I have worked across the delegated authority value chain
Insurers / carriers
Many insurers in the London Market delegate their underwriting authority to third parties using vehicles such as Managing General Agents (MGAs), coverholders and binders. Delegating their authority represents an additional distribution channel for insurers and enables them to spread risk across the insurance portfolio.
I have delivered various delegated initiatives for global insurers, for example:
- Set-up of a delegated authority capability (due diligence process, wordings & documentation) for a large global insurer wishing to grow its book in continental Europe. The DA capability provided them with an additional distribution channel and facilitated the addition of key facilities to their portfolio, notably in the Credit & Surety space.
- Significant enhancement of follow claims data quality across the delegated book by managing the migration of manual bordereaux to Intrali. Aligning follow claims data quality with that of lead business ensured richer claims data in the Data Warehouse. This removed the inherent conduct risk and provided greater insight to underwriters at renewal.
Brokers
Most London Market brokers are involved in the delegated space in some way. Most often they act as the placing broker, scanning the market for an appropriate insurer to provide underwriting capacity to their clients.
Additionally, they are increasingly setting up Managing General Agents as subsidiaries within their own Group.
I have worked with a large broker to advise on the optimum Target Operating Model and infrastructure to enable the onboarding of multiple MGAs in the UK and EEA.
For the same client I developed an 'Onboarding Playbook' to guide the onboarding of newly acquired MGAs quickly, compliantly and without comprising service.
Managing General Agents
I have also worked on the other side of the fence for MGAs directly. MGAs are granted delegated authority by insurers to underwrite business in a particular product line.
They carry no risk on their balance sheet, hence are classified in the UK (as well as in other EU jurisdictions) as intermediaries and are not PRA regulated.
I have worked with one of the world's largest MGAs on initiatives such as:
- Managing the insourcing of risk, premium and claims bordereaux processing from an under-performing TPA without operational disruption or customer detriment.
- Managing a pilot to build a new digital platform to replace Riskwrite.
Investors
The other key player in this sector are investors, most notably Private Equity firms. MGAs make very attractive investment opportunities for PE houses due to their low capital investment, lack of retained insurance risk and the fact that they don't need to reserve for claims. As a result, they have relatively high EBITDA multiples (15-18 x).
I have consulted for MGAs, brokers and insurers under PE ownership. Their priorities differ to other ownership models due to the cyclical nature of PE activity.
They often invest in MGAs as start-ups, capitalise the first 3-5 years by providing underwriting capacity and infrastructure. When the MGA reaches a certain size the PE house either spins it off or sells it on.
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What is an MGA?
What is an MGA?
MGAs enter into binding agreements with insurers to underwrite business in a particular product line that they specialise in but the insurer does not.
They are typically smaller than insurers and write very few product lines but are highly specialist. In the SME space it is commonplace for MGAs to write Professional Indemnity, Liability
MGAs enter into binding agreements with insurers to underwrite business in a particular product line that they specialise in but the insurer does not.
They are typically smaller than insurers and write very few product lines but are highly specialist. In the SME space it is commonplace for MGAs to write Professional Indemnity, Liability, D&O, Cyber and professions such as construction workers and contractors. For individuals, many Pet, Drone and Extended Warranty policies are sold via MGAs.
A growth area
What is an MGA?
The myriad benefits of this arrangement are driving its increased popularity.
There are some 350 MGAs in the UK and the figure grows every year. In Continental Europe, where the MGA model is less common, numbers are expected to grow thanks to the growth ambitions of UK and US insurers, as well as the increased Lloyd's capacity.
Benefits all round
Benefits all round
The MGA model has benefits across the board.
They provide insurers and brokers with another string to their bow - a distribution channel to access customers they would not otherwise reach.
The MGAs receive capacity without carrying risk on the balance sheet. Since Solvency II was implemented, this removes significant capital management and reporting obligations.