The Intelligent Quarterly from the publishers of The Insurance Insider

Summer 2017

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MGA Review 2017

Back at the end of each of the last few soft markets London-based MGAs have managed to make quite a name for themselves.

A bad name, that is.

Who can forget the high-profile late 1980s collapse of major US liability underwriter HS Weavers? Or how about reinsurance MGAs writing LMX caught out by Piper Alpha or Andrew?

Or, indeed, the many workers' comp carve-out underwriters holding the pen for stupendous varieties of top-quality security, much of which was rated into the multiple-As?

And let us not forget those that put the infamous gross-loss-making PA treaty spirals of the late 1990s onto the books of those who might rather now forget the experience?

MGAs became a dirty word - a euphemism for poor underwriting, worse record-keeping and the unnecessary loading of cost and complication onto naïve capital providers.

So as the current soft market starts to hurt, why should today's crop of entrepreneurial London underwriters fare any differently from their predecessors?

The only answer worth its salt is that great underwriters always add much more value to the ultimate risk carrier than their salary or their profit commission.

If you didn't have MGAs you would very soon have to invent them.

The skills a successful MGA brings to the table are simple to document but equally hard for large incumbent carriers to emulate.

Development of new niche products is something that the big boys have always been very poor at. It's hard to take the R&D costs of launching a new product on your own. Gaining exposure to an emerging class of business via an MGA headed by a niche expert is an excellent way of diversifying without breaking the bank.

It's quicker too. Speed to market is often overlooked. Many is the time a big player will launch a product that is already out there. MGAs can also adopt technology far more quickly than incumbents to improve this speed still further.

Distribution is also a key attribute. MGAs should reach the parts of the market the bigger players can't - if not, they shouldn't be in business.

Specialist marketing is a key feature of a successful MGA as it ties directly in with the underwriting.

The best MGAs are not only great at identifying the profitable segments of the market. They are also the best at reaching those customers and, more importantly, selling them the insurance product that they require at a price that is both profitable for their carriers, but that is also highly competitive for the end user.

And finally, these days carriers are far better at aligning the interests of MGAs with their own. Perverse incentives to write volume with no controls are a thing of the past.

In short, the old school MGAs are long gone - or if they aren't they are about to be found out as costs come under intense pressure and their backers tire of net losses.

The new progressive breed should have a far brighter future than the rogues' gallery of the past.

But let us remain vigilant - some of us are long enough in the tooth to remember the bad old days.

To view the MGA Review 2017 please click here

Mark Geoghegan

Managing director

The Insurance Insider

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