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The capacity challenge – a silver lining for MGAs?

The capacity challenge – a silver lining for MGAs? | Insurance Business UK

The capacity challenge – a silver lining for MGAs?

It’s been a tough year for our industry so far. We’ve faced (and are still facing) enormous challenges as a result of COVID-19; a mass shift to homeworking and the consequential impact on an industry that thrives on interpersonal relationships, a sudden (but some may say long overdue) acceleration in digitisation and the need to quickly adapt and move certain processes online, reputational challenges in the wake of the FCA BI test case and, a contraction – or should we say revisiting of - available capacity.

A challenging time to begin my new role as MD of the MGAA, but also a great opportunity to work with the team at the MGAA to create new opportunities for MGAs to showcase what they can do against a difficult and uncertain backdrop.

From many conversations with our members so far, I’m pleased to report that by and large, MGAs have been responding exceptionally well to the challenges posed by the pandemic. Across the board we’re seeing improved retention rates, a significant increase in new business production and expanded distribution. However, the restriction, or rather revision, of capacity across the market is undoubtedly an issue that cannot be ignored.

The capacity challenge has been well documented. We’ve seen several key players reviewing their risk appetite to focus on more profitable lines and reduce their exposure to the more volatile, or less familiar ones. We’re seeing this particularly in the directors & officers (D&O) and professional indemnity (PI), areas that have the potential to attract significant risk as businesses navigate their way through unchartered waters and have to make decisions which ultimately impact the livelihoods of their employees and shareholders.

In light of the BI test case, we’re also seeing many providers taking a much closer look at their arrangements with MGAs, reviewing policy wordings with laser-like focus to assess whether there are any areas of ambiguity that could leave them exposed.

It’s an uncertain time for many, but it is also a time in which MGAs have an opportunity to come to the fore and demonstrate the strength, agility and expertise that makes them the ideal partner.

As experts in their field, MGAs have the knowledge and technical understanding to evaluate the market and quickly react to changes that may impact the policies they write, especially in programme design. Many MGAs specialise in niche areas where their expertise adds real in-depth insight to provide their insurer partners with the confidence that the portfolio is managed and governed to the highest level.

The speed at which an MGA can adapt its offering to match market requirements is also a huge benefit to its partners. MGAs are typically highly entrepreneurial and agile enough to make large-scale changes in their business much more quickly than large insurers - this gives them a competitive edge in being at the front of evolving customer needs.

One of the biggest areas in which MGAs can add significant value is in the data and customer insight they are able to provide to insurers. Adopting a forensic focus on data, MGAs will use these tools to better inform risk selection and pricing decisions, ultimately leading to improved underwriting returns, more informed and cost-effective decisions. And that is not forgetting the distribution knowledge and access that an MGA can provide to an insurer.

Communication is also key, and one thing that MGAs have shown themselves to excel at in these challenging times is communicating with their broker partners to help them to understand any changes in appetite and policy wordings.

Despite the obvious challenges, I believe that we have before us an opportunity for many MGAs to truly demonstrate the value and the unique expertise they add to the distribution chain. It is this value I hope to showcase when the MGAA holds its first virtual Capacity Exchange event later this month. It can be tough in a virtual world for MGAs and capacity providers to have real, focused conversations, so this day is dedicated to matching quality providers with quality MGAs who can make a real difference to their business – and to their customers.