The evolution of MGAs: the double-edged sword of a hard market

The use of managing general agents (MGAs) now represents a core route to market for risk capital providers seeking access to new territories in a much more defined way than they previously did. The shift has been born out of the need MGAs to stand out from the pack and differentiate themselves while adding value to their role as a risk capital partner.

This was one of the main points from an  interview with Danny Maleary, chief executive officer of Pro MGA Solutions, on the topic of the evolution of the MGA in a hard market. The interview took place on Intelligent Insurer’s Re/insurance Lounge, an online platform where interviews and panel discussions are available on demand.

The development of the MGA market in recent years can be considered somewhat of an evolution, Maleary said. MGAs providing are not only a central route to market but also smoother access to new territories.

“MGAs are becoming more relevant as the basic underwriting team of insurers, providing an oversight role and not just a pure distribution role as we have seen in the past,” he added.

“Now, MGAs are an extension of the risk capital; the MGA acts as a core route to market to give that risk capital the ability to access new territories in a much more defined way than they previously did,” he said.

Global ambition
Maleary explained that MGAs need to stand out from the pack and differentiate themselves more, as well as to add value to their role as a risk capital partner.

He added that for Pro MGA Solutions, there is a global ambition to support and extend its reach to support more MGAs worldwide.

“We are a dedicated MGA solutions provider with an international ambition to support MGAs on a global basis,” said Maleary.

“We consider ourselves an extension of the existing client team to ensure that all parties are aligned from a global perspective,” he added.

In terms of hardening rates in the wider insurance markets, Maleary said, there is something of a double-edged sword for MGAs. It can occasionally cause risk capital providers to take a shorter-term approach.

“There are players that chase rates rather than looking at the MGA as a long-term strategic partnership,” he said. “But at the same time, MGAs need to better balance their involvement into the cost and acquisition and drive better efficiency.

“For the capacity provider, after many years in a soft market, a hard market is about maximising returns. While that is acceptable, there is danger of negatively impacting relationships with innovation partners who have driven efficiency.

“Pushing aside their innovation partners to chase rates is a concern, but there is a change in attitude by more mature risk capital partners where we do see more of a strategic long-term approach,” he added.

Partnerships
At the same time, Maleary said, some risk capital providers may withdraw when the market changes. In that case, MGAs would need to look at themselves and the way they are adding value. There is a lot to be considered around innovation and underpinning the value concept to enhance their partnership approach.

“Increasingly MGAs have shown more innovation when it comes to technology and overall efficiency and productivity in many cases is a lot better than the insurers themselves,” he said.

Many MGAs have embraced technology in a landscape that has required a nimble and robust approach, and some have even branded themselves as insurtechs, Maleary added. He stresses that the innovative use of data will enhance the overall position of the MGAs.

“When it comes to technology making global expansion more seamless, flexibility will play a role because success will depend on nuances that include the different geographical locations as well as different lines of business and products,” he said.

“Understanding of customer engagement depends on the delivery of core elements but also nuances subject to geographical territory, and MGAs need to be flexible and tweak their business models accordingly.”

Touching on global ambition, Maleary said that Middle East and Africa were on the cards for expansion for Pro. The key factor would be around designing solutions that are flexible and packaged accordingly. He added that MGAs would also need to look at becoming risk-bearing platforms.

“There is an acceptance that more alignment needs to take place between MGAs and partners which will enable more innovation around delivering new products for clients,” he concluded.

To view the full Re/insurance Lounge session click here.