In his article in Insurance Day back in February, NuVenture CEO Andy Colbran argued that the lure of building an MGA is higher than ever. And – judging by the conversations we’re having – it looks as though MGAs continue to appeal, despite some tough market conditions.
What market conditions?
Between Decile 10 (the drive from Lloyd’s to improve underwriting performance) and significant rate increases, some providers have chosen to keep control of more of own their risk profiles. As such, they have become less willing to make capacity available for delegated businesses, such as MGAs.
Note: less willing, not unwilling.
However, there are signs that MGAs are coming into their own again. Capacity providers are looking to meet ambitious growth targets but can be reluctant to hire more resource. Some are looking outside their own businesses to achieve this.
There are plenty of talented, entrepreneurial underwriters looking to strike out on their own who can work with those capacity providers to create real value throughout the chain.
Why is that?
Although there are examples of MGAs selling for significant multiples, in our experience this is not the primary aim for most potential founders. People usually cite one or more of these five reasons choosing to go it alone.
Legacy:
To build an MGA is about developing a business that creates value in the long term. As corny as it sounds, they want to build something of their own. To achieve results for their clients, their partners and themselves.
Ideas:
The potential founders we speak with are industry experts. They are confident about their knowledge of the products, the underwriting, the rating, they know brokers and understand distribution. Often, the biggest motivation is the satisfaction and excitement of creating their own business plan. Seeing their viable business down on paper and being driven to make it work.
Control:
In general, the insurance industry has been slow to adopt change. With the right partners, the MGA model is nimble enough to adapt to new market conditions, adopt new tech and explore new products. The potential founding teams we speak with aspire to use their expertise in a different environment where they have more control over how their business embraces change.
Finances:
Many of the underwriters we talk to understand – exactly – the value they create for their employers, but also see that there is not as much in it for them personally. In an MGA, the financial rewards are a direct reflection of the value created.
Balance:
The Covid-19 pandemic has changed many things, including the way many people see their roles at work. With many businesses asking employees to return to the office, some of those employees are questioning the value of doing the commute at the expense of time away from their families or interests.
Since we started NuVenture in 2020, we have spoken with more than fifty aspiring MGA founders and the message is consistent: they want a change from corporate life and the restrictions that imposes, they have an entrepreneurial spirit that is not being allowed to flourish and they are frustrated. Further, they have reached the stage of their career where they have the confidence to take on the challenge of running their own business.
Want to Build an MGA? Take our advice.
Stop thinking. Draft a business plan.
Put your ideas down on paper and see if you can make a viable, sustainable business. It sounds simple, but it really helps cement your thinking and develop your proposition.
If you can, talk to someone who has already been through the process.
These two steps will help you confirm whether its the right move for you to build an MGA, and prepare you for what comes next.
Think you’re ready?
Talk with NuVenture, our support framework gives start-up MGAs access to the capacity and capital required to run a successful MGA, alongside range of tech/data, legal, regulatory, compliance, actuarial, IT, HR and marketing support services.
Get in touch: contactnv@nuventure.com
