No "I" in "Team":
MGAs and their Crucial Role in the Market
Those unfamiliar with the insurance market may struggle to get their head around MGAs. Are they not simply insurers by proxy? What value do they add? But – for those in the know – MGAs represent the potential (and some may say the future) of the industry. They have huge value as the chief vehicle for innovation, flexibility and change. Working with MGAs delivers real benefits for capacity providers, insurtechs, investors, underwriters, brokers and, ultimately, the end insured.
By working in partnership with each of these industry players – and more – MGAs offer distinct advantages that move the whole industry forward for the better.
MGAs are essentially outsourcing for these entities. Where there is lack of resource, expertise or willingness inhouse to tap into a certain market, insurers can simply provide capacity to trusted underwriters via an MGA. It is a low cost means of entering a new market, and although cost may grow as loss ratios come into play, this is also paired with incoming profit.
That is not to say that MGAs present no risk to capacity providers. MGAs represent both risk and cost mitigation for insurers. However, risks do remain. For example, if the underwriting is not done correctly, it may open the capacity provider to a lack of reinsurance for certain claims.
That is why it is crucial that well-respected and experienced underwriters are at the helm of their MGAs. The insurer must have faith that all operations will be efficient, effective and correct. The decision for insurers to commit their funds to MGAs is founded on trust.
For Insurtechs, MGAs represent a vehicle to deploy new products quickly. In our experience, in the months prior to MGA launch the founding teams work with their insurtech provider to develop a tailored, fit-for-purpose product. MGAs also represent ease of deployment. These teams tend to embrace – and even to build their businesses around – the tech, rather than forcing their products to work effectively alongside legacy systems, etc.
Working with MGAs also means insurtechs have the ability to deploy their new products in smaller, more flexible teams. This will allow the products to mature and the businesses to grow into a position where they are able to easily deploy them within larger entities with a more complicated infrastructure.
As an industry, insurance is counter-cyclical. Meaning it is not tied to the success of the stock market. As such, it is an attractive option for investors looking to balance their portfolios. Investment banks, private equity firms and independent investors would previously looked to Lloyd’s syndicates as vehicles in which to enter the market. MGAs also now represent a viable investment opportunity, as they have fewer barriers to entry and a lesser regulatory burden.
Founding teams are typically experienced and well-respected underwriters, whom capacity providers trust with their funds. They may have an idea for a new market, product or method of distribution that large, corporate insurers have found difficult – or impossible – to accommodate. There may also be other frustrations in a corporate environment – such as the well-known slow pace of change within these entities, drawn-out decision making, onerous regulatory requirements, lack of flexible working options, etc. In establishing their own MGA, underwriters can establish their own parameters for each of these elements.
Much of an MGAs GWP comes in via brokers. Therefore, where interactions between MGAs and brokers are concerned it is imperative to make it as easy and simple as possible for the broker to conduct their business.
In addition to the obvious outsourced specialist risk selection, working with MGAs allows brokers quicker responses, simpler products and quality underwriting.
MGAs tend to be established by experienced and knowledgeable underwriters, who have made use of the latest tech and data insights to make risk selection and underwriting as accurate as possible. As such, the end insured can have confidence that their risk is accurately underwritten and in that their coverage meets their coverage requirements exactly.
Together, Everyone Achieves More
The success of an MGA often hinges on the level of trust and communication between an MGA and all its partners.
It is often said that insurance is a people business. Capacity can be said to follow well-respected underwriters wherever they may go, and MGAs offer them the vehicles they need to work in a more innovative way, and with increased flexibility.
Insurance transactions can – and do – take place without MGA involvement. They are still a small part of the market, but they are growing. Where the risk is specialist and niche, where insurers/capacity providers require proof of concept, or where investors are looking to enter the market, MGAs can be the perfect partners.