MGAs have to add value otherwise they do not ‘have an existence’

The key to operating a successful managing general agent (MGA) lies in providing value-add services to carriers around distribution, underwriting and niche expertise, otherwise they “don’t have an existence” and are “just taking a fee for no good [reason]”.

Speaking at a webinar hosted by trade association the MGAA and business management consultancy DA Strategy, titled ‘How to be a ‘streetwise’ MGA in a changed world’, Bruce Carman, chief underwriting officer at Hive Aero, said: “A streetwise MGA is obviously a managing general agent working on behalf of carriers in a cost-effective way. Unless we’re going to add value, we don’t have an existence in my view.

“We have to do something different, we have to be effective, we have to be efficient, we have to be profitable. That’s one of my key drivers that this should be a profit-derived relationship and if it’s not profitable, then you question your longevity in this and how long you might be employed by your carriers that you’re working on behalf of.

“It has to add value to the insurer otherwise we’re just taking a fee for no good. Value added is really our aim.”

Charles Rowley, director at DA Strategy, emphasised that “adding value for MGAs is an ever-changing environment and in fact deeply complex because it very much depends on what type of MGA you are, what your class of business is and of course who your carriers are”.

For him, the two main facets that drive profit for a successful MGA and insurer relationship are distribution and underwriting, however there are other reasons why carriers are keen to team up with MGAs. This includes, for example, the desire for insurers to diversify their portfolio, or to facilitate greater access to innovation, such as being able to use Internet of Things (IoT) devices and work with insurtechs. MGAs may also be able to write certain lines of business in a cheaper way, as it saves the insurer creating a new team from scratch if they want to expand their offering.

Rowley added that from a technology perspective, MGAs have coped with the Covid-19 pandemic incredibly well – many have better services and systems than the carriers that they work with, he continued.

However, deriving value is more than simply counting pounds and pence – for Martin Roffey, executive director of alternative distribution operations at Willis Re, proving expertise is paramount.

He said: “You have to prove that you have expertise. You also have to prove you have distribution. All of those things are very important, so therefore you add value to the value proposition of any insurer.

“As a general rule, what you’re trying to do is create a streamlined and more specific structure that enables the insurer’s brand to be more thoroughly recognised and if you do the job properly, you produce better profits for all concerned.”

Building trust

The lifeline of an insurer and MGA relationship, however, is trust, concurred the webinar panellists. Roffey added that MGAs need to ascertain what makes their carrier partners tick – if they mention certain criteria more than once, then that’s an indication of what the MGA should be focusing on.

Roffey advised MGAs to make themselves indispensable by speaking not only to the underwriter at the carrier, but by liaising with the entire value chain - although numerous MGAs may have similar loss ratios and financials, Roffey added that factors such as communication can then become a differentiator.

Carman agreed, stating that MGAs almost have to “kill [carriers] with kindness” – at Hive Aero, for example, data analysis and knowledge-led underwriting form the cornerstones of differentiation. The firm has a data analyst that allows it to “punch above [its] weight” because it can help steer underwriting through exposure analysis and modelling.

Rowley added that “it is about developing trust with the carrier in every way possible”. This includes “making sure you’re a trusted underwriting partner, making sure you provide [a] trusted service to the customers, making sure that your data and reporting that you provide to the carrier is accurate and trusted, making sure that you’re trusted to make the payments on time and that they flow through properly. If you handle claims, that you’re trusted to handle those claims effectively”.

He continued: “Try and act on behalf of the carrier as if you were your own small insurance company. In that way, you end up being trusted.”

Despite acknowledging the importance of data and its efficient use as a differentiator for MGAs, Rowley also warned these businesses to be mindful of their intellectual property.

“Quite often, we say how do we develop the data, how do we gather the data and how do we share the data with the insurers and I think that’s absolutely a strong theme in the marketplace at the moment, but I think MGAs need to be careful about how much data they share with carriers and what is the MGA’s intellectual property in that data?” he said.

“As MGAs, how to protect your intellectual property? Is your intellectual property in product design, is it in rating in specific niches? Is it a knowledge of a particular distribution network that you have and the key people that you know? Is it a lot of that quote data and information that you’ve gathered on your clients that isn’t strictly policy data? It’s a tough one to manage.”

Thriving

Roffey dished out further guidance to webinar attendees around building a “profitable bank of business”.

He said: “What you’re trying to do as an MGA is build a profitable bank of business. It can’t just be in one [line of business] because unless you are writing every single piece of that particular type of business, you’re always going to be at the mercy of the way the market reacts.

“It’s important to establish other non-correlating lines of business so that that attitude of underwriting for profit is going to basically give you the best possible chance of growing and also thriving.”