What’s on Dec? | Episode 6 | MGA perspectives
Pete Tessier:
Hey, everyone, welcome to this episode of What’s On Dec? I’m Pete Tessier, here with Curt Wyatt. And just a reminder, What’s on Dec? is made possible because of Taycon Risk. It’s the MGA that specializes in niche markets, hard to place or unusually complex commercial risk. They turn hard risk into smart coverage the old fashioned way – they underwrite it. Curt, who’s our guest this week?
Curt Wyatt:
Couldn’t be a better intro there, Pete, Steve Masnyk from CAMGA. These guys are stepping up to the table, I think as retail brokers in the Canadian marketplace, the relationship between MGAs and brokers has flourished in the last five, 10 years. And Steve recognizing that with his association is building something that is an important message for everyone to hear.
Pete Tessier:
Right. Since CAMGA was formed and they’ve taken a really proactive approach to many issues around the branding and the purpose of MGAs, they’ve gotten into things such as regulatory compliance and conduct for members and integrating with all the different regulatory frameworks across the country. They’re also developing their own technology and they’ve become a key piece in managing the hard market. I don’t think there’s an insurance broker out there and insurance companies who don’t rely on MGAs to help sort out the market conditions brought on by all the different economic factors driving or contributing to making things granite hard.
Curt Wyatt:
Hey, let’s face it, it’s the grease that keeps the Canadian economy going here. If it wasn’t for MGAs in Canada, what could have happened during this hard market to a lot of industries, a lot of services around the Canadian market that people take for granted? They don’t really think when they walk in the door, is there insurance on this restaurant, or does this product have liability insurance attached to it? It’s not something that people, as consumers, think about, but they should because it’s a major factor in getting to enjoy the things that Canadians enjoy every day.
Pete Tessier:
Yeah, and one of the things I think that’s really cool about CAMGA is certainly the fact that they’re doing things for the members and they’re trying to build out efficiencies for the broker channel. Steve’s going to talk a little bit about their Bridge platform and what that means for the efficiencies of submitting applications [that] will help you find placement for some of those risks. It’s going to be a very cool thing. So Curt, probably time that we get Steve on the line and bring him in. And as I just said, Steve Masnyk, the executive director for CAMGA, is online with us now. So Steve, thanks for hanging on and getting your time into the show and welcome to What’s on Dec?, the Canadian Underwriter podcast.
Steve Masnyk:
Thank you, Pete, and thank you, Curt.
Pete Tessier:
Steve, we’re still in the cold, dark hands of the hard market. There are signs of light, but they’re few and far between. What do you see with the hard market when you talk to members and the suppliers of the product, the insurance companies who are investing in MGAs with capacity and such? How is the hard market looking from your side of the fence?
Steve Masnyk:
So a couple of points, Pete. The first one is that we are realizing more and more so that one out of two policies placed over the last number of years, and currently today, one out of two of those policies placed by brokers of their customers in the commercial and specialty space is with an MGA. Now, to your point about the hard market, I’m not sure whether it’s the hard market. I believe the hard market is not the reason why that’s the case these days. The hard market probably had some kind of effect to accelerate that transfer from carriers into the MGA channel simply because carriers over the last number of years have realized that it makes a ton of financial sense and logistics sense for them to outsource the underwriting activities.
So there’s two options that a carrier could do to underwrite. One is in-house by employing divisions and underwriters directly by the carrier, or secondly is to outsource that underwriting activity in those niche and those classes of business where they sell probably fewer policies than their big divisions of … [what] comes to mind, personal lines, home and auto and that kind of stuff. So when a carrier is selling 1,000 or 2,000 or 3,000 policies a year in a certain class, there’s a ton of overhead that comes with that. So carriers have realized that by outsourcing that class or that product to an MGA, the underwriting activity, it reduces their cost, it reduces their overhead. It’s really an outsourcing of that activity to an MGA. And generally speaking, because MGAs are specialist underwriters in those classes, their loss ratios are substantially lower and less than a carrier.
So for example, if a carrier is doing loss ratios combined of 90, MGAs in that class traditionally would do 80, 75, 70, 65. So you add that specialization, it’s a bit like a surgeon versus a general practitioning doctor or a family doctor. You add that expertise in underwriting, really that surgical approach to underwriting in those classes, plus combined the addition of the expense ratios being lowered for a carrier, that carrier will earn a lot more money by outsourcing those smaller classes to an MGA.
The hard market over the last three or four years in the commercial space, I don’t think is the reason why that’s happening. I think it accelerated what’s happening, that trend of transfer and outsourcing of the underwriting activities to specialists. Claims overall in the commercial and specialty space are going up, which results obviously in the hard market and pricing going up. So I mean, if pricing is going up across the board for carriers and for MGAs, I don’t know, I’m not certain that the hard market is the reason why MGAs are so visible and so active in this space. I hope that answers part of your question.
Curt Wyatt:
Absolutely, Steve. You mentioned the fact that there’s that specialization that you’re bringing people together who are the surgeons of the industry when it comes to certain classes of business and small, maybe meaning small in numbers, but not always small in premium. Some of these could be absolutely six figure premiums where an insurer may not come across it every day, where an MGA can specialize in it and see it across the whole country. So because there’s some big numbers involved, you’ve jumped into the compliance world and you’re working on conduct issues for the association and its members. Is that part of the reason is that these MGAs maybe today are writing and doing things that are a lot more complex and you feel that your members, or your members must feel through you, that there’s a need to show the industry that there’s something going on when it comes to the trade association and its level of professionalism?
Steve Masnyk:
Yeah, exactly. To your point, Curt, I like to say that until recently, MGAs were operating in the shadows. Nobody really understood what an MGA was. Nobody really understood what kind of a value an MGA brought to the insured, the broker, and the carrier on the capacity side. One of the first things we did as an association when we got serious about the association two-and-a-half years ago was to realize that there are no standards for… it’s a bit like 75 cowboys running around and nobody really understood what they were up to. One of the first things we did was, how do we create a minimum standard of conduct or minimum standards of business operating standards for MGAs for the entire world, the outside world, for brokers who supply the business MGAs and for capacity providers on the other side who entrust the MGAs with their capital? How do we create a minimum code of standards or business operating standards for those MGAs to meet?
So one of the first things we did was create the CAMGA code of business operating standards, which we took what’s applicable from retail broker regimes, retail broker regulatory frameworks, and what’s specifically applicable to MGAs and put those on a one pager. We have 10 or 11 elements in that code. One of the conditions of membership into the association is that you meet all of these elements and every year when you renew your membership, every MGA takes an attestation that they are meeting all of those elements of the code. So at least from the outside world’s perspective, every broker, every carrier, every insured, if they so want, can go on the website and see, oh, here are the 10 elements. Here’s what all of these 66 members of CAMGA, these MGAs, 90% of the MGAs in the country, here are the standards they are meeting.
That’s not to say that a lot of these MGAs were not meeting the standards previously, just nobody really knew what standards they were meeting previously. Now it’s public, it’s on a one-page document. Here are exactly the minimum standards. Now these are minimums. Generally speaking, MGAs exceed these minimum standards, but at least everybody now can look at, oh, these 66 companies, these 66 markets, here are the standards they’re meeting.
We’ve seen a tremendous amount of support and confidence, raising the level of confidence from brokers and from carriers saying, this is very good. I’ve heard many brokers actually start shifting their entire books of business from MGAs who are not members to MGAs who are members who are meeting this code or the elements contained in the code. I get calls every couple of weeks from carriers saying, can you let me know whether MGA X is following the code and is a member of the association? Because we’re in talks with them to provide them capacity. So the level of trust and confidence that we are hoping to achieve is bearing fruit.
And the second part, the flip side of that code and setting those standards is we’ve created a third party ombudservice to be able to adjudicate whether any complaints are launched or any questions are raised about compliance to this code by our members. It’s a third-party ombudservice that will be dealing with complaints and just queries on compliance to the code. So a one-two punch, here are the standards and here’s the insurance or enforcement arm.
Curt Wyatt:
And now that you’ve gotten the bar raised and you’ve … like you say, at one time these MGAs were hidden in the shadows of insurance, as you said, I think, which is a great way to phrase it. That’s how I remember it when I was coming up in the industry. We all had one down the street that we relied on to take a risk that you couldn’t find somewhere else. But today it’s part of the day-to-day operation of a retail broker to have MGAs in their corner and raising that bar. Do you see that this is going to affect also potentially the values of MGAs? I mean M&As is a big topic, we talk about it on What’s on Dec? on previous episodes. Are you feeling that in essence you’re raising the bar, but you’re also now building a better succession even for some of your MGA members out there because of this?
Steve Masnyk:
I think so. I think really one of the goals is to change the mentality of brokers in that when they come to a customer, when they have a customer in the commercial specialty space, their first go-to should be the MGA channel because those are truly the expert underwriters in the commercial space and the specialty space. They are those who, as opposed to having an underwriter who dabbles in say 12 different products, the underwriters employed at MGAs are true niche underwriters. If they do, for example, cyber or marine, that’s all they do every day, so they are the surgeons versus the general practitioners.
I think one of the things that I’m realizing is that there’s a bit of a misunderstanding. You mentioned they’re operating in the shadows. Yes, operating the shadows, but there’s also operating in the shadows as far as knowledge, what an MGA is, and that really, it’s an outsourced underwriter. It’s not a broker for a broker, it’s not a wholesaler. It’s literally the same person that’s employed by a carrier doing underwriting that’s employed by an MGA. It’s exactly the same.
When a broker deals with an MGA it’s as if they’re dealing with the carrier because at the end of the day, the claims paid out and that’s really the reason why people buy insurance and hopefully never have to use it. But when they do have to use it, the claims payout, the security that the insured has is backed by the carrier. So for a broker dealing with an MGA, it’s exactly the same as if they’re dealing with the carrier. It’s just that the carrier has outsourced that underwriting, that quote, bind, issuance to an MGA versus doing it in-house.
In terms of consolidation and mergers and acquisitions and partnering up within the MGA channel, we are not seeing that happening. It’s not as rampant as say in the broker channel. I suspect because the MGA channel is still in development phase, I wouldn’t say it’s immature, but it’s maturing. It’s developing into where the MGA channels are, for example, south of the border in the U.S. or in the United Kingdom. I’m told often by my counterparts in the U.K. and the U.S. that the Canadian MGA sector is where their MGA sectors were 10 years ago.
Trust and confidence is slowly developing and raising from the broker side, from the carrier side. So what I expect to see and what they tell me is what’ll happen over the next several years is that the mentality shift will change; that the first go-to for a broker when they have a customer in the commercial or specialty space will be to check with the MGAs. And then if they can’t find an appropriate product in the MGA channel, then to knock on the door of the carriers.
Pete Tessier:
Steve, I think you’ve built in a really interesting idea about trust and confidence and the idea of outsource underwriting and going to carriers. And one of the things that you’ve done that maybe brokers have wished carriers have done is build out, and for CAMGA members, is a platform that almost drives the trust and confidence further through efficiency of submissions of risks so that they can get the right experts looking at the right risks and return service to customers faster, and that’s the Bridge platform. And I think that would be an interesting thing to talk about because there’s no shortage of talk about APIs and efficiencies in the broker-carrier connectivity world, but CAMGA members now are benefitting from this and serving customers faster because of the nature of how the organization works and how MGAs work. How did you arrive at Bridge and what was the flow through to get to that point to provide this value for everyone?
Steve Masnyk:
So Pete, what we’ve seen is a broker gets a submission, he email blasts it to four or five, six carriers. He email blasts it to let’s say 10 MGAs that he’s heard of. He or she is not too certain what those MGAs are currently writing, and then he waits. He might get a response from one of the carriers. He might get a response from one or two of the MGAs and the rest he’ll get nothing, probably because it’s outside of the risk appetite. So we wanted to be able to connect those MGAs who write exactly what that broker is looking for, who that insured is, what that risk is. We wanted to be able to connect the broker and the submission with the appropriate markets in the MGA channel.
So if you have a risk, you submit it into the Bridge platform. Our members have created profiles, ‘This is our appetites, this is what we are looking for.’ The names of the MGAs who are currently writing that type of risk will pop up in front of the broker. Let’s say three MGAs pop up who are interested in real time today, are taking on that type of risk, have the capacity to do it, and are willing to do it, and that is their appetite. Then the broker can submit to all three of those MGAs, the application as they do today by Outlook or by email or through a portal. Those specific MGAs, those three MGAs, probably likely the underwriters themselves, will receive that application. And then the one-on-one conversation begins with the underwriter and the broker in order to hopefully come to a quote and hopefully bind with one of those three markets.
As brokers, you’ve all been in that hold and wait pattern. You send in a submission and you hear nothing for a couple of weeks. And even though you’ve sent it to five carriers and 15 or 20 MGAs, just wait and wait and wait. And maybe of those 20 MGAs or 15 MGAs, you might get one response in a month’s time saying, ‘Sorry, we don’t write that,’ and the rest will just be deafening silence.
So one of the things we’ve done intentionally is not to create the Bridge platform as an aggregator or as a price comparison tool, and we’ve done that on purpose. We’ve just wanted to match the risk with the appetite and the capacity, which is very unique in the world. I don’t know of any other country where there is such a matching tool, especially in the commercial and specialty space.
So it’s been up and running now seven months. We’ve got a good chunk of our members on there, close to two-thirds of our membership is already on there. In terms of brokerages, we have probably a third of all brokerages in Canada already registered and using it. Some of the feedback I’m getting from it is that it’s an amazing tool to match new markets with new brokers. So in essence, the broker is discovering those MGAs that he’s never heard of and being matched with that MGA. And the MGAs are receiving business from new brokers, from brokers that they have never heard of as well. So in terms of matching new business, new demand with new supply, it’s very effective. It’s working very well. It’s a bit like the Amazon for MGAs.
Curt Wyatt:
Steve, I think that sums up what you’re doing the best is you’re connecting brokers and MGAs; finding solutions for clients and helping the broker channel be successful for its policyholders. And we’d just like to thank you again for coming on to, this time, What’s on Dec? and sharing with our industry what you’re up to for your members, and we look forward to seeing you and your members at the various conferences that are starting very soon.
Steve Masnyk:
Absolutely. And not just the various broker conferences, but we’re having our own conference in June in Toronto. We’re having a capacity exchange trade show, which will feature capacity providers, two MGAs all in one room, the leading 30-ish capacity providers. And our MGA members will be able to chat and discuss and introduce themselves to… Again, it’s a bit of a matching exercise between supply and demand, between MGAs looking for capacity and capacity providers looking to extend capacity to MGAs.
Pete Tessier:
Thanks again, Steve. Always informative talking to you and great to reaffirm the value of MGAs in the marketplace and how they’re adapting to changing conditions.
Steve Masnyk:
Super. Thank you, Pete. Thank you, Curt.
Pete Tessier:
That was a lot of interesting stuff, Curt, and I think Steve really captured a little bit about why the hard market’s going to persist and some of the variables that are going to come with it down the road. But what I found very interesting was his claim about how in other areas, the Canadian model is a little bit behind in that there is a pretty interesting future that’s going to come for the MGA marketplace.
Curt Wyatt:
Very interesting, Pete. And you know what? Having been a Lloyd’s coverholder back in the day, I can actually support his opinion on that in that… Remember meeting with Lloyd’s syndicates that would come into Canada and visit with us and they would often say that, that the Canadian market was a very mature market and was progressing, but not at the same rate as countries like Australia, New Zealand, parts of Europe, England, so absolutely. And that fact that there’s a benefit to our carriers to using MGAs for more than just the harder to place business and how the idea of outsourcing, which outsourcing is, let’s face it, this is what cloud computing is. This is what a lot of technologies have been built around these days.
Pete Tessier:
Exactly.
Curt Wyatt:
And why not do it with underwriting?
Pete Tessier:
And the interesting thing, right, is the segue into the bridge platform and how that’s identifying the experts in certain classes to get those responses quick and make sure you’re getting access to niche underwriting that’s specific to the niches and the businesses you’re trying to write is a really important thing. And I think that’s another cool thing that CAMGA is leading the way, and there’s a lot to be learned about that probably on the broker distribution side too, as it relates to carriers, not just a pool of underwriters, but now you’re getting responses from ones who understand the types of risks you’re submitting, and that’s a big advantage for MGAs.
Also, I really commend this because I did work in the regulatory framework as part of the insurance council here in Manitoba. I really believe in the trust and security aspect of regulation and compliance issues. A lot of business owners in the insurance world, they get frustrated with it. And yes, there are frustrating things about compliance regulation, but it’s the backbone that keeps trust in place. And without it, we could have a lot of problems, and I think it’s really progressive that CAMGA is taking a proactive response. The ombudsman is a huge benefit to those who participate with CAMGA members and the fact that insurers are looking for it, that tells you the value of compliance and the efforts put in to making your partners and your members aware of issues that could affect them. And that’s a really big value add, and I think it’s really impressive that CAMGA’s taken that on.
Curt Wyatt:
Hey, raising the bar, Pete, on professionalism is never going to lose. It’s always going to win. The consumer as a Canadian insurance buyer, I think like our banking sector, we like to feel it’s better than other countries. I’m not going to point out any other ones that we’ve watched in the last couple of weeks have some challenges, but hey, let’s hope that Canada can raise the bar on things and continue to be a leader and start to do the dating game a little better, as Steve said, and connect policyholders with the right risk managers, be it an MGA through the proper capacity providers. And get the ball rolling on various industries that need help and let’s get them insured and let’s get them out there so that Canadians can enjoy them on a day-to-day basis.
Pete Tessier:
Yep. Hey, thanks everyone for another great episode of What’s On Dec? We’ll see you next time.
Outro: Thanks for listening to What’s On Dec?, the Canadian Underwriter podcast.
