In theory, competition in any marketplace should be a good thing for those on the receiving end of a product or service. More choice typically drives down costs and forces the existing market players to shake up their services and offer better deals. However, when it comes to the MGA market there is an important point that brokers may sometimes overlook – stop and think about who you are actually dealing with. That comes from Richard Webb, director of
Manchester Underwriting Management, who is concerned that not all brokers may consider their markets as often as they should.
“A number of brokers this year keep saying the same thing – there seems to be more MGAs than ever across a number of classes, with lots of new start-ups appearing,” he said. “However, for a broker this makes it really important to understand what you’re getting from an MGA, because it’s a broad term that isn’t clearly defined. Ask for evidence of their authority from the insurer and that they have risk transfer. Understand whether they are at the ‘broker with a limited binder’ end of the spectrum or if they are truly the underwriters. Who makes the claims decisions? There is a big difference – it doesn’t always matter but the broker needs to understand where the value in the chain is and where the cost is.”
According to Webb, it’s equally vital that brokers stop and ask questions about the MGA’s capacity providers and their security – questions such as: are they in the UK, and are they rated? He also believes it’s vital to consider the experience of the MGA’s staff. Of course, it’s not just brokers that should be careful with new MGAs – new MGAs need to be cautious with brokers, too.
“If you’re a new MGA, you can differentiate yourself in a number of ways; we do it on quality products, service, reputation and building our brand,” said Webb. “However, I remember what it was like in those early years – it was a lot of hard work seeing brokers and delivering the service that you’ve promised.
“If you’re a new company and you want your name known, one way of getting quick growth is to be the cheapest game in town and to always say yes. But that’s short term. New markets often get tested with difficult cases at first, and sometimes an MGA has to say no.”
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