MGAs fill in the gaps left by insurers

John Holm, executive, MGA investments, Asta

There’s a feeling that the traditional carriers which are providing the capacity that sits behind the MGAs are delegating the broker relationship to the MGA. The problem is that a lot of traditional carriers have got legacy IT issues and they’ve also got a legacy mindset – and most of these things MGAs do not have. MGAs have got the latest technology and a start-up, proactive mindset, so can deal with brokers in a more proactive way, particularly for niche classes of business. Also there are shorter lines of communication.

However, carriers that are proactively giving MGAs their pen are also benefiting potentially from a diversification perspective. It’s one thing getting a good underwriting result and carriers, if they can develop more and more niche products through the MGA, they can get more of a diversification benefit under Solvency II. So it’s a win-win. Some carriers are thinking about it and some are not. The ones who are more proactive will be more successful.

When it comes to schemes, traditional carriers are looking for volume. For brokers with new scheme business, it may be better to approach the MGAs who are happy underwriting a far smaller volume. Again, it comes back to the MGA having the insurance capacity to do it. And generally they do. Dialogue and access to decision makers is hugely important when it comes to developing schemes - and that’s what MGAs offer.

Matthew Schofield, chief commercial officer, UK General

There has been much talk (and some action) of general insurers pulling out of personal lines broking and choosing to go direct, or staying away from some business lines altogether. This is primarily driven by Solvency II considerations. But as a result brokers can no longer rely on insurers providing certainty.

The discount rate has also impacted the market, although insurers with strong balance sheets and a diversified portfolio should continue to support brokers, as long as those brokers can deliver profitable business with low loss ratios.

In contrast, MGAs have mushroomed in recent years and, while consolidation is rife in broking, there is less M&A activity among MGAs (UK General being a notable exception). What is apparent is that MGAs are evolving.

Although MGAs have been around for years, their increasing prominence is changing the market dynamics, and their presence has increased the choice available to brokers as to who to trade with. As insurers pull in their horns and instead focus on capital and balance sheet management, nimble, agile, tech-savvy MGAs with quality backing are proving to be useful alternatives. Moreover, MGAs tend to write niche and specialist insurances, where brokers can make the most of their expertise and advice-led business models.

Paul Anscombe, chief executive, James Hallam Insurance Brokers

Brokers are often closer to the clients and therefore they’re best placed to come up with new ideas for specialist affinity schemes. These are products that are tailored to a particular type of SME business, for instance hotels, shops, pubs or tree surgeons, businesses that share a similar risk profile and have similar issues. However, many brokers are struggling to sell their new scheme ideas to insurers and hence, increasingly, reinsurers and MGAs are stepping into the relationship

Insurers’ minimum requirements could be £250,000 in premium in the first year, or even £500,000, which for a broker developing a new scheme can be really hard to guarantee or predict. If you’re pursuing a new idea, how do you know if it’s going to be a slow burn or if it will succeed very quickly? If insurers are saying they will only commit to a scheme if you can guarantee a minimum level of income, it becomes a real problem.

From our experience, reinsurers and MGAs are often far more flexible in their approach to scheme business than the traditional general insurance company, and this can give the broker a competitive edge on a scheme. By going direct to the reinsurer it takes some of the cost out of the equation, and reinsurers are often happier to let the broker take a greater lead in the product development and to give them more flexibility.

If you go to a major general insurer the starting point is their standard commercial package policy and you then try to adapt that to a scheme wording. Whereas with an MGA or a reinsurer you can start afresh and create something that’s truly unique, rather than an adopted version. And from the reinsurer’s perspective it gives them an opportunity to get closer to the original risk and to develop their understanding of specific business types in different sectors.

Ray Johnson, proprietor, Independent Insurance Services and Insure Green

MGAs are generally structured to give an authority from the insurer to provide the flexibility of being able to bind, price and handle claims. It’s an attractive distribution avenue, particularly for special facilities/schemes from the broker perspective to the end client.

By offering an enhanced package, which may well include additional covers, often sector-specific with a specialist approach, it generally enables a more comprehensive offering than what is available by the standard insurance policy packages. This can be attractive to the client as there is a greater demand and expectation who are demanding a better deal and package.

The traditional insurance market may well be affected by this due to the diversion, and subsequently traditional standard offerings may be affected from a revenue perspective. It may be that most business sectors will expect a much wider approach of covers as demands continue and the broker may have a duty to offer the wider package knowing it may be available.