Viewpoint: The changing role of the MGA
By David Coupe, Birketts EC3 Legal
Better technology, better regulation and better education are pushing the development of the MGA model
Outside Lloyd’s, the managing general agent (MGA) concept was hardly understood or recognised 10 years ago. Indeed, MGAs and brokers still remain indistinguishable in the eyes of the Financial Conduct Authority (FCA).
However, in a virtual marketplace where “streamlining” and “innovation” are the buzzwords, efficiencies need to be created and costs need to be cut, the MGA model is ideally placed to deliver this change.
It is no longer simply a broker with coverholder status with its primary duty to the insured. The MGA has developed into the model of expertise, providing to insurers, as its primary client, an underwriting function at a much cheaper cost than the insurer ever could. The fact Managing General Agents’ Association members, little more than nine years since the launch of the organisation, write more than £6bn ($7.9bn) in gross written premium today bears witness to the place of MGAs in the market.
The FCA’s requirement to ensure proper systems and controls are in place and generally better governance has meant MGAs have invested in better IT, providing clearer, more digestible management information to insurers.
The growing use of artificial intelligence (AI) and, in a small minority, digital ledger (blockchain) technology, will deliver better and more secure underwriting in the future.
This will not come without its challenges – AI must be used carefully if it is not to give discriminatory results. However, tackling one of the hot topics in relation to Covid-19, developing business interruption insurance based on parametric triggers rather than “traditional” policy wording, shows the adaptability of the market in an ever-changing world.
Education will prove important too. The Chartered Insurance Institute now has a separate module relating to delegated underwriting, which will become the base requirement for all underwriters.
Obtaining chartered status will become a benchmark for all MGAs. Ethics and standards will continue to improve.
Perhaps the inevitable question is whether we will ever see general insurers simply divest all their internal underwriting functions to external MGAs and become capital investment vehicles. Maybe not quite yet, but that model cannot be too far away.
Some argue aligning capital and underwriters together ensures the best return for all. Others argue the contrary, saying if the reward of the underwriters was based solely on their performance in a non-aligned MGA then their performance would improve.
One thing is for sure. With the underwriting capital available to MGAs sometimes an unpredictable commodity and the FCA perpetually beating its regulatory drum, MGAs will need to be on their toes and flexible at all times to meet the changing needs of the world around them. If Covid-19 has proven nothing else to us, it has shown we cannot take anything for granted.
David Coupe is a senior partner at Birketts EC3 Legal
David Coupe will be speaking alongside Optio’s executive chairman, Matthew Fosh, Beach chief executive, Jason Howard, and Vanessa Macdonald-Smith, head of direct and facultative at Oneglobal Broking, on an Insurance Day panel focused on brokers and distribution.
The one-hour panel will take place at 3pm London time on December 10. Listeners will go away with a deeper knowledge of the changing roles of the re/insurance broker and the managing general agent, how analytics can help you stay ahead of the pack and ways to add value in a very competitive environment. Click here to register your interest.