For Insurers/Capacity Providers, an Alternative to Hiring Underwriting Expertise?

Managing General Agents (MGAs) may appear enigmatic to those unfamiliar with the insurance industry. Are they mere stand-ins for insurers, or do they bring unique value? For those well-versed in the field, MGAs represent a potential paradigm shift and the future of insurance. They offer immense value as engines of innovation, adaptability, and transformation. Collaborating with MGAs delivers tangible benefits to capacity providers, insurtech firms, investors, underwriters, brokers, and, ultimately, policyholders.

For Insurers/Capacity Providers, an alternative to hiring Underwriting expertise? MGAs serve as an outsourcing conduit, enabling insurers to fill gaps in resource, expertise, or market entry capabilities. This approach provides a cost-effective entry point into new markets. Although costs may escalate as loss ratios come into play, these expenses are often balanced by incoming profits.

Nonetheless, it's important to acknowledge that MGAs do introduce risks for capacity providers. Inadequate underwriting can potentially expose capacity providers to insufficient reinsurance coverage for certain claims. Therefore, insurers must have unwavering trust in the efficiency and correctness of MGA operations, placing a premium on the credibility of experienced underwriters at the helm.

For Insurtechs: Insurtech companies view MGAs as vehicles for swiftly introducing new products to the market. In the lead-up to MGA launches, founding teams often collaborate with their insurtech partners to craft customized, purpose-fit products. MGAs also simplify product deployment, offering a conducive environment for insurtechs to embrace and integrate cutting-edge technology, unburdened by legacy systems.

This collaboration allows insurtechs to refine their products within smaller, agile teams before venturing into larger organizations with more intricate infrastructures.

For Investors: The insurance industry, being counter-cyclical and largely independent of stock market performance, holds significant allure for investors. Historically, entities like Lloyd's syndicates were the vehicles of choice for market entry. However, MGAs now present a compelling investment opportunity due to lower barriers to entry and less onerous regulatory requirements.

For Underwriters: Experienced underwriters often establish MGAs to explore new markets, products, or distribution methods that may not align with the corporate culture of large insurers. MGAs provide the freedom to set parameters and address common frustrations encountered within corporate environments.

For Brokers: MGAs typically receive a substantial portion of their Gross Written Premium (GWP) through brokers. Thus, it is imperative to streamline interactions between MGAs and brokers to simplify the business process. Brokers benefit from quicker responses, straightforward product offerings, and high-quality underwriting when collaborating with MGAs.

For Policyholders (The Insured): MGAs are typically helmed by seasoned underwriters who leverage the latest technology and data insights to achieve precise risk selection and underwriting. Consequently, policyholders can have confidence that their coverage aligns precisely with their specific requirements.

In sum, MGAs play a pivotal role in the insurance landscape, especially in niche and specialized sectors. Their success hinges on trust and effective communication with all stakeholders. MGAs empower accomplished underwriters to innovate and adapt, offering solutions that may be challenging to find within larger corporate insurance entities. While they represent a relatively modest segment of the market, their importance is on the rise, particularly in scenarios requiring specialization, validation of concepts, or niche expertise.