MGAs and insurers will gather in London this week for the MGAA 2022 Conference and as Chris Butcher explains the current climate brings with it both challenge and opportunity.

The MGAA has titled this year’s conference as “Seize the Opportunity”, at a time when the market and the wider economy is continuing to be challenged by a series of issues.

Within the MGA sector there are some clear themes that have emerged post pandemic and are in all or part driven by the wider insurance industry’s efforts to recover from the impact of COVID.

The ability to raise capital has always been key to the ability of those behind the launch of an MGA to realise their dreams. It has seen a lot of MGAs look to position themselves as Insurtech. The reasons may well be because of the systems they wish to put into place but also Insurtechs have had the ability to access a different pool for funding than those who are deemed to be a more traditional operation.

However, in the Insurtech space we have witnessed liquidity becoming an increasing problem. Capital tends to come in waves and at present the wave is on a downward trajectory. For those MGAs which have pursued a policy of buying customers and burning cash, may well struggle to maintain that strategy in the current environment.

From our point of view the pipeline of MGAs seeking to launch are focused on what can best be described as super niche, and particularly specialty super niche areas.

Merger & acquisition, coupled with consolidation and the recruitment of teams in recent years is also having an effect. All too often after two years of undergoing a significant change in terms of the company for which they work we see staff look to the MGA sector, believing they can do it better and access more of the revenue by stepping outside of the corporate structure.

The thing they all have in common is a track record in the class in which they want to operate.

For the insurers, the investment appetite remains tight. The rate of premium increases is starting to slow from recent highs, and as such, we are now in a world where there is a growing reluctance to give their pen away unless it is an area or opportunity, they cannot undertake themselves.

It is likely there will be some MGAs which will have to have to ask themselves some challenging questions and potentially take some tough decisions in the months to come.

As a company that has always offered a “cradle to grave” support to the MGA sector we are happy to support MGAs if or when those tough questions need to be asked.

While the reality is that trading conditions remain challenging, there is much for the MGA sector to be positive about.

MGAs were able to manage their way through the pandemic, emerging in better shape than some of the larger underwriting entities.

The ability to be flexible and the use of technology made the move to remote working seamless for some and we are seeing cases where MGAs have been happy to continue to operate in a remote or hybrid working structure.

The nimble nature of the management structure of an MGA also enabled businesses to make quick decisions when they were required.

The decision to downsize or upsize could be agreed and that flexible approach may have seen some staff either furloughed or leave the business. However, the speed with which those decisions were taken has been replicated in recent months as the MGAs look to recover and grow, increasing staff numbers as a result.

Another clear difference is not only the entrepreneurial nature of the management but also the approach of the staff they recruit. For the majority they understand the role they are being asked to take in what is a dynamic business environment. They do not see it as a job for life. Rather they understand they have been recruited to carry out a particular role and take the attitude that the role will be for a set period after which they will seek a new challenge elsewhere.

The wider market remains tough with rising inflationary pressure having a growing effect on claims. The nimble structure and flexibility that has helped MGAs navigate the challenges from the pandemic is now being switched to identifying the opportunities across the market and moving swiftly to capitalise when they occur.

If you would like to continue the conversation, get in touch with CEO of Insurance Services UK, Chris Butcher at chris.butcher@davies-group.com.