Doing the right thing: MGAs are on the increase with many being set up by brokers. Tim Rourke insists they must get the fundamentals right
The Managing General Agent (MGA) is on the rise, with the more disruptive and innovative entities supporting a possible renaissance in the industry. MGAs today appear to be of two types.
Firstly, there are the segment spotters, who have relatively orthodox models and are looking for niche and under-represented business in the market.
You then have the insurtech-driven firms, who possess unique technology or data that improves the customer journey or assists in creating the underwriting ‘edges’ needed to succeed in a crowded market place.
MGAs are increasingly being launched by mid to large-sized brokers, who have become frustrated with the net rates provided by intermediated insurers struggling to compete with the dominance of the direct writer.
High-calibre underwriting figures are also desiring the potentially more dynamic environment of a start-up and the opportunity to move away from the corporate structure into a more entrepreneurial environment that offers greater rewards.
MGAs now find themselves in an interesting position in that they are able to influence how insurance is sold and serviced in the future.
To be successful, an MGA must first overcome a number of challenges. It needs to have distribution, in order to trade quickly once it has the necessary pricing and underwriting functions in place. It needs technology or some unique selling point that will allow the MGA to differentiate itself. It needs significant investment and support from the capacity provider, with some recognition of poor underwriting performance in the early days as experience is built up.
As with all insurance entities, data is critical and MGAs with their own in-house data expertise will be able to leverage this competitive advantage over their peers. Last, but not least, is robust underlying underwriting discipline.
A firm’s technological ability or agility within a specific niche cannot by itself be the panacea to securing a high and profitable market share
Just as segment spotters cannot rely solely on their ‘agility’ as a precursor for success, technology-driven MGAs should not depend on technology alone.
There is also a question around forecasting. Under pressure to secure investment and support from a capacity provider, MGAs may have the tendency to be overly aggressive in their premium forecasts and, as a result, may put themselves under pressure to achieve onerous performance targets in an already busy market place.
By setting such ambitious targets, many of these firms may underestimate the scale of work required to hit these targets, instead relying too much on their technological or similar USP. Let’s be clear, an MGA’s differentiator is critical, especially in the highly competitive personal lines space. However, a firm’s technological ability or agility within a specific niche cannot by itself be the panacea to securing a high and profitable market share.
MGAs have to ensure the fundamentals of their business – from pricing and underwriting to its uniqueness – work well together to build a robust underwriting entity that can stand the test of time.
By their very nature, MGAs are entrepreneurial and agile. Those able to meet an identified gap in the market, with a focus on delivering returns to their capacity providers and creating new products with efficiency, control and a greater focus on the underlying fundamentals, stand to benefit in the current climate. They are also likely to significantly impact how established risks are covered in the future.
Tim Rourke is head of intermediated insurance and distribution at Willis Towers Watson
We keep hearing more and more about new MGAs and that their impact on the market is increasing. Rourke is correct in that to be successful these MGAs must get the basics right especially if, as he asserts, they will end up influencing how risks are covered in future.
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