Revealed – MGAs’ expanding role in driving innovation and growth in insurance
Revealed – MGAs’ expanding role in driving innovation and growth in insurance | Insurance Business Australia
Legal Insights
Revealed – MGAs’ expanding role in driving innovation and growth in insurance
Market continues to rapidly expand
Legal Insights
By
Roxanne Libatique
Global Insurance Law Connect (GILC) has released a new report, “Innovation Abounds: Opportunities for Growth in the Global MGA Market,” which provides analysis from 18 countries on the growing role of managing general agents (MGAs) in the insurance industry.
The report offers a comparative look at the regulatory environments in different regions and explores how MGAs are being utilised across the globe.
Function of MGAs
According to the report, the function of MGAs varies significantly by market. In some areas, MGAs are essential in closing capacity gaps and facilitating niche underwriting. In others, they support larger insurers in staying competitive and fostering innovation, especially in claims management and distribution.
Risk innovation and niche market focus
MGAs are being used in almost every country to introduce insurance solutions for niche markets and to innovate in emerging areas. They are also responding to new consumer demands with cost-effective products, addressing issues such as climate change-related risks and the aftermath of natural disasters.
Globally, MGAs are becoming more prominent in the technology space, offering innovative insurance solutions for emerging risks. Their role in underwriting and managing claims related to natural catastrophes is also expanding, especially in markets where climate change is increasing the frequency and severity of weather events.
MGAs in Australia: Growing Influence
In Australia, MGAs – referred to locally as underwriting agencies – are required to hold an Australian Financial Services Licence to operate in the market. These agencies have become an important part of the insurance industry, known for their ability to respond quickly to capacity demands in niche markets.
The Australian broker market has become increasingly concentrated among larger companies, leading to a rise in the outsourcing of back-office services such as research and software. Smaller brokers now frequently pay fees for access to these resources, often through shared commissions.
MGAs have also emerged as key players in facilitating discretionary mutuals for industry bodies, providing coverage for difficult risks such as professional indemnity and public liability. These mutuals typically self-insure the initial layer of risk, while MGAs assist in placing the higher layers into traditional insurance markets.
Davidson noted the growing role for MGAs in the Australian market as risk advisors and underwriting experts, in addition to placing risks.
MGAs as indicators of market innovation
Davidson added that MGAs are increasingly seen as zones of experimentation for new products and approaches in the insurance sector. Their backing by established insurers lends them credibility, while their independent management allows for more innovative thinking in terms of underwriting and servicing clients.
These factors are making MGAs a growing part of the insurance ecosystem, attracting more gross written premium (GWP) and gaining the interest of investors, including private equity firms. Their ability to develop innovative solutions to insure emerging risks, such as those related to climate change, further solidifies their importance in the market.
Global reinsurance market rebound
In a related development, AM Best’s annual report on the global reinsurance market forecasts a recovery in reinsurance capital, which is expected to hit $515 billion by 2024. This rebound follows a period of tighter terms and steeper pricing, particularly in the property and catastrophe markets.
The report also highlighted that for the first time in several years, reinsurers’ returns on equity have exceeded the cost of capital, driven by improved underwriting profitability and capital gains.
In the broader Asia-Pacific region, MGAs are likely to continue playing a critical role in insurance innovation and market expansion, contributing to the ongoing evolution of the insurance industry as they adapt to emerging trends and challenges.
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