The market is changing and MGAs have a big issue

By Content Director Saxon East

Here’s a great story a broker told me about MGAs. 

The broker was looking to pick up a new client - a businessman that had left the rat race to start up his own mini golf company.

He’d re-mortgaged his home and risked a lot for this new venture. 

After espousing the joys of being an entrepreneur, the businessman began to reveal his insurance details. 

”So, who is your insurance with?” the broker asked. 

A company called Gable. They’re really good. Really cheap,” the entrepreneur shot back.

MGA capacity issue

I reminded myself of this story when I found out recently that my property insurance was placed with Instant Underwriting. 

Who? Never heard of them. 

My first thoughts turned to capacity and its strength. 

It turns out they have a series of deals with other MGAs and insurers. The property owners’ cover is secured by Faraday, so at least it is a Lloyd’s market. 

This story encapsulates the biggest issue with MGAs.

How can you be sure their capacity is rock solid?

Even when they appear to have good solvency, there can be complex reinsurance arrangements that are weak.

Motor insurers Gefion and Alpha appeared to have robust solvency, but the reinsurance was not strong enough.

Capacity is even more of an issue with Lloyd’s players withdrawing from the market in the last couple of years.

Furthermore, the risk appetite of insurers to back MGAs generally is changing amid the pandemic - especially on those lines most hard hit. 

Having a good loss ratio is key to securing the best capacity.

But even then, an insurer can turn their back because they are concerned about exposure in those particular lines.

Other insurers might decide it’s time to bring back the business in-house to take advantage of hardening lines. 

On top of all this, the broker needs to see that the deals are multi-year, like the one Plum recently secured with Zurich. 

Having annual arrangements is destablising. 

Amid all these challenges, there is a danger MGAs could fall back on unrated carriers. 

For those MGAs that do have blue chip capacity, they should make more of a show about it.

Shout it from the rooftops. Give your brokers confidence.

MGA survey now open 

MGAs have a vital role to play in filling the gap on niche products and providing a distinguished service offering that mainstream insurers can lack.

In order to carry out this function, brokers must feel secure that MGAs have the right backing.

To that end, a little bit of a plug.

Brokers should take part in our MGA survey, which is out now. 

This will help promote awareness about MGAs, their service and capacity.

Click here to have your views heard on MGAs.