Businesses and individuals face risk. Insurers specialize in addressing risk. For both parties, however, finding a place to meet has been a challenge.
Enter the managing general agent (MGA), an intermediary who often specializes in particular types of risk and coverage. MGAs play a key role in providing information and access to coverage. Yet, as industry intermediaries, they also face increasing scrutiny regarding the value their work adds to the insurance distribution process.
Technology is disrupting the role of the MGA in new ways. As MGAs embrace new technologies, they improve their ability to add value and support insurer-customer relationships.
Managing general agents, or program administrators, are specialized agents or brokers with the authority to engage in underwriting on behalf of a particular insurer. In addition to providing the education and communication resources all agents and brokers in turn provide to customers, MGAs can also administer programs and negotiate contracts on an insurer’s behalf.
The ability to administer and negotiate allows MGAs to connect insurers and customers more effectively. It also allows them to specialize in certain types of business or coverage, making them valuable sources of information for customers seeking specialized types of insurance.
“By focusing on a niche business type, MGAs can develop deep expertise on the risks faced by these entities and how to best address their needs,” writes Thomas A. Ryan, a consulting actuary at Milliman.
For new insurance industry participants, MGAs can offer protection against some of the largest financial risks involved in entering the insurance market. “Want to generate underwriting income without raising massive amounts of capital or wait a year or more to get regulated? Setting up an MGA may be the answer,” writes Matthew Grant, a partner at Instech London. As a result, managing general agents are popular with insurtechs, who often seek either to partner with an MGA or to become one.
Yet MGAs also face challenges, including that of being recognized for their contributions. Most insurance customers aren’t familiar with the work done by managing general agents. Even when customers rely on one to help them place coverage, they may not realize they’re working with a managing general agent.
Meanwhile, new technologies are making it easier than ever for insurance companies to connect directly to new customers, creating the impression that it’s now possible to bypass an MGA relationship. Customers’ lack of knowledge and insurers’ interest in new technology can both place pressure on managing general agents to prove their worth.
“By virtue, [managing general underwriters] and MGAs, program administrators, are the middlemen,” says Rekha Skantharaja, CEO at Tangram Insurance Services. In a world full of customers demanding immediate connections to their insurance and other service providers, the challenge for mid-process players is to add value that justifies their participation in the process.
“With mature, technologically advanced infrastructure, modern MGAs are often more agile, responsive, lean, and tech-forward than incumbents,” writes Travis MacMillan, chief business officer at Xceedance.
Managing general agents were early introducers or adopters of a number of new insurance technologies, due to the benefits insurtech startups gained from partnering with MGAs or setting themselves up as MGAs. Consequently, many managing general agents have expertise not only on niche insurance areas and customer needs, but also on how to use AI, machine learning and other tools to better understand and leverage customer data.
For incumbent insurers, one major recent challenge has been finding the people who understand and can implement new technologies. A 2019 PwC survey, for example, found that 81 percent of insurance respondents were somewhat or very concerned about finding talent with the skills necessary to leverage new technologies effectively.
Due to their early relationships with insurtech startups, many managing general agents have the talent insurers lack. Yet MGAs too face challenges when it comes to integrating technologies and adapting their role to a digitally-driven future.
Data, for instance, continues to be both essential to insurance underwriting and a challenge to address. “There have been MGAs that crashed and burned on the rocks of bad underwriting,” says Emily Gilde, former chief actuary at Ethos Specialty Insurance Services. While some of these cases can be traced back to missteps by carriers, both carrier mistakes and MGA mistakes often arise from issues with available data or how it is analyzed.
Because managing general agents often specialize in certain types of risk or coverage, they gain a deep understanding of their focus areas. Access to massive data sets focused on these same areas is changing the way MGAs develop and deploy their expertise.
Traditionally, underwriting was done entirely by humans. Risk assessment was only as good as a person’s ability to analyze and comprehend available data sets. Today, artificial intelligence tools can analyze data sets far larger than the human mind can manage. These tools can also spot patterns and offer predictions more quickly. MGAs who embrace such tools gain a significant advantage due to the depth of their knowledge in their specialty areas.
Technology is changing the role of managing general agents, expanding their ability to serve both insurance companies and insurance customers. Yet the technology must be a means to providing value, not an end in itself.
“By their very nature, MGAs are entrepreneurial and agile. Those able to meet an identified gap in the market, with a focus on delivering returns to their capacity providers and creating new products with efficiency, control and a greater focus on the underlying fundamentals, stand to benefit in the current climate. They are also likely to significantly impact how established risks are covered in the future,” writes Tim Rourke, head of intermediated insurance and distribution at Willis Towers Watson.
“The concept [of the managing general agent] is not new but it is evolving,” writes Grant. With the emergence of new technologies and new ways to approach insurance, MGAs provide the flexibility both insurtech startups and incumbent insurers need to try unique insurance approaches before committing to major changes.
The resilience of managing general agents is already proving its value in the face of disruption. Although they did experience challenges during the COVID-19 pandemic, MGAs were also able to weather cash flow issues and other concerns, says Alyssa Gittleman, a vice president in insurance research at investment management firm Conning.
The MGAs most likely to thrive in the future are those that embrace their own adaptability now. Future managing general agents will need to think of themselves as a type of insurer, not merely as a distributor.
“Many MGAs operate under the misconception that they’re a distribution company. Distribution is important, but it’s only one element of an MGA’s operation,” write Mark Prowting and Stewart Osmond at Willis Towers Watson. According to Prowting and Osmond, managing general agents that treat themselves as part of the underwriting arm of insurance carriers will be better able to adapt to changes in the insurance industry.
An emphasis on adaptability is a must for future managing general agents, not only in how they view their own business but also in how they respond to new challenges and technologies.
“Lean, agile and dynamic, tomorrow’s MGAs will build thriving niche businesses and grow profits faster and at a larger scale than the industry as a whole,” writes Isabelle Santenac, global insurance leader at EY. She predicts that some future managing general agents may be billion-dollar businesses in their own right, but that they will reach this status by specializing in niche insurance areas and by embracing technology-enhanced adaptability to do it.
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