Each year, Aite-Novarica Group identifies the top trends that will impact the insurance industry in the coming year. One sector of property/casualty insurance that we anticipate will remain at the forefront is MGAs; we also anticipate that MGA premium growth will continue to expand at a multiple of the overall property/casualty rate. Many may be surprised to learn that this channel has grown to an estimated US$60 billion to US$70 billion. Several factors are driving this expansion from the demand and supply sides.
Largely unburdened by corporate bureaucracies and legacy technologies, MGAs are typically more agile than most insurers, enabling them to address unmet market needs. Many of the product innovations developed by MGAs represent a “c”-change in the rapidly changing risk landscape. In addition to dealing with climate, cyber, cannabis, and crypto, MGAs are in the vanguard of addressing the risk management needs that new business models, such as the sharing and gig economies, are creating.
Combining this nimbleness with an ability to attract strong underwriting talent enables MGAs to move quickly and gain first-mover advantages. There is a class of talented and experienced underwriters attracted to MGAs’ agility and willingness to innovate. And given the significant volume of M&A activity in this space, the opportunity for a significant liquidity event looms large—further enticement to attract the best industry talent.
How MGAs Differ From Traditional Insurers
Many MGAs have coupled their product focus with cloud-based technologies to deploy fit-for-purpose technology solutions. Insurers often rely on legacy technology, cannot integrate via APIs, and are burdened by technical debt. MGAs can introduce new products and product modifications in a fraction of the time it takes traditional markets. The speed-to-market edge significantly contributes to MGAs’ lead with insurance product innovations. Cloud-based platforms eliminate the need for data centers, and Software-as-a-Service pricing models lower up-front capital requirements.
However, MGAs are compelled to be more frugal than traditional insurers as their economics more closely resemble brokers and agents. The ability to deploy highly configurable policy administration systems within the financial constraints of a distributor remains a challenge. The larger, deeper-pocketed market participants want to refresh their technology to maintain relevance and bridge capability gaps.
Like the rest of the industry, MGAs consider robust data and analytics capabilities to be table stakes. Not only does data help produce better underwriting results, but mature data capabilities can make an MGA a more attractive distribution partner for (re)insurers. Program administrators have focused niches and access to a critical mass of data that enables unique insights. The ability to demonstrate with data the quality of the portfolio to (re)insurance partners is highly valued. The availability of cloud-based platforms along with third-party data and analytics are contributing to these mature data capabilities.
Growth Ahead for MGAs
Despite the current economic headwinds, there remains significant interest in the MGA sector. Insurance has traditionally been viewed as an economic sector relatively resilient to recessions and inflation, yet the pressure for profitable growth remains. (Re)insurers and private equity are looking to put capital to work and grow the top line to support the expansion of the channel. Gain sharing creates win-win outcomes for MGAs and capital providers alike. The most attractive MGA partners will be able to demonstrate a track record and will have a seasoned portfolio of profitable business.
Talented underwriters are recognizing the promise of MGAs. They seek an entrepreneurial experience, expanding (re)insurers and investors. MGAs are a source of industry innovation, creative partners, and formidable competitors. 2023 may be remembered as the year of the MGA.
To read more about this and other top trends in property/casualty insurance this year, check out our report Top 10 Trends in Property & Casualty, 2023: Turning Disruption Into Opportunities.