In Focus: Are brokers relying too heavily on MGAs to place niche risks and is this impacting market competitiveness?

Michael Keating, chief executive, Managing General Agents’ Association (MGAA)

The genesis of the MGA model has been to provide underwriting expertise and solutions to niche and complex risks.

The broker community recognise the strength of MGAs in delivering customer led solutions and displaying a consistent innovative and agile approach to program design and pricing, the value for brokers cannot be understated.

Regarding market competitiveness, it is obviously important to break down the facts. Firstly, MGAs will have capital deployed to them from insurers which, through extensive due diligence, have the utmost confidence in their underwriting capabilities.

Secondly, the MGA in its chosen niche sector, will have significant levels of data that will be informing and shaping their risk appetite and pricing strategy. Finally, the critical claims service will be tailored to meet the customers needs which, in many niche classes, will be of a specialist nature.

Consequently, this is not reducing market competitiveness, but delivering a solution the broker requires for their customer. Additionally, it more than satisfies the regulator in positive customer outcomes.

The alternative is for organisations to enter markets without the underwriting capability, data and claims service, leading to poor customer outcomes.

MGAs are experts in what they do, the sector continues to grow internationally, investment interest remains strong and, critically, strong capital remains available.

John Warburton, co-founder and chief executive, Konsileo

Not at all. If an MGA has developed a niche that’s because it has some real insight into the types of businesses and risks they specialise in and are more agile at bringing new products to market.

Professional brokers should be speaking to multiple markets about their clients to get the best cover and the best terms. If more business ends up concentrated with certain MGAs, that tells us more about lack of investment in underwriting skills, service and product development in some of the larger composites than it does about broker behaviour.

I’m far more concerned about what volume-based deals at the national brokers are doing to the professionalism of our sector and to market competition at the larger end.

When I’m talking to new brokers about joining Konsileo I regularly hear the same story with different people – a small firm is bought by a consolidator, nothing changes at first and then the placement diktats come, leaving brokers with a limited range of larger insurers to talk to and their often clients worse for it.

Charles Burgess, chief executive underwriting and distribution, PIB Group

I don’t believe that insurers rely too heavily on MGAs to place niche risks currently. However, should that shift dramatically and an overreliance occur, it could impact market competitiveness.

Insurers are increasingly focused on large-value risks and high-volume generic products, as they benefit from economies of scale. Compliance and a softening market pushes them to achieve operational efficiencies.

Niche risks are valuable to balance portfolios, but the cost of developing and maintaining in-house relevancy to niche markets, which are small addressable markets, outweighs the potential gains of underwriting in-house.

This creates an opportunity for MGAs. They are agile, unburdened by the same heavy infrastructure costs and can be considerably more responsive to market needs.

MGAs often have speciality product expertise and risk insights, as niche-class underwriters gravitate to environments where their specialised knowledge is valued. This awareness of the need to differentiate drives MGAs to offer exceptional service, which brokers and insurers value.

Standard personal and SME lines are largely commoditised, with price being the main differentiator. However, for non-standard and niche risks, MGAs are crucial.

Without them, insurers would likely price these risks with an artificially high cost loading to offset their internal overheads for small addressable markets. MGAs offer an alternative, fostering increased competition and benefiting the customer with more options and competitive pricing.

Ross Dingwall, chief executive, Mission Underwriters UK and Europe

Brokers have always valued having an alternative to the bigger players as an option to place their clients’ risks. This is a market reality, not a new trend.

The value for brokers stems from the fact that a smaller insurer partner is almost always willing – and able – to look at how they might flex to accommodate non-standard risks. Underwriters at larger insurers are often quite tightly constrained and this can impact their appetite to insure.

In recent years, the growth of MGAs has of course been exponential, with incubators such as ourselves helping to bring more MGAs to market with, I would argue, beneficial results for all sides. MGAs make the market more competitive and this is only a good thing for clients. The regulator in fact has a specific duty to make financial services more competitive just because this is beneficial for the end buyer.

For me, broker MGA relationships are critical in helping a broker to do a good job for their clients, freeing them from relying too heavily on a strait jacket of large insurers with undifferentiated offerings.

Let competitiveness reign, I would say.

Stephen Smith, managing director of broking and placement for the UK and Ireland retail division, Gallagher

The balance between MGAs and insurers in the market works well. Specialist MGAs play an important role in allowing insurers to deploy capacity on risks they don’t have expertise in and are keen to provide solutions to end clients.

Sometimes it is not effective for insurers to build teams in multiple specialist areas of insurance – particularly where there are only limited niches of experience in the industry – so the model of working with an MGA makes financial and operational sense.

For insurers, particularly at the moment, as there is an abundance of capacity and many are looking to grow, working with MGAs is an added distribution channel.

For end clients it creates a competitive market for their harder to place risks as without these MGAs and their in-house expertise the choices would be more limited and in some cases the alternative would be not being able to access the right cover at the same price point.