Three industry experts discuss capacity arrangements in the MGA market, outlining innovative future options and current frustrations

WE ASKED: ”What are your concerns regarding the longevity and stability of capacity arrangements for MGAs?”

Peter Clarke_Insurercore_standing garden

Peter Clarke, Insurercore 

Peter Clarke, managing director, Insurercore

“We have, over the past year and a half, seen insurers dramatically change both their capacity and risk appetite, with the majority increasing rates and a significant number pulling out completely from certain lines - MGAs are the first to take this hit.

“For MGAs with only one binder, this has been extremely damaging and a few have found themselves unable to continue writing business, with either not enough time to source new capacity or no other market available to approach.

”That said, the vast majority of MGAs that have maintained consistently high underwriting standards and have effectively engaged with their brokers seem to have come out stronger, with rate increases adding to their bottom line.

“It is certainly a worrying time for many, especially those whose loss ratios are subpar.

”But, where there is turmoil, there is profit to be made and as long as MGAs can manage rate increases with their clients and are not reliant on a single binder that can be pulled at any moment, there is a lot of opportunity for MGAs that can, generally speaking, move more nimbly than the larger insurers.”

James York_Worry+Peace

James York, Worry+Peace 

James York, founder, Worry+Peace

“The MGA model has proven itself in the market – filling niches and offering fast service in areas underserved by traditional underwriting.

”They are nimble and solve genuine buyer issues to close protection gaps across the economy. Insurtechs will play a key role in MGAs maintaining their edge.

“Insurtechs have often begun with ‘MGA-lite’ models. My only concern has been that the carriers backing them enable free hands to craft pottery – otherwise innovation can spin from the control of founders, especially when time is of the essence and building brand is all-consuming and costly.

“I’ve also long wondered if we’re due a ‘market leap’. Cooperation has always been critical to workable risk transfer in the UK. Is there an Alternative Investment Market (AIM) - a sub-market of the London Stock Exchange - equivalent to the Lloyd’s of London FTSE? Would MGAs and intermediaries be better served by thinking on this strategic gap?

”Now tech enabled, Lloyd’s is doing incredible strategic work. Perhaps there is room for a less formal companies market comprising of MGAs, delegated underwriting authority (DUA) distribution and advisory intermediaries. That’s the kind of platform that open insurance could grow from.

“Our industry needs to think about how digital empowers specialists like MGAs and gives even more relevance to the broker or recommendation model across wholesale and DUA retail.”

Mike Keating, chief executive, MGAA

Mike Keating

Mike Keating, MGAA

“Developing an enduring relationship with an insurer partner is a key strategic objective for all MGAs as it brings security to the business and offers confidence to their broker or retail customers.

“However, the longevity of such capacity arrangements depends on a number of key factors - not least the need for the MGA to continue to deliver, at a minimum, satisfactory underwriting performance. Preferably, underwriting would be provided over the cycle of the capacity arrangement to a superior performance.

“I have a clear view that as long as the MGA has the required pricing tools, a well defined risk appetite, excellent data analytics and the ability to relentlessly interrogate its portfolio performance to identify both profit pools and underperforming areas, then their attraction to new and existing capacity will be well served.

”Conversely, any lack of attention or skill set in these areas will ultimately impact underwriting performance, placing capacity arrangements under pressure.

“One clear area of frustration for MGAs is a change of insurer strategy resulting in the loss of capacity, irrespective of the underwriting result, often at short notice.

“This action is then compounded by the short notice and cancellation periods of some MGA contracts. This presents a significant challenge to onboard the portfolio with a new market, given the high level of due diligence and governance now required.

”I urge all MGAs to ensure they agree a suitable cancellation period with their carriers for the benefit of all stakeholders, not least the end customer and the reputation of our fantastic profession.”