Why MGAs are here to stay

Hard markets have historically offered a tremendous opportunity for growth for managing general agents (MGAs), but industry experts say they will be here to stay even when the market softens. 

Unlike primary insurers, MGAs provide capacity in specialized areas of insurance where it would otherwise be difficult to find in hardening markets. This advantage isn’t tied to market cycle shifts, said panellists during a Canadian Underwriter webinar.

“They’re pulling capital from a number of different markets. But I think what they’re selling is an expertise in a very specific underwriting, and they can create scale by writing that on a national basis,” Russ Quilley, head of commercial risk and chief broking officer at Aon Canada said during Outlook 2023: What to expect in commercial insurance. 

The ongoing labour shortage also opens a door for MGAs. For example, from a labour standpoint, MGAs may gain an insurer’s book of business because of their specialization for a certain risk. 

“An insurance company might not be as willing to enter a space because…if [the MGA] were able to collect that top talent, there’s probably a willingness from carrier to give their capital to them versus trying to figure out how to do it themselves,” Quilley observed. 

MGAs will always have a space in the hard market as their books may pick up more than before, whereas mainstream carriers may write more during a soft market, Quilley added.  

But even during a soft market, “I don’t think they’re going away,” said Mike Lardis, chief operating officer of StoneRidge Insurance Brokers. “I still see them growing in 2023 and 2024.”

MGAs are especially prudent for the market because they’re good at responding to unseen risks quickly, Lardis said. 

“With the war on talent and with labour shortages, if companies do want to build expertise and they can’t find it, that MGA talent base is still something that I think insurers tap into and they look at that and see them as an expansion of their branches.”  

The cyber market in particular has offered MGAs a foot in the door in the Canadian marketplace, Lardis says.  

“I still see MGAs completing lines,” he says. “You may only be able to get 75% to 80% on a subscription policy — they usually can step in and provide that last 20% or 30% to get there.”  

Colette Taylor, chief operating officer at Sovereign Insurance concurs: “They also serve a really important part of the way that we serve Canadians and how they’re purchasing insurance.” 

Niche or inherently risky exposures that may not be palatable to the general market often find a home with MGAs, she says.  

“Particularly if you think of small risks that have high exposure or are volatile, where insurers don’t necessarily want to take all of that exposure themselves, MGAs serve an important tool to be able to smooth out that volatility over a number of different areas.”

That said, some business that went to MGAs during the hard market may re-enter the primary insurer space, Quilley predicts.  

“Some of the businesses that went into the MGA market over the last number of years, I think, there’s going to be opportunity probably for carriers to go with business that’s already in the marketplace and [regain] some of that business that got pushed out [to MGAs].” 

Adds Taylor: “There absolutely was some business that migrated from the general market into the MGAs through the pandemic, which is now going to migrate back — I think that was to be expected. It was a byproduct of what we were all living through and dealing with.”  

Feature image by iStock.com/alphaspirit