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How MGAs fit into the distribution channel

Wholesale brokers act as an intermediary between a retail broker and an insurer, and work with insurers to attain specialised coverage for clients while having no contact with the insured. An MGA is one type of wholesale broker, and operates on the insurer’s behalf while also working closely with clients to attend to their needs. The other type of wholesaler is a surplus lines broker who works with a retail agent and an insurer to obtain coverage for the insured. What makes MGAs unique is their binding authority from the insurer.

An MGA will deliver and service a insurer’s product to both insurance agencies and clients. MGAs can work with several insurers to formulate a specific mix of products to deliver to agents/brokers or directly to insureds.

How MGAs benefit insurers and agents

Working with MGAs is beneficial to insurers because they possess expertise that insurers may not have in their head or regional offices, and which can be costly to develop in-house, according to IRMI. Working with an MGA, companies can pass time-consuming and complicated tasks to an outside entity that already has the knowledge to address them.

MGAs tend to deal in lines of coverage such as professional liability, employee benefits or surplus lines where specialised expertise is needed to underwrite policies, though they can be active in any line of insurance, and work with all types of insurers. If an insurer wants to explore a specialty line of business, but does not want to take on the risks or uncertainty of doing so, they can turn to an MGA to offer up that expertise, and give the MGA the authority to underwrite and issue specialty policies because they are already familiar with the risks. 

MGAs can also write business in geographically isolated areas where insurers do not want to open an office. A small town or rural region might not warrant the opening of a branch for an insurer, but working with an MGA in that area provides the company with access to new customers without spending money on staff or rent.

Similar to insurers, agents can get expertise about a particular product or more competitive pricing by working with an MGA. They can likewise gain entry to markets and insurers that could be difficult to access on their own, and because of the often-smaller size of the MGA business, there are fewer barriers to communication for a broker. MGAs also bring technology to the table, such as online platforms that integrate with wholesale channels or products that speed up the quoting process, that help independent agents provide better services to their clients. Agents can realise higher commissions by working with an MGA that has a diverse network of insurers, allowing agents to review the commission structure and have the option to sell insurers’ products that offer the best rates.

MGAs around the world

Many MGA models were created during the 1990s and 2000s, though the role of the wholesale broker, a category that MGAs fall into, dates back to the 19th century. Associations that represent MGAs in specific regions today include:

• Managing General Agents’ Association (MGAA) in the UK, which was formed in 2011
• American Association of Managing General Agents (AAMGA), which was established in 1926 and has since merged with the National Association of Professional Surplus Lines Offices (NAPSLO) to form the Wholesale & Specialty Insurance Association (WSIA)
• Canadian Managing General Agents (CAMGA), a relatively new association formed in 2017
• Underwriting Agencies Council, based in Australia and formed in 1998

In Australia and New Zealand, MGAs are referred to as underwriting agencies, though they have the same functions as managing general agencies. According to the UAC, its 116 members account for more than AU$6 billion of premiums spent by Australian businesses and consumers annually.

In the UK, the term ‘MGA’ has been adopted by the market to refer to what was once known as a ‘coverholder.’ Today, more than 300 MGAs underwrite over 10% of the UK’s £47 billion general insurance market premiums, according to the MGAA.

Worldwide, MGAs fall into one of the fastest-growing segments of the insurance industry. Global investment firm Conning reported that MGA and program market growth continues to outpace the growth of the property and casualty market, with direct premium growth of 7% higher than the previous year compared to the 5% seen in P/C market growth. The analysis also showed that 21 of the top 25 P/C insurers have relationships with MGAs.

The role of the MGA today

With technology bridging the gap between insurers and clients today, some insurers are moving away from relying on MGAs, which has thrown the identity and future of the MGA into question.

“By virtue, MGUs and MGAs, program administrators, are the middlemen,” said Rekha Schipper, president of Tangram Insurance Services. “How can we make sure we stay ahead, make sure that we take advantage, and make sure that we continue to be relevant and meaningful to a broker, to a insurer, to a tech investor, to say, this entity still belongs in the middle of all of this?”

However, an MGA is a natural outlet for technology solutions to plug into because of its established distribution channels. These agencies can also react to market changes quicker than typical insurance companies because they are smaller businesses that are acting on behalf of larger insurers.

“We can bring programs to the market faster. We can get out to more brokers because they can get on our platform. We can reduce our expenses as an MGU because now we’re automating a lot of things,” explained Schipper, adding that there’s “an unprecedented opportunity” for partnerships between technology vendors and MGUs.

During hard market periods, MGAs can be used by insurers to decrease costs and increase profitability. The MGA model is also flexible. Following the 2008 financial crisis, Ironshore, a Liberty Mutual company, established its managing general underwriting agency as its commercial clients were facing heightened risk since the viability of some insurance insurers that offered high coverage limits across many lines of business for major companies was uncertain. Brokers were meanwhile also under pressure to find alternative coverage solutions. The Ironshore MGU model involved underwriting as well as claims management, the latter of which made it unique from a traditional MGA, which can have limited authority on claims management and payment.

(Updated September 21, 2021)

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Several insurance firms are part of a coalition of over 80 UK businesses that signed an open letter calling on Prime Minister Boris Johnson to show “strong domestic leadership” in acting on climate change.

The letter, coordinated by the Business Group Alliance for Net Zero (BGA), was released just over 40 days before the UN Climate Change Conference (COP26) in Glasgow. In the letter, the businesses voiced their support for climate action and stressed the need for the British government to formulate a coherent, integrated and Treasury-supported plan to achieve net zero carbon emissions.

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Apollo Syndicate Management has appointed Paul Sandi to head it new casualty treaty team within Syndicate 1969, subject to Lloyd’s approval.

Sandi, who has nearly 20 years of industry experience, joined Apollo from Canopius, where he was head of casualty treaty. He oversaw the creation of a new US casualty treaty portfolio for Canopius.  Prior to that, Sandi was a casualty reinsurance underwriter at Liberty Syndicates, where he was part of a team that wrote the largest North American casualty reinsurance book at Lloyd’s. Sandi began his insurance career at Price Forbes.

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Lloyd’s of London has today unveiled its 2021 Culture Dashboard and announced its ambition that a third of all new hires across the market and corporation should come from ethnic minority backgrounds. The insurance marketplace said this should be targeted at all levels of the organisation, including among the leadership tier, and noted that the current level of representation of ethnic minorities stands at 8% in the marketplace and 22% in the corporation.

Lloyd’s highlighted, however, that though improving this representation at all levels is a priority, it requires the right data to measure its progress. Therefore, to further improve its data set, it will be mandating the collection of ethnicity data in 2021.

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Read more: Swiss Re sees increasing demand for insurance protection

A significant part of the support that required by these communities is around the area of financial services, whether that’s insurance products or digital payment platforms. Looking at the current picture of financial inclusion, he noted that in Africa, for instance, only 3% of the continent is insured, while there are 1.7 billion unbanked people in the world.

“When it comes to micro-insurance,” he said, “we’re really trying to focus on rural areas and provide a safety net for the people we work with across the wider space. There’s a lot of different work going on around micro insurance, not just in Africa but also in Asia and Latin America as well. But there’s a lot of room for growth and some really interesting start-ups that can hopefully make a big difference in the world by increasing access to insurance.”

Farren highlighted how in a rural area the cost of a funeral can be ruinously expensive for a family, which can lead to them having to sell one of their key assets. Losing that income-generating asset will affect their future income and livelihood, which is an example of the safety net that a micro-insurance product can offer. On the health insurance side, if the main breadwinner of a family can’t go to work that burden must be shared by the family. ‘Hospital cash’, which is probably the most popular micro-insurance product, effectively pays out a specific sum per day, usually if the policyholder goes to the hospital for more than two days.

“Then if you look at the agricultural space, which is probably the most interesting in micro-insurance, we’re looking at crop, livestock and weather index products,” he said. “And the United Nations Food and Agriculture Organization revealed that farmers with less than two hectares of land produce around a third of the world’s food but they live in the areas most affected by climate change, and they have the least protection against those risks. So, you can see why it’s really important to have that safety net in place.”

Up until now, it has generally not been economical for insurers to provide such coverage to these regional businesses, Farren said, but that is rapidly changing given the role of blockchain and parametric insurance products.

The main barrier to micro-insurance uptake is the lack of education and trust around these services, he said, as many individuals or businesses may never have had a relationship with a financial institution before. Rural Inclusion does not offer insurance products itself but rather seeks to improve financial literacy and to work with providers to encourage them to develop human-centred products that are acceptable and appropriate to the micro-insurance marketplace.

Read more: Parametric insurance can help close global protection gap – Clyde & Co

“This is definitely an untapped market for insurance companies,” he said, “as technology and micro-financing are already very popular in certain parts of the world and I think insurance is the next port of call. Even if you look at insurtech funding, away from micro-insurance, you can see that there’s a massive increase, and there’s been some strong funding for insurtech in Africa. That seems to be a really big trend at the moment and they’re starting to get a lot of traction, so there’s no doubt in my mind that those insurtechs that focus on inclusive and micro-insurance will follow that trend.”

Rural Inclusion has only just launched and will shortly commence its pilot project in Uganda in a bid to understand the key issues faced by rural communities but already Farren and the non-profit’s co-founder Joseph Lukwago have been pleased by the positive reaction they have had from the insurance market. It’s great to see the community interest the initiative has generated, he said, and he is looking forward to forming strong partnerships within the market going forward.

“We’ve had some great uptake because the issue for a lot of insurers looking to get into this market is that it’s very different from what they’re used to dealing with,” he said. “They need to understand the real risks and challenges so they can design products that will work and that will sell at the end of the day. So having a partner on the ground that is working in the communities, and working with NGOs across the piece, and across countries such as Uganda, is very interesting for them.”

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Allianz Global Corporate & Specialty (AGCS) has appointed Anthony Vassallo (pictured above) as regional head of energy and construction of its London and Nordics regional unit. He succeeded Tracey Hunt, who has left the company.

In this role, Vassallo leads the insurer’s energy and construction business in the UK, Ireland and Nordic countries. He reports to Alfredo Alonso, managing director, regional unit London and Nordics, with an additional reporting line to AGCS’ global head of energy and construction. Vassallo continues to be based in London.

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“The home market is already a very competitive space, which keeps premium increases largely at bay,” said Harriet Devonald, product manager at Consumer Intelligence.

Younger homeowners continue to pay slightly more for home cover than their elders, but the gap is shrinking. A homeowner under age 50 pays an average of £151 for an annual buildings and contents policy, while over-50s pay £134.

Across regions, London has the most expensive average home insurance premium at £202. Only two other areas – South East (£154) and Yorkshire and the Humber (£150) – have premiums higher than the national average of £144.

The North East (£113) remains the region with the cheapest premiums, followed by the East Midlands (£124) and the South West (£130). Premiums fell across all regions, with the largest drops in Yorkshire and the Humber (-7.9%).

Older properties remained more expensive to insure than newer ones, due to the higher cost of claims made by their owners. Older properties’ roofing, plumbing, and wiring are more likely to develop faults, and replacement materials may be expensive to source.

Homes built in the 19th century/Victorian era were the most expensive, typically costing £169 a year to insure. On the other hand, properties built since the turn of the century were the cheapest at £133.

Reductions were seen across all property age segments, and Consumer Intelligence observed the largest decrease in premiums for properties built between 1940 and 1955 (-7.4%) and between 1910 and 1925 (-7.0%).

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Commercial insurance brokerage The Insurance Octopus has appointed Helen Bush (pictured above) as director.

Bush was the firm’s head of finance and support services for 11 years before taking on the most senior role at the company. According to The Insurance Octopus, Bush has had an influence over all aspects of the business, having worked at multiple departments.

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The Lloyd’s Market Association (LMA) has appointed six new board members.

The new board members are Hugh Brennan, CEO of RenaissanceRe Syndicate Management; Dominick Hoare, group CUO of Munich Re Syndicate; Kate Markham, CEO of London market at Hiscox; Chris Smelt, executive director of Managing Agency Partners; Rachel Turk, head of corporate development at Beazley, and Sarah Willmont, joint active underwriter at Canopius.

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Lara Mowery, the global head of distribution at Guy Carpenter, led the panel. She was joined by: Sebastian Cook, managing director and head of London Europe; Christopher Ross, managing director of treaty broking; Shiv Kumar, president of GC securities; Dr Jessica Turner, managing director for catastrophe advisory; and Erica Davis, managing director and global co-head of cyber.

In the briefing, Mowery claimed that reinsurers’ risk appetites and product offerings continue to evolve in response to emerging market realities. Meanwhile, differentiation remains valuable.

 “Some drivers of uncertainty are dissipating. Primary rates are stabilizing, and ample traditional, as well as alternative capital, is bolstering the sector,” she continued. “The market will continue to monitor how COVID-19 claims are resolved and how the losses of 2021 develop while also turning attention to evolving risks including cyber and climate change.”

Cook stated that the US Property Catastrophe Rate-on-Line (ROL) Index increased by 6% for renewals from January through July, around half of the increase experienced over the same period in 2020. Meanwhile, in Asia, the increase was approximately 5%.

Overall, ROL levels were impacted by several factors, including some upward shifts in retentions, particularly on loss-impacted programmes, additional limits purchased on the top end of programmes, and increased pricing.

Ross explained that multiple counterbalancing factors are impacting the marketplace, with capacity reductions, retention increases, coverage restrictions, and focus on client risk-management strategies affecting levels of rate increases.

“Engagement between all parties has been remarkable during this unprecedented period. Heading into year-end renewals, we expect this positive momentum to continue and lead to an orderly renewal period with ample capacity to support cedents’ reinsurance strategies,” Ross said.

Meanwhile, Kumar highlighted the ongoing robustness of the capital markets and the growth of catastrophe bonds over the past 12 months.

Aside from the factors mentioned above, 2021 is becoming the “year of ESG” as climate change and other environmental risks remain a key concern for CEOs worldwide regarding likelihood and their impact, according to Dr Turner. As a result, Guy Carpenter and Marsh McLennan are working with clients to help them address the broad range of ESG challenges they face.

“We are able to advise on the expectations of investors, rating agencies, and regulators with regard to ESG, identifying what good looks like and helping companies develop strategies to manage the transition toward their own net-zero targets,” Dr Turner said.

Meanwhile, Davis pointed to the growing and evolving impact of cyber risk as a further driver for change in the (re)insurance sector.

“Across the industry, loss-development assumptions for cyber risk are again being revisited in 2021 to reflect the effect of the current claims activity,” she said.

“For attritional impact, a higher propensity of cyber incidents, particularly ransomware attacks, is likely to hinder a near-term reversal of claims-cost trends. Responding to a continued uptick in both frequency and severity, this was the year for cyber underwriters to take action.”

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