How MGAs are completing the recipe for total coverage

It’s a delicate balance: finding the point where the need to get rate doesn’t sacrifice a good profitable risk and compromise a quality book of business.

The past five years have seen the insurance industry focus on obtaining rate adequacy through increasing premiums. This has come at the potential expense of losing good quality risks and businesses in exchange for maintaining more difficult risks that are potentially less profitable. Of course, revenue is a priority for all stakeholders, but it shouldn’t be the only measure of success. MGAs need to play a more active role in sharing the coverage across multiple markets and with multiple partners, especially as many insurers aren’t as willing to take on all the risk.

The concept of sharing the risk isn’t new, but it’s becoming more of a deliberate strategy versus a consolation prize. Sharing or subscribing the risk is better for the industry and instead of hanging the whole risk on a single carrier, spreading it around creates an opportunity for underwriters to stay within their comfort level and most importantly, their risk or limit appetite.

Bridging the gap between the appetites and risk levels of multiple carriers can be a sustainable business strategy and it’s often in the best interest of the client. It helps spread out losses, avoids single market shock losses, stabilizes books of business, while creating a more stable book of revenue for all participants while reducing insurable values for a single carrier. There are times when we create risk while we’re trying to mitigate it simply by taking on more of it than we should.

MGAs are almost purpose built to serve this type of facilitator role and picking up 10 or 20% of a risk in partnership with other MGA’s, doesn’t disrupt the structure – it stabilizes it. And while the broker owns the relationship with the client, and the client may only see or recognize the lead insurer on the policy, the MGAs that bridge the rest of the coverage are an important part of the mix.

If multiple insurers and MGAs participate and share in the risk, it not only helps find viable insurance solutions, but also creates the ability to tackle larger and more complex risks – the ones they typically avoid. We need to find a way to respond to those less desirable and more complex risks because every business deserves the ability to get coverage. They have the right to expect that as an industry we will find a way to respond to those risks and make sure they have proper coverage, instead of simply declining them over and over.

Now everyone wins. The client wins because they have access to a more stable means of managing their risk, the market wins because we spread the risk, and there is an opportunity for MGAs to be profitable for all the right reasons.