With an established, developed presence in different markets including the US, the UK and Germany, managing general agents (MGAs) have experienced a recent surge in both popularity and venture investment due largely to their ability to leverage digital advancements and emerging technologies. Now industry players are taking a closer look at how MGAs are becoming hotbeds of innovation and experimentation within the insurance value chain.
In contrast to other insurance intermediaries like retail and wholesale brokers, MGAs have been delegated binding authority from their insurance partners. Because of this distinction, MGAs are able to carry out functions that would traditionally only fit the purview of the insurer, for example: appointing agents, binding policy coverage, underwriting and pricing, and even settling claims.
MGAs have specialised expertise in specific, emerging, or non-standard lines of business and risk-classes (e.g. agriculture; cyber risk; shipping; mining; construction). Consequently, they not only have access to these niche or hard-to-access customer segments, they are also able to use their nuanced understanding of these markets to provide more qualified risk assessments.
In addition, MGAs are able to operate without many of the weighty, operational complexities large insurance incumbents have historically struggled with. This means more flexibility and time and cost efficiencies, with the ability to use emerging tech to make their processes more seamless and customer friendly.
The ease with which MGAs can adopt digital technologies (and adapt to a quickly changing digital landscape) also supports their superior speed to market entry. Nimble, digital MGAs, for example, don’t require the same kind of infrastructure investment a large insurer would demand (e.g. hiring underwriters, developing new pricing models, shouldering the cost of an in-house build).
That means today there's a new, more experimental category of MGA emerging, bringing technological efficiencies to everything from customer acquisition to claims processing to underwriting. By serving as more than a platform for underwriting niche risk, this newer MGA model provides a way for entrepreneurs to build VC-backed, full-stack insurance carriers.
Because of its adaptability, flexibility and specialised distribution capacity, the MGA model is expected to continue to expand its presence within the insurance value chain.
A recent McKinsey article indicated the M&A market for MGAs should remain quite active, especially for insurance carriers, retail and wholesale brokers, and MGA aggregators. Driven by strong competition, MGA valuations have skyrocketed.
Within the current climate of claims inflation, verticalization is also expected to help some MGAs find alternative sources of capital, improving both their resilience in the face of market challenges and the overall capacity of MGAs.
Importantly, MGAs promise industry innovation, access to high growth areas of the insurance ecosystem, and custom solutions to risks and exposures. For insurers, they will remain an increasingly crucial way to experiment and evolve – using alternative distribution models to access new business and revenues.