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Increasing pressures challenging the MGA model: Guy Carpenter’s Vicky Carter

11th September 2018 - Author: Charlie Wood

As pressures mount, the Managing General Agent (MGA) sector must lead the market for process enhancement and generate clear value rather than remaining another link in the distribution chain if it is to remain prosperous moving forward, according to Vicky Carter, Vice Chairman – Global Strategic Advisory, Guy Carpenter.

guy carpenterCarter said the MGA sector is becoming an increasingly important part of the insurance industry, experiencing a period of huge growth over recent years by providing “A well-established route to market, with experienced, specialist underwriters offering access to many niche sectors or opening new geographies for numerous carriers.”

However, Carter believes that increasing licensing and regulatory requirements, alongside conduct risk requirements are “Challenging to the MGA model and cost structure.”

“Consequently, process efficiency is critical alongside high-calibre underwriting. Carriers won’t foot the bill for MGAs’ under-performing infrastructures.”

“You can produce a very strong, pure underwriting performance,” Carter continued, “yet deliver insufficient margins to carriers.”

“Too often this is because there are multiple human touch-points in the chain, ramping up the potential for human error, reducing speed to market and adding unnecessary cost.”

Carter added that, while a first-rate business value proposition is important, it’s vital to provide the most efficient distribution channel possible.

“Fully automated systems, real-time data processing, instant exposure reporting and the ability to make real-time rate adjustments – these can reduce costs to as low as five percent, having a positive impact on the bottom-line and boosting carrier appeal.”

MGA cost factors also bring into the frame the sustainability of the commission structures upon which many are built.

“Current market pressures mean reinsurers are locked onto underwriting profit and managing down expenses,” said Carter, “which extends to MGAs. Commission-based relationships are coming under greater scrutiny and alternative remuneration structures are being put in place.”

“You simply cannot operate a relationship in which one party capitalises more on the upswing while the other shoulders any downturn,” she adds. “To create a fully functioning, value-add partnership, the MGA must be remunerated on profit – that’s essential to ensure both MGA and carrier objectives are successfully aligned. It must be a symbiotic relationship.”

Carter also highlighted the ability of MGAs to be more versatile and flexible than large carriers, explaining that they “Offer the perfect vehicle for entrepreneurial underwriters and remove many of the restraints imposed by bigger operations and can also bring new products to market faster.”

“No one doubts the potential that disruption creates,” Carter concluded. “MGAs must exploit their agility and responsiveness to tackle advances such as automated vehicles, artificial intelligence, or the sharing economy, pioneering new solutions to help open-up previously untapped or non-existent market sectors for carriers.

“In fact, recently some have shown such confidence in new technologies that they are looking to move from delegated underwriting into risk carrying – to create new insurers.”

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