Managing General Agents (MGAs) are the hidden giant behind much of the insurance business, general or otherwise, conducted here and across the globe. From the naked eye they appear to be the insurer at the end of the chain. As it stands, ‘over 300 MGAs currently underwrite over 10% of the UK’s £47 billion general insurance market premiums’ , in addition to accounting for over a third of Lloyd’s premiums. Yet to define and accurately represent what truly constitutes an MGA in this current market is by no means an easy task.
The best, simplest, and most visual way to understand what in the world an MGA does is to imagine an extendo-hand grabber (or back scratcher. Take your pick!) retrieving a lost TV remote from behind the back of a sofa. An MGA is, for the most part, an external, third-party tool for insurance companies or syndicates to get to those hard to reach areas they would otherwise struggle to reach. However, it must be stressed that this MGA vehicle/tool is entirely autonomous relative to the insurer, legally and financially. It is only delegated certain responsibilities to perform on the insurer’s behalf (for a commission), including most prominently underwriting. Unlike the insurers that stand behind them, MGAs themselves do not carry the risk.
But wait, there’s more…
The industry is currently witness to a huge flux, not only in the London market and beyond, but also in the MGA space, which is receiving an amplified knock-on flux. While we could comfortably leave the definition resting as above, that would not do it justice. Combinations of innovation, hardening market conditions, and juxtaposing niche capacity abundance have divided the space into what I label as three camps.
Traditional MGA – This is the extendo-hand grabber described. It is a vehicle that can access business which insurers would otherwise struggle to reach, offering them a low execution-cost avenue to acquire targeted business.
Insurtech MGA – Insurtech is the word on the entire market’s lips. The pure, transaction-focused Insurtech MGA, unlike the Traditional MGA, often has a focus on the broader general market. This can be seen as competition for insurers, but these MGAs engage with technology in a user-centric way in order to provide efficiencies that stand apart from the prevalent industry model, providing a key differentiator.
Imposter MGA – These, typically larger MGAs often act in the same way as an insurer, with much of the desired autonomy (though still without carrying the risk). That gives them their ‘imposter’ status. More often that not, they are supported by reinsurers providing risk capacity from behind a registered front. This structure allows for far more in-house decision making, whilst removing much of the underwriting risk assumed by a traditional general insurer. That makes Imposter MGAs an attractive proposition for investors.
Whilst this segmentation is clear and very much exists, MGAs are occasionally a combination of two or more of the models. A Venn diagram (as above) shows this effectively.
So, what does the future hold?...
Many consider the last five years or so to have been the golden age of the MGA vehicle. However, recent poor London market results and consequent capacity reductions have led to insurers (on certain classes in particular e.g. Property, professional lines etc.) temporarily pulling away from the space, in order to repair and restore order. As a result we have witnessed numerous MGA casualties (often unfairly) losing capacity, sparking a tectonic shift in the MGA space. The need for creativity in approach and MGA formulation has never been so critical. This creativity drive, in partnership with booming innovation, points towards golden age 2.0 resting on the horizon for MGAs.
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