(Image credit: Merio.)
In a soft market with depressed rates and intense competition, MGAs remain a singular bright spot. As carrier offerings become commoditized, MGAs provide differentiated and precisely-targeted products. It’s an approach that strikes a chord with buyers, and it’s the reason MGA premiums have been growing faster than the overall property/casualty market.
In 2016, the program market, led by MGAs, grew 32 percent more than the overall property/casualty market, and Conning estimates MGA premiums reached at least $42.4 billion, more than 17 percent of the commercial market.
MGAs Thriving in the Darwinian Economy
What explains MGAs’ rise? The twin forces of capital and technology are breaking down barriers in the insurance industry, creating intense competition and turning the value chain on its head.
Capital from new sources, “unencumbered by legacy infrastructure” is fueling deployment of new technology and distribution channels.
Technology is enabling insurers to be leaner, more efficient, and more responsive. Players up and down the value chain are using technology to engage directly with customers.
MGAs are shielded from these forces. Their deep market expertise is hard to replicate, and underwriting for the complex specialty lines they write is more difficult to automate.
Why Carriers Are Turning to MGAs
For carriers seeking growth in this soft market, partnering with or acquiring an MGA is a low-risk, cost-effective way to add top line revenue. In recent years, carrier/MGA partnerships have formed at a faster pace, fueled by three core factors:
- Low interest rates have made it easier to acquire MGA specialists at a relatively low cost
- MGA products offer higher profits to offset intense price competition in traditional markets*
- The MGA’s smaller size and market expertise enables greater responsiveness at a time when the customer experience is a high priority
Carriers aren’t the only ones that recognize the value of MGA partnerships. As recently as September 2016 there was a gap between new programs seeking capacity and the availability of capital. This has completely turned around as excess capital from alternative sources—including pension funds, hedge funds and the Lloyd’s market—is targeting new opportunities in the insurance market through MGAs.
The carrier/MGA Partnership Is a Win-Win
Insurer/MGA partnerships can benefit both parties. The MGA’s underwriting expertise gives insurers products that more precisely meet the market’s needs, at more accurate prices, while the MGA’s distribution networks provide the carrier with expanded reach in profitable niche markets.*
MGAs gain scale by tapping into the carrier’s established infrastructure. In the past, this meant MGAs would use a carrier’s systems. More recently, there’s a growing trend toward MGAs acquiring their own. Often carriers will help offset the cost, reasoning that when MGAs own their data they can understand their business better, make informed autonomous decisions, and provide greater customer responsiveness.
The U.S. program market is thriving, growing faster than the overall commercial insurance market. New capital, technologies and emerging risks are creating huge opportunities for the program space, with the MGA at its center.
As MGAs continue to provide specialized underwriting solutions for customers’ risk exposures, they will become an increasingly attractive partner for those seeking profitable growth in a difficult market.
If you are a carrier seeking MGA partnerships, and would like some pointers on what it takes, read our white paper “3 Reasons to Avoid the Program Business.”
If you are an MGA seeking to capitalize on the growing interest in programs, read our eBook, “The MGA: Threats and Opportunities in the Darwinian Economy.”
* MGAs are more profitable. Over a ten-year period studied by Conning, ending in 2015, MGA combined ratios were 6.7 points lower than the broader P&C market
1 Facts + Statistics: Commercial Lines. Insurance Information Institute. 2016.
2 Program Partnerships: Market Dynamics for MGAs and Program Administrators. Advisen. September 2016.
3 Growth strategies through MGAs: Opportunities and challenges. Grant Thornton. September 2015.
4 Sclafane, Susanne. Specialty MGAs Continue to be Popular Acquisition Targets. Insurance Journal. September 14, 2017.
5 Insurance Agency Mergers & Acquisitions in 2017 Break Record, OPTIS Partners’ Report Says. Accesswire.com. January 18, 2018.
6 Carrier, Benoit. MGAs: How They Work, Industry Results, Market Trends. Aon Benfield. October 6, 2017.
7 Heft, Jayleen R. MGAs see continued growth, but no escape from soft market, Conning finds. PropertyCasualty360.com. July 14, 2017.