The rationale behind the new wave of MGAs

Why are the consolidators moving into, or building up, their managing general agencies at a time when major insurers are turning against the model? The move is not as contrary as it might seem. For the big broker players such as Giles, there is a world beyond Norwich Union and AXA.

OK, so the big composites have publicly turned against the consolidators as they seek to cut their distribution costs. This is good news for the smaller brokers that are currently getting a lot of love and attention from them.

But it’s not all bad for the consolidators. There is another tier of insurers that remains only too keen to access their huge distribution capabilities. Lloyd’s and the London market, insurers such as Fortis that are developing their UK presence, the Groupamas and Brits of their world: the consolidators can still offer them a lot of value.

But these insurers don’t have the capacity too handle as much of the consolidators’ books as NU and other composites used to. Managing numerous small relationships would be cumbersome and inefficient for the consolidators. The answer? Bundle all that capacity into a managing general agency, push large amounts of their book through, cut costs through economies of scale, return a healthy profit.

It’s a clever plan and, if it works, could see a significant shift in the landscape of the entire market.

See story: Consolidators back MGAs despite insurer snub