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Marketing 01 december 2023 Alta Signa Press Insights

Accelerating Growth: The Trajectory of Insurance Managing General Agents in Europe

Brussels, 1 December 2023: Alta Signa is pleased to write that the European Financial Review newspaper published an opinion piece authored by Alta Signa's Managing Director Gerard van Loon. Titled "Accelerating Growth: The Trajectory of Insurance Managing General Agents in Europe", the article lays out van Loon's assessment of the opportunities MGAs bring to the European specialty insurance market.

The European Financial Review generously allowed the publication to be reproduced on the Alta Signa website. The original article can be found by accessing the link at the end of the article.


Accelerating Growth: The Trajectory of Insurance Managing General Agents in Europe

The Managing General Agent (MGA) model is a well-established delegation of insurance underwriting authority in the UK and the USA, and while it was once a niche concept in the European insurance landscape, it has been steadily gaining ground – albeit with varying degrees of acceptance across different jurisdictions.

As the CEO of Alta Signa, a dedicated MGA in the European specialty insurance market, I have observed the nuanced evolution of the MGA model, reflecting on its reception, growth as a new distribution channel, and the myriad of challenges and opportunities it presents.

An MGA operates as an intermediary between insurance carriers and the market, assuming underwriting authority on behalf of the insurer. Crucially, MGAs are not only conduits for risk transfer but also dynamic crucibles for innovation and focused technical expertise within the insurance landscape. 

They serve as incubators for talented underwriters who are drawn to the entrepreneurial spirit inherent in the MGA model. The appeal lies in the autonomy and flexibility MGAs offer – empowering underwriters to craft and launch new ideas with agility, free from the constraints of traditional insurance bureaucracy. 

This environment fosters a culture of innovation, where novel solutions to emerging risks and evolving market demands can be rapidly developed and implemented. Furthermore, MGAs benefit insurers by providing efficient new distribution channels into untapped markets and territories. 

In a digital era, technology and data have become integral to the success of MGAs. Modern carriers often emphasise their reliance on technology and data for effective risk selection and pricing, making it a top requirement for MGA partners. MGAs, recognising the importance of disciplined underwriting – particularly in the current environment – have outpaced carriers in technology investments, leveraging their agility and freedom from legacy systems.

By leveraging the specialised expertise and local networks of MGAs, insurers can reach specific market segments efficiently, gaining access to new territories and demographics that might be challenging to penetrate through traditional means. This symbiotic relationship positions MGAs as pivotal players in driving innovation and expanding the reach of insurers into diverse and burgeoning markets.

Embracing the MGA Model: A Jurisdictional Tapestry

The acceptance of the MGA model is a patchwork across Europe, influenced by factors such as jurisdiction, regulation, broker relationships, the nature of the line of business, and the preferences of clients. Each territory is different which is why it is so important to place such a premium on having the agility and nimbleness necessary to cater to such a wide range of clients. 

Countries like Germany and the Netherlands, for example, are well-acquainted with the MGA concept, while France and Italy lag behind in familiarity. However, the success stories of specialty insurance MGAs spanning Marine, Construction & Engineering, Warranty & Indemnity, Cyber, and Financial & Professional Lines highlight the model’s adaptability.

Despite this, some clients still lean towards traditional insurance companies, harbouring concerns about the longevity of MGAs. At the same time, some brokers can perceive MGAs as potential threats to their own placement facilities, viewing them as an added cost in the insurance value chain. 

In reality, MGAs serve to enhance aspects of in-house underwriting operations for traditional insurance companies, offering a more agile and specialised approach. This allows insurance companies to tap into specific market segments and territories without incurring the fixed expenses and investment risks associated with establishing new lines of business or country presences.

This reality takes time and care to communicate in local markets where the MGA model is not yet well-established, and a focus on education, networking and technical expertise is key to making headway and gaining trust as a valuable market asset. 

Growth Opportunities in Specialty Lines Insurance

Identifying growth opportunities in the ever-evolving landscape of specialty lines insurance is a dynamic challenge. Despite the softening market conditions, certain sectors such as Cyber present significant potential due to an influx of first-time buyers. Indeed, we expect to see demand for cyber solutions continue to grow in 2024, after strong momentum in the last 12 months. 

Access to strongly rated re/insurance capacity panels is also working in favour of those nimble MGAs like Alta Signa which have been able to secure such a valuable commodity; the quality of the capacity panel is proving vital. 

This strong panel backing is invaluable considering the economic headwinds in Europe and rising interest rates, where, amongst others, the risk exposures of financial institutions are escalating, impacting this specialty line of business which is notoriously complex to analyse. 

Similarly, specific segments within the commercial D&O market, particularly companies grappling with liquidity and debt refinance challenges, present heightened risk exposures. Factors like this could drive a demand for increased insured limits and specialised coverages like Public Offering of Securities and Warranty & Indemnity insurances in the near future. 

At the same time, the landscape in the Contingency market has been significantly altered by the COVID-19 pandemic, with incumbent insurers reducing aggregate exposures, paving the way for new entrants. As we look to 2024, the market is approaching pre-pandemic vitality particularly in event sub-sectors like music festivals and conferences / exhibitions, where new capacity is fuelling pricing competition. 

The Marine market is undergoing similar transformations, with incumbent carriers prudently managing risk accumulation exposure, creating opportunities for emerging players and in particular nimble MGAs who bring efficiencies and fresh thinking to the sector. We expect the European Marine market to present niche growth opportunities in 2024 for those agile enough to address the unique challenges in this sector. 

In general, the evolution of underwriting capacity in Europe is marked by discernible trends in pricing, risk appetite, and policy wording. In sectors where market pricing is softening due to an influx of new stamp capacity, underwriters find themselves grappling with the challenge of meeting premium budgets. 

This reinforces an overall negative pricing spiral, expanding the aperture for a broader risk appetite and an extension of insurance coverages. The current landscape is witnessing an uptick in requests for multi-year policies and automatic policy limit reinstatements, indicative of the prevailing market conditions.

Resilience and optimism

A recent Clyde & Co survey sheds light on the resilience and optimism within the MGA sector. Despite economic turbulence, 90% of MGAs and 80% of carriers surveyed said they expect to increase or maintain their partnerships. The survey emphasises carriers’ continued faith in the MGA model, citing its nimbleness and flexibility as key attributes. However, the report also points to increasing regulatory scrutiny, a talent shortage, and a potential uptick in claims as challenges that demand attention.

These are trends that we see reflected on the ground. Both MGAs and carriers anticipate an increase in regulatory scrutiny, posing potential barriers for startups and expansions. The looming talent shortage is a shared concern, prompting MGAs to highlight their entrepreneurial and nimble nature as attractive qualities to attract talent.

Despite the challenges, MGAs and carriers express interest in exploring new lines of business and territories, aiming for diversification and growth. Europe, in particular, emerges as a market ripe for potential innovation and expansion.

The MGA model stands at a crossroads in Europe, navigating challenges while embracing opportunities. As we move into 2024, the industry must remain adaptable, innovative, and collaborative to thrive in an environment shaped by evolving market dynamics, regulatory changes, and technological advancements. 

The future belongs to those who can balance tradition with transformation, and technical insight and expertise with a strong drive to share knowledge and educate the market – particularly when it comes to risk selection and risk mitigation. The MGA model has proven itself time and again to be a primary source of new and innovative propositions to insurers which will continue as long as MGAs are structured and positioned correctly. 

For an independent boutique European MGA like ourselves, a presence on the ground in local markets is also critical – combining local knowledge and expertise in markets across Europe with local language skills creates a unique value proposition for the international (re)insurers that we work with. As we look to the year ahead, we are committed to being at the forefront of this journey, steering the course toward a resilient and prosperous future for MGAs in Europe where differentiation and relevance are truly aligned with clients’ needs.

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