Building a business from the ground up is often described as a marathon and not a sprint. But even the longest distance runners know that agility is critical, and the ability to be flexible and move quickly when an opportunity presents itself is just as important for those start-up businesses sprinting for growth as it is for enterprises on long-distance journeys, noted DA Strategy director Charles Rowley (pictured).
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Rowley, who has over 20 years of delegated authority (DA) experience, including 13 years as the head of DA at Catlin, founded DA Strategy in 2015 to provide advice and support services to insurers, brokers and MGAs in the DA space. This work, he said, has provided him with insight into what the MGA sector might expect from 2021. It emerges that, during a global pandemic and all its financial and social uncertainty, for businesses to remain afloat requires a similar focus to that which is required for such a business to begin – an emphasis on long-term strategic growth instead of immediate results.
“We are living through a time of radical uncertainty,” Rowley said. “And because of this, the MGA market faces challenges and opportunities. In terms of premium, hard market conditions mean volumes are actually unlikely to grow much in 2021. In fact, I actually believe that in the London market carriers will be more focused on open market opportunities … So, interestingly, I see the MGA market possibly contracting – not massively, just a point or two.
“But being so agile and nimble, this will be more of a repositioning and it will then start growing again in 2022 and 2023 because these adaptive attributes will rapidly deliver a lot of new products, that will cover different aspects of COVID, and those things that the BI policies have failed to [cover]. Business models, particularly those around distribution and ‘remote communication’ with customers, have and will continue to change.”
Rowley noted that the DA sector has been significantly challenged by the remote working environment and the impact this has had on the relationships which are so instrumental to the market. Partially due to this, but mainly as a result of the hardening market, he said, the sector will see a lot of change in carriers backing DA.
“Those managing agents and carriers who continue to back DA are going to become more selective,” he said, “and, honestly, they are already becoming more selective. They’re going to look at their portfolio of MGAs and decide which ones they want to deepen their partnerships with and which they don’t.”
“There is definitely going to be a culling of DA relationships. The carriers are going to be looking to streamline the DA book that they write and those MGAs with whom they trade are going to have to look to deepen the partnership by providing better data, more analytics, and being even more profit-focused.”
In the past, Rowley said, the soft market has hidden the role that quality data plays in these relationships. Many MGAs and their brokers have previously been in a position to push back to carriers and counter that they are too busy to focus on providing this information. Now the shoe is on the other foot and carriers can say, “actually we really need this quality data in order to trade with you.” In 2021, the DA market will therefore have to focus on providing not just more data, but also making sure that this is high-quality data that is swiftly delivered.
“For many years, MGAs have relied on their relationship with the underwriter,” Rowley said, “it’s been very much a one-dimensional underwriting relationship. But there needs to be a multifaceted approach to MGA-carrier relationships. The underwriter relationship is, of course, absolutely key. But the claims relationship is also key.”
The relationships MGAs should be looking to build must encompass every part of their service proposition, he said. They should be looking to form strong bonds and to build relationships with a range of teams, from data, to actuarial, to compliance, to IT, to due diligence, to sanctions checking, for example.
“By doing so,” he said, “an MGA can provide proof of the quality of every aspect of the service they deliver. Going forward into 2021, top quality MGAs will be looking to create a much broader range of relationships with each of their carriers to ensure that they are in the right place to effectively answer any question posed to them, ideally before it arises.”
Rowley emphasised how the inherent agility of the MGA model means that these businesses can make investment decisions, gather data on niche markets, accurately survey that data, and make changes to their portfolios based on that data much faster than many carriers.
2020 has shown the inherent value of being able to make decisions and changes to an operating model swiftly, he said, and highlighting this should be the focus for MGAs going forward. And, for those MGAs which are currently finding it hard to replace their facilities, the COVID crisis acts as a real catalyst for addressing that faultline as quickly as possible.
