Insurance DataLab pulls apart findings from Insurance Times’ Five Star Rating Report: MGA market 2022/23 and its own MGA performance report to uncover why MGAs are seeing so much success with brokers

The MGA market is becoming an increasingly important subsection of the UK general insurance (UKGI) landscape, fuelled by new entrants, new products and a growing appetite from brokers for MGA’s services.

According to Insurance Times’ Five Star Rating Report: MGA market 2022/23 – published in December 2022 – around 94% of broker respondents said they now view MGAs as a viable alternative to traditional insurers.

Nearly a third of the report’s 1,300 UKGI broker respondents noted that they had increased the volume of risks they have placed with MGAs over the prior 12 months, while only 6% had opted to decrease the amount of risk they placed with MGAs.

But what is behind the success of this burgeoning sector? Insurance DataLab has run the numbers exclusively for Insurance Times to answer this question.

Service excellence

First off, the service levels being offered by MGAs has been improving in recent years.

The Five Star Rating Report: MGA market 2022/23 found that the average broker service score for this reporting period was 4.37 out of five – up from 4.29 the previous year and higher than the 4.34 result recorded in 2020/21.

This makes December 2022’s results the highest rated since the annual report launched three years ago - and comes at a time when insurer service levels have been dropping.

For example, in February 2022’s Five Star Rating Report: Personal lines 2022 – published by Insurance Times – insurers’ average service delivery score fell to 3.86 out of five, compared to 3.88 in 2021 and 3.92 in 2020.

Commercial lines insurers have fared even worse in the eyes of brokers. Insurance Times’ Five Star Rating Report: Commercial lines 2022, published in March 2022, saw insurers serving commercial line brokers receive an average service delivery score of 3.60 out of five last year.

This is down from 3.76 in 2021 and 3.81 in 2020.

Speaking at Insurance Times’ BrokerFest 2023 conference on 23 February, Mike Keating – chief executive of the Managing General Agents’ Association – said that MGAs’ service success could primarily be attributed to how open the sector is to working with its broker partners.

He explained: ”Brokers can’t get certainty from insurers in terms of delivering service and access to underwriters – MGAs can provide all of those things. [MGAs] will work with [brokers] in an innovative way to get a programme designed that is right for [the] client.”

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MPR Underwriting on Top

Top of the table for MGA service is MPR Underwriting, according to the Five Star Rating Report: MGA market 2022/23 – an overall score of 4.90 earned the company a five star rating for the third consecutive year.

Lorega and Prestige Underwriting also managed to hold on to their five star ratings from previous years with overall scores of 4.81 and 4.76 respectively, while Renovation Underwriting, KGM Underwriting and First Underwriting were a trio of new entrants that took home five star ratings for the first time in 2022’s report.

The final five star broker from last year was Nexus Underwriting – its overall service score of 4.76 was enough to earn it an extra star after it achieved a four star rating in 2021 with a 4.64 out of five result.

Across all 42 MGAs that received a rating from brokers in 2022’s report, 19 collected an improved score compared to the previous year, while only eight gained a lower score. The remaining 16 were all new entrants, proving increased broker appetite to engage with MGAs.

The most improved MGA last year was One Commercial after it increased its score by 0.91 to 4.65, helping it obtain a four star rating from brokers – it only achieved two stars the previous year with a score of 3.74.

Productivity gains

While MGAs appear to be delivering on service, they have also managed to pair this with strong financial results, according to analysis from Insurance DataLab’s inaugural MGA performance report, published in December 2022.

The MGAs featured in this research reported incredibly high levels of productivity, picking up an average Insurance DataLab productivity rating of 54% for 2022 - up from 53.3% for 2021 and 53.6% for 2020.

This compares to an average productivity rating of 51.8% for brokers in 2022, compared to 51.9% in 2021.

Insurance DataLab’s findings showed that the MGA market performed best in terms of staff costs as a percentage of turnover, receiving a standardised score of 64% for 2022. Aggregate staff costs accounted for 47% of turnover.

When it comes to turnover per employee, the average standardised score for MGAs stood at 46% for 2022 – MGAs brought in an average of £232,000 per employee.

Profitability, meanwhile, has remained relatively steady for MGAs over the past three years. Insurance DataLab determined an average profitability rating of 48% for 2022.

This is down marginally from an average profitability score of 48.6% in both 2021 and 2020, with lower earnings before interest, taxes, depreciation and amortisation margins from 2019 pulling down the three-year aggregate position – despite improvements in recent years.

Meanwhile, aggregate operating profit for the MGAs in Insurance DataLab’s research rose by 44.6% to £66.3m for the 2020/21 financial year after costs grew by less than 1% over this reporting period to £593.7m.

This figure is slower than the 54.8% growth in aggregate operating profit these companies recorded over the previous 12 months – however, 2020/21’s result is still much higher than the 5.7% growth in profits noted for 2018/19.

Meanwhile, the average growth rating for MGAs in Insurance DataLab’s analysis stood at 49.4% for 2022. This marks a 2.2 percentage point decline on 2021’s number (51.6%), as well as a dip compared to 2020’s average score of 53.8%.

This reduced growth was driven by slowing revenue growth, with the MGAs analysed by Insurance DataLab reporting aggregate revenue growth of 4.1% over the course of 2020/21 on revenues in excess of £660m.

This is down from revenue growth of 14.4% and 23.5% in each of the previous two years.

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These results also demonstrate the importance of customer service when it comes to financial success – Insurance Times’ victor MPR Underwriting picked up an Insurance DataLab gold award for its financial performance to go alongside its five star rating from Insurance Times.

In fact, MPR Underwriting was also crowned the top rated MGA by Insurance DataLab, picking up an overall performance rating of 76%.

According to Keating, MGAs have benefited by positioning themselves as experts when it comes to placing specialist risks and providing solutions for niche areas of the UKGI market.

He said: “What MGAs are exceptional at is providing underwriting expertise in exceptionally niche and challenging areas where some insurers just can’t do that – and they will continue to do that.”

The ongoing cultural shift within the UK is also expected to help fuel demand for the niche products typically provided by MGAs, with the rise of the gig economy, changing mobility needs and a greater awareness of environment, social and governance issues all leading to greater product innovation.

All in all, this means that the future looks very bright indeed for the UK’s MGAs - as well as the brokers and customers they serve.