Insurance Times asks industry experts how MGAs are standing out to supersede insurers and increase their market share

WE ASKED: Are MGAs replacing traditional insurers and how are they differentiating themselves to grow their market share?

Steve Hedge, delegated director, RSA

Steve Hedge RSA

Steve Hedge

Managing general agents’ (MGAs) impact on the insurance market is plain to see and ever increasing – but there’s still some way to go before they replace traditional insurers.

As the number of UK MGAs grows – and their strategies mature – this part of the market is bringing more choice to brokers and customers, as well as raising service standards. This is good news, keeping insurers on their toes and raising customers’ expectations.

The differentiation for most MGAs is service led. They’re showing real hunger, a nimbleness that some insurers struggle to match and broker relationships every bit as deep as their insurer counterparts.

Increasingly, MGAs’ offerings are becoming tech-enabled too. Data may be one area where a traditional insurer might have the edge given their scale, but it’s how you harness that data that is key.

Growth strategies for some MGAs may focus on expanding their territorial footprint rather than stealing share from insurers in the UK. As we’ve seen with some broker consolidators, the reduced barriers to entry and the overall scale of opportunity may be more attractive overseas.

This won’t be true for all niches and products – each MGA will find its own way.

Going forward, we believe partnerships between insurers and MGAs will thrive, rather than create a ’them and us’ perspective.

The combination of expertise contributed by insurers and MGAs together is a benefit and, most importantly, provides a proposition that truly suits and appeals to the end customer.

Toby Clegg

Toby Clegg

Toby Clegg, chief executive, Clegg Gifford

The key for me is that the number of original insurance companies is decreasing.

The authorisation process for new insurers is extremely onerous, so entrepreneurial underwriters can only realistically focus on the MGA arena. That’s where the conversations regarding distribution are increasingly happening as insurers have a different focus.

Partly, this is due to a subtle but growing divergence of regulation between insurers and distributors.

The clue is in the title – prudential – which sees Solvency II financial stability and sustainability as being the primary focus for insurers and that means generating original underwriting profit.

Distributors will increasingly focus on the conduct of operations at the coalface, while insurers may pull themselves further away, preferring to limit their risk of customer-related activities to instead focus on scale broker partners.

This makes insurers more focused on financial investment as capacity only providers – the risk is that they retreat further away from customers.

The difficulty here could be that the hurdle to have meaningful conversations with insurers and make it ‘worth their while’ by having sufficient scale to merit capacity support becomes quite a high barrier.

Consequently, MGAs can offset this risk by acting as the conduit for brokers. Their systems and sophistication in terms of pricing and claims could eventually supersede what used to be traditional insurer activities.

Richard Laver, head of carrier management, Gallagher

Richard Laver - July 2022 - Square Crop

Richard Laver

I don’t believe we are at a point where MGAs are likely to replace insurers on standard risks, but they will continue to play an important role in the sector and are essential in providing capacity for niche risks.

As well as offering increased choice and coverage for non-standard risks – meaning brokers like Gallagher can support a wider range of clients with their insurance needs – MGAs are often important for insurers as well, to help them test new risks in a controlled environment, enabling them to gain data and insight.

Successful MGAs tend to be focused on a great service offering and providing expertise which insurer partners do not have in-house. They give insurers the opportunity to operate in various lines of business with greater agility and without the full financial commitment of writing the business directly.

A developing trend is being driven by the consolidation of MGAs. Whereas previously MGAs would tend to specialise in a handful of specialist risks, we now have a sizeable number of larger MGAs that have expertise across multiple specialisms and geographies. This is an interesting area to watch and one where we may see a change in the mix of risks between insurers and MGAs.