MGAs can play central role in keeping insurance relevant

MGAs can play central role in keeping insurance relevant

29 June 2022

MGAs have a crucial role to play in ensuring the wider insurance market remains relevant to its clients, David Howden has said, with their low cost base, nimble business structure and focus on specialist underwriting meaning they are “perfectly placed” to develop solutions for emerging risks.

Speaking at the Managing General Agents’ Association conference on Wednesday, the Howden Group CEO said the MGA market had “really come of age”, noting that the market generated $12.5bn in revenue and controlled more than $100bn in global premiums in 2020.

However, he stressed that there were still “unhelpful preconceptions” about MGAs, particularly concerning alignment with capacity providers, which he said the market needs to address.

Howden said there remains a reluctance among many capacity providers, including Lloyd’s syndicates, to give away their pen to MGAs over fears that underwriting will not be aligned between the two parties.

“If you lose your capacity you lose the business – now that’s alignment. Without capacity you have no value. In contrast, if a line underwriter writes a bad risk they may get a telling off from a senior manager, that is certainly not alignment.

“That message needs to come across more. MGAs are absolutely fully aligned.”

Howden said that evidence can be seen in MGA combined ratios, which are typically much lower than those of their insurer peers.

“MGAs globally have much better combined ratios than insurers have. The proof is in the statistics,” he said. “And that includes MGA commissions.”

He warned that the insurance market as a whole “fell over” during Covid-19. He said the issue of business interruption claims, and the costly and embarrassing litigation that followed, continues to tarnish the sector’s reputation among both policymakers and clients.

Maintaining market relevance

Howden said that MGAs can play an influential role in ensuring the insurance market stays relevant.

“If you think that we’re as relevant today as we were in the past then you don’t understand your clients and you don’t understand your market,” he said. “There are huge challenges we’ve got. When I sit with CEOs of the businesses we cover … I promise you that they do not view insurance as having the solutions that they need.

“Are we really relevant to what CEOs and big companies are thinking about today, much less so. The problem is that we don’t want to do anything without the data, but we need to realise that in a changing world it’s hard to get that.”

He said MGAs had a history of innovation, noting that cover for renewables was born in the MGA space but is now largely in the composite market. He also noted that M&A and title insurance were both pioneered by MGAs with more than 60 percent of both lines continuing to be written through MGA businesses.

Howden stressed that MGAs can continue to pioneer by developing solutions for risks such as supply chains, cyber and climate change.

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