Time to seize the opportunity

Managing general agents (MGAs) have the agility, innovation and talent to thrive and seize the opportunity in current market conditions, despite some pretty major obstacles they are also grappling with.

“Most are well positioned to thrive” is the conclusion of Mike Keating (pictured), chief executive officer of the Managing General Agents’ Association (MGAA), commenting, in part, on the conclusion of a survey conducted by Intelligent Insurer in partnership with the MGAA.

The survey examined the major trends, opportunities and challenges facing MGAs at the moment, and the results are explained over the following pages.

Here, Keating gives his own analysis of them. He notes how closely they match the agenda of the MGAA’s annual conference, taking place in London on June 29. Some of those themes include hard market conditions, the role of Lloyd’s, how to handle claims, and regulation.

The tag line of the conference is ‘Seize the opportunity’—a theme Keating says was chosen as an acknowledgement of the fact that the mindset of his members is now very much focused on the future, after two years of uncertainty.

“Our members are looking forward, not back. After two years of COVID-19, we wanted to highlight the opportunities. Despite the pandemic and some other headwinds, there are many opportunities out there that can be seized,” he says in a video interview with Intelligentinsurer.com. The full interview can be viewed here.

Bullish on rates

Starting with market conditions, sentiment around rates and capacity is bullish among respondents ( click here). The survey revealed that a clear majority are confident in the stability of their capacity, that new capacity is keen to enter the market and rates are, mostly, continuing to harden to some extent.

Keating says these dynamics are positive for his members, while offering a warning. “There is an improving appetite to deploy capital and more insurers and other carriers are keen to engage with the MGA community, which is encouraging and clearly good for members.

“That said, there is still concern around the stability of some carriers. Not all capacity is good capacity. But it is generally a positive picture.”

The survey showed that, specifically in terms of capacity from Lloyd’s, some of the market’s reforms in recent years have now bedded in, resulting in respondents stating they were seeing more interest (28 percent), or less interest (22 percent), or that interest remains the same from Lloyd’s capacity.

However, fewer than 30 percent were bullish about the market’s future and there were clear concerns about the market’s communication around this.

Keating views the results as reflecting improvements at Lloyd’s. “Lloyd’s is starting to become more attractive as a partner to MGAs again, but this is a gradual process,” he says.

“My sense is the company market remains more attractive and people clearly think Lloyd’s needs to up its game in terms of its communications strategy. Some of that is not resonating well with the MGA community.”

In contrast, he notes, some of the players in the company market have more favourable acquisition costs and are more open to engaging with new coverholders on a range of risks.

“They are more proactive and have a clear strategy in place. They also have better communication,” he says. “That said, Lloyd’s is on a journey; they are heading in the right direction.”

All this is against a backdrop of favourable rate increases in many lines of business. Perhaps unsurprisingly, some 65 percent says they saw rates hardening to some extend compared with less than 5 percent willing to use the word softening. Yet just over 30 percent says they saw rates flattening.

“There are no real surprises there, but it is important to stress the nuance underpinning those responses,” Keating says.

“Each line of business is behaving in a different way. Cyber, for example, is still hardening fast. Professional indemnity has had huge rate increases in recent years, so even a flattening now is against that backdrop. But most lines are still seeing a strong rating environment.”

Claims inflation

This trend is offset, as the survey revealed, by claims inflation in many parts of the market. The consensus in the survey was that the frequency and severity of claims is, on balance, increasing for many—36 percent of respondents. Some 55 percent said they had seen little or no change, but less than 10 percent said they had seen claims decrease.

Again, there is much nuance here, Keating stresses. He notes that a change in people’s lifestyles during the COVID-19 pandemic changed claims trends in specific markets such as motor and home insurance, as people drove less and stayed at home.

“The biggest challenge is now inflation,” he says. “The link between rates and inflation is clear—you need rates to reflect projected claims with inflation taken into account. That is the war the industry is wrestling with.”

He notes the dislocation evident in the way MGAs specifically approach claims, which is illustrated by the survey. “The responses show there is frustration in that—some blame brokers, some criticise MGAs, there is no clear direction of travel. The only common theme that everyone agrees on is that the industry must harness technology to solve this issue.”

He continues: “In terms of that triparty relationship between stakeholders in claims settlements – an MGA a TPA and an insurer – there is room for significant improvement to make that work more effectively. It could be far better. And it impacts the end consumer.”

This issue feeds into a wider willingness to invest in technology, he says. While some MGAs can legitimately be classed as insurtechs—their entire business model being underpinned by technology—all MGAs seem to be open to using technology to enhance their offering, whether that is through the customer journey or cost savings in the back office.
“The willingness to use tech to accelerate performance came through loud and clear,” he explains.

Benefits of technology

Insurtech can have other, less obvious, benefits, Keating claims. Respondents indicated two other major challenges they are facing: recruiting and keeping talent, and managing a growing regulatory burden. Using technology can help alleviate both, he says.

Talent can be attracted to companies using cutting-edge technology (and the associated cost savings can mean paying them more). It can also help MGAs keep on top of regulation.

“It is no surprise that talent retention is a challenge,” he says. “The cost of finding and retaining very good people has been increasing and that has naturally put pressure on the bottom line.

“There is a shortage of expertise and a shrinking pool of candidates who demand more. The problem is exacerbated by inflation. It is a perfect storm for MGAs. It is encouraging to see more schemes launched to attract younger talent but that does not help at the top end.”

Equally, Keating notes, the regulatory burden has been increasing for some time. He says that the association has held a session with the UK Financial Conduct Authority, designed for MGAs to share concerns about the regulatory burden. He relates that some members found the session disappointing but hopes that communication can improve.

“The cost of regulation and the burden for the whole industry—how MGAs in particular can navigate this burden of regulation is a problem for our members. This is an issue for MGAs, and we are encouraging the regulator to engage with us on behalf of our members,” he says.

Summarising his view of the landscape for MGAs, Keating concludes: “The biggest positives are the innovation, agility and speed in adapting to market conditions MGAs have demonstrated. It is a strong rating environment but claims inflation is a top challenge for the whole industry now.

“It never ceases to amaze me how adaptable MGAs are in face of fast-changing market conditions. They are facing significant headwinds. Their biggest challenge will always be looking after their capacity.
“After that, their main concern will be over claims inflation. But I fully believe MGAs will continue to thrive.”

To watch the interview with Mike Keating, click here