What makes a best-in-class MGA?
What makes a first class MGA?
According to Matson, the top MGAs in a crowded market differ either by “well-anchored sales models that are not easy or economical to replicate” and / or by building class-specific expertise in the niche sectors they serve.
“Freight forwarders and financiers, often generalists, can gain access to this highly desirable business themselves without significant investment by working with specialist MGAs,” added Matson. “The same easy access to niche segments via MGA specialists, however, also has a disadvantage for an MGA, since the carrier partner can switch off the capacity just as quickly and with little or no legacy costs as it originally switched it on. ”
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Because the relationship between MGAs and carriers is “sometimes temporary,” Matson said more of the more sophisticated MGAs are trying to move away from the old MGA / carrier model and are now “aggressively seeking to establish a broader, multi-annual model.” Partnerships. ”You are willing to forego potentially higher assignment commissions for short-term deals in order to receive longer-term capacity commitments.
In recent years there have been some complaints among carriers that MGAs in certain sectors or circumstances are adding frictional costs to the value chain rather than reducing costs or adding value. This, according to Christopher Miller (pictured right), structured partnership solutions at McGill and Partners, has resulted in many MGAs losing the support of their financier, affecting the “sometimes temporary” nature of the MGA / carrier relationships.
“Duplicate roles and costs can be problematic if not considered up front in a traditional MGA / carrier relationship,” Miller told Insurance Business. “This is mostly a problem with legacy carriers who have well established and broad infrastructures, often built to run their traditional business. However, if the same carrier also aims to sell via MGAs at a later point in time, some of these roles and the associated costs with the MGA’s own infrastructure are superfluous. “
Matson added that this has proven to be less of a problem for some of the new carriers entering the MGA space.
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“As many MGAs now have their own sales and infrastructure, these companies proactively seek and develop strategic, long-term partnerships directly with investors who really understand and appreciate their role and expertise in sales and underwriting.” Volatility, ”said Matson.
“The prevailing perception in the insurance market is that MGAs are inefficient, and this may be made worse by the fact that both parties pay internal expenses, which arguably double by contributing to the same type of service, such as technology platforms. More generally, however, there is clearly a cost saving for freight forwarders (or transfers) when the MGA acquires and serves business on their behalf. “
Enter the reinsurers
In recent years, reinsurers have started turning to MGAs to run their business on an end-to-end basis. Miller attributed this strengthening of the relationship to a number of key trends. One of these is the “newly excited fronting market” that gives MGAs access to reinsurers looking for new distribution channels in stable blocks of lower volatility deals. He added that the more active involvement of the fronting carriers in the MGA space, due to a better “fundamental alignment” than the historical norm, will generate additional interest from reinsurers.
“In addition, reinsurers are now proactively seeking MGA-produced business to offset or offset the reduction in ceded premiums they have experienced as traditional airlines manage their capital more efficiently,” Miller added. “For the reinsurer, this means a reduction in the ceded premium and an increase in the relative ceded volatility.
“This provides a tremendous opportunity for McGill and Partners to develop and structure portfolio solutions that simultaneously meet the long-term capacity needs of MGAs and give reinsurers access to highly desirable, large and stable blocks of diversified niche business.
When MGAs combine profitability with their financiers – be they insurers, reinsurers, or alternative financiers – and they can focus on sourcing niche sales and business at a lower cost, MGAs can create strong, long-term, enduring partnerships.
“The best MGAs in their class with smart management teams and financially savvy financiers (private equity, venture capitalists, etc.) will forge much closer relationships with the ultimate financiers,” commented Matson. “In this way, through a more coordinated partnership and structure, MGAs will continue to eliminate many of the redundant layers of friction and costs that plague this segment today.”