have trust and likeability, you become a real partner of the insurer.

Capacity is being made available for MGAs in 2022. I also expect the MGA market to see the start of consolidation. A multiline MGA can manage capacity relationships with leverage better than a monoline business.

Data and performance monitoring are topics of interest too. Once you have capacity how do you measure your underwriting performance, as well as understand prior year performance and its impact on current rates?

You need to become familiar with calculating risk-adjusted rate change and technical pricing. MGA capacity competition is about being better than your peers. The discussion becomes easier when you have established processes that can mirror something like the Lloyd’s Minimum Underwriting Standards.

MGAs have a secret weapon: the monthly bordereaux. It gives you a standard timestamp of your business, from which claims triangles can be built, production analysed, and financial oversight created.

Data and using it is a space race in the insurance world. MGAs are extremely well placed to win.

David Hughes is the chief executive and founder of Mulberry Risk. He can be contacted at: david@mulberryrisk.com