"The MGA landscape is looking decidedly less positive" | Insurance Business UK
CEO of intermediary services at Davies Group Ltd, Chris Butcher, has a rich history of helping businesses establish themselves in new markets. Though he has worked across the entirety of the corporate insurance and management consultancy sector, the most recent theme of Butcher’s career has revolved around the MGA sector. He was in this area initially as CEO of Ambant Underwriting Services before the business was sold to Davies and Davies created the division for which he is now the chief executive.
Since this time, Butcher has seen the group grow from 750 employees to almost 4,000 employees, a tremendous expansion which, he said, has been driven by two central goals. The first of these, he detailed, has been its acquisition of businesses which possess a strong leadership team, and which are on a growth journey that can be supported by Davies, and the second has been strong organic growth within its existing businesses.
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His role within the intermediary services division of Davies allows Butcher to oversee the direction of three separate business strands; one a platform for MGA businesses, the second a platform for brokers businesses, and the third for legacy businesses that are not trading but which still have clients who need servicing. He outlined how his role offers him an exciting opportunity to meet and assist highly driven entrepreneurs whose individual style is focused and extremely energetic, and that this is like “riding a wave of enthusiasm, as they get their businesses going.”
The MGA landscape is looking decidedly less positive than it was six months ago, Butcher said, and he highlighted how MGAs are dependent on the insurers’ capacity and, in the main, there is a hardening of the market and its portfolio selection. Essentially this means that insurers are choosing not to support particular lines of business and certain portfolios, he said, and in these instances either prices are going up or these product lines are disappearing entirely.
“This is being overlaid with another element which is that… the insurers’ willingness to delegate is becoming reduced. Part of the reason for this is data-driven,” he explained. “Many insurers have not been very good at identifying the uniqueness of their delegated underwriting business from the rest of their portfolio, so it’s quite difficult for them to dissect what’s good and what’s bad.”
A common theme developing in recent months, Butcher said, highlights that delegated businesses have two problems. One, he said, is that the supply chain is too long and the total commission expense is too high. The second, Butcher said, is to do with underwriting performance and the growing perception that allowing somebody else to set the pricing means it is not being done correctly.
“Obviously the market isn’t just going from something to zero,” he said, “but it’s causing pressures on appetite and the amount of appetite.”
This, in turn, is impacting the investors that are needed to provide the working capital for new businesses, he said, whether these are individuals or venture capitalists or private equity vehicles. Butcher’s feeling is that, because it is becoming tougher to find an insurer who is really committed, investors are becoming concerned that an MGA is a less attractive option to invest in when there are alternative ventures which appear less risky.
“What I am seeing at the moment in terms of a general trend,” he said, “is a slight switch in the appetite for setting up as an MGA where you are acting as an agent of the insurer, to setting up as a broker where you are an agent of the client. In my world, there is a little bit more activity going on in the broker sector than there is in the MGA.”
The inclination of insurers when it comes to delegating their capital has tended to be cyclical over the last 50 years, Butcher said, however, he noted that it could be argued that at every point in history, situations like this arrive that represent genuinely transformative stages within an industry. People need to look no further than the demise of the high street due to online purchasing to see such change in action, and he noted that getting insurance capital flow down to a consumer is far easier now than it was 10 years ago.
This is a pivotal point for people actually doing things differently, Butcher said, and he highlighted the juxtaposition between the slowdown in the appetite for MGAs and the great new opportunities available for this business model in the market due to its ability to offer speedy, scalable and digitally adaptive solutions.
“There is, unfortunately, still a disconnect in terms of the more mature insurance businesses which have a corporate self-interest in protecting the more traditional ways of doing things and are less open to change,” he said. “However, we work with big insurance organisations which are undoubtedly doing well by positioning into the insurtech space, and we’re helping them drive that success. These are typically only a unit within a much bigger entity so the majority of the revenue of any big insurer or reinsurer isn’t yet derived from their insurtech arm. So, this will take time.”