At BIBA, the UK’s biggest broker networking event, multiple topics will be discussed over many meetings, conversations, and the odd social reception. This year I expect that ‘defensive strategies’ will be a hot topic among the delegates. With rates down, competition rising, consolidators amalgamating, and the insurtechs nipping at their heels, brokers may be wondering how to gain a competitive advantage that could help them stay in the game. Some will be considering changes to their business model.
One area where I believe a lot of brokers have the potential to gain a leg-up is through the many delegated underwriting authorities that they manage and own. These are often dedicated to specialist or niche business lines, and as such are successful and competitively guarded areas of a broker’s business. However, many brokers with DAs may be reluctant to take risks with these valuable assets, particularly smaller independent brokers.
One possible route forward is to form a Managing General Agent, and use it to leverage existing delegated underwriting authorities. MGAs now underwrite roughly 10% of the UK general insurance market. Forming such a company is a clean way to separate this speciality business from the rest of the brokerage, and grow it through innovation and resourcing. As a standalone business, an MGA is a non-conflicted entity able to access capital and expertise, build new retail relationships with current competitors, expand into new speciality areas through relationships with UK risk carriers (including adding carriers’ products to the offering), and invest in innovative technologies like online quote-and-bind portals.
Owning and running an MGA is also good for the bottom line. Insurance carriers especially are increasingly ready to shave costs from their own expense ratios by deploying their capital through qualified third parties. As a result, MGAs typically earn an enhanced profit commission, on top of brokerage. For insurers, supporting a promising MGA with proven people and a solid business plan is the next logical step on from granting delegated authority. By existing as an underwriting entity distinct from an existing brokerage, MGAs are able to nurture brand recognition and loyalty from a much broader community of buyers – including retail brokers – which encourages the stickiness that keeps renewal rates high.
For brokers who have already been granted delegated underwriting authority, all that is necessary to form an MGA is knowledge and tenacity, both of which brokers tend to possess in abundance. Advice may be required, of course. Asta is developing a portfolio of MGA businesses, and is keen to engage with energetic and experienced people who demonstrate the expertise, skill, and enthusiasm necessary to set up their own MGA. I look forward to meeting any likeminded brokers at BIBA.
John Holm has a strong background of corporate banking in the City, specialising over the last 30 years in relationship banking, debt origination, and M&A transactions in the insurance sector across the UK, Europe, Bermuda and North America.
After senior roles within RBS, National Australia Bank and Clydesdale Bank, John moved to a new role within Capita Insurance Services Ltd where he worked with start-up Managing General Agencies (MGAs), providing working capital, taking minority equity stakes and NED roles on behalf of Capita.
John moved to Asta in 2015 as MGA Executive, working on the development of Asta’s MGA platform and developing a new business pipeline of MGA investment transactions.
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