Making MGA and Insurer Partnerships a Success

A strong relationship between an MGA and an insurer is mutually beneficial. It relies on a close understanding of what each party expects of its counterparty, and how all involved can best contribute to ensure program success.

Based on our conversations with MGAs and insurers, we’ve collated a series of best practices and key contributions that each party can make to help cement a winning partnership.

Trust is at the core of a successful MGA/insurer relationship, and the most effective way to build trust between parties is through transparency with exchanging of information and meeting regularly. Forward-thinking MGAs are already equipped to connect directly (i.e. data, systems, APIs) with their insurer partners, and we expect this to become a standard working practice.

Insurers take a variety of approaches to program relationships. Greater due diligence and oversight on the part of the insurers (and their reinsurers) is apparent when program-specific reinsurance is purchased.

Due diligence has improved substantially since the turn of the century following a shake-out of program partnerships and front company financial struggles. Enhanced professional oversight by all parties involved – and MGAs’ recognition of insurers’ underwriting profit targets – means history is unlikely to be repeated. It has yet to be seen if third-party MGA assessments will impact current due diligence requirements.

MGAs are often niche operators and experience only a small part of the insurance industry. They require a broader view of trends, including macro developments, which insurers are better positioned to provide. Nearly every MGA we interviewed highlighted the need for insurers to offer better data and analytical resources.

Insurer brands have weight, both with agents and in the consumer marketplace. Insurers lending their brand to MGAs via co-branded (and co-sponsored) marketing campaigns can help educate customers and partners on the strength of a value proposition.

A program is a partnership, and it should evolve as the program grows. Insurers should consider the long-term options from partnering with a high-quality MGA, including how co-investment in new adjacent programs could be mutually beneficial, and the potential for future acquisitions and/or other strategic partnerships.

Many MGAs prefer to handle claims themselves. As their profit commissions depend on the claims process, it is more desirable than seeking the services of a Third-Party Administrator or insurer (though in most instances many insurers process MGA claims). If the MGA does manage claims, the insurers should stay involved and provide connectivity with their internal claims teams to ensure the program’s smooth operation.

If a Third-Party Administrator will be handling the claims, they should be thoroughly vetted for the proper expertise in the business segment the MGA is underwriting. This should extend to both the national level and the field level where claims are actively handled. TPA systems must be compatible with the insurers’ systems and the MGA should request regular reports from the TPA.

Insurers are experts at managing the filing process and should bring this capability to MGAs to help offer unique products to the specialty insurance market without long lead times.

• Does the MGA have a unique value proposition, approach to underwriting or another attribute?
• Why are they different to any other underwriter?

• Does the MGA have access to distribution networks otherwise unavailable to an insurer?
• Does this create an opportunity to grow the portfolio in a new area?

• What is the MGA’s sustainable competitive advantage? Could it be replicated elsewhere?
• Can the MGA contribute long-term to this capability and its success?

• Has the MGA proven that it can ‘beat the market’ and underwrite profitably?
• If it is a start-up, have its underwriters succeeded elsewhere?

• How does the MGA look and feel operationally and how are losses and claims managed?
• Can it demonstrate that it underwrites in the way it claims?
• What systems are in place to oversee underwriters and ensure they adhere to guidelines?
• Can it make changes to the program as needed?

Knowing how insurers evaluate program success helps MGA leaders craft their messaging style and maintain focus on key performance indicators. Combined ratio is the preferred metric, and insurers expect MGAs to perform in line with the rest of their own portfolio.

In practice, MGAs will need to outperform relative to an insurer’s own book of business due to the additional MGA expense.

Insurers tighten their focus on program evaluation in a hard market. As loss ratios in hardening lines rise, MGAs must work closely with insurers to increase rates where needed, while also managing the overall volume of its portfolio.

Staying aware of industry-wide loss ratios, and the loss ratio changes experienced by capacity providers in aggregate, will help MGAs position themselves better for conversations with strategic partners.