There is one certainty in life – change. Like many sectors the insurance market has changed significantly in recent years. Good Managing General Agents (MGAs) are outgrowing many other parts of the insurance market; 10-15% of insurance policies written in the UK, by value, are now written by MGAs. There are now over 300 of these businesses in the UK, 136 of which have joined the MGA Association. So what does ‘good’ look like?

A well-run MGA benefits all parties:

• The customer receives a quicker service because they are dealing directly with the decision maker
• The insurer benefits from deep sector expertise offered by the MGA without incurring the overheads associated with developing that capability in house, as well as from the alignment of incentives with the MGA (which contrasts with the traditional broker model)
• The broker can place risks that might otherwise be difficult or time-consuming to place because they can rely on the expertise and quick turnaround of the MGA.

As the market is set, in our view, to consolidate, what are the 5 critical factors that MGAs need to have in place?

Depth of sector expertise: This is the entire point of the MGA – specialist knowledge and experience that capacity providers can leverage to write good risks, quickly. Both customers and brokers benefit because they can place niche risks at speed with a skilled team who understand the sector, rather than relying on generalists without the same degree of familiarity.

Product range and evolution: MGAs should strive to expand their expertise, developing additional products within their existing specialist areas, or developing additional areas. An MGA that can diversify its client base along either sector niche or product lines will prove more resilient to market shifts. Those that can’t run the risk of being ‘too narrow’ when a market change occurs.

Strong capacity: Without capacity, an MGA cannot write business, and having just one capacity provider leaves an MGA with a single-point-of-failure risk. The best MGAs tend to sacrifice a small amount of potential profit to have a greater number of higher quality capacity providers.

Great underwriting performance: Everyone in the industry should be incentivised to write good risks that perform well, but it is even more important for MGAs than for brokers. While some capacity arrangements include provision for a profit share, perhaps more important long-term is the need to maintain attraction for capacity – and you can’t do that without making the carrier a profit.

An outstanding management team: Finally, this goes for any business, but it is perhaps even more in focus here in an industry that, we believe, is about to consolidate through M&A: ambitious MGAs need a management team that has both top-quality underwriting abilities and the commercial nous to develop a strong infrastructure that can support the business’ growth. At Sovereign, we look for industry experience, and it’s why we take the time to get to know management teams well in advance of a transaction to ensure a strong cultural fit and alignment on the growth opportunity.

For more information on how Sovereign backs and supports businesses in the insurance industry, please contact James Buckhalter or Peter Eckersley.