Avid’s Stephen Gibson on the four criteria that will define a successful MGA
28 September 2021
After a challenging few years the managing general agents sector has looked at itself in the mirror and, buoyed by the hardening market, is in good position to grow following the pandemic, says Stephen Gibson, CEO of Avid Insurance Services.
Managing general agents are back. While deal mania in traditional broking shows no sign of easing up, investors looking for an alternative insurance asset class are now sizing up MGAs as a home for their money. So what are investors looking for? There are four key criteria separating the good MGA from the average: capacity, expertise, data and claims.
In this market, capacity is king, and not just any old capacity. Successful MGAs are those with A-rated capacity and deep and lasting relationships with their insurer partners. There are still too many MGAs that live on a cycle of one year deals, constantly searching for new backers, which wastes management time and energy. We have five-year deals with two of our A-rated capacity providers. This has enabled us to build trust and mutual understanding, and crucially gives management time to focus on the other attributes that make a successful MGA.
The whole point of an MGA is to attract expertise to the niche and specialist products and services it underwrites. Experienced underwriting hands – who really know their specialist onions and have built up deep and lasting relationships with their clients over many years, are gold dust for MGAs.
If capacity is king, data is the crown prince. In the 2020s, data analytics is the quid pro quo of being successful in insurance, whether broker, insurer or MGA. To be clear, data analysis on its own is not enough; marrying data with in-house underwriting expertise to fully understand book performance and deliver that information to insurer partners, in real time, is critical.
Most MGAs outsource their claims handling, but some have learned the hard way that out of sight, out of mind is not a good idea. There are numerous examples of high quality claims handling by third-part administrators but it’s important for MGAs to stay close to the handling operation. Having agreed high standards of service and delivery of detailing claims data with their supplier and their capacity provider, working collegiately with claims TPAs will make sure standards stay high.
Some MGAs are now breaking through the £100m gross written premium barrier. But the nature of niche insurance distribution means it is hard to build scale MGAs. Niche is, well, niche, and MGAs that distribute standard propositions to build volume run the risk of underwriting losses and a struggle to retain capacity. The MGA recipe for success is simple: stick to your knitting. Profitable underwriting comes from drawing on the four criteria of capacity, expertise, data and claims excellence, and keeping your feet firmly on the ground.