The managing general agent (MGA) sector in Canada is experiencing significant expansion, driven by increasing demand for specialized insurance solutions. And as the industry evolves, MGAs are stepping up to provide brokers with tailored coverage for hard-to-place risks, offering faster response times, customized underwriting, and innovative product development.
Speaking to Insurance Business, Gary Hirst (pictured), president of CHES Special Risk, said that while hard-to-place risks were once considered substandard, that definition has shifted.
"I think that the definition of ‘hard to place’ in the Canadian context no longer encompasses what was considered to be substandard business," he said. "’Hard to place’ now encompasses all business generally, all commercial business generally, and in fact, some personal lines. Brokers are encountering a number of issues. Climate change has definitely affected the Canadian marketplace in 2024, with some of the worst catastrophe peril claims that Canada has ever experienced. That is certainly impacting appetite from the standard market.”
Beyond climate-related risks, the insurance industry is still adjusting to post-pandemic operational challenges.
"We are still all suffering from the COVID hangover of remote working,” Hirst said. “Large parts of the insurance industry are remote working, and I think that causes issues in terms of response times. You can no longer lean over to a colleague in the office and say, ‘Look, I'm swamped with this. Do you mind having a look?’ That is part of the hard-to-place aspect that brokers are having to tackle."
Capacity constraints and pricing trends are also shaping the market. "There are just general appetite issues in the marketplace where maybe capacity isn’t where it should be, or pricing levels are still being pushed up. We’re still seeing prices increasing in certain segments of the industry," he said.
As MGAs continue to increase their market share, insurers are recognizing the benefits of partnering with them. "The whole panorama of insurance providers globally is changing. You often need to look at the London, UK market, as well as the markets in the USA – they're generally on the front foot of development," Hirst said.
Insurers are now actively seeking MGA partnerships as a cost-cutting and efficiency strategy. "Insurers with the capitalization and capacity are now really seeing the benefit of what an MGA can bring to the table. It's actually enabling those insurers to cut costs and drive more profitability to their bottom line," Hirst said.
MGAs offer insurers a streamlined approach by managing portfolios rather than individual policies. "An MGA portfolio is exactly that – the insurers are now underwriting a portfolio of business, rather than individual pieces of business. We’re seeing a developing marketplace of insurers that only want to deal with MGAs," Hirst said.
This shift is fuelling the emergence of new MGAs.
“You are seeing quite a lot of new MGAs starting up, not just in Canada, but elsewhere in the world. They are distributing property, liability, construction, motor, and more. The reason why insurers like it is because they're tapping into a distribution model that has existing brokers, existing infrastructure for premium collection, policy issuance, and other processes," he said.
And, with the rapid expansion of the MGA sector, brokers have more opportunities to access niche markets and capitalize on evolving risks. And while fundamental policy structures remain unchanged, new applications and financial instruments are emerging.
"Insurance is insurance. We are restricted by a contract wording that has evolved over several hundred years of legalese and claims history,” Hirst said. “But I do see different applications. It was interesting to read this week that TD Bank is the first to actually buy a catastrophe bond for their insurance portfolios. I think we’re going to see more of that."
Financial institutions are beginning to recognize the importance of managing risk in non-traditional ways.
“Banks still have billions of dollars’ worth of real estate sitting on their books that they are hoping the owners are insuring. But if you look at the situation in California with the wildfires, there are rumours that a lot of properties are uninsured," Hirst said.
“We are seeing deductibles increase in Canada for earthquake exposures, flood exposures, and storm exposures. Some of those deductibles are too high for certain corporations to bear. But there are markets we have access to that enable buy-downs on those deductibles, helping businesses cope with higher thresholds."
