Broker CEO Forum attendees believe broker-owned MGAs are a ‘smart’ move, yet will innovative MGAs still be in demand when the hard market wanes?

By Editor Katie Scott

Broker consolidation has been a hot topic within the insurance landscape of late, with even the Covid-19 pandemic failing to halt the onslaught of spending sprees.

Katie Scott_bw_path

Katie Scott

However, attendees at last month’s Broker CEO Forum – held on 21 October 2021 at Pennyhill Park Hotel and Spa – earmarked MGAs as next for the consolidation chopping block.

Although delegates agreed that MGA consolidation is clearly on the cards, they were quick to add that this wouldn’t be occurring with the same rapid-fire pace as broker consolidation.

Businesses on the prowl for MGA buys will undoubtedly be looking at the capacity deals it has arranged, looking for sustainable business models and a return for the paper.

Delegates said that pure capacity alone does not demonstrate value, however, so MGAs will need to look at other facets of their business in order to showcase their worth to potential partners and parents.

Broker leaders noted that MGAs with a specialism, niche or single line of business will also be able to command a higher multiple due to a perceived level of expertise – however attendees added that the definition of a niche is becoming broader. Some were puzzled, for example, that construction risks were now deemed as a specialist market segment.

Another consideration, according to delegates, is data analytics – there is “inconsistency” between MGAs here, they said.

Overall, brokers deemed it “smart” to have an MGA as part of a broking business model – they added that this approach was easy to understand because it created efficiencies in terms of data sharing, allowing broker-owned MGAs to gain a greater understanding about the end customers and the broker’s niche.

Insurer days numbered?

Some Broker CEO Forum attendees mulled whether the days of the big insurers were numbered, with the market’s focus seemingly switching to the provision offered by MGAs.

A few brokers even questioned whether larger insurers were failing to innovate because they were relying so much on MGAs, however others in the room said neglecting to innovate would be too much of a “missed opportunity” for insurers.

Delegates did highlight the importance of brand, however, especially in conjunction with market cycles. In a hard market, for example, brokers need to find solutions for their clients, so they may have to explore options provided by creative MGAs.

But, in a soft market, brokers may instead turn to the “comfort” and “reassurance” of buying from a big brand insurer, particularly as many customers like being covered by household names.

There’s no beating around the bush here – the popularity of MGAs has absolutely skyrocketed in the latter half of this year and opportunities clearly abound for these businesses as a myriad of market participants discuss the MGA model and what it can bring to their companies.

One Broker CEO Forum guest said he was “surprised” and “impressed” by the resilience of MGAs throughout the recent hard market, adding that these businesses were a “credit to specialist underwriting”.

With momentum clearly on their side, how MGAs opt to use this industry goodwill and interest in 2022 will be a keen focus for many brokers that have an eye on their M&A pipeline.