Insurance Times speaks to Manchester Underwriting Management about current trends within the MGA market as well as the all-important broker-MGA relationship
Managing general agents (MGAs) are carving a niche for themselves within the insurance sector, honing specialty skills of open mindedness about technology and innovation, as well as a focus on less traditional lines of business. This hotpot of forward thinking makes MGAs “a powerful weapon for brokers”, says Charles Manchester, chief executive of Manchester Underwriting Management (MUM).
He said an MGA offers brokers “an entrepreneurial culture”.
“It’ll also generally offer readier access to senior people than you’ll get at big companies. It’ll often offer more experienced underwriters because a lot of companies have cut back on their front-line underwriters. You put that together, it can be quite a powerful weapon for brokers.
“The [MGA] model is of more interest than it used to be.”
MGAs are also more broker-facing, added Richard Webb, MUM director. “Brokers will often talk about that, that they’ve got no contact and they deal with a big faceless corporate,” he said.
“They talk to an underwriter that reports into a head office where a nameless person is making a decision on business that is very important to that broker. MGAs, they cut through all that, they know the individuals there.”
A key jewel in an MGA’s crown is delivering a high-quality claims service and adding value to broker and insurer partners.
Webb said: “A lot of brokers, they send their risk into a big company, and the big company will sit on an enquiry and then decline it a month later. That’s not what a broker wants, they need to deal with it there and then. MGAs are well designed for that. They buy in more to providing that level of service and the decision-making process can often be faster than the big companies.”
Although Manchester agreed that “a good MGA adds value”, he added that broker perception has not always been kind to the MGA market.
“A lot of brokers, historically, have looked askance at MGAs and thought ‘we’ll use them if we have to’. I want to change that because there are some very good MGAs and what they should be asking is: ’who are the good MGAs?’,” he said.
With this in mind, trade association the Managing General Agents’ Association (MGAA), hosted a ‘Meet the MGA Market’ event last month in Leeds. This was designed to connect brokers and MGAs, as well as enable networking. Whether the event has succeeded in fostering closer collaboration between brokers and MGAs, only time will tell.
Filling the gaps
Manchester predicted that good quality capacity will continue to be an issue, especially because of the speciality lines that MGAs typically cover.
He said: “I would imagine 95% of MGAs are not involved in the kinds of products that insurers themselves sell. But most MGAs write specialty lines of business where they have something that justifies their existence [and] adds value.
“MGAs in those lines have more of a challenge to find good quality capacity than they have had in the past and the terms on which that capacity might be available. It’s safe to say that a lot of MGAs are having to look carefully at their capacity providers.”
This, in turn, will have a knock-on effect on an MGA’s profits and any business growth that it plans to achieve. Manchester continued: “In the specialty lines, rates are tending to rise and as rates rise. That puts pressure on the premium income [that] MGAs are working to and so growth can be more difficult – it depends who the insurers are who are backing you and how much extra flexibility they’ll give you.
“It’s an interesting time for MGAs. Those that are in business and do have capacity, brokers are banging at the door looking for that capacity because they’re having difficulty placing it themselves.”
Over the course of his career, Manchester has noted a shift in the insurance value chain – now, he believes that “apart from brokers, we’re all MGAs”.
He said: “The value chain of insurance used to be at one end you had the customer needing to transfer risk and, at the other end, you had the insurer that took the transferred risk and took the premium. Now, you don’t. The insurer’s somewhere in the middle of the value chain and at the end you’ve got capital.
“Before the ’90s, you would not have had capital at the end of the value chain. Capital is getting into insurance in so many different ways. Even now you’re beginning to get fronted insurers that allow MGAs to line up capital because they won’t have their own. They’re almost becoming insurers themselves, except they don’t have their own rated balance sheet, or unrated balance sheet as the case might be.”
Considering this, Manchester added that “what is an MGA is something that is going to change”. He said: “You’re going to get blurring at the edges and in that sense, an insurer now is simply a custodian of capital.”
Digital transformation is a common theme across the industry nowadays. However Manchester believes that an increasing number of insurtechs are entering the insurance market by reinventing themselves as MGAs.
“One of the easiest, low-cost entry ways of disrupting the market as an insurer is to be constituted as an MGA,” he said. “Most insurtech businesses are MGAs.”
Digging deeper into new technologies, Manchester commented that artificial intelligence (AI) will have a “massive impact”. However the timeline for its implementation is likely to be longer than the industry expects.
The timeliness of tech innovation can vary wildly across the sector too, he said.
“Innovation is unlikely to happen in gargantuan financial institutions with 20,000 people working for them,” Manchester added. “It’s going to happen, generally, in smaller places where people will take, if not financial risks, they will take risks with the way they do things. It’s easier for smaller businesses to be lean and mean to take advantage of technology.”
‘MGAs need to show they’re adding value’
John Bibby, chief executive officer of Ceta, which also operates MGA Arkel, told Insurance Times that MGAs need to showcase their value to insurers and capacity providers to have a well-supported, sustainable business model.
He said: “MGAs need to show that they’re adding value; that they’re able to understand a set of risks and areas of the market that the insurance company itself or capacity provider doesn’t. It needs to have work transfer – there’s no point in doing the same stuff that the insurance company or capacity providers can do over again, it needs to have real, demonstrable value.
“You have to have that differentiation and I think, on occasion, they’re set up just to try and take some more of the premium pound, and I think that’s exactly the wrong reason for having an MGA. Unless it’s showing demonstrable value, it’s not going to work.”
Restrictions in capacity is another concern Bibby has spotted across the market. “The Lloyd’s position on MGA capacity is quite tough; I think their expense ratios are high and there’s been a review that has made that difficult,” he added.
“[In an] ideal world, you trust your MGA to be a specialist in a particular market and, as a capacity provider, what you’re doing is just lending your balance sheet. Provided the inflow of net premium is much greater than the outflow of claims, then you’re happy and that’s the nirvana of where you want to get to.
“It’s a shame there is so much pressure on MGA capacity at the moment, but I understand why.”