Program Business operates a storefront market directory that connects over 45,000 retail agencies and underwriters within the P&C insurance industry. Such access and activity from both sides heighten our awareness of disrupting developments such as MGAs forming insurance companies. We’ll cover why such changes are happening now and the consequences.
Fueled by COVID, hard market, tech, and unpredictable climate events, the insurance industry was already undergoing significant changes, and now we witness MGAs starting their own insurance companies and buying out existing brokers. These changes affect agents and brokers relying on MGA relationships and even those not working with MGAs currently. In this article, we’ll look at why these shifts are happening now, how they will affect brokers and agents in the future, and what they can do about it today.
MGAs have traditionally played an essential role in the P/C insurance market as intermediaries between carriers and brokers. They are experts in writing and pricing insurance policies for unique or hard-to-place risks often not covered by standard policies. Also, they have been instrumental in developing the specialty insurance market.
The Changing Landscape of the Insurance Industry
The evolution of the insurance industry in recent years is remarkable. The rise of insurance technology startups, the shift to data analytics, and the growing impact of artificial intelligence are prime examples. Also, the relationship between brokers and carriers is changing as new sales models like direct-to-consumer and online marketplaces become more popular.
Why Are MGAs Starting Their Own Insurance Companies?
Against this backdrop of change, MGAs find it increasingly difficult to remain competitive. With carriers looking to cut costs and streamline their operations, they are less willing to work with MGAs that cannot underwrite and price risks independently. By starting their own insurance companies, MGAs can gain more control over the underwriting process and take on more risk, allowing them to be more competitive in the market.
MGAs are seeing a decline in market share, which means they’re losing business to other providers. Without change, this development could cause the MGA model to be less sustainable in today’s world of P/C insurance. As a result, many MGAs have decided to start their own insurance companies to sell directly through brokers instead of going through third-party agencies to stay relevant.
Pros and Cons for P/C Brokers and Agents
For P/C brokers who rely on MGAs for access to specialty insurance products, the trend of MGAs starting their own insurance companies has pros and cons. It’s easy to see how agents and brokers may benefit from a broader range of products and services as MGAs expand their product offerings to include new lines of business. And they may also benefit from a more streamlined underwriting process as MGAs gain more control over the underwriting process.
And now that some MGAs are carriers, they present agents and brokers with more competition. Their actions may cause premiums to go up and commission rates to go down. Brokers may face additional administrative burdens as they navigate the complexities of working with carriers. Nevertheless, the rapid pace of development poses problems and opportunities for all industry segments.
The Risk of Reduced Transparency
MGAs launching their own insurance companies need more openness in the underwriting process. Since MGAs are increasingly in charge of underwriting, brokers and agents may want more insight into the decision-making process. This change could make it harder for them to help their clients, thus hurting business confidence.
The Potential for More Innovation
When MGAs start their own insurance companies, they face some challenges but also have a chance to make the insurance industry more innovative. For example, MGAs may be able to create novel, market-disrupting products due to gaining increased oversight of the underwriting process. In such cases, brokers can provide their clients with more extensive protection packages.
The Need for Collaboration
Brokers will need to work closely with MGAs that are also carriers to succeed in this new environment. To accomplish this, brokers will need in-depth knowledge of the underwriting procedure and the flexibility to adjust to shifting market conditions. In addition, brokers may need to find better ways to work with MGAs, like establishing new relationships, partnering on evolving technologies, or trying new distribution methods.
The Role of Technology
Technology will play an essential role in the insurance industry’s transformation. Brokers and agents must adopt new tools and platforms, like online marketplaces and digital marketing, as MGAs and carriers will upgrade their underwriting processes.
The Importance of Education
As the insurance industry evolves, education will become more critical than ever. To remain competitive, all constituents—carriers, brokers, and agents—must stay current on industry trends and developments. As a result, they must continue investing in training and professional development to ensure they have the knowledge and skills to succeed in the market.
The Potential for Consolidation
The growing number of MGAs forming insurance firms may also hasten the industry’s eventual consolidation. Carriers often grow by buying up smaller competitors, like MGAs or brokers, which could discourage newcomers and make it harder for existing brokers and agents to compete.
To stay competitive, agents and brokers must adapt to these changing circumstances by finding new ways of marketing products and meeting people, investing in cutting-edge equipment, and being open to doing things differently.
MGAs Evolving into Direct Competition with Brokers
Brokers relying on MGA relationships must recognize MGAs’ responses to market changes. For example, MGAs are starting to compete directly with them, a scary threat for those who have built their business model solely around them.
It is eye-opening to see that MGAs are starting their own insurance companies and offering discounts and other incentives to customers to purchase through them instead of an independent broker or agent. Some of these incentives include free auto inspections, free roadside assistance during claims (which would otherwise cost the consumer), lower premiums for certain types of coverage, and even cash-back rewards.
Conclusion
The bottom line is that MGAs are making many changes in the insurance industry. It is their response to staying relevant and competitive. And so, if you’re an agent or broker relying on MGA relationships, it’s wise to be aware of these changes and adapt accordingly.
You can count on Program Business to help you stay aware of marketplace opportunities and connect you with industry partners that provide solutions to challenging problems. Whether you need a specialty market or have a product for retail agents, Program Business’s Storefront Directory is the glue that facilitates new business opportunities for all parties. It makes finding the perfect market for risk quick and easy.