19 January 2017 Insurance

Soft market main factor affecting 2017 MGA growth

Soft market conditions are the main factor affecting growth in the MGA (managing general agents) sector in 2017, replacing regulation and compliance.

This is the result of a report conducted in December 2016 by MGAA Matters, a research-based partnership between the Managing General Agents’ Association and MGA start-up specialists Castel Underwriting Agencies Limited (Castel).

More than 65 percent of survey respondents placed soft market conditions at the top of the list of factors affecting growth, compared to 46 percent in 2014. Regulation and compliance, which topped the list in 2014 with 69 percent, dropped a place with 57 percent in the latest survey.

Increased competition in the sector was cited by 56 percent of respondents – seeing it drop to third, having been second in 2014.

New factors appearing included mergers and acquisitions (M&A) and consolidation in the sector which was cited by nearly 19 percent. Just over 17 percent of respondents said uncertainty about Brexit would impact growth.

Respondents were also asked to identify their three main strategic priorities for 2017. The results reveal a change of emphasis in the approach of MGAs. In 2014, close to 60 percent of respondents placed moving into new lines of business and products as the main priority. While still a factor for just under half of respondents (48 percent), it has now dropped out of the top three.

The priority is now a focus on increasing business development and marketing activities (65 percent). MGAs’ appetite to increase or widen their capacity base has also moved from its top three position in 2014 to fifth. Updating technology and increasing business efficiency remain in the top three of MGAs strategic priorities.

In terms of levels of M&A and consolidation, 60 percent said they expected there to be increased levels of activity opposed to just over 2.5 percent saying the level would decrease.

Commenting on the MGAA Matters survey results, Mark Birrell, chief executive officer of Castel, said: “The survey reveals that MGAs expect a further period of sustained growth for the sector. The fact that regulation and compliance have now dropped to second in the list of factors affecting growth reflects, in my view, the strong investment that has been made by MGAs to ensure they meet regulatory demands. With soft market conditions now taking top spot, there will clearly be an even greater onus on MGAs to maintain the highest levels of efficiency and profitability to meet the needs of their capacity providers.”

Peter Staddon, managing director of the MGAA, concluded: “MGAs remain optimistic about their opportunities to grow and it is no surprise that they are looking to broaden the scope and reach of their distribution partnerships. This strategic priority reflects the sector’s product knowledge and understanding of clients’ needs as well as its innovation and entrepreneurial skills.

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