In this article, Amanda Houchins, Head of Program Sales at Federato looks at five key challenges facing MGAs, the fastest growing segment in the insurance marketplace, and how a tech-driven approach to underwriting, risk selection, and portfolio management is helping forward-looking MGAs gain a competitive advantage in a challenging and ever-changing landscape.
I have spent the last year speaking with underwriting and operations teams at Managing General Agencies and immersing myself in learning more about the driving factors and key challenges for MGAs today. In these focused conversations, a few common themes came up again and again. While I wouldn’t presume to speak for all MGAs as each organization is different, and mileage may vary, I’ve condensed these findings in hopes of starting a conversation around how MGAs can leverage underwriting technology and tooling to overcome barriers for growth.
Achieving the capacity to grow is forever a challenge for MGAs, especially in a generationally hard reinsurance market like the one we are seeing currently. Quite frankly, insurance carriers and reinsurance partners have heard it all before and probably still have the PowerPoint to prove it. It’s not just about having more skin in the game these days, it’s about how to show, not just tell how your underwriting and selection strategy will drive business goals and achieve the outcomes you say they will. It is about visualizing the exposures and dynamically tracking how your portfolio is performing to plan. With the hardening trend in the reinsurance market predicted to continue into 2024, according to Fitch Ratings, there is no time like the present to invest in technology to do so. During evaluations the right technology can give MGAs a decisive advantage by equipping them with the data and analytics that can show carriers and reinsurers their best performing business models.
“Among the startups that have achieved some degree of scale, and some degree of capability around distribution and underwriting, reinsurers have been remarkably supportive,” Adrian Jones, Partner, HMCM Ventures told Reinsurance News. “Those who really suffered in the capacity-constrained market have been the incumbents who did one of two things. One, incumbents who failed to invest in technology are more likely to have been slow to recognize inflation. Incumbents with poor technology also haven’t been able to communicate rapidly with good data and information to reinsurers. To my point earlier about data, reinsurers recognize good data when they see it. Two, some cedants took advantage of the soft market in ways that impaired their relationship with their insurers. Those who overplayed their hand are suffering.”
From my perspective, when it comes to capacity and reinsurance conversations, in order to stick the landing, technology is the driving force to get what you need with the most favorable terms and conditions.
Every MGA I’ve spoken with this year is so unique. Much like snowflakes, no two are alike. One quality of leading MGAs that stands out is overall speed of response. According to a survey of 1,300+ producers conducted by the IBA, the most important aspect of the relationship between retail producers and MGAs is responsiveness. “This is HUGE!” one producer said. “Response times need to be quick.”
After many hours spent with underwriting teams, leaders, and technologists, I’ve come to see that speed and responsiveness go hand-in-hand with efficiency, data, models, and communication. These are all important. I’ve even heard that teams often spend a small fortune on service fees, just to find out they don't need more systems, resulting in more underwriting clicks, data, or yet another model that they can’t operationalize or implement as part of their core underwriting workflow.
Most successful MGAs stand out when they start with a federated data approach to unify all the data needed to select and price risks according to their unique strategy. When the right technology is in place, your special sauce can truly stand out. This matters because it is a clear way to communicate an MGA’s uniqueness not only to capacity and reinsurance partners, but also to distribution partners and policyholders. This can give a “show, don’t tell” approach to how your underwriting expertise and portfolio strategy will deliver to plan.
First off, real-time data does exist, and every underwriter should have access to it in this day and age. So why exactly do MGAs continue to struggle? Could it be that they have disparate systems that do not talk to each other, or that they continue to collect legacy systems with static versions of what is needed for complex underwriting? I have found this is an often-overlooked struggle for underwriters. When I think about efficiency and speed, one single pane of glass to dynamically visualize all data attributes across all data sets is the key to helping underwriters stay organized and focused on the best opportunities in their queue. Having the right data at the right time will help to prioritize accounts to focus on based on appetite and winnability, monitor how the book is performing in real-time, and course correct as needed. As markets can be volatile, you can’t afford to let your data be underutilized. Real-time risk data and analytics can help MGAs dynamically adjust to a hard or soft market. By planning ahead with usable dynamic data, MGAs can make sure they do not fall behind in the market.
When it comes to underwriters, the talent war is real. The insurance industry will lose half its workforce between now and 2036 as nearly 400,000 employees retire. Most P&C carriers expect to increase staff during the next 12 months but are finding most positions challenging to fill, while facing more than 10% voluntary turnover. Worse still, 65% of people who leave an insurance role are exiting the industry entirely.
I think of this as two sides of the same coin. We really need to view this in two ways: recruitment and retention. With modern technology, underwriting recruitment and on-boarding can be much faster and easier. At last year’s CPCU In2Risk conference, Megan Bock Zarnoch, COO of Federato asked a crowded room how long it takes a new underwriter to go from zero to productive: The majority voted for 24 to 36 months. “This is a ludicrous proposition,” says Bock Zarnoch. “AI and machine learning can accelerate onboarding by engaging new underwriters with systematic knowledge, contextual prompting and recommendations on the "next best action" based on the insurers’ rules, guidelines and strategic goals.”
The ability to show prospective hires how you are investing in an innovative underwriting solution and supporting your teams with modern tools and a streamlined UI/UX can give you an edge in a highly competitive talent market. I would also add that new talent brings fresh energy and perspective as they may even have done research on technology, keeping up with new systems independently. If you ask underwriters, they do have an idea of what works well or what technology and tooling they would want as an ideal workflow, and they do weigh these factors when deciding which insurer to work for.
Now initially, when thinking about retention, it might feel like change could hurt retention. Yes, I have actually heard this as a reason to not be open to changing or digitally transforming underwriting platforms, tools, and manual workflows. However, it is quite the contrary: we all adapted well from fax to email and calls to texts. In reality, underwriter turnover is more costly these days than investing in modern technology.
I heard this saying recently, “If you are not being disruptive then you are waiting to be disrupted.” Being innovative with technology and modern workflows will help your MGA attract and retain the best underwriting talent for productivity and growth.
As the landscape changes, MGAs should have seamless ways to communicate for pre- and post-submission needs, auto-filling forms with the right data (no more rekeying), and prioritizing business that meets their portfolio appetite. We know that data from agents and brokers can differ significantly, reinsurers often spend more time sorting out incoming data than effectively analyzing and utilizing it. Thanks to technology, we will have the ability to adapt and meet the clients where they are from straight-through processing (STP) to knowing which MGAs are efficiently meeting specific policyholder needs. Technology will increase broker and agent engagement by delivering a seamless, efficient, and consistent digital experience for all.
If you can’t tell by now, I am extremely passionate about the MGAs I’ve been working with and continue to meet. I strive to be a trusted resource for teams that are feeling these day-to-day challenges to help them dig into the right solutions for their needs. At Federato, we partner with our MGA clients, meet them where they are on their technology and growth journey, and deliver the right technology in a very short time frame.
Challenges Federato is Solving for MGAsTo learn more about how our RiskOps underwriting platform is helping our MGA clients address their most critical underwriting and portfolio management challenges, check out our video below.
If you have questions, don’t hesitate to send me an email, or fill out our Request a Demo form to see a demo. I look forward to connecting and learning about your challenges and priorities as you implement your MGA plan for success.