The State of the MGA Market

With forecasts of turbulence for the U.S. economy at the end of last year, 2023 opened to a slow but promising start. This signaled continued opportunities for growth for existing managing general agency (MGA) participants and entrepreneurs in the MGA/managing general underwriter (MGU) market who provide expertise in niche areas, offer capacity and showcase a history of positive results.

Despite a strong start, projections for the second half of 2023 remain uncertain for the U.S. economy. The ongoing concerns include cooling labor markets, declining consumer sentiment and risks of a recession. Fortunately, the MGA/MGU market is able to take advantage of potential headwinds, keeping MGAs/MGUs as attractive business models for carriers, investors and underwriting talent.

Why? MGAs that continue to invest in broader operational capability tied to data, analytics and unique expertise will be well-positioned to effectively execute for carriers, investors and brokers looking for growth.

Similarly, consolidation remains robust and is fueling new MGU creation for entrepreneurial underwriting and management talent. Reinsurance brokers and carriers also continue to focus resources and practice areas around MGA business creation recognizing the continued upside to the MGA segment.

Seizing Opportunity

While the natural inclination is to retract spending and save money for rainy days ahead during economic uncertainty, MGA startups will continue to drive growth. As many sectors experience a hardening market, events will create strong tailwinds for disciplined underwriters willing to deploy capacity, particularly on the E&S front. Similarly, good MGAs are always going to find attractive acquisition offers despite temporary or even protracted market conditions. An MGA with longevity, niche experience, good underwriting results and impressive premium volume (excess of $25 million) will continue to draw considerable interest. More established MGAs will likely remain attractive to potential buyers and carriers as market needs for these traditionally nimble, entrepreneurial organizations are expected to continue to expand.

Building Advantages

The expansion of the MGA space is a direct result of deep niche underwriting expertise, generating profitable underwriting, speed to market, nimbleness and willingness to enact change quickly, as well as the entrepreneurial spirit. Those capabilities will continue to woo carriers and investors into the second half of 2023 and beyond as MGAs provide a lower-cost platform for their participation in sectors that can drive diversification and profitable growth.

Venturing into emerging risk areas and growth industries, equipped with agile technology, business processes and products, MGAs can address market needs that carriers either don’t have the appetite for or lack the experience to properly address. This enhanced flexibility allows MGAs to step into markets experiencing significant demand and a shortfall of capacity supply. This type of agility is particularly valuable in a tumultuous economic environment and hard insurance market.

Unlike larger carriers, most MGAs are not burdened with decades of operational complexities such as administrative, managerial legacy system platform issues that can slow them down in the face of competition. Their smaller size can be an advantage as they create efficiencies that ensure tailored products and operating approaches that deliver quotes to consumers quickly. This speed will be key as consumers and agents move into the second half of 2023 looking for automated solutions that meet them on their own terms and quickly.

Additionally, MGAs have been at the forefront of technology advancements within the insurance industry aimed at streamlining and simplifying operations around policy management, binding, quotation and claims management. Not only has this tech-forward approach improved the operations of many MGAs, it also has resulted in increased profitably for investors.

As we move through 2023, new tools and technology designed specifically for the insurance industry will continue to create advantages for more tech-savvy and data focused MGAs.

Navigating the Future

While the MGA business model is solid, its success is not preordained. Growth for MGAs, especially for new startups, requires planning, strategy and an entrepreneurial mindset. The state of the MGA market is promising and robust, but complicated. Finding a way to reduce complexity will maximize opportunity for those insurance leaders willing to prepare themselves for what’s next.

Topics Insurance Wholesale