MGAs Focus on Expanding Distribution Footprint as Soft Market becomes Main Factor Impacting on Sector Growth

19th February 2020

Peter Staddon, managing director of the Managing General Agents’ Association and Mark Birrell, chief executive officer of Castel Underwriting Agencies review the latest findings from the MGAA Matters survey.

The impact of regulation, whether in relation to the costs or levels of red tape, has been seen by MGAs as a key factor affecting growth for a number year – in the first MGAA Matters survey conducted in 2014, it was at the top of their list. Now, three years later, while still seen as a major factor, regulation has moved down the list replaced by soft market conditions. 

More than 65% of the survey respondents placed soft market conditions as the main factor affecting MGA growth, compared to 46% in 2014. Regulation and compliance, which topped the list in 2014 with 69%, dropped a place to 57% in the latest survey. This change, no doubt, reflects the strong and continuing investment MGAs make to understand and ensure they are meeting their regulatory demands.

There were some factors that have remained stable over the last three years including increased competition, the availability of underwriting capacity and the impact of out-of-date technology.  However, some areas previously seen as major issues have dropped in priority. Challenges created by a lack of understanding of the MGA’s role dropped from just over 20% in 2014 to 12% in the latest survey. This positive movement reflects, in no small part, the role of the MGAA in working with regulators and the industry to ensure a clear and working understanding of what MGAs do and the contribution they make.

Another previously highly-rated factor, which is now seen to have less impact, is the sector’s ability to recruit and retain talent. In 2014, over 30% of respondents said it was an issue. This has now dropped to 12%. There is no evidence to say this change represents a downward trend in recruitment. What is clear from talking to MGAs is that continuing appetite to invest in, and focus on, securing entrepreneurial and experienced talent remains an important factor in developing successful businesses.

Brexit uncertainty

Uncertainty about Brexit and how it might impact on MGAs was identified by just over 17% of respondents. At the time the survey was run, there was little information on the UK government’s plans. A subsequent survey of MGAs, following the UK Prime Minister’s speech outlining the country’s Brexit plan, still did not provide MGAs with any greater certainty as to the likely impact on their businesses. Half of the respondents to this second survey said they would not be reviewing their business plans, and nearly 23% said they did not feel there was enough clarity in what was said to consider changes at this point. Nearly 45% indicated that they did not see Brexit as a factor affecting business growth this year.

However, there is no doubt that Brexit has the potential to impact on the sector’s confidence and future opportunities. Passporting arrangements are a significant issue for MGAs and their capacity providers. However, some MGAs see opportunities for the UK market if Brexit creates a barrier preventing poorly rated offshore insurers passporting in to the UK at lower rates.

Strategic priorities

The latest MGAA Matters survey has indicated a shift in the emphasis of MGA business strategies in 2017 towards the expansion and strengthening of distribution relationships.

In 2014, close to 60% of respondents placed the moving into new lines of business and products as their main strategic priority. This has now moved down the list replaced by a focus on increasing business development and marketing activities, with 65% of respondents identifying it as a key priority.

Areas that continue to be consistently high strategic priorities are around ensuring technology remains up to date and increasing business efficiency. It is no surprise that, when faced with sustained soft market conditions, MGAs are focused on maintaining the highest levels of efficiency and profitability to meet the needs of their capacity providers.

The fact that MGAs are looking to broaden the scope and reach of their distribution partnerships is a reflection on the sector’s innovation and wealth of product knowledge, as well as the ability to understand clients’ needs, and to deliver this all in a cost effective and efficient way.

Heading for a ‘bubble’?

MGAs seem to be optimistic about growth opportunities over the coming 12 months. Nearly 63% of those responding said they expected the overall number of MGAs to increase in 2017. But is this level of growth sustainable in the longer term?

Respondents do seem to have a degree of optimism when it comes to maintaining levels of growth over the next three years. Just under half (48%) indicated they felt current levels of growth and success could be sustained. But over 30% remained on the fence about whether sustainable growth could be maintained.

Merger & Acquisition (M&A) is certainly not a new phenomenon in the MGA space, and expectations are that levels of M&A and consolidation will increase.  60% of respondents believe there will be more activity.  Interestingly, this appears to be a reduction in appetite when compared with expectations in 2014 when over 80% said they expected there to be more M&A.

Of course, we have to be mindful of the challenges ahead. What is quite clear is the role MGAs play in providing markets for specialty and niche business. By their nature they are able to outperform carriers in servicing these markets. MGAs need to continue their focus on responsible underwriting and supporting their capacity providers.

But continued growth in the sector will see MGAs adapting to address these challenges and meet the evolving demands. As long as we continue to innovate and provide efficiencies and returns to our capacity providers, the MGA market will continue to thrive.

Peter Staddon, managing director of the MGAA concludes: “MGAs remain optimistic about their opportunities to grow and it is no surprise that they are looking to broaden the scope and reach of their distribution partnerships. This strategic priority reflects the sector’s product knowledge and understanding of clients’ needs as well as its innovation and entrepreneurial skills.

“The fact our members are indicating regulation having a lesser impact on growth reflects the Association’s work with the FCA to build a clear and working understanding of the role of the MGA. We will continue to engage with the regulator to ensure that there is this clarity.” 

MGAA Matters

The latest survey of MGAA members was conducted during December 2016.

MGAA Matters is a research-based partnership between the Managing General Agents’ Association (MGAA) and MGA and club-style MGA formation platform, Castel Underwriting Agencies (Castel). It was launched to identify and raise awareness of the issues currently impacting the growth and success of UK MGAs.

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  • Author : MGAA
  • 19th February 2020