More than half (57%) of insurers aim to increase their capacity allocation to managing general agents (MGA) by at least 5% in the two years to mid 2027. This is likely to add significant firepower to a sector that already accounts for more than 10% of gross written premium in the UK. But what factors are driving insurer capacity for MGAs, and what must MGAs do to retain carrier support in today’s softening market?
What MGAs offer insurers
In a bid to diversify their portfolios, many insurers want to expand into new lines of business or develop within the more specialist areas of markets that they already serve. But product development is costly and time-consuming – and finalising the product is only part of the challenge. Carriers then have to secure distribution, which becomes more difficult as the cover offered by the new product becomes more niche.
MGAs can offer insurers quicker access to specialist underwriting expertise and established distribution networks in niche markets. They bring the know-how to develop products that meet the defined appetite of the capacity provider, the regulatory experience to ensure those products are compliant and the distribution relationships to support sales. The result is often faster product development than insurers could typically achieve in-house.
The softening market  may begin to expose differences between the best and weakest performing MGAs. As it squeezes profitability margins, underwriting performance and operational efficiency could be under increased pressure, we believe.
Benefits for brokers
MGAs have a specialist understanding of specific markets that is represented by the carefully targeted products they provide. Brokers seeking to place unusual risks that do not fit mainstream underwriting criteria often turn to MGAs for these niche products to cater for these non-standard risks.
MGAs also tend to have flatter underwriting structures than most general insurers. This means brokers are less likely to find queries being referred up the chain, which can add time and effort to resolving even the simplest of questions.
When it comes to more complex issues, being able to speak immediately to an underwriter with binding authority can make it easier for brokers to get their client on risk. This level of access to underwriters with authority enables MGAs to provide a strong service proposition to brokers, helping the brokers  to service their clients.
Evolving MGA capabilities Â
There are currently more than 350 MGAs in the UK, and the number is growing. This, combined with a softening market, means there is stiff competition for capacity. The commercial reality is that carriers can take their capacity elsewhere if an existing relationship fails to deliver. This puts pressure on MGAs to excel because their entire businesses are built on having access to capacity.
At their core, any successful MGA needs excellent underwriting and distribution capabilities. But as the model evolves in response to pressures, many now offer a more sophisticated offering. For example, at RB Jones we have developed our own in-house actuarial and compliance competencies.
Our actuarial team enables us to be more microscopic in our analysis of the large volumes of data we collect. It gives us the ability to pinpoint the exact types of risks within a portfolio that are delivering profits and losses, and to view that in the context of evolving market trends and dynamics. This enables underwriters to maintain rate adequacy and ensure the sustainability and profitability of their books, even in a fast-changing market.
Dealing with difficulty
Nearly half of MGAs cite regulation as the biggest barrier to growth, and the level of scrutiny continues to intensify. The ability to comply with and adapt to changing regulation is now a differentiator – and one that will likely be an increasingly important factor for carriers selecting their ongoing and future MGA partners. Our compliance department ensures everything from product design and underwriting to data management and third-party agreements are developed inline with regulatory requirements.
Technology is another key factor. MGAs are under growing pressure to show they are using the right technology to deal with enhanced regulatory scrutiny, deliver underwriting and operational insights and make their internal processes more efficient. They must also employ technological solutions to make it easier for their partners to work with them.
While robust governance frameworks for technology, especially AI, are complex to create, they repay that effort by empowering users to be more ambitious in their subsequent deployment of the technology. In our experience, the MGAs with the most sophisticated governance frameworks tend to extract the most value from their IT investments.
MGAs have established themselves as a key component in broker placing strategies and insurer capacity allocations. They are now under pressure to ensure their digital propositions enhance both the speed and ease at which they can trade, and to ensure technology improves partner access to their expertise, rather than dumbing down their offering. The nimble and entrepreneurial nature of the MGA sector suggests it is well-placed to overcome these challenges.
