MGA market to continue momentum despite challenges – report

Sector remains an attractive place to invest, says expert

MGA market to continue momentum despite challenges – report

Insurance News

By Mika Pangilinan

Outlook for the managing general agent sector remains positive despite recent economic turbulence, according to a new Clyde & Co report, with 90% of MGAs and 80% of carriers expecting to increase or maintain their partnerships.

This optimism persists despite expectations of a surge in claims volume and heightened legal and regulatory scrutiny, as 55% of carriers and 59% of MGAs surveyed stated that the economic environment had a neutral effect on capacity allocation for the year 2022.

Rob Crossingham, partner at Clyde & Co, said the results reflect confidence in the MGA model and that the sector “remains an attractive place to invest.”

“Carriers have seen positive returns, and our survey findings show that they retain great faith in MGAs as a route to market, highlighting their nimbleness and flexibility as key attributes,” he said.

Crossingham further emphasised the growth potential for MGAs to expand geographically and diversify their business lines, noting that the ones that can “demonstrate a clear and disciplined underwriting strategy” are well-positioned to thrive amid ongoing economic uncertainty.

Technology and data play pivotal roles in MGA partnerships

Carriers ranked their reliance on technology and data for effective risk selection and pricing as the top requirement from their MGA partners.

The report also found that 80% of MGAs had invested in technology or insurtech over the past year, compared to 55% of carriers.

Crossingham said the substantial technology investments by MGAs last year show that they are “less encumbered by legacy systems and processes” compared to their carrier counterparts.

“This bodes well for their ability to continue to meet their carrier partners’ requirements,” he said.

Anticipated increase in regulatory scrutiny

In the report, both MGAs and carriers said they expect regulatory oversight to intensify in the coming year.

Nearly all MGAs surveyed expressed their anticipation of increased legal and regulatory scrutiny in 2023. Additionally, the survey highlighted concerns that regulatory barriers could deter MGA start-ups or hinder existing MGAs from entering new markets in the current climate.

Crossingham acknowledged the expected rise in regulatory oversight but noted that contributors to the report believed improved standards and behaviours in the MGA sector would enhance customer trust.

Claims on the rise, talent shortage a concern

While most MGAs and carriers expressed confidence in the survey, they also showed concern over an expected increase in claims frequency over the next 12 months, with 55% of carriers and 46% of MGAs anticipating a rise in claims this year.

Crossingham said that the likelihood of an upsurge in claims volume would heighten carriers’ focus on risk selection, disciplined underwriting, and clarity in policy wordings.

Contributors to the report also identified a talent shortage as an additional challenge.

This scarcity poses a test for the entire insurance market, Crossingham said, and MGAs would have to leverage their " entrepreneurial and nimble nature” to attract talent in underwriting and claims roles.

Plans for expansion

However, even with these concerns, the report found that both MGAs and carriers are interested in exploring new lines of business and expanding into new territories to diversify their operations, with many MGAs pointing to Europe as a market for potential growth.

“MGAs represent a great vehicle for carriers seeking to diversify into new markets or lines of business,” said Crossingham. “We are seeing increasing appetite for MGAs overseas, notably in Europe where they can be set up relatively quickly in most jurisdictions.”

“Post-Brexit, interest in MGAs is accelerating as it offers a good route into writing business in the EU. As the sector matures and develops, we expect even more interest in MGAs in other territories too, including the Middle East.”

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