The MGA Market 2021 – Nick Wright, Pen Underwriting

The MGA market continues to evolve in the ever competitive and changing insurance landscape.

I have recently hosted a Q&A about the MGA market in 2021, with Nick Wright, Chief Business Development Officer at Pen Underwriting.

Passionate about innovation and fearless in challenging accepted norms, Nick is responsible for business development across Pen’s portfolio. His role is focused on three core strategic elements: mergers & acquisitions, the hiring of talent and expertise in new niche sector or product areas, and investing in innovation to underpin the expansion of Pen’s e-trade capabilities.

How has the MGA market changed in the last 12 months?

Significantly. Unfortunately we have seen MGAs who specialise in sectors substantially impacted by the various lockdowns struggle. Conversely, MGAs with a combination of good products, diverse lines of business and varied distribution continued to trade well – albeit just about every business has been affected by the pandemic and the effect on the global economy.

What is the greatest challenge and greatest opportunity for the MGA market?

The greatest challenge is maintaining a competitive position in an ever-changing marketplace. The increasing influence of, and continued advances in, technology will have a direct impact on insureds’ buying habits and we as an industry have to be primed, willing and able to adapt at pace to those changes. Capacity and capital markets will reward those businesses who can demonstrate a deep understanding of their marketplace, can price dynamically and offer a realistic return on capital in an agreed, prescribed timescale. But with great challenge also naturally comes huge opportunity – and in a fast-evolving market great products, distributed in an efficient way, backed up by quality service, will thrive and survive.

What is the attraction of working in an MGA or in establishing an MGA?

In the main, MGAs are, by their nature, very dynamic, innovative businesses. The mindset is an entrepreneurial one – to create customer-focused solutions that provide intermediaries with innovative ways of meeting their customers’ requirements from an insurance and risk transfer standpoint. The ability to collaboratively create new products, use multiple forms of distribution and partner with different capacity providers for different propositions is exciting; MGAs can work with a number of partners rather than only having the defined risk appetite and/or knowledge of a single insurer. Our ability to create and distribute products backed by an unlimited number of insurers, also generates significant opportunities and energizing enterprise.

What are the challenges and pitfalls?

Beware the promise of the Emperor’s New Clothes – as my father would say: “If it seems to be too good to be true, it is.” For any MGA to be successful in the long-term, appropriate risk and governance, checks and balances are imperative at every step along the way. That said, as the market evolves, MGAs may well identify opportunities others overlook – be that around parametric insurance, usage policies or changes in requirements. But sustainable pricing and sustainable capacity are key. Anyone who believes it’s possible to move capacity every five minutes, risks a real pitfall. Historically, others may have chosen that as their capacity strategy, but I don’t think the option exists anymore and would be ill-advised if it did. Just like any other industry, MGAs have to create a reason for people to buy from them – be that through access, expertise, service or a compelling blend of all three. And defining your differentiation – your MGA USP – is a growing challenge.

In your experience why do most MGA business plans you read fail to materialize?

In simple terms, they move away from the core of having a long-term, sustainable business model. They either grow too quickly without oversight, sit on their laurels, don’t grow, don’t invest or don’t understand that the marketplace around them is changing. It is a significant challenge to establish a new MGA, to have all of the necessary oversight, be that compliance, actuarial, pricing or claims. To do that from scratch, without external assistance is extremely difficult, without making significant mistakes along the way.

What does it therefore take to establish and successfully grow a profitable and sustainable MGA?

Resource, expertise, technology, teamwork, vision, energy, knowledge of distribution and – probably more than anything – a little good luck.

How do you see the MGA landscape changing in the next 12 months?

Technology will start to play a much more prominent role in the distribution food chain and MGAs will help drive that. We will also continue to see the impact of Covid-19 through its impact on revenue, customers changing buying bits and underwriting results, not only in respect of any individual losses but the impact of the overall profitability of the insurance sector. I can see alternative insurance solutions being created, be that parametric or something similar, with more ‘usage’ policies in the mix and MGAs have the potential to be right at the forefront of those policies. Why do we still have annual motor insurance when effectively our risks change dependent on our usage of a motor vehicle? With hindsight, you could argue it makes no sense, although you have to bear in mind the historic, underlying insurance principle of the many paying for the few. The focus on risk and governance will also play its part in the success of MGAs.

What can Pen offer strategic hires that others maybe can’t?

I believe Pen is uniquely placed. We have the backing of a strong global parent and localised infrastructure to enable individuals, teams and potential MGA merger partners to benefit from support by IT, sales, marketing, distribution, pricing, claims, technical underwriting and much much more – all of which enables our traders to focus on trading and our underwriters to underwrite. It can also free up individuals to create new and innovative offerings that will benefit both our business and broker partners, but also potentially the wider insurance distribution business. Pen has plenty to offer and we are actively exploring a number of opportunities that we will look to invest in over the next few years. A core part of our strategy for accelerating our growth and becoming a £1bn GWP business is through investing in people, both existing and new, alongside product innovation and diversification into new areas, be that in the UK or beyond.

Right International are specialist Headhunters to the MGA/Insurance market. If you’re interested in a confidential discussion regarding opportunities at Pen or are looking to add to your team please contact me to discuss.

All the best,

Gary Pike