Managing general agents (MGAs) have the advantage of being “fleet of foot” in that they can react to market changes a lot quicker than regular insurance companies, according to Gary Hirst, president and CEO of CHES Special Risk.
This suppleness of character opens an expanse of opportunity for MGAs, who are often competing against “slow service” from domestic insurance companies in Canada.
“MGAs can be a lot more innovative in terms of product application because the reporting lines in an MGA are usually fairly short, whereas with an insurance company they are extended and often involve a treaty agreement. This trend is actually driving more business into the MGA market,” Hirst told Insurance Business.
He added: “Insurers have been consistently losing money for a number of years. This doesn’t have a great deal to do with the underlying performance of the book (losses versus premium). A lot of it is because of high expense ratios. If you look at the UK market, there are a large number of domestic insurers that I would now call ‘virtual insurers’ in that they’re giving their capacity to MGAs who are providing the service of underwriting, reporting, premium collection and claims payment. An MGA is able to deliver those services far cheaper than
the insurer can. It’s in the insurers’ interests to delegate their capacity to an MGA because they can cut down on their acquisition cost and the cost of doing business.”
The rate of delegation is not quite as high in the Canadian market, but there is definitely “room for growth”. In Canada, there are only around 90 “professional MGAs” servicing 35 million people, whereas the UK has 1,600 MGAs, according to Hirst. This is perhaps due to the popular but old-fashioned “offer and acceptance model” of business, which is still prevalent in the Canadian market.
Hirst explained: “Embracing tech and online trading is the obvious next step. As clients get more and more used to buying their personal insurances online, as in auto or home insurance, I think brokers will become more used to visiting an MGA’s web portal and quoting the business direct, especially as margins are getting thinner and thinner. If we can provide brokers with an online offering which cuts down the amount of time it takes to quote and buy a piece of business, that’s got to be good for everybody.”
Whereas in the past MGAs were used to underwrite more bespoke products, now they must adapt to provide more standardized online solutions. This is where their “fleet-footedness” must come into play, according to Hirst.