A natural consequence has therefore been that the current generation of insurtech start-ups are finding themselves very closely aligned to the MGA market.
There are two ways in which the MGA market and insurtechs intersect. The first is when insurtech start-ups choose to launch themselves as MGAs. The second is when an insurtech start-up, operating a ‘software as a service’ (SaaS) or ‘hardware as a service’ (HaaS) model, targets an MGA as part of their core client base.
For an insurtech business to launch itself as an MGA, it needs to make sure that the proprietary technology sitting at the heart of its offering is creating significant commercial value within the risk to capital chain. The initial wave of insurtech MGAs was largely focused on building new digital business to consumer (B2C) distribution channels with an improved user experience within the personal lines and commercial SME markets. However, as innovation continues to accelerate, a clear, simple and streamlined user journey has become a minimum requirement, not just for start-ups but incumbents too.
Insurtech MGAs are beginning to shift their focus towards the application of innovative technologies in relation to risk pricing and ongoing risk mitigation. Additionally, their focus is moving beyond that of improving the underwriting process for established risks, and towards the development of new products addressing emerging risks such as unmanned aerial vehicles (UAVs), cyber, and product liability.
Those insurtech start-ups who have positioned themselves as vendors or suppliers to the broader insurance industry have also started to shift their focus towards the MGA market, they see our segment of the industry as an attractive client base for a variety of reasons. MGA leaders tend to have a strong entrepreneurial spirit and are willing to try new and exciting innovative solutions to benefit their own clients. In addition, the lean and agile nature of the MGA business model means that new technologies can be embedded into operations considerably faster than by larger insurers who often have to work within the parameters of outdated legacy systems or complex hierarchies. Established MGAs are therefore able to demonstrate the commercial application of new technologies more quickly and act as proof of value case studies for the insurtech vendor or supplier. Larger insurers are also associated with extended sales cycles which can present further challenges for early stage insurtech suppliers and vendors, whereas established MGAs, particularly those that are owner-operated, represent a more approachable client base for these start-ups.
It’s fair to say that the MGA model has faced its own challenges in recent years. The insurance market on the whole has an increased focus on lowering expense ratios, and for insurers that has meant a particular focus on acquisition costs, often drawing into question relationships with MGAs. Nevertheless, the core value proposition of the MGA model to insurers remains as valid as ever, providing insurers with low cost distribution and underwriting expertise that is accretive to their existing business. What has changed is that now both established and start-up MGAs can now be first-movers in the application of innovative technology in order to generate that differential value in respect of product distribution and underwriting expertise.
There are clear benefits of cooperation between established MGAs who want to become innovative and fully technology-enabled businesses, and insurtech vendors, particularly start-ups.
At the MGAA we believe that the MGA business model should continue to act as an enabler for innovation in the wider insurance industry; many of our members already work closely in partnership with insurtechs. Last year we launched our own Insurtech Committee, which I am proud to chair - our continuing objective is to support the launch of the next generation of insurtech MGAs as well as facilitate the cooperation between the established MGAs and those Insurtech vendors/suppliers seeking to help evolve their businesses.