MGAs: Threat or opportunity?

Scan any industry periodical these days and you will not fail to find coverage of the latest offerings from MGAs and underwriting agencies as they vie for business in a variety of niches. However, is this burgeoning route to market a long sought after panacea for insurers' distribution failings or just another short-term fix?

Brokers have less access to the market currently and ironically many insurers have also turned to MGAs and the like because they are seeing their own distribution outlets diminish. You do not have to look too far to see why this development has found wings; the market has been providing dismal service to brokers for years.

However, while these initiatives might have been inevitable, questions abound over whether or not they are good for the market and our customers.

It is critical that bottom-line profitability sits at the heart of such underwriting activities. Without this, we have an excessive cost burden with the added possibility of market instability. Surplus commissions without work transfer have been a feature of current soft market conditions and unless rates rise significantly to compensate then it will be difficult to sustain market profitability.

There is a wide variety of these new entities: the good ones deliver market access and offer genuine insight, expertise and value with the potential for a good return on equity. Insurers and capital providers will clearly continue to support such ventures.

So what of those with little or no focus on the bottom line? Poor returns will just lead to a poor reputation, reduced support and less business. Insurers may then conclude that there is no added value and that products and rates could be taken to market more effectively through their own or other means.

Where there is no value for money, there is little point.

- Phillip Bird, director of SME and non-motor underwriting, Groupama Insurances.