Are insurtech MGAs disrupting the market as much as they think?
MGAs are making their mark on the UKGI market.
Their growth is undeniable – rating agency AM Best’s September 2022 report, entitled Technology and talent drive managing general agent growth, estimated that the premium generated through the MGA market has doubled over the last decade, with worldwide premiums for MGAs increasing from $51bn (£45bn) in 2020 to $60bn (£53bn) in 2021.
One arm of the MGA market consists of businesses that define themselves as insurtech MGAs.
Shân Millie, founder of consultancy Bright Blue Hare, told virtual attendees at a webinar hosted by Insurance DataLab last week (3 November 2022) that these businesses have the potential to bring “fresh energy” and “fresh tech” to the MGA market.
She attributed this to the perspective and attitudes of insurtech MGA founders.
She explained: “Those insurtechs [that] have chosen the MGA entity structure – and the majority of new firms have that are customer-facing in any way, shape or form – they’re founded by non-insurance market folks who are bringing tech and data expertise and vision that insurance didn’t have and probably still doesn’t [have].
“[Equally, there are also insurtech MGA] founders who have come from insurance – some of them have actually described themselves to me as refugees from traditional insurance because they’re fired up with the desire to finally be able to do things differently and better.
“What that gives you is people who know the business from the inside and out – maybe not in its entirety – but who understand and who really want to make a difference. That’s fresh energy.
“I’m not drinking from the insurtech Kool-Aid [here], but I think that does give you some fresh energy [and] potentially fresh tech.”
Although agreeing that the insurtech MGA market is “ripe for innovation” and a hotbed of potential new products, services and models, fellow webinar panellist Jaime Swindle, chief executive of Ardonagh-owned MGA Geo Underwriting, added that these businesses can struggle to distribute their shiny new products, however.
The Managing General Agents’ Association’s chief executive Mike Keating concurred with Swindle.
He explained: “Insurtechs highlight three pillars that they require – funding, compliance support [and] capacity.
“The key thing I see, [however], is that I’m not sure [insurtech MGAs] spend enough time [thinking] about how they are going to acquire customers.
“They have fantastic tech – they’ve invested a lot in that tech and it’s very impressive. They get capacity, they get compliance support, they get funding – but then they think ‘well, how are we going to fill the hopper? How are we going to get customers? How are we going to acquire customers? How are we going to break into quite an established distribution model across the UK and Ireland?’ That’s the challenge.
“My counsel would be that more time needs to be spent in terms of that client acquisition and distribution and perhaps not so much on the tech.”
AI question marks
Keating’s advice is certainly sound when considering the sustainability of insurtech MGAs, but the temptation to stand out from the crowd using jazzy technology has strong allure – especially as Swindle noted that MGA service is now changing to become more digital and self-service led following demand from customers.
However, both Keating and Swindle agreed that technology within MGA models should be used as an enabler to support human underwriters – the duo were skeptical about artificial intelligence (AI) driven underwriting becoming more commonplace.
For Keating, technology at MGAs should underpin communications and operational efficiency.
He questioned whether MGAs were actually using AI and machine learning for underwriting – he has instead seen more examples of AI being used to triage presentations from brokers, where AI is used to remove all the information that is irrelevant to pricing.
Swindle, meanwhile, urged caution around AI underwriting outputs considering that in most cases, this type of AI is still learning and evolving. She said she was “nervous” about AI underwriting becoming commonly established after only a “small experience” of its usage.
Furthermore, there is a lack of governance around AI-based underwriting too, she added.
The panellists highlighted that MGAs are delivering when it comes to providing good service to brokers and access to specialisms, however there does seem to be a touch of hesitancy about the increasing marriage between insurtech and MGA models.
Although the potential of using insurtech technology innovation to bolster MGAs’ firepower is appealing and could yield positive results in the market, it is still important that these businesses base their products and services on addressing customer needs rather than seeking to show off previously unseen digital developments that may not cater to consumer demands.
At the end of the day, insurtech MGAs are aiming to serve insurance customers – if they can’t attract and retain them, directly or via brokers, then they are going to have problems.