In Depth: The influence of the MGA space on schemes  

The schemes space has, in recent years, seen more and more managing general agents enter the market, according to scheme provider Travelers.

Acting as extensions to insurers, MGAs’ increasing influence in schemes has created a mixed bag of opportunity and challenge for competing scheme brokers.

Matthew Schofield, chief underwriting officer of Q Underwriting, explains: “I think MGAs have inbuilt capabilities to handle schemes, probably more so than a broker would. They’ve got product teams, they’ve got marketing teams, they’ve got underwriters, they’ve got a good view around pricing, so all of those components within an MGA make targeting schemes a lot easier for an MGA than perhaps a broker that wouldn’t have all those functions in place from day one.

“MGAs have capacity and relationships in place already and often partner with insurers to be able to target schemes. So, I think these two things would put an MGA in a stronger position to target schemes and therefore they started to do that.”

Pros
As specialist MGAs move into the scheme space, the customer proposition changes and becomes more adaptable, says Michael Keating, CEO of the Managing General Agents’ Association (MGAA).

Keating details that one of the core advantages of MGAs in schemes is their agility and nimbleness compared to insurers. Consequently, this enables them to change their products, their pricing, and their coverage very quickly to meet the changing needs of the end consumer through working with their brokers.

“MGAs can do all these things in 24-72 hours provided they have the necessary data, and insurers can’t move that quickly,” Keating said.

Keating also highlights that MGAs have a real place in the insurance ecosystem, as they provide levels of expertise in key niche and specialist segments.

He went on: “They have a complete differentiation in what they do, and that’s why insurers are so keen to partner with MGAs and that’s why so many brokers look to support MGAs, because they get that expertise, but they also get an unrivalled level of service, they are able to deliver an excellent level of service consistently.”

Simon Medhurst, schemes development manager at Travelers, added: “I think MGAs provide a more specific niche to the marketplace. The MGAs that I have seen are fairly detailed and more restricted in the market.

“There are ones that are out there doing the general wider stuff, but the opportunities that we’ve seen have been pretty niche in that MGA. So, I think it’s created greater depth and width to the scheme market as a whole.

Stability
Both Keating and Schofield note that specialist areas like schemes can lead to greater profits, and if an MGA already has expertise in place, it makes moving into that specialist space a natural progression.

Schofield believes the infrastructure that an MGA has allows them to move into schemes more easily especially if the MGA has long-standing capacity arrangements. He commented: “In terms of the customer proposition, they’re going to get a more stable proposition, where an MGA has more long-term partnerships with capacity.

“Typically, MGAs would have three to five years arrangements in place with capacity, so you get a more  stable environment with an MGA. From a customer perspective, that gives them a long-term proposition.”

Growth
Software providers like Ignite Insurance Systems have attributed the increasing number of MGAs in schemes changing appetite from some insurers.

Toby MacLachlan, managing director of Ignite, explained that the reason MGAs are springing up is because some underwriters who have been previously involved with big insurers have found no appetite for schemes within the companies.

He went on: “So, they are going off and instead of setting up niche brokerages, they’re setting up MGAs, and in some cases, they’re doing it because they know the brokers that would do well in some areas, and in other cases, they’re doing it because they know the pricing.”

One potential threat to the broker space, according to MacLachlan, is that when an MGA takes a system like Ignite’s and manages to get a distribution channel, like a niche price comparison website, the requirement to pay 20% commission to a broker vanishes.

He continued: “You might as well go direct as yourself as the MGA. There are more and more doing that sort of thing. That’s following the type of pattern that major insurers are following, with stepping back on their broker relations slightly rather than stepping them up.”

Broker view
This all sounds like a negative for brokers, but all is not lost. The burgeoning influence of MGAs, mixed with fresh insurer appetite such as that offered by providers like Travelers, has created opportunities for intermediaries.

The insurer detailed that it is committed to supporting managing general agents with capacity in the schemes space and to offering sector expertise, access to sector experts, a long-term partnership view, excellent tailored claims service, wording review capability, data focus, risk management assistance, and marketing assistance.

With Lloyd’s and other insurers having exited a number of schemes, Richard Webb, regional managing director for Towergate Insurance Brokers, noticed that this has also given MGAs the chance to grow.

Webb detailed: “I think we’ve seen lots of insurers exit markets, a result of the pandemic, there’s been a real deep dive into what schemes they do or don’t want to do.

“When an insurer no longer wants to do a scheme and the broker and the clients don’t like the terms of that scheme, it creates a competitive environment where books of business are out for tender, and you’ve got MGAs in that space that want to grow and that creates the environment for those things to happen.”

Upturn
Suzy Middleton, CEO of SEIB, added: “We’ve personally seen an upturn of brokers using MGAs more readily now because the doors are shut with respect to insurers.

“If a broker needs to place a client, and if they’re not their answers or the capacity from an insurer, they will take the MGA route, and there has clearly been an uptake in that.”

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