(Image credit: Shutterstock.)
Managing general agents, or MGAs, are not just run-of-the-mill insurance agents—they are a type of retail or wholesale insurance distributor. Affiliated MGAs enable greater insurer agility by allowing them to place business with other insurers. MGAs can also allow insurers to take advantage of niche market expertise to expand their distribution and grow their business without building the necessary infrastructure internally.
And the benefits of MGAs have not gone unnoticed by insurance carriers: MGA business (measured in premiums) is growing faster than the overall property/casualty industry. While they’re not a new type of distributor, the way MGAs function in the market is changing. Here a few key trends to keep an eye on:
- MGA formation and consolidation are both increasing.
The MGA merger and acquisition market is quite active. (Re)insurers are looking to control their distribution chains and acquire more profitable business that grows faster than standard commercial lines. MGAs, on the other hand, are driven to merge to ensure that they retain business from the larger brokers consolidating their relationships.
For their part, insuretech firms are participating in the insurance market without the capital and regulatory burden of becoming insurers. Private equity and venture capital firms may see a fragmented market with attractive growth prospects and margins, but many attractive targets have already been acquired.
Founders of MGAs have spotted an opportunity to leverage technology alongside their niche expertise. In contrast, private equity and venture capital firms along with the insurers and brokers that back MGAs see the potential for profitable, high-premium growth business with fewer regulatory constraints and up-front investment.
- Vendors are increasingly targeting MGAs.
MGAs favor cloud-based platforms, which eliminate the need for data centers, offer more modern technology, reduce the up-front capital requirements. The ability to deploy highly configurable policy administration systems within the financial constraints of a distributor remains a challenge. The larger, deeper-pocketed market participants want to refresh their technology to maintain relevance and bridge capability gaps.
Traditional insurer core systems vendors are seeing the growth of the MGA market and are targeting it with offerings. In addition to incumbent and new market entrants offering lower-cost, rapid-to-deploy core systems, point solution providers are also emphasizing the applicability of their offerings to the MGA space.
- Certain technology areas are higher priority than others.
There are five technological areas that appear to be the top priorities for property/casualty MGAs. These include:
- Core systems and rating. MGAs value core systems that are highly configurable, cost less, and enable rapid entry into profitable niches. MGAs with their own core systems are deploying highly configurable solutions that allow business users to define various data elements with product configurators, simple rules, and tools for launching new rating algorithms. Those MGAs without their own core systems still need integration with insurer systems; direct integration via web services is increasingly common.
- Data and analytics. MGAs may depend on insurer data to manage their books of business if they leverage insurer core systems and claims capabilities. Regular bordereau reporting back to insurers is necessary for MGAs that rely on their own solutions. They also leverage third-party data prefills and may need claims modeling and analytics solutions or loss control analytics and reporting. Data quality is a key concern.
- Billing replacement projects are not a high priority for MGAs, but they are focusing on building flexibility to handle billing for retailers and wholesalers. Account billing is becoming a higher priority due to a shift toward customer-centric approaches. MGAs are building more support for large, complex accounts, including multiple bill plans, split bills, the ability to bill deductibles, and the ability to display multiple billing items (e.g., premium, fees, deductible replenishments) on a single bill.
- Producer and customer access. MGAs are deploying broker platforms and portals and are building out APIs to improve the ease of doing business and drive revenue. MGAs also want the operational efficiencies gained from single entry and improved data quality.
- Unstructured text ingestion. Specialty lines require proprietary new business and renewal business applications that require brokers to submit for clearance, rating, and binding. Over the past several years, a new class of vendors has started to offer unstructured text ingestion solutions based on AI, machine learning, and natural language processing. These vendors are expanding into finance and claims use cases.
To learn more about recent trends in the property/casualty MGA marketplace, including examples of recent MGA technology investments, read Aite-Novarica Group’s recent report Business and Technology Trends 2023: Property/Casualty MGAs. You can also reach me directly at email@example.com.