The secrets to a successful MGA—and a warning

In recent years a plethora of managing general agents (MGAs) has been created in the London Market. Underwriting talent has found many willing backers as carriers desperately seek new business and an edge.

Starting and scaling up an MGA has always been an attractive option for talented underwriters. Those who succeed can reap the rewards, but not everyone succeeds and the road to success can be long and winding.

Some have launched their MGA with a specific purpose or unique selling point in mind, aiming to succeed where others have failed. Most have done this by adhering to a plan. We spoke to two entrepreneurial individuals to gain insights into the main dos—and one don’t—when it comes to forming an MGA.

Learn from others’ mistakes

One way to succeed is to look at what others have done wrong. Jason Anthony, founder and managing director of MGAM, has worked as an underwriter, as well as for a large broker. He thought there was room for an independent MGA which put the information technology (IT) first.

“It is important to have access to data that I can manage, to the effect that if I give it to the insurer I have confidence in the probity of that data,” Anthony says.

“On the other hand if I’m managing it from an underwriting perspective and have access to the best data that gives me not only the opportunity to get to the best option, but to also give the client the best service, especially in high volume, low premium business, dealing with the administration costs.

“I’d decided that if I did a startup I’d go back to my ‘knitting’, which is UK, SME, high volume, low premium business, and focus on how to best underwrite, administer that business,” he says.

“So I wrote a business plan, and gave it to a couple of individuals in the market who were very well known and always happy to be acknowledged by their shareholders. They looked at it and said yes.”

From there he raised an unspecified but “significant” amount of cash. According to Anthony, the business plan was very clear—it said MGAM wasn’t going to underwrite a piece of business for the first 12 months; it was going to source the IT instead.

This was because in the past he had created a startup which relied heavily on the IT, but it had started underwriting on day one, always expecting the IT to cope with the business.

“What I wanted was to set up a business where we built the infrastructure platform first. We decided to use platforms that we could configure to do what we want, and that’s essentially what we did,” he explains.

“We couldn’t find a platform that did exactly what we wanted, and we didn’t want to build our own, so configuring other platforms was the way forward. We spent a year doing that and then we wrote our first risk on January 1, 2017.”

In the meantime MGAM had to do all the usual things—conduct of risk, compliance, the regulatory framework and so on—“because we are a heavily regulated business and it was important for us to get that right”.

Read and research first

A second important ‘do’ that Anthony identifies came about through research. He discovered a book called ‘The E-Myth’, by Michael Gerber, which taught him that most small businesses will fail because the business is built around an individual, and that it has to be built around process.

He points to McDonald’s as an example.

“If you go into any McDonald’s you can get a burger within two minutes and it’s consistent, because they have a process. You might not like the burger but that’s what they do, and they do it really well,” he explains.

“The same concept that I wanted to build was that anybody who touched any part of MGAM got the same process—every coverholder went through the same process as they came aboard.”

As a result, Anthony says, when a client comes to MGAM for a quote they get the same process.

The MGA does it either via a delegated authority or an online platform. It has been very rigorous and consistent on that because Anthony has worked in environments in the past where the accommodations, which means management work-arounds, create costs and inefficiencies—and he wanted everything to be efficient.

“Once the process had been developed and the IT was built to accommodate the business it didn’t matter if we wrote one pound of business, or 10 million pounds or 100 million pounds, because there was governance, there was management and there was the ability to handle that business to the satisfaction of both the carriers and the coverholders,” he says.

“That also enabled us to have advanced analytics in terms of what business we were writing. All carriers have data, the problem is getting access to that data in a way they can understand it, and see what it’s telling them.”

An MGA opens doors

Douglas Brown is managing director of MGA Renovation, founded in May 2018. It came out of a business renovation insurance business that had been a de facto MGA for some years but without that formal title.

According to Brown, there were two principal reasons for using the MGA platform. One, when Renovation is wholesaling, it wants to appear as a de facto insurer. As Brown points out, the big insurers and quite a number of the larger brokers won’t sub-broke business but they will do business with an MGA, which then appears to their compliance department in the same light as an insurer would.

“It opens a few doors for you. If you’re just an insurance broker with a scheme that wholesales business they won’t deal with you because they don’t deal with other brokers,” he says. “So one part of it is unlocking a major part of the insurance market to us.”

Add value—or go home

Brown highlights a key ‘don’t’ when it comes to founding an MGA. “The principal intention of an MGA should be to add value to a market which is under-resourced in terms of expertise, or product, or product type.

“For instance, in our market, the renovation market, we have one principal competitor who was wholesaling business. I felt we could do it better as we had more expertise, and we were going to give something back to our brokers with a large education piece on the type of insurance that we write,” he explains.

Brown’s MGA, rather than being single-sourced, has a number of capacity providers, all of whom are UK A-rated entities that can act individually or together to produce a better result for the end user. “The key to success was all about having a real specialism and giving our wholesale clients and insurance brokers a brilliant service, as well as cascading some of our expertise to them to enable them to do a brilliant job with their clients,” he says.

“The backbone of what we do is that the client has to win, so the end user should win by using us and the brokers that are serving those entities should also win. We’re not just a postbox for our capacity.

“We’re doing the underwriting, providing advice and we’re also providing training to a lot of brokers who would otherwise struggle to develop in-house expertise in our sector. That’s why we do what we do,” Brown concludes.