Pen’s Nick Wright on why scale matters to the modern MGA

Last month, Clyde & Co published the key findings of its annual survey of both carriers and MGAs, and found a market clearly thriving, not just surviving.

Confidence is recovering, hitting its highest level for three years with almost 70% of MGAs expecting to increase their number of carrier partnerships in 2022. This prompted the law firm to predict “significant opportunities for all players”, whether that’s traditional MGAs or insurtech start-ups.

What’s also helping to build value – and, therefore, attractiveness for the acquisitive – is the firming market being experienced across so many of the specialist lines that make up the lifeblood of MGAs. So while the pace of consolidation in the broking sector may still be fierce, investors are increasingly looking to the MGA market for quality deal opportunities and an alternative class of insurance assets.

On top of that, you have keen appetite from trade buyers looking to accelerate their own strategic growth through selective M&As, which builds out complementary specialisms and further diversifies offerings.

In fact, there’s a growing group of aspiring or actual £100 million-plus MGAs when measured by the gross written premium they manage – hungry for additional scale, and described recently by UK General’s Tim Smyth as the MGA market’s own Premier League.

Why? Because broker customers are becoming more demanding. They want to buy more specialist products from less, to improve their own efficiency. And it remains our role to provide compelling insurance solutions that help them win and retain business.

Diversity helps of course – with high-performing areas able to smooth performance and maintain consistent margins when other areas may find themselves challenged by softer market conditions or aggressive competition.

Modern market

All of which seems to reinforce and underline the importance of combining scale with specialisms in the modern MGA market. But will bigger always now be better, or can small still be beautiful?

When people speak of the selling points of MGAs as distinct from insurers, they often point to the fleet-of-foot agility, responsiveness and easy access to decision makers in smaller, non-hierarchical organisations. 

Whether or not size matters in the MGA market ultimately comes down to short-, medium- and long-term strategy. For those looking to build and sell, ‘small but perfectly formed’ is arguably the right strategic objective.

Scale, however, brings distinct advantages. Without it, the ability to attract and retain talent could be affected if MGAs can’t offer diverse pathways for career development.

Without scale, the ability to invest in digital transformation projects could be impeded. The question remains whether – without scale – MGAs can afford to invest in strategic hires to build new product specialisms from the ground up, which may take a couple of years to produce a profit.

Being part of a broader or larger organisation also creates an important culture of challenge from independent parties not immersed in the ‘heat of battle’, whether that’s non-executive directors, or your product governance team bringing added rigour to decisions and direction.

And in a world where having a clear view of ultimate loss ratios is the MGA Holy Grail, scale is what gives MGAs all those crucial component parts, such as data analytics, pricing and actuarial insight, and in-house claims expertise.

Top flight

So, scale can give strength, and scale can give security. But it will never make firms invincible.

Just ask Kodak or the Encyclopaedia Britannica. Even the biggest, best-known brands in their field can disappear from dominance overnight if they don’t move forward quickly enough.

That means the larger MGAs must work doubly hard at creativity and innovation. They must nurture and not lose the small business mentality that prioritises agility, empowerment and enablement, while building the stability and foundations on which to grow sustainably for the long term.

No MGA can afford to be complacent. Not even those in the ‘Premier League’ of big clubs.

Size alone won’t guarantee your position in the top flight.

That comes down to quality, consistent results underpinned by technical ability, skill and flair. And season by season, the risk of relegation remains real.