MGAs – managing general agents – already have sizeable market share and are perfectly positioned to seize more of the UK insurance market, according to their trade body boss, Peter Staddon. They allow insurers to target new lines of business with minimum expenditure and give brokers access to skills and specialist knowledge they might otherwise struggle to access with an insurer. In this situation, MGAs can mean brokers still get access to good quality people, specialty skills and good rates.
Staddon, managing director of the Managing General Agents’ Association (MGAA), says MGAs are already writing around £5bn of business and are poised to increase that. According to some, as many as 50 new MGAs may hit the market in the next 12 months.
Potential regulatory changes and the fact that MGAs can operate on a nimbler, lower-cost basis would be the drivers behind that growth.
Staddon told Insurance Business UK
: ““Yes, it can grow. I think as things move forward and through European legislation we could see in five-plus years there could be an edict where a broker is not able to hold delegated authority. The FCA say they don’t have that on their radar, but they have a new boss [Andrew Bailey will take over as chief executive later this year] and remember, 83% of new laws come in from Europe. We’ve seen this in Spain, where brokers aren’t able to hold delegated authority, and we’ve even seen movement in the German market where brokers are prohibited in certain areas. A lot of the big insurers can see the benefits of using MGAs, cost-effectiveness wise.”
MGAs are also now being used as a vehicle by brokers to handle binding authority and avoid conflict of interest in the eyes of the regulator. “Brokers who have delegated authority have a conflict of interest if they have binding authority, so an MGA allows them to manage that conflict through segregation,” Staddon said.
While the term managing general agent may be a recent addition to the insurance industry lexicon, the role they perform has been around for a long time, Staddon said – and they are certainly more visible than ever before.
“People ask ‘is it the fact that they’re more readily identified, or is it the fact that they’re growing? I think it’s a combination of both,” he said.
“A lot of the larger brokers are separating and segregating their activities so they’re forming an independent entity which is a managing general agent.
“That’s one growth factor but MGAs are already out there, they’re readily identified, and because of what the MGAA is doing, they’re actually being acknowledged by the market. They’re there, they’re a force to be reckoned with, and they’re very professional in their operations.”
Staddon said pinpointing precise numbers of MGAs was difficult because of the blurred lines within the industry. MGAA membership numbers are strong, but fluctuate due to regular consolidation within the sector, he added.
He said: “We think there’s around 250-300 what we would term MGAs ie entities which have a separate legal footing from that of a broker holding a binder. We think they’re writing about £5bn.
“In regulatory language, they’re not an insurer but an intermediary. The regulator doesn’t distinguish between a broker, an MGA, an insurance service company or a guy selling motor cars and insurance on the back end of it, so it’s very difficult to say how many there are.”
And while the concept of delegated authority goes back more than a century, the impact of regulation in 2005 was the launchpad for the march of the MGAs.
“You can probably track back delegated authority to about 1906 when a Japanese company gave a London broker their pen because they wanted to write Japanese business in the UK and thought that was the best conduit,” said Staddon.
The question of exactly how many players there are in the MGA space and how many more are arriving aside, some are asking whether you can get too much of a good thing.
“We try not to have too many MGAs but we probably do have too many,” Robert Inglis, managing director and broker at Riordan Eabry & Co, told Insurance Business UK
. “We get three or four e-mails a week minimum inviting us to use another MGA for some reason or other, and often they’re just jumping on marketing bandwagons around telematics or something.
“Some MGAs make life easier, and some don’t. But there are some we’d like to do more business with and some for whom we just haven’t found the right business yet.”
In an era of multi-channel access to products, Inglis also argues that the role performed by traditional Lloyd’s brokers is very similar to an MGA.
“With MGAs and wholesalers, there is considerable argument that they overlap each other. Although we use both to place business, we also use all the other methods such as direct, extranets, telephone quotes and e-mail quoting and so on,” he said.