November 27, 2018 by David Gambrill
Consolidation could potentially wind up regenerating Canada’s broker channel generally and managing general agents (MGA) specifically, a senior executive told delegates attending the 2018 MGA Symposium in Toronto on Tuesday.
Organized by insurance-canada.ca, the event featured a panel of MGA executives who were asked for their views about consolidation in the Canadian property and casualty insurance marketplace. Gary Hirst, president and CEO of CHES Special Risk, differentiated between consolidation on the insurer side and M&A happening in the broker space. Either way, each could have a knock-off effect of helping Canadian MGAs.
On the broker side, there is an opportunity for consolidation to regenerate the brokerage community in general, including MGAs, Hirst said.
“The thing I like about the M&A activity in the broker market is that it spurs new brokerages,” said Hirst. “So, if you are talking about young professionals who have been in a brokerage for five or 10 years, management may be tempted to sell at whatever multiples and happily retire in Florida, but the rest of us still need to work for a living. As a result, you would tend to leave those companies. You’ve probably got four or five really good clients who think you’re the bees’ knees, and they will follow you to a new start-up. So, I think it’s the way of the market regenerating itself.”
On the insurance company side, Hirst observed that rules and regulations in Canada are very stringent around international insurance companies launching start-ups in Canada. The regulator sets the bar very high for the initial capital outlay, he said, and that money must remain where it is for 15 years (to protect against any capital issues in the nascent stages).
With insurance company start-ups being rare, and with consolidation being relatively frequent, that creates an opportunity for MGAs to increase their business, Hirst said. “The more M&A activity in the insurance carrier market, the less choice there is for brokers and their clients, but that means more opportunity for MGAs because the brokers need to go place that business somewhere.”
Managing general agents are commonly defined as “a specialized type of insurance agent or broker that, unlike traditional agents or brokers, is vested with underwriting authority from an insurer.” They may be loosely described as a “brokerage’s broker,” finding and placing specialty coverages on behalf of their broker clients.
ENCON president David Cook agreed with Hirst that M&A activity on the broker side does spin off new brokerages as a result of a merger. “That absolutely does happen, and that’s a much more positive outlook than I have, but I am an actuary,” he quipped. “It [the broker community] absolutely does regenerate itself [through M&A]. It creates challenges and opportunities, and I think the word that David used is to ‘adapt.’”
Cook was referring to fellow panelist David Harris, the chief operating officer of Angus-Miller Insurance Ltd. Put simply, Harris’s point was that the brokerages must — and do — frequently adapt to the consolidation happening around them.
Harris added that while opportunities may arise from broker consolidation, he has not seen much evidence of it happening in his area of Atlantic Canada. Angus-Miller Insurance is based in Saint John, N.B.
“In our region, unfortunately, we haven’t seen as much of that,” he reported. “Probably because of the population, but I can think of [only] a handful of brokers who have gone out on their own after being involved in an acquisition and decided they wanted to do something else. For us, it really hasn’t been a factor yet. I like the concept that this should bring fresh blood into the business.”