By Nick Roscoe, Managing Director, Insurance & InsurTech, Sheffield Haworth
Over the last few years, Managing General Agents (MGAs) have been recognised as an increasingly vibrant part of the UK insurance market. Not only have they experienced consistent growth over the last 15 years, but many of them have also been breaking new ground in terms of distribution and technology. This kind of innovation often leads to companies seeking new talent and skills outside the traditional insurance market.
At the same time, there are some who worry that the market may lose steam as it did at the end of the 1990s MGA boom. As a result, we wanted to reach out to some contacts in the MGA market to find out more. What’s been driving market growth? Will the market continue to grow? Which skills will the sector need most over the next year or so as a result?
Thanks to our interviewees Marco del Carlo, CEO of Capacity Place and Director of the MGAA, Robert Dorey, Group CEO of Astaara, and Donald Harell, CEO of Montague Risk Partners for their time and insights.
The evolution of the UK MGA sector
On the surface, the UK MGA sector can seem confusing. One can categorise MGAs in a number of different ways, for example looking at those who are independent versus those owned by large broking houses or insurers. We can also categorise MGAs into those who are:
- Underwriting-led: companies set up by insurance specialists to capture a niche in the market.
- Technology-led: companies that have acquired capacity and are writing business for commoditised lines where they can offer higher margins due to having lower operating costs and new methods of pricing.
- Service-led: companies that are offering a range of services in a specific niche, of which specialist insurance cover is a key part.
Marco del Carlo sees MGAs as existing along a continuum. As he explains:
“At one end are underwriter-led MGAs with their own wordings and products who apply judgment in the selection and pricing of risk. They generally operate in the Specialty arena or else in a niche. At the other end are distribution-led MGAs focused on higher-volume, lower-premium products. These intermediaries are increasingly tech-led, InsurTechs or digital MGAs.”
When we dig below the surface complexity, the challenges facing most MGAs are very similar, as are the reasons for growth and their future talent needs.
Will the market continue to grow?
In a nutshell, the market has grown over the last 15 years because more capital has been available to start and grow MGAs, while capacity providers have increasingly supported MGAs that can offer higher rates of return, either due to having greater operational efficiencies or the ability to build new niche markets – or both.
Now, MGAs are facing tightening capacity, pressure on commissions, and stricter terms from insurers and the pace of growth has cooled. This has led some to worry that we could be about to see a collapse in the MGA market as happened at the beginning of the 2000s.
Del Carlo is confident that growth will continue this time, for several reasons:
“The new MGA market which has been building since 2005/6 in very different in many respects. In the ’90s the decision to provide capacity was largely made by the class underwriter or underwriting director and was based upon how much they trusted the MGA leaders to apply good judgement and act with integrity,” he says.
“Trust remains important, but the new market is fuelled by data and proven track record and capacity support decisions are often made by underwriting committees with inputs from multiple departments including actuarial, legal, wordings, compliance, finance, IT, reinsurance and finance,” he adds.
Understanding carriers’ risk appetites is key
“Securing capacity for MGAs, particularly new MGAs, remains a challenging process with a lot of pitfalls,” del Carlo says. “Each capacity provider has its own risk appetite in terms of classes of business and territories they write… Capacity providers seek to avoid duplication and competing against themselves and are generally seeking MGAs with a track record of underwriting profitability.”
This is where market knowledge and underwriting skill can help maintain relationships with insurers, by continuing to provide higher returns on capital and build out new markets. Indeed, many MGAs have been able to create market demand for policies. Their challenge is sourcing enough capacity from insurers to meet that demand. As Robert Dorey of Astaara puts it:
“You’re only as good as your underwriting capacity, and they’re only as good as they can be if they really buy into what you’re doing and they understand the rationale of what you’re doing and why they’re supporting it. You have to renew that understanding and sense of partnership and invest in it quite a lot.”
As a result of the need to source capacity, MGAs are increasingly looking to reinsurers rather than insurers. Some MGAs are even setting up reinsurers of their own to provide their own capacity.
“Technology plays a key role”
Modern cloud-based technology solutions are another way that MGAs can add value to their insurer relationships. As del Carlo says: “Technology plays a key role in the new MGA market because with good technology the capacity providers get better and more immediate information, they analyse and manage exposures better and the MGAs have stronger governance and control enabling them to run their books better.”
Don Harrell of Montague Risk Partners also points to the importance of technology: “For the MGAs themselves, data, analytics and tech can give a pricing advantage and reduce operational costs, while on the capital side you have to be able to differentiate yourself to evidence a good financial opportunity.”
The impact on talent: what skills do MGAs need for the future?
In speaking to our MGA experts, it’s clear that a lot of the traditional underwriting skills will always remain in demand. At the same time, there have been changes in technology and the market which have opened up new roles. The main skillsets highlighted were:
1. Specialist knowledge of an MGA’s niche market
This is key for any underwriter-led or service-led MGA. In carving out a market niche, having unrivalled knowledge of that niche is crucial to maintain trust with insurance capacity providers and to provide a good service.
2. Skilled and experienced underwriters
Robert Dorey of Astaara points to the benefit of having people with multi-line underwriting experience, for example.
3. Skilled and experienced actuaries
Don Harrell of Montague Risk Partners says that actuaries will remain important specifically “to support the relationship with capital and to provide pricing”.
4. Data scientists to build underwriting algorithms
Robert Dorey describes this as “finding value out of the so-called data exhaust”, while Don Harrell says: “future roles will be about using your own team to analyse data and bringing in data scientists.”
5. People who can deploy and maintain cloud-based software infrastructure and applications
Due to the amount of data rekeying that plagues the insurance industry, individuals with the ability to integrate new IT infrastructure and applications are becoming increasingly important. These may be recruited inhouse, as interims, or as contractors, but perceived demand is certainly on the rise, and MGAs would do well not to underestimate the price they may have to pay for these skills over time.
6. Soft skills and the right mindset
As Robert Dorey says: “The skillset that works best in Astaara is essentially curiosity. So we’ll train everybody in our ways, but you have to be essentially curious… they need to be open minded.”
Meeting the challenge of building teams with more diverse skillsets
Across the MGA market, new teams are being put together that contain more diverse skillsets than ever before. The individuals who succeed in this environment are team players who have a clear understanding not only of the value they bring to the table, but of what others on the team bring also.
Business leaders in the MGA space will have to get used to selecting employees with capabilities that are different from their own – particularly when it comes to hiring in tech and data talent. This is where executive search consultants have a potentially valuable role to play both in finding the right talent and in validating their capabilities and suitability for the existing team. As Robert Dorey says: “it’s only by working closely with a search team that really understand what you’re doing that you can find people in the areas where you don’t already have reach.”If you’d like to discuss any of the talent trends in this article – or if you need support with your insurance talent needs – please get in touch with Nick at n.roscoe@sheffieldhaworth.com
