The strength of an MGA is directly linked to the strength of the partnerships that it builds, according to Charles Rowley (pictured), director at DA Strategy. Through his work with the firm, which provides advisory services across the delegated authority (DA) space, he has seen and championed the need for MGAs to build stronger partnerships – partnerships with underwriters, but also with all the partners across the value chain of functions that MGAs bring to the market.
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From claims, to bordereau management, to data analytics, these relationships need to be evolved. He has seen that DA players are upping their game by increasing their data gathering from coverholders and working with them to provide more insight to carriers, thus demonstrating their value.
“This has been a bit of a knee-jerk reaction,” he said. “And it is only the first steps into MGAs actually having to take much stronger action to gather more relevant, meaningful data from their clients, so they can provide what the carriers need in terms of drilling down into those portfolios.
“I think the carriers are going to be asking ‘how are you going to make this portfolio more profitable for me?’ and the MGAs are having to come up with concrete plans to do that. Where before, this focused on analysis, now it’s going to be about gathering more data through third-party feeds and developing more insight into actual information.”
For DA Strategy, its support and advisory services are more essential than ever as the MGA market is facing up to more challenges than it has for the last decade or so. Up until recently, he said, MGAs have been able to renew their facilities relatively easily, and sometimes move carriers reasonably easily - but that’s just not the case anymore. The carriers currently have the balance of power in this relationship and are in a position to require granular analysis on profitability.
A particular area where Rowley believes more MGAs need to be tightening up their carrier partnerships is around claims data. A lot of MGAs are focusing on underwriting data to add value to underwriting but they need to make sure they’re also connected into the claims data piece as this can lead to a continuous improvement cycle, enabling businesses to focus on the more profitable segments of their portfolio.
“From my conversations in the market, MGAs are looking to demonstrate greater value. They are looking at third-party data feeds and they are looking at building their own analytical capabilities. Some of them are subcontracting with actuaries or they’re expecting a broker to bring actuarial expertise into the renewal process for them. Or, perhaps they’re developing their own in-house data warehouse capabilities, so they can start to really develop that side of things. So, there is a lot more focus on [data now] and, I think there’s much more opportunity in that area.”
Looking forward, he said, it is to be expected that DA business will contract a little over the next year or two and MGAs need to take this time to focus on quality and value, which will allow the market to accelerate in the future. If they use this time effectively and efficiently, MGAs have the opportunity to move quickly to fill some of the data or value gaps that carriers perceive them to have.
“Some of the other challenges will include the issue of carriers going direct,” he said. “I think some carriers will look to grab market share with their direct to customer and B2B websites. That will be a challenge for some MGAs and brokers, but only time will tell how effective they are at it. If it’s set up right, some carriers could do quite well, but they need to give those teams the flexibility to make it a success. And, as we all know, there’s often an initial plan to do just that, but then somehow it all gets micromanaged and doesn’t necessarily go in the right direction.”
Rowley firmly believes that MGAs have a great future ahead of them because they have a level of adaptability and flexibility that even the best carriers simply do not possess. Carriers often have a much slower decision-making process and more of an administrative burden, he said. Because they’re carrying a lot of underwriting risk on their balance sheet, they don’t want to take a lot of risk on the operational, IT, regulatory and other areas of their business.
MGAs, however, are not taking the same level of underwriting risk which leaves them open to exploring new systems, investment and data-gathering opportunities. As long as MGAs can refine and communicate their value proposition then the future looks bright and, while the next year may see a lull in the DA business written in London, they will be poised to come back stronger than ever.
