Strong competition can only be a good thing for managing general agents (MGAs), retail brokers and the insurance consumer. Whoever tops the trade to deliver the best customer service, product and price will end the year with healthy books.
However, the competition and demands on the insurance industry are always changing. Technology has taken a front seat in the drive for innovation, and so has a rather unhealthy obsession with cutting costs. So, what does it take for MGAs to thrive in this changing market?
A bit of healthy competition is vital for the insurance industry, according to Gary Hurst, president and CEO of CHES Special Risk.
“New entrants are coming into the market and are trying to buy market share. But let’s not forget that MGAs earn income as a result of commission and not necessarily through the underlying profitability of an account, so one would be skeptical about the motivation of an MGA coming into the market space and cutting price,” he told Insurance Business.
“Cutting prices doesn’t hurt the MGA; it hurts the market the MGA represents. A price-centric culture can drag the market down but I think there’s enough good business coming out of the standard insurance market that more than makes up for the loss of business as a result of new entrants coming in and cutting prices.”
CHES Special Risk has seen “great growth” this year, with an increased income of three times what the MGA wrote the previous year. It has done this by focusing on segments of the market that are particularly difficult and have a lack of market support.
Focusing on notoriously problematic markets allows CHES to make it difficult for other MGAs to enter the market space, according to Hurst.
“We have chosen three classes of business that lack in market support,” he said. “We have done that because our presence becomes a barrier of entry to other MGAs.
“We have also seen segments of the market space where domestic insurers have been increasing prices, and in some cases trying to double prices. We saw this as an opportunity to get into those market segments and ride the coat-tails of the domestic market in terms of rate increase. Rate increases only increase the amount of profit we can make for our insurers.”
So, MGAs can succeed by keeping the market stable but competitive, tapping into the mainstream domestic marketplace, and by offering specialty services in difficult and niche markets. But what’s next for MGAs in Canada?
“I’m surprised we haven’t seen more international MGAs starting up here in Canada, especially those coming out of the US,” commented Hurst. “I can see perhaps more American MGAs crossing the border to do business here. I also predict a lot more insurtech and online offerings. And I do see further growth in terms of written income in the MGA market.”