Demise of the high street broker – rise of the MGA?
During the past few years it has been discussed several times whether the demise of the high street broker is happening now or will in the future, and that has brought up the question if it brings the rise for the MGAs.
Not too long ago, when an individual wanted to arrange home or motor insurance they would pop down to their local high street broker, which would cater their every insurance need. Today it is not happening like previously said, as the customer behaviour is changing. 90% of customers deal with the broker online or by phone. It is too expensive to operate in the high street for the fewer customer still shopping that way.
As brokers are moving to other locations and selling on the high street doesn't serve a purpose, we need to talk about managing general agents. Brokers are working more with MGAs and the cooperation is remarkable. Peter Staddon has said that brokers can benefit from the presence of MGAs which "provide regional insurance brokers with the ability to discuss risks with an individual underwriter who has the authority to make decisions," which isn't always possible when dealing directly with an insurance company. It takes less time for MGAs to develop niche products that satisfy the broker market, whereas for some of the larger insurers it will take more time to launch new schemes and products. Paul Anscombe, chief executive officer of Seventeen Group, has said that MGAs are more nimble and flexible and they're good at responding to specific sectors of schemes or needs for brokers.
"Access to distribution and expertise in niche classes of business are the two key advantages," said Martin Hall, chief underwriting officer of Pen Underwriting, one of the U.K.'s largest specialist underwriting businesses, "but successful MGAs are also synonymous with the strength and longevity of customer relationships, robust performance monitoring, and investment in meaningful management information, all of which are highly valued by carriers."
Sector specialism is key. An MGA's in-depth risk knowledge can translate into expert claims handling too, Hall said. "Many of the larger capacity providers do not have the necessary distribution network. MGAs can provide distribution to the regional and smaller brokers," he said. Some members of Pen's team have been working with the same people or trade bodies for 20 years, giving them unparalleled understanding of their business.
Measuring the MGA Market
The scale of the MGA market is large and growing, but no one really knows quite how large it is. Conning & Co. studied the U.S. market, and put 2014 MGA-sourced premium at $33 billion, 12% of total U.S. commercial lines premiums, up from $27 billion in 2012. However, Conning acknowledged that its survey is flawed. The company questioned 400 U.S. MGAs, but estimates the total number is roughly 1,000, with more start-ups than cessations. The total premium they generate could be much more than the investigation revealed, Conning & Co. said.
"The MGA market posted higher growth rates than the rest of the commercial lines in 2014 despite rate softening appearing in several lines," said Bill Broomall, Conning's assistant vice president for insurance research.
Separately, in a survey of insurers who use delegated authorities conducted this year by reinsurance broker Guy Carpenter, 43% of respondents said they thought the market is between $30 billion and $40 billion, and the same share put it in a range $10 billion lower. The rest thought it is larger--up to $30 billion. Two-thirds said they expect the market to continue to grow; the rest believe it will be static
The approach is an old one, said James de Labilliere, managing director of Hiscox MGA. "MGAs and the use of delegated underwriting authorities have been around for some time," he said. "They are not a new concept. They reduce the risk of market entry by lowering set-up costs, at the same time as increasing carriers' ability to deploy their capital collectively, thereby adding to their competitive edge." He too noted that underwriting through MGAs provides access to new geographical markets, and introduces specialist underwriting expertise with meaningful line sizes.
In Anscombe’s view, the rise of MGAs should lead to brokers being more on their toes as there is more choice in the market than just the traditional carriers. But he also warned brokers that there were bad offerings out there and urged them to look at the MGA’s track record, the quality of the insurers it works with and how it is dealing with claims.
“If you’re dealing with an MGA, as a broker you have a duty to your clients to do a degree of due diligence to the quality of the particular MGA that you’re thinking of working with,” Anscombe concluded.
In conclusion the demise isn't actually that tragic, but rather positive in the way that brokers and MGAs are working together. MGAs can provide brokers with new products and schemes, and as there are more MGAs coming to the market then it could be considered as a rise for them.
Article written based on the information from InsuranceAge and Best's Insurance News & Analysis.