MGAs are back with a bang

So there we have it, RSA is the unofficial king of the managing general agencies (MGA).

RSA today revealed it had signed a deal with Gallagher subsidiary OIM worth £375m over five years.

RSA is also one of the biggest supporters of Towergate Underwriting, backing products for all sorts of sectors ranging from commercial vehicle to landlords.

The question is: why is RSA such a massive fan of managing general agencies and will it get its fingers burned?

AXA and Aviva withdraw huge chunks of capacity from MGAs three years ago, concerned that the business was unprofitable.

Former AXA chief executive Philippe Maso memorably told Insurance Times in 2009: “I don’t believe the model functions well. It can have legs when we talk about niche products of specific segments of the market, where it doesn’t make sense for an insurer to build the capability. But an MGA takes the risk on behalf of someone who is going to carry the can. Not a lot of industries do this. It’s like in the music industry, if you were a big label and someone chooses the next big band for you. If it doesn’t work, he gets his fee anyway and goes off to the Bahamas.”

After AXA’s and Aviva’s exits, Allianz, QBE, and especially RSA have swooped in and taken up a lot of the slack.

Their argument is that MGAs can help give them access to sectors that they would not normally be able to reach without major investments in staff and systems.

Instead, it’s better to give the MGAs, which have the set up and expertise, some capacity and then take a share of the profits.

Furthermore, insurers argue that the days of splashing out capacity and letting MGAs do what they want are long gone. The new model is much more tightly controlled.

It’s probably too early to tell what effect the MGA deals with have on RSA’s underwriting performance: only time will tell.

RSA will surely need to ensure it strips out as much duplication as possible and have faith that their MGAs can do a good job.

OIM has a strong underwriting base and an experienced claims and processing arm, so RSA shouldn’t waste time and money on heavy oversight. That will just ramp up the expense base.

What’s clear is that MGAs, which were already on the rise, are back with a bang now. History does have a funny habit of repeating itself.