“Overall, it is now more difficult to launch an MGA than it was a year ago. There are more moving parts, there is more complexity, and there is more granular detail required to get a new MGA over the line. Those are the challenges that I see facing the delegated authority market but they’re not just impacting new MGAs but also existing MGAs.”
Speaking with Insurance Business, DA Strategy director Charles Rowley (pictured), emphasised the blend of market conditions that are changing the name of the delegated authority (DA) game – and why it’s harder than ever for new MGAs to get off the ground.
It’s a twofold concern, he said, with new entrants facing increased demand for data and insight, amid a challenging funding environment. With inflationary pressures, investors are looking for greater return on investment and the high-profile dips in the share prices of tech giants have ensured that funding is not as freely or cheaply available as it has been in recent years.
Rowley’s advice to those leading existing MGAs is that they’re better off trying to step up the value proposition of their existing business than trying to greenfield site a new venture. This is especially relevant considering that there are still opportunities for DAs to flourish, particularly given that the Lloyd’s market appears to be moving in the right direction with regards to the expedited 2023 Lloyd’s attestation process.
The development which enables managing agents to submit their own approvals and send Lloyd’s an attestation that will be turned around within five days is “a lot healthier” for the market, he said, though it is going through some teething troubles at the moment. Yet while the approval process is not yet as fast-tracked as the market might hope, it is starting to have something of an effect.
“That will do two things,” he said. “For those managing agents who are effective, efficient and can do due diligence quickly – they will be able to move faster which, in turn, will reflect poorly on any managing agent who doesn’t have a decent process in place or indeed on any broker who isn’t efficient.
“Historically, there used to be a lot of instances of brokers, or sometimes even managing agents, blaming Lloyd’s for why it took three months to get an approval. I think the responsibility is now shifting away from Lloyd’s to the managing agents and therefore they need to start thinking about how to streamline and improve some of their DA processes if they haven’t done so already.”
With no remaining excuse for Syndicates not reacting with speed and efficiency, having the right procedures and structures in place for delivering on their value proposition is critical to the success of MGAs in the current market. And there’s no denying that the current market has become more challenging. Every product has become more complex, he said, which is making it harder for businesses to get the scale necessary to grow - or to evolve their offering.
Rowley noted that aside from leveraging acquisition opportunities, it’s going to be harder for MGAs to expand their product offering this year, so he advises focusing on delivering for the carriers. A streetwise MGA knows not to go too broadly, too quickly, he said, but rather to focus on its core product and on making that really work for all relevant stakeholders.
“And that plays into the data challenge,” Rowley said. “Everybody throws out terms about data, APIs, etc., but actually we’re beginning to see carriers start to challenge on data. Three-to-five years ago a carrier might ask for the bordereau data, but they wouldn’t do a lot with it because they were really only just about managing to capture it at the time. Now we’re getting to the point where carriers are beginning to analyse it, looking at data quality, accuracy and value.
“I think that’s going to be something that changes this year, that instead of a coverholder just sending data in and not getting much feedback, firstly, they’re getting more challenged around errors, quality and accuracy. And secondly, there’s going to be the demand for extra data for analysis where carriers want to get to the bottom of which parts of your portfolio are profitable and which aren’t – and how the profitability of your book can be improved.”
Those MGAs largely relying on people to do a lot of their underwriting should be looking to invest in digitalising their processes and enhancing data management to leverage the true potential value of their data, he said. Examples of technology solutions to support this would include rules or AI-based rating tools, digitising contracts (data scraping), etc., which will help support higher volume underwriting as well as more specialist underwriting.
Looking at where MGAs need the most support right now, Rowley highlighted how the firm works with businesses to help them identify how to translate their business objectives into a robust data strategy before helping them identify good base MGA systems to build their businesses on and ultimately engaging with them around the use of third-party data feeds.
With those foundational structures in place, he said, DA Strategy then explores projects around the end-to-end process of data management (e.g. data integration, warehousing, reporting) and how, leveraging either AI or rules-based technology, they can extract value from the data to reduce manual processes, boost efficiencies or increase performance.
On that efficiency piece, Rowley noted the need for MGAs to concentrate on where they do have a good chance of binding a risk – and so, a key area of focus for the team is on helping MGAs prioritise what they do best and where they can add value to the insurance ecosystem.
“It all comes back to developing a strong data strategy first,” he said. “And then, with the right implementation process, ensuring you have the right tools and partnerships in place to execute effectively. There are now tech tools out there that don’t cost a fortune, and are quite simple and straightforward to use.
“You don’t have to be that big of an MGA to start using reasonable levels of technology in your business, but it is important to start with a strong understanding of what you need from your data to affect your business strategy. And those are the areas we’re really exploring at the moment – how we can support our partners with data, tech, and developing the right tools for success.”
For MGAs and DAs who have not proactively engaged with data management or the toolkit of data analytics and technology processes required to navigate current market conditions, Rowley has words of advice and comfort in equal measure.
“It’s not too late to start,” he said. “If there’s still an MGA that has not engaged on this yet, it’s not too late. But like any business, you want to have a plan and to know where you want to go. That’s where things like getting the right advisors in, who’ve seen it done, can help you develop the data strategy, develop the broader based technology plan, and develop deeper relationships with your partners.
“Because, once you get all those aspects ticked, that’s when you can go in and engage with your carriers much more broadly across their team.”
What are your thoughts on the current market conditions for MGAs? Please feel free to share your comments below.
