According to TMPAA, program premiums reached $36.1B in 2016, an increase of 5.3% over the previous year—and 11.7% over 2014—while growth of direct written premiums in P&C as a whole remained relatively flat at 1.3%.¹

Several factors contributed to the continued growth of program 
business, including:

• Capital diversification. Massive volumes of capital are available to insurers as investors seek returns insulated from the high volatility of mainstream global markets. But even within insurance-based investments, that capital is seeking even further diversification to protect against mainstream P&C risks—especially risks associated with catastrophic weather events. Program books, with the highly differentiated risk profiles of their specific niche markets, deliver this diversification.

• Customer value and experience. Consumers appreciate products and experiences that are tailored to their particular needs. This is just as true for a CFO seeking to mitigate business risk as it is for a millennial buying a car. Programs address this desire for bespoke value by addressing marina operators as marina operators and prosthetic device manufacturers as prosthetic device manufacturers.

By providing this customized experience, programs can achieve higher close rates and shorter sales cycles. Highly-targeted prospect and customer reference lists also make it easier to market programs than more generalized products.

• Healthier margins. Programs are profitable. Within niche markets, MGAs face fewer competitors, so there’s less downward pressure on premiums. And by focusing on these well-defined niches, MGAs precisely understand the risks and can price coverages more appropriately. Understanding the risks allows MGAs to reduce the potential for claims, too, which in turn improves profit margins.

In fact, from 2011 to 2015, average MGA loss ratios (54.4%) out-performed general P&C (61.6%) by more than seven points. Excluding losses for crop coverage (91.8%), that out-performance was 10.1%. Program customers also tend to be more loyal, with 25% of MGAs reporting program renewal rates of more than 90%.² All of these factors make programs especially attractive to MGAs and their partners.

However, this good news about programs doesn’t mean that MGAs can be complacent. Attractive markets attract competition. Also, to reap the benefits of diversification, MGAs have to continually expand the number of niche markets they address. MGAs also have to become more efficient to address a larger number of markets profitably even if downward pressures on premiums intensify.

The financial attractiveness of program business is fundamentally changing the relationships between MGAs and carriers. To make the most of the program opportunity, MGAs must do more than spot the right niches and accurately price coverage. As an MGA, you also have to re-think your relationships with carrier partners.

Aspects of the MGA-carrier relationship to re-think include:

• Supply and demand. Carriers want more program business in their portfolios so they can channel more capital into more profitable underwriting. This is a widely pervasive market strategy, with 90% of surveyed carriers agreeing that they plan to add more programs. More importantly for MGAs, 85% of those carriers plan on expanding their program portfolio through program administrator relationships.³

This increased future dependency of carriers on MGAs for the expansion of a crucial piece of their portfolios means that MGAs hold better cards than ever before—especially if they have the proven ability to quickly and effectively deliver new program capacity to meet carrier demand.

• Owning the book. Ultimately, the power play for MGAs isn’t just about targeting the right markets with the right policies. It’s about truly owning their program books by owning their data. To do this, MGAs must have the technical wherewithal to own the systems for managing their programs—rather than ceding data and systems to the carrier.

This digital transformation can be a big move for an MGA, but it’s very doable. And the benefits of fully owning one’s high-value book of program business are obvious, especially given that programs are a compelling long-term growth and market share play weighted heavily in favor of MGAs.

• Execution excellence. Most carriers are supportive of MGAs owning their own program books. In the current market climate, carriers appreciate turnkey service from MGAs and the ability to nimbly re-structure their portfolios without having to engage in a lot of IT work themselves. A small minority, on the other hand, may feel threatened by ceding direct control over the data to MGAs.

The key to winning over both of these carrier constituencies is to assure the carrier of excellent execution. MGAs don’t just need to run their program books, they need to run them well as a value-add for the MGA, the carrier, and the program customers that MGAs serve.

Digital transformation is an imperative for every business in every sector. Everything companies need to successfully compete in their markets depends on leveraging data, analytics, automated workflows, multichannel customer service, predictive models, and other technological capabilities. This is especially true in markets like insurance where new, disruptive market entrants are building their entire value propositions on technological superiority.

MGAs seeking to expand their program portfolios, optimize profitability, and fully own their program books should focus on several key enablers for their digital transformation:

• Rich program-enabling content and business-rule libraries. MGAs don’t want to keep creating new programs out of thin air. Instead, they must adaptively mix and match common elements of underwriting and servicing while making adjustments for the requirements of a program’s targeted market segment. 
The right technology provides this combination of ready-made components and easy program-specific configuration.

• Simple, secure integration. The software that MGAs use to support their program business must integrate easily with both the existing systems they use internally and any systems their business partners may use to support the 
end-to-end value chain. These systems can range from a carrier’s internal financials to a cloud provider’s marketing or payments processing service.

• Rapid time-to-benefit and time-to-modify. Markets aren’t patient. Neither are carriers, insuretechs, or other potential business partners. None of them want to hear about the months or quarters it will take an MGA to stand up the systems necessary to deliver the product they seek. MGAs need technology solutions that enable them to launch new program deliverables in weeks. And they need to be flexible enough to adapt quickly to new market learnings in the early stages of program rollouts, and new market opportunities as they emerge.

• Low cost of entry. Starting a new program can be costly—and risky. It also takes time to develop and grow critical mass. MGAs can’t aggressively expand their program portfolios in response to changing markets if they spend too much money up front on each play. A flexible system with built-in tools and the ability to repurpose content rather than start from scratch minimize cost of entry—and the financial risk of failure.

• Expert, responsive service. MGAs tend not to have large, highly skilled IT staffs. To successfully achieve digital transformation, they need a technology partner with the resources to support the idiosyncrasies of the program insurance business. An experienced partner can get new systems up and running, and ensure those systems are easy to manage and modify as needed.