MGAs have become an increasingly vibrant and innovative part of the global insurance market, often addressing niche or underserved markets. McKinsey estimates that there are 600 MGAs currently operating in the U.S., and 300 MGAs in the UK. And these numbers are growing.
Their role in the insurance industry is providing another vital, cost-effective distribution channel for carriers and specialist solutions and products for customers in specific insurance lines, such as management liability (like D&O or EPLI), Product Recall, Flood, Specialty Insurance, Transportation, Work Compensation are some other common examples.
MGAs also provide access to isolated geographic areas. An insurer may want to write business in a remote location, but don’t want to spend the money and resources to open an office there. With an MGA they can gain access to these markets without having to open an office or hire staff.
Indeed, MGAs play an especially important role across a variety of commercial lines, where their specialty market expertise means they can identify and underwrite emerging risks more profitably than mainstream insurers, who find it more difficult to target niche markets.
The three most common types of MGA in today’s market are:
- Underwriting-led: MGAs founded by experienced insurance specialists to capture a niche in the market not currently well served
- Technology-led: MGAs that have acquired capacity and are writing business for commoditised lines where they can offer higher margins due to having lower operating costs and new methods of pricing
- Service-led: companies that are offering a range of services in a specific niche, of which specialist insurance cover is a key part
In the US, the majority of focus is on the second category: those technology-led MGAs who can write commoditised lines at a higher margin than the competition. In the UK market, categories one and three are more numerous.
In all three categories, technology is facilitating more rapid growth. Although MGAs have been growing in importance and influence over the years, they are still young businesses by insurance industry standards, and so most of them lack the same constraining legacy technology that holds back many larger, incumbent carriers.
Even traditional underwriting-led MGAs are therefore leveraging technology to streamline their operations and – in many cases – augment their pricing models.
Those consumer-facing MGAs enjoying the most robust growth are those that enable customers to handle everything seamlessly online. One standout example is the UK-based MGA ManyPets, which hit a valuation of $2 billion in 2021 following rapid growth in its customer-base throughout the Covid pandemic.
Let’s take a deeper dive into how MGAs are using technology to drive growth, according to recent research from McKinsey:
Many MGAs are using artificial intelligence or machine learning to automate routine tasks and improve efficiency. This can include automating underwriting processes, risk assessment, and claims handling. By automating back-office processes, MGAs can operate much more efficiently.
- Digital platforms
Consumer-facing MGAs are using digital platforms to interact with customers, agents/brokers, and carriers. These platforms enable MGAs not just to provide online quotes, but to issue policies and even handle claims digitally. In this way, they are the equal of even the largest incumbent insurers. What’s more, MGAs in specialty lines are increasingly offering this kind of slick all-in-one digital service to commercial clients too, cutting out the need for printed paperwork altogether and speeding up sales cycles.
- Data analytics
MGAs are using data analytics in several ways. Obviously, for any MGA, their single most important client is the carrier which gives them capacity. As Insurance Insider puts it, “Insurers now see MGAs as part of the strategic direction for their business. They are not as nimble as they would like to be, so working with an MGA gets access to new markets and helps develop new products.”
The savviest MGAs are therefore using analytics to track the kinds of business that would be most beneficial for their carrier partners, and to prove where they are adding the most value – a crucial competitive advantage in a hard market where spare capacity is beginning to dry up in many lines.
Secondly, MGAs are using data analytics to develop more responsive and more accurate pricing models, allowing them to underwrite the better risks at higher margins, as well as develop products for more specialist risks, such as cyber.
Thirdly, MGAs are using data analytics to look at more granular segmentation of customers and offer coverage that better suits their needs – and their pockets.
Many MGAs have obtained their competitive advantage through use of a born-in-the-cloud all-in-one insurance platform like Novidea’s. If you are an MGA looking to work with the best, why not have a conversation with one of Novidea’s insurance platform experts?
If you’re a broker or agent that wants to work with a technology-driven MGA, why not get in touch and see what Novidea could do for your business?