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“The number of MGAs on the market is becoming supersaturated and many are not servicing a clear niche,” he said. “For the last decade, our portfolio has primarily dealt with MGA operating in specialized spaces.”
MGA provides value to insurers through underwriting margin and compensation for additional fees. Otherwise, insurers are usually better off dealing directly with the broker itself.
“This is a difficult balance for MGAs to take a broader approach. In our experience, they do not make above average margins,” Spafford added. “The MGA we trade in is positively saying’no’to risks outside the appetite range. For example, looking at the data, generalist MGA tends to perform poorly, so we are partnering with people who specialize in areas such as environmental responsibility. “
Also, while MGAs operating under a larger umbrella are more difficult to build relationships in terms of delegated authority, Spafford helps brokers with larger appetite-friendly businesses. He said this approach is not necessarily bad because it is possible.
“Traditionally, MGA spaces are like accordions,” Spafford explained. “Insurers are limiting capacity, which floods the MGA space with risk, as seen in areas such as hospitality. [where] Few people have been able to maintain capacity.
“Especially in British Columbia, where business is flowing into MGA, there is a lot of geoinsurance capacity, but I don’t think that trend will change.”
According to Spafford, the industry has not fully developed cyber-risk solutions and MGA should consider moving to the realm of delegated authority. While some MGAs have performed well, especially in terms of products, proper pricing for cyber insurance has not yet been established, not only in the Canadian market but globally.
“It’s difficult for insurers to keep track of prices because of the rapid changes in space,” says Spafford. “It’s very similar to a moving target.”
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“We have been so careful that we haven’t found a definitive cyber partner. The industry’s performance wasn’t very positive, so I think it helped us,” Spafford emphasized. “There are good players in the Canadian market, but setting the price correctly was a hurdle.”
Establishing and maintaining long-term partnerships in the area of delegated authority is essential, but this requires consistent communication as market needs are constantly changing.
“We’re doing due diligence, so it’s no surprise,” says Spafford. “We strive to be as transparent as possible, so everyone has the lead time to make the necessary changes to stay profitable.”
Is there a “supersaturation” of Canadian MGA?
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