A Growing Sector
The start of a new year is a good time to take stock, and gain momentum for progress in the year ahead. At NuVenture, we’re excited about the potential for MGA growth in the global insurance space.
The Potential for MGA Growth
The UK MGAA figures show 138 MGAs registered with them in 2018 and 187 in 2022 – that’s around +9% yearly growth.
However, for that same period premium has only grown from 5.5bn to 6bn, so we can infer that niche specialist MGAs are the driver in numbers growth, whilst larger, more generic MGAs may be declining.
These figures represent the picture in the UK, but globally MGA premiums reached a record $60bn (£53bn) in 2021, up from $51bn (£45bn) the year before1.
This growth demonstrates that the MGA sector is an increasingly an attractive option for both insurance professionals and insurers. Although the industry continues to digitise, insurance is still ultimately people-driven and revenue and capital continue to follow people.
MGAs and the Talent War
It’s well-known that the industry is suffering a talent shortage. Two key factors are making people reassess what they want from their careers: digitisation and hybrid working.
An MGA is a great way for insurance professionals to improve on or start afresh with technology focused insurance solutions.
The hybrid working model has also given confidence that businesses can both be run and grown remotely as well as access suppliers from anywhere.
Both of these factors apply to professionals in the right corporate environments with an innovation agenda as well as those looking to Thinking About Starting Your Own MGA? – NuVenture.
The Advantages of an MGA
- From the insurers’ perspective:
Outsourcing underwriting to an MGA not only offshores the fixed cost of running a business unit in-house, but will also drive revenues – unlike outsourcing in the majority of other industries.
- From the business perspective:
The speed and agility of MGAs are their big appeal. They’re relatively fast to market, and the internal decision-making process is also much quicker, as is the pace at which MGAs can implement change.
- From the MGAs’ perspective:
Speed of decision-making and the implementation of tech to drive efficiencies mean that the underwriting can be more accurate through leveraging data, and the needs of both the broker and the insured can be serviced much quicker.
Insurers are well placed to take advantage of these benefits in order to balance their portfolios and exposures. This is typically done by allocating capital and letting the MGA expand the book on their behalf – whether that’s in a new market, geography, or with a new product.
That being said, insurers will need to work closely with their MGA partners to establish underwriting controls and governance, and it is critical that team members on both sides understand the product well to ensure interests are aligned.
It’s not just insurers…
Other investors are also looking to work with MGAs. The development of ratings for MGAs by AM Best is a clear indicator that there is a demand from investors.
On a purely asset class view investing in MGAs is a chance to get exposure to the insurance market and cycle which is generally counter cyclical to the financial markets. Plus, with an MGA there is no need for a capital balance sheet and less regulatory costs, so downside risk is known making it an easier investment decision.
With rising investment yields and high inflation likely to impact different insurers balance sheets and results in different ways there is uncertainty going into 2023.
In addition, large RI losses (such as those resulting from Hurricane Ian of around $50bn) eventually pass down a cost to insurers and MGAs as the market helps rebuild the balance sheet. As such, over the next few months there could be some pressure on average MGAs without a long-term capacity arrangement.
However, in the medium- to long-term MGAs are ideally placed to react to faster economic cycles and are ready to harness data to more accurately define and underwrite ever more complex risks. In other words, MGAs are on the launch pad – and the sky’s the limit.