‘Equilibrium’ between MGAs and insurers yet to be achieved – Pen Underwriting’s Tom Downey

As MGAs develop their market share across UKGI, Tom Downey – chief executive of Gallagher-owned MGA Pen Underwriting – believes that insurers and MGAs “will find an equilibrium among ourselves”, with capacity into MGAs increasingly feeling “like an investment vehicle trust”.

According to Insurance Times’ Five Star Rating Report: MGA market 2023/24, published in January 2024, stable capacity for MGAs is a key concern for broker partners.

The survey of 1,850 UKGI brokers shared verbatim comments from respondents that flagged capacity as an important issue. For example, a broker based in Northern Ireland commented: “Security and longevity of capacity – ensure that as a broker, we are given assurances on capacity.”

Addressing this topic during an exclusive conversation with Insurance Times at Biba’s 2024 conference earlier this month (15 and 16 May 2024), Downey said: “MGAs as an industry has got more sophisticated. We’ve invested more. We continue to build our business models more, which is fabulous.

“I see MGAs as [continuing] to grow in the UK and going forward, I think MGAs will be a sector where people just provide capacity into them, almost like an investment vehicle trust. That’s how capacity will play through. The shape of insurance companies and what insurance companies fundamentally have done will twist and turn through it.

“Our industry will grow and grow. [The] UK MGA market is £6bn gross written premium (GWP) and growing. Worldwide, [this is] £120bn and growing. That’s a lot of GWP. So, capacity is good.

“Our job is fundamentally [to] front [the] product, [provide] good loss ratios, do the things we said we would do and do it really, really well. That will drive the industry forward.”

According to an August 2022 article by McKinsey and Company, entitled Insurance MGAs: Opportunities and considerations for investors, the UK has in excess of “300 MGAs placing more than 10% of the United Kingdom’s £47bn in general insurance premiums”.

This further illustrates the growing power the MGA market is wielding in UKGI.

Importance of service

Insurance Times’ report further identified that MGAs have the potential to plug poor service gaps that insurers have failed to fill.

For example, a broker respondent from the north west said: “General service standards in the industry are dropping and provided secure capacity is available through MGAs, their service offering can provide a solution for brokers to rival the composites and often exceed them.”

Downey agreed that although insurers are seeking to improve their service, “insurance companies have dropped off service” in the main.

“Maybe two years [ago, an insurer] said ‘hey, we’ve just turned our phones back [on] in our office’ and they celebrated that fact. I put my head in my hands,” Downey confessed.

“We talk about customer centricity at Pen Underwriting. [This] means putting the customer at the heart of our decision-making.”

For Downey, Pen Underwriting’s customers clearly include brokers.

He continued: “We try to be very passionate about brokers, delivering for them.

“They have a choice and our job is to make Pen Underwriting, or the MGA sector, their number one choice. If we do that, they will come to us. If we don’t do that, then somebody else will fill our space.

“Service is absolutely paramount to what we’re doing – and that’s underwriting, claims, whatever it might be.”

Downey does not think that MGAs will replace traditional insurers – despite brokers themselves feeling that this could be a market movement.

For Downey, MGAs and insurers “will find an equilibrium among ourselves”.

He added: “I don’t think that equilibrium has been landed yet, but there will be an equilibrium that arrives. MGAs will go further into the space that traditional insurers have, but an equilibrium will be found. Where is that equilibrium? I don’t know yet.”

In the Five Star Rating Report: MGA market 2023/24, Pen Underwriting received an overall four star score out of five – an improvement on the three star result it achieved in 2022/23’s report. It also has a 4.7 out of five score on business review site Feefo, Downey noted.