According to a recent report by Insurance Times, 94% of brokers surveyed consider MGAs to be a viable alternative to larger insurers*. While some industry observers suggest that the growth of MGAs poses a threat to traditional insurers, but it must be remembered that MGAs and insurers typically work in partnership to compete against other MGAs/insurers. Where there do compete, this is a benefit to the industry: healthy competition often drives innovation and differentiation. It is widely acknowledged that the insurance industry has been slow to modernize.
Are MGAs a threat to insurers?
Market commentary often positions the growth of MGAs as a threat – MGAs vs. Insurers – suggesting that traditional insurers are now fighting both other insurers and MGAs for their market share. And, in some cases, MGAs do compete with certain insurers for specific lines of business.
However, most MGAs are backed by insurers and operate in partnership with them (these insurers therefore become “capacity providers”). Capacity providers often choose to work with MGAs because they lack the expertise, resources, or willingness to serve a particular market. Thus, the MGA its capacity provider form a mutually beneficial relationship that serves them both.
It’s not really MGA vs Insurer – it’s a Partnership
Whilst MGAs and insurers can be in competition for the same business, it’s not the business models that are in competition with each other – it’s the individual businesses. The end insured simply wants their insurance needs met – whichever business can best meet their needs will win the business.
In fact, insurers often outsource some of their capacity to MGAs when they cannot serve a particular market in-house. As such it’s an insurer-backed MGA in competition with another insurer (or, indeed, another insurer-backed MGA).
Value Creation is Key
The capacity provider benefits from the MGA’s specialization, access to new markets, and unique distribution methods. The MGA gains the capacity it needs to sell its policies and build a profit.
To continue adding value and succeeding in a hard market, MGAs must prioritize communication with their investors. Stable capacity is one of the primary challenges facing MGAs. Thus, effective communication is crucial to success. Traditional insurers must also look past a surface-level threat and instead “[their] value creation thesis must stem from the expertise, distribution, insurer relationships, diversity of earnings, and operational synergies offered by each MGA.”**
Differentiation is Crucial
Insurers choose to work with MGAs that differentiate themselves through access to new markets, unique distribution methods, and expertise in non-standard, niche, or specialty lines of insurance. By partnering up, both businesses gain significant advantages and see their book of business grow.
In summary…
MGAs and their capacity providing insurers operate in symbiosis. Whilst they do compete with other insurers (and other MGAs) talk of MGAs posing a threat to insurers is overstated. End insureds will simply go to the provider who best meets their needs. MGAs are revitalising the market by providing genuine competition, which is becoming a catalyst for innovation and modernization.
Is running an MGA the right path for you?
Interested in finding out what it takes to build, launch and run your own MGA? Do you have an idea for an insurance business that could win the backing of insurers? We’re happy to help. Speak with the team at NuVenture – contactnv@nuventure.com
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* Insurance Times’ Five Star Rating Report: MGA Market 2022
** McKinsey: “Insurance MGAs: Opportunities and Considerations for Investors” (August 30, 2022)
