Confidence returns to MGA sector

• Confidence is recovering - 69% of MGAs and 33% of carriers expect partnerships to increase in 2022 • 84% of MGAs say impact of Covid on capacity has been neutral or positive compared to 74% of carriers • Most significant impact of Covid-19 has been on wordings – 80% of carriers and 56% of MGAs say it has increased focus

Global law firm Clyde & Co’s latest survey of the MGA market, carried out with more than 50 insurers and MGAs in summer 2021, reveals that despite the pandemic, confidence is recovering fast in the MGA market.

According to the firm’s report, 2021: A year of renewal for MGAs?, several factors are driving MGA confidence. The most dominant is that many MGAs have not only survived but thrived following the highly testing conditions triggered by the Lloyd’s Decile 10 reform programme and compounded by the pandemic.

James Cooper, Head of Insurance at Clyde & Co comments: “Our survey shows that MGA confidence has staged a significant recovery from its pandemic low in 2020 and is at its highest level in three years, with over two-thirds of businesses expecting to expand carrier partnerships in 2022.”

Limited impact from Covid

The report shows the impact of Covid-19 on capacity has not been long lasting for the industry. While carriers remain cautious about expanding the number of partnerships in this space, sentiment is definitely improving. Eighty-four percent (84%) of MGAs say the impact has been neutral or positive compared with 74% of carriers who feel the same way, a distinct improvement on last year.

Cooper comments: “Our research shows that while we are not yet back to normal in terms of capacity availability for MGAs, it is already clear that Covid-19 has not precipitated a widescale insurance disaster. The big threat of an economic Armageddon has not materialised and confidence among the carrier and MGA community has improved.

Enthusiasm returns for Lloyd’s

Popularity of the Lloyd’s market for MGA business was waning when the same research was conducted in 2019 and 2020, mostly due to the impact of the Decile 10 remediation process. However, 2021 has seen a significant reversal. The market is more popular than ever before with 47% of carriers believing that it provides the best environment in which to grow and develop MGA business, versus only 12% last year. The appeal is more muted for MGAs with 20% favouring Lloyd’s, still offering an improvement of three percentage points on last year. 

Cooper comments: “The change in fortune for Lloyd’s is partly due to the changes initiated as part of the Lloyd’s Blueprint reforms as well as the arrival of the harder market and appetite to write more business. This enthusiasm for Lloyd’s is positive for its business and for brokers and their customers in terms of choice.”

Growing appeal for US and Europe

Cooper comments: “Both the US and Europe are seeing a revival in the MGA market. The US continues to be the world’s largest insurance market and as the economy improves, there are significant opportunities for all players in the market from traditional MGAs to insurtech startups.”

Interest in the European market has also increased this year with 13% of carriers identifying Europe as a growth market compared to only 6% last year. 9% of MGAs think that Europe is the best market for growth. Cooper continues: “As we move into next year there is likely to be more positive sentiment. The sector is seeing an influx of capital and talent and there are more MGAs forming and interest in investment or even mergers.”

Challenges ahead

The survey shows that while the impact of the pandemic has been limited in terms of capacity, it has highlighted some coverage issues.  80% of carriers and 56% of MGAs have said that focus on wordings has increased following the pandemic.

Claims also seems to be an area of focus. Some 87% of carriers and 67% of MGAs think the process needs improvement. Options including faster communications, clearer processes and automation of lower value claims all attracted support from survey respondents.

Cooper: “As we move forward there is likely to be enhanced scrutiny over wordings, more focus on due diligence when onboarding new relationships and greater attention paid to claims performance. While our research shows the industry considers that work remains to be done, it is clear that markets, including Lloyd’s, are receptive and opportunities are there for the MGAs that can deliver.”

Read the full report here.