Insurers looking to leverage MGAs for their ability to develop new operations technologies need patience and modest expectations, according to industry experts who spoke at InsurTech NY on April 2.
"Working with MGAs in a partnership or potential acquisition can be extremely advantageous versus the high risk that comes in trying to build something internally yourself," said Josh Bjorkman, senior vice president, digital partners, at Arch Capital, the parent company of P&C insurer Arch Insurance.
MGAs can be faster and more nimble, according to Nicole Perrault, senior vice president at Vantage Risk, a P&C reinsurer. "Carriers have a lot on their plate," she said. "They're usually more broad. They have a lot of distribution, a lot of things to go around, a lot of things to worry about. In certain places where we need somebody to move a little differently, we prefer MGAs to do that."
When working with MGAs, insurers need realistic expectations for what the MGAs can do, Perrault explained. "No one ever says, 'We're here to grow fast and exit early,'" she said. "Things are not going to go like your business plan. You might not grow. Your loss ratio might go sideways."
Insurers and MGAs should have up-front conversations before beginning to work together, to set expectations and avoid overreactions to setbacks, Perrault advised. "What makes a great MGA is knowing your customer, knowing your access point, knowing your distribution," she said.
Hartford Steam Boiler (HSB) takes a selective approach to working with MGAs, partnering with only one or two new partners each year, according to Richard James, head of insurtech and embedded solutions at HSB. "It depends on what the engineer is doing, how innovative it is in the product and distribution. Sometimes we don't want mass scale really quickly," he said. "It all has to be localized to whatever it is that we're doing."
MGAs should ask themselves the questions they are likely to get from carriers, to be prepared, James said. "There's going to be tough questions that they should rightfully be able to answer," he said, naming a few. "What's the plan? What does the future look like? Have you got that laid out? What are the stepping stones? When can they expect to launch?"
The future of MGAs as R&D hubs for insurance will be boosted by "reinvigoration and facilitation of the agency captive model," said Nick Scott, counsel, Troutman Pepper Locke. "There used to be only a small handful of states that had this. The cohort of states that allow MGAs to set up agency captives as reinsurers has grown." There are now 25 U.S. states that have agency captives.
