Briefing: The MGA market is navigating a perfect storm on its growth journey

By Stuart Reid

I have written before about my thoughts on the rise and rise of MGAs – and make no apologies for building on that subject again now.

It seems we are in a perfect storm at the moment and MGAs – while once thought of as a specialist addition to the marketplace, with insurers hesitant to hand over their capacity – are currently the latest must have.

This appetite to work with the new class of underwriting firm, whether a stand alone or part of a bigger group, is predominantly due to two reasons.

Firstly, an MGA, when properly run, can quickly become a wildly valuable asset for owners and capacity providers.

Secondly, and just as importantly, MGAs can also give those that use them the ability to serve their clients better – much better than, sadly, many of the insurers are able to.

This service can and should run into all key areas – including claims, underwriting, quotation turnaround, communication, speed and ease of documentation – and especially in those areas where the composites still struggle so badly.

Obviously, not all MGA’s are alike – some burn capacity, some do not provide the service needed and other do not survive.

But, mark my words, the MGA market, especially in the schemes area where insurers often struggle, is not just here to stay, but will continue to grow and thrive.

Roles and relevance

So where does the continued growth of the MGA market leave us?

As Insurance Times editor Katie Scott said recently, with more and more insurers become “picky” about what business they write, it appears that the days of generalist UKGI firms may be numbered.

Certain insurers have already moved away from areas of business that have proved historically difficult, such as pet, travel or motorcycle.

But worry not – there are a plenty of MGA’s operating in these lines that can make them work by operating more nimbly, with a cost base insurers could only dream of.

This point exposes the potential risk. If insurers become more and more specialist in a drive for return, they will have to use their scale in what remains to offset the age old issue of fixed costs, infrastructure, wordings, IT and much more besides. 

So, is it right to think that some insurers may even eventually become simple providers of capacity? This would certainly solve the fixed costs issue I outlined above.

I know many in the sector that think this is a distinct possibility, but I think we have a long way to go before that may start to happen.

Opportunities abound

In the meantime, opportunities are plentiful for those MGA’s who can make it work. But, as is always the case, nothing is perfect.

It takes more than a strong idea for an MGA to be a success. I have seen so many businesses who can answer an important question in our market, but fail to realise it is a question no client is asking.

And that’s not to speak of the desperately tough business conditions many have suffered over the past three or four years – with capacity hardening, prices rising, competition increasing and funding reducing.

I also think that, while I admit I may be making a big generalisation, some MGA’s can lack insurance knowledge. A new way to sell insurance or a quicker and better way to serve clients is not enough on its own.

It may not be a popular refrain, but I believe that to truly build a business in our profession, in any area, a deep understanding of the market is needed to be successful, be it claims, underwriting, sales or the relationships needed with capacity providers.

Many of those who have failed have had the ideas, but not the knowledge of the industry within which they are competing.

Every day now it seems a new MGA is launched and, as ever, not all will thrive .

If you have an ambition to build an insurance broking business – and one that will rise to fill that gaping hole that is the mid-market here in the UK, which is where I believe our clients are best served – then an MGA as part of your strategy is more than a want to have.

I would suggest MGAs are, as I mentioned at the beginning, a must have – especially in those specialist areas that we do so well.