Once utilized to amplify the distribution channel or to serve as intermediaries between agents and insurance companies, managing general agencies today have new roles to play. In the “Age of InsurTech,” the digital MGA business model is anything but stagnant and is, in fact, fast evolving.
Executive SummaryThe MGA model offers a low-risk proving ground for InsurTechs and even for traditional insurers looking to expand product offerings and geographies. But MGAs aren’t sure-fire successes. MGA-in-a-box solutions help, according to Xceedance’s George Freimarck, who offers tips for selecting partners that deliver third-party platforms and managed services to support MGA models.
Launching as an MGA remains an attractive business model for entrepreneurs looking to enter the insurance market without the heavy lift in capital and organizational structure required for a traditional insurance company. MGA intermediaries can also be an attractive option for insurance companies looking to bolster new or specialized lines of business or an effective way to expand geographical reach. For other interested parties, an MGA launch may provide a short-term revenue strategy or a proving ground for testing InsurTech innovations in a live insurance environment.
See also, “Conventional Wisdom Says 90% of Startups Fail. Data Says Otherwise,” June 27,2017).
Benefits and Challenges of the MGA Model
One of the most significant advantages of MGAs is an organizational makeup that enables speed and agility. Recognizing that MGAs bear none of the actual insurance risk involved in underwriting policies—and because they are not burdened by the need to raise a large amount of capital upfront—most MGAs are lean and efficient enterprises from the outset. Without risk-bearing responsibilities, MGAs naturally concentrate on underwriting and policy production, often even more aggressively than many insurers.
Unencumbered by the bulky infrastructure and ingrained workflows of traditional insurers, MGAs are generally enthusiastic, taking a head-on approach to partnering or outsourcing technology needs for proficient operational support and as a way to enhance digital enablement and policyholder services.
In order to compete in the “Age of InsurTech,” MGAs are willing to look outside the scope of legacy automation, instead gravitating toward innovative, out-of-the-box tools and solutions. Additionally, once established, the business generated by MGAs can provide the needed short-term revenue and runway to quickly launch and deploy even more business-enabling new technology and digital platforms.
Naturally, there is still a risk of failure inherent to startups—InsurTech MGA or otherwise. But for many, the benefits of the rapid investment and growth model outweigh the risks, precisely because the underlying enterprise infrastructure is typically nimble and maneuverable.
Partnerships That Benefit MGAs
Most InsurTech MGAs launching today are not only digitally enabled at inception but prepared to excel in a mobile- or API-first environment. Often, established partnerships handle the back-end, heavy-lift, core operational processes in such scenarios. Such partner relations can enable a fast start; provide cutting-edge, intelligent technologies and advanced analytics; and offer integrated managed services and consulting for process optimization and accelerated growth.
Selecting multiple resources has been the traditional path for partner relations. But today, complete “MGA-in-a-box” platforms are available, allowing MGAs to consolidate technology and services with one expert partner while simplifying the entire insurance business process from quote to claim.
Engineered for rapid deployment, as-needed scale and the agility required to manage policyholders in changing market conditions, MGA-in-a-box solutions can help startup or established MGAs swiftly build out a tailored, adviser-driven sales and service engine. It’s the conducive toolset for capturing profitable market segments—a key competitive differentiator in managing diverse insurance products, especially lower-margin classes of business.
But for MGAs, one key to deploying such comprehensive third-party platforms is to ensure the technology and services provider encompasses deep insurance domain knowledge. Only then can MGAs truly minimize systems cost and implementation risk and maximize the functionality and benefits of a best-in-class InsurTech platform for MGA operations.
Many insurers are hesitant to take on pilot projects with MGAs, making it difficult for InsurTech startups to effectively test new products and prove out market fit in a live insurance environment. Hence, greenfield MGAs are sometimes launched not only as a short-term revenue strategy to fund the technology business during the long-tail enterprise sales cycle but as a potential proving ground for testing solutions in dynamic or promising insurance markets.
The proving ground strategy can also be particularly effective for InsurTech or established MGAs targeting specialty lines, such as professional liability, in which specialized expertise is required to effectively underwrite policies. All the more reason, therefore, for MGAs to be mindful of impediments to rapid progress in deploying technology or service providers and to carefully validate the deep domain credentials of any partner who will be relied upon to streamline and accelerate business placement and risk evaluation processes.
In order to be successful, MGAs can ill afford to be burdened by technology development or even maintenance. Ideally, they need trusted platform and managed services providers with reliable MGA-in-a-box solutions that include bespoke, integrated life cycle operations features. Another key requirement is a rating engine capable of handling multiple lines of business. Then, with the obstacles of technology functionality, maintenance and integration largely alleviated via open and flexible APIs, both startup and established MGAs rapidly can deploy business automation and scale effectively to take advantage of market opportunities.
Hundreds of Policies a Week
Leveraging a reductionist approach in processes and workflows, such as deploying an MGA-in-a-box solution, MGAs potentially can underwrite several hundred policies every week with just two or three underwriters. The productivity gains are undeniable, especially when compared to some established organizations, where an underwriter may evaluate and clear up to three polices every two days for the same type of clients and classes of business.
MGA-in-a-box solutions and partners allow digital MGAs at any stage in their growth cycle to curtail systems cost, simplify operations and fast-track growth.