Despite the economic turbulence experienced in the past few months, the managing general agent (MGA) sector continues to thrive, with 90% of MGAs and 80% of carriers expecting to increase or hold steady their partnerships, global law firm Clyde & Co has found.
The MGA Report has shown that carriers’ interest for the MGA model remains high, with 45% of carriers and 44% of MGAs expecting to increase their number of partnerships this year.
Rob Crossingham, Partner at Clyde & Co, said: “Against the backdrop of a hard market for many lines of insurance, carriers have clearly signalled their intention to continue to back the MGA model, which remains an attractive place to invest.
“The results are there. Carriers have seen positive returns and our survey findings show that they retain great faith in MGAs as a route to market, highlighting their nimbleness and flexibility as key attributes.
Carriers also said that their reliance on technology and data to ensure good risk selection and pricing was their top requirement of their MGA partners, reflecting an increasing focus on disciplined underwriting in the light of economic challenges.
More than three-quarters of MGAs (80%) said they had invested in some form of technology or insurtech over the past year, compared with 55% of carriers.
Enthusiasm for the MGA model has remained high despite an expected increase in claims volume and legal and regulatory scrutiny.
According to the report, more than half of carriers (55%) and 46% of MGAs expect claims to increase and 90% of MGAs expect legal and regulatory scrutiny to increase.
More than a third of respondents to the survey said regulatory barriers could deter MGA start-ups or existing MGAs entering new markets in the current climate.
Additionally, more than half of carriers (55%) and 59% of MGAs surveyed said that the economic environment had a neutral effect on capacity allocation for 2023.
Crossingham said: “It’s clear that there’s an expectation that regulatory oversight will increase. But contributors to our report said they believed that despite a potentially heavier compliance burden, improved standards and behaviours in the MGA sector will serve to increase customer trust still further.”
He added: “The expected likelihood of an uptick in claims volume as economic conditions bite will increase still further carriers’ focus on the risk selection, disciplined underwriting, and wordings clarity of their MGA partners.
“Many of the contributors to the report also highlighted a looming talent shortage as an additional challenge on the horizon, which is a test for the whole of the insurance market. MGAs will seek to exploit their entrepreneurial and nimble nature as a key way to attract talent – on both the underwriting and claims sides.”
Regarding future opportunities, MGAs and carriers reported interest in exploring new lines of business and new territories as they seek to diversify.
“MGAs represent a great vehicle for carriers seeking to diversify into new markets or lines of business. We are seeing increasing appetite for MGAs overseas, notably in Europe where they can be set up relatively quickly in most jurisdictions,” Crossingham noted.
“Post-Brexit, interest in MGAs is accelerating as it offers a good route into writing business in the EU. As the sector matures and develops we expect even more interest in MGAs in other territories too, including the Middle East.”
