By City Am,Rupert Hargreaves

Copyright cityam

As the fastest-growing segment in property and casualty (P&C) insurance globally, managing general agents (MGAs) are attracting significant investment and playing a crucial role in closing the protection gap.

MGAs utilise capital from large insurers to underwrite on their behalf, allowing insurers access to specialised product lines without having to build in-house capabilities.

In the UK, MGAs have a market share of just over 10 per cent of the £47bn a year general insurance market, according to InsuranceEdge, and the number of members of the Managing General Agents’ Association (MGAA) has increased 58.8 per cent since 2019.

As part of City AM’s new Long Tail series, featuring prominent figures in the City of London’s insurance sector, Mike Keating, CEO of the Managing General Agents’ Association (MGAA), sat down with City AM’s managing editor Rupert Hargreaves to discuss the crucial role MGAs play in the insurance market.

The role of the MGA

“Effectively, a Managing General Agent, first and foremost, is someone who actually has underwriting expertise in its own chosen sector, and that would be quite a niche sector of insurance,” Keating says.

The demand for the coverage that MGAs provide has increased significantly as the insurance landscape has evolved over the past decade. They’ve filled a gap by offering coverage in niche and specialist areas, such as cyber insurance and parametric insurance, where traditional insurers may lack the same expertise. “MGAs really form a large part of the insurance ecosystem by actually meeting the needs and niches of specialist insurance requirements,” notes Keating.

“MGAs by [their] nature [have] specialist underwriting expertise…if you were in a thatch property, if you’re in a property which was in a flood zone, if you had a particularly wacky car which requires particular underwriting expertise to give you the coverage you require, then the likelihood is that an MGA would actually be providing that capability,” the CEO of the MGAA’s adds.

The role MGAs can play is particularly apparent in the cyber sector. “If you look at cover such as cyber, MGAs have a deep, broad understanding of cyber requirements,” Keating explains.

“MGAs can provide the programme design at the right price because it’s absolutely right for the end customer,” he adds.

Innovation

These smaller startups have also been able to bring products to market and innovate faster than the larger incumbents. “They can also bring products to market far quicker than traditional insurers. You know, they have that innovation, agility, speed,” notes Keating. MGAs also lack the “legacy systems” that have, in some cases, hindered the development of new tools and technologies at larger firms. “I think the MGA community are particularly adept with that innovation to meet those needs,” he adds.

MGAs are also leading the insurance sector in the implementation of AI. “40 per cent of MGAs will sort of say that they’ve invested in AI,” says Keating. “Some of our members are using AI where they will triage presentations from brokers… that’s increased underwriting productivity by over 40 per cent,” he adds.

But, as Keating cautions, MGAs need to be aware of the benefits of any AI tools before signing a cheque. “Investment in AI has to be [structured], don’t write a check [before you] fully understand from a business perspective what you want that technology and AI to do for your business,” he notes.

Keeping a lid on costs will be particularly important over the next few years as rates are expected to come under pressure. “Over the next two years, we are certainly heading into a reducing rate adequacy environment. So premiums are going to come down,” notes Keating.

He adds: “MGA business is a margin business. So effectively, MGA margins may actually sort of slightly drop or be flat…If the MGAs’ operational costs haven’t got the flexibility in them, there’s always the danger that MGAs will look to grow their business to meet their fixed costs in a market which is actually sort of against them.”

Despite this warning, Keating believes the sector has a bright future ahead of it. “I’m very, very confident that the MGA community [in the] UK, Ireland, and internationally and in Europe importantly, has got the tools and ability to navigate this sort of next 24 months where there’s a rating inadequacy challenge,” he concludes.

To watch the full interview with Mike Keating, CEO of the Managing General Agents’ Association (MGAA) scan the QR code below.

The Long Tail is a compelling series of interviews conducted by City AM, featuring prominent figures in the City of London’s insurance sector. Each discussion delves into critical aspects of the insurance market, exploring innovative trends, regulatory landscapes, and the evolving role of various players within this dynamic industry.

From the impact of emerging technologies like AI and analytics to the strategic importance of niche segments, “The Long Tail” provides an insightful look into the forces shaping the future of insurance.