Uncertain future for MGAs as they pray for a hard market
The decision by Primary and its sister company Rural Insurance to cut staff in tough market conditions is possibly just the start in a what is going to be a year of downsizing for managing general agents (MGA).
In a soft market, underwriting agencies have to battle particularly hard against rival insurers offering competitive deals.
Added to this, MGAs face increased scrutiny from their capacity providers who want solid returns for the risk they face in uncertain times.
Primary felt the squeeze last year when RSA pulled out, but thankfully for them, Norwich Union stepped in. MGAs, more than anyone else, will be praying for the return of a hard market. The good news is that Ian Clark, Deloitte’s corporate insurance finance partner, believes the hard market is on its way.
He said: “They (MGAs) are coming out of a soft market and into a hard market. Most reports are of a hardening market.
"The prospect of having an MGA is quite attractive.”
Clark believes insurers tend to focus on their core business in a hard market and give less attention to specialist niche products.
Well-managed MGAs can provide a cost-effective route to the niche market, as long as they can demonstrate the underlying profitability of their book of business.
He believes UKU, which offers specialist products in travel, financial and property insurance could come do well in the hard market.
He also believes Primary's Rural business – despite the announcement of the job cuts – is in a good position to benefit. As the market changes, something interesting to look out for will be the formation of MGAs.
Over the past few years there has been a boom in the formation of MGAs. It will be interesting now to see whether the market is saturated or if there is still more room for more MGA start-ups.
