Viewpoint: The push for managing general agents in Europe

Managing general agents (MGAs) are already well established in the UK, where there are more than 300, placing 10% of the country’s £47bn ($59.1bn) of premium. Lloyd’s is the largest global market for MGAs, with 76 syndicates managed by 50 general agencies in 2020, according to McKinsey.

While the European market cannot match these numbers, MGAs are being used in the region for their ability to be set up relatively quickly in most jurisdictions – a trend accelerated in the wake of Brexit as they are seen as a good way to write business in Europe.

In addition, the UK market is consolidating, and the increased regulatory obligations can be perceived as a barrier for growth in that market. With the appetite for doing business in Europe doubling compared with two years ago, more carriers are looking to MGAs to enable geographic diversification and agile expansion.

Growth drivers

MGAs can offer access to tech and expertise for the development of innovative and flexible products. There are three main growth factors for MGAs in Europe and elsewhere.

The first is digitisation. MGAs are instrumental in driving innovation as the insurance industry progresses towards digital-first models. They are automating and optimising processes to ensure faster turnaround times to meet customer needs and using innovative technologies to help insurers create personalised solutions for their customers in a more speedy and effective way.

The second is expertise. MGAs meet the need to have people on the ground who understand the specific needs of different European markets so that they can develop niche products. By leveraging their expertise, the MGAs can mitigate risk for insurers while also assessing and managing the potential risks of a particular coverage or customer segment, reducing exposure for companies, and enabling them to focus on growth opportunities.

The third is distribution. Insurers can access new markets more easily and economically by partnering with MGAs, which use regional distribution networks and their local knowledge of specific markets to quickly establish a presence. Using an MGA also allows traditional carriers to try out a new market without committing too many resources and pivot easily if and when needed.

Top in technology

MGAs are quick to adopt new technology – 80% of MGAs have invested in tech or insurtech compared to 55% of carriers, according to Clyde & Co – enabling them to drive innovation and be nimble.

One example is the extensive use of data and the Internet of Things to develop new products, including in the commercial space, to provide more tailored and reactive solutions and add significant value in terms of risk prevention.

Some use artificial intelligence (AI) and machine learning not only to bring greater data insights but also more efficient processes, improved customer journeys and profitability, and lower expenses.

Another example is low-touch, agile product development such as low-code/no-code platforms that facilitate automation of repetitive tasks and streamline complicated processes. This allows carriers to move quicker to market.

Harnessing the power of data analytics is key to successful interactions with capacity providers by offering real time information on portfolios, greater transparency, growth in product development, and improved pricing strategies and risk management.

Tech challenges

There are, however, technological challenges facing MGAs. Investment in tech and data is a priority to attract capacity and build good carrier relations, but the initial outlay in tech can be high, and could affect how much capital is needed during the set-up phase.

Because MGAs are niche businesses, they demand tailored tech that may not be available out of the box. The customisation required for commercial off-the-shelf (COTS) platforms can be a lengthy process. There is a fine balance between out-of-the-box feature availability and the effort required to tailor the platform for MGAs. Many times, leaders end up sacrificing one for another.

Scalable tech also presents a challenge: as MGAs expand, the technology has to scale to cater to the needs of different growth stages. As an MGA matures and adopts better data sources and tools for their business, tech should support seamless integration with these tools.

In addition, the rapid pace of technological change requires MGAs to keep up with industry trends and upgrade legacy business models by using disruptive technologies. They need to adapt and innovate to remain competitive.

A helping hand

To meet these challenges, MGAs can leverage the expertise of Insurtech companies to implement the latest technological solutions. These partnerships can provide access to new technologies such as AI, machine learning and blockchain, which can significantly enhance operational efficiency.

Insurtechs can support MGAs with tech that lowers initial capital needs and is scalable with growth. They can offer services support for technology, analytics, underwriting, claims, and policy administration processes, among others. These partnerships can reduce the burden as well as the expenditure of starting a new company and allow MGA founders to focus on winning business and designing better products.

Isabelle Clausner is vice president of client executive for southern Europe at Xceedance