The rise of the MGA incubator
A growing regulatory burden has made it increasingly difficult for startup insurers to get off the ground. This has led to the rise of the so-called ‘managing general agent (MGA) incubator’ business model—which can be of real benefit to consumers, facilitating innovation and more choice in the market.
That is according to Danny Maleary, the chief executive of Vibe MGA Management (VibeMM), an independent MGA incubator business providing support for insurance entrepreneurs, which was launched by the Vibe group of companies earlier this year, backed by Quantum Strategic Partners (managed by Soros Fund Management) and Pine Brook Partners.
MGA incubators can provide an operational platform and specialist services for new and developing MGAs, offering a quick and cost-efficient solution to enable them to establish themselves and grow their businesses, Maleary says.
He has close experience of the difference this can make. During his 30 years working in the insurance industry for companies including Ambant Underwriting, R&Q’s MGA and Charles Taylor, he has helped launch several similar platforms. They can, he says, help innovative companies and quality underwriters launch products that can make a difference and succeed.
“A big driver for me is how such ventures can help establish something that gives customers what they want—and delivers a product in a different way,” he says. “MGAs have the ability to embrace the latest technology and give customers the journey they are looking for. Many of the incumbent players struggle with that but this helps us see what that journey would look like in the future.”
Smoothing the path
Maleary explains that now is a good time to launch an MGA and more entrepreneurial underwriters are realising this. They have the ability to integrate technology with no issues of compatibility with legacy systems and the opportunity to embrace new means of distribution. On top of this, larger insurers and reinsurers can be willing capacity providers as they seek diversification themselves in a soft market.
The main inhibitor to such a launch are the regulatory burdens, which have grown so much in recent years for companies.
“The incubator takes that problem away,” Maleary says. “A good underwriter doesn’t need to be a compliance expert, that’s our job. They just need a good understanding of what customers want and how to develop a good product.”
The business plan of VibeMM is not limited to the UK. The company wants eventually to embark on an international business plan whereby it helps startups achieve product distribution in other countries and launch fully fledged operations there. To do this, VibeMM will itself consider launching operations in several geographic territories.
“We are looking at having a hub and spoke model whereby we have a presence in continental Europe, North America and the Pacific Rim in the coming years,” Maleary says.
“There is a massive appetite for investors to embrace MGAs and that is a global phenomenon if they have the comfort that businesses are well run and being managed properly with all the regulatory boxes ticked.
“The fact is that MGAs can deliver opportunities they would otherwise not see. We can help facilitate that process.
“When you do something like this as an underwriter, there will be challenges and you will make mistakes. That is part of the journey, but with the right backers and support in place, we can help minimise those mistakes.”
VibeMM has got off to a quick start in life. Since launch in May, it is already working with five clients and Maleary expects that eight to 10 will have joined the platform by the end of the year. This, he stresses, is the tip of the iceberg in terms of the opportunities he has seen.
“We have looked at around 70 opportunities so far and around 30 of those are at different points in the development pipeline,” he says. “We have a good network and we are seeing a lot of opportunities in this current market environment. You have to remember that we are only an incubator—our clients will roll off needing us usually for an average of three to five years, and that’s fine.
“We are not looking for lifestyle businesses—we want them to grow into businesses that will make a difference.”
VibeMM is more than an incubator in one sense. As well as effectively supporting its clients, it will also invest or source investment in some of them.
“I have the ability to provide capital to our clients, either directly from us or from investors we know or work with already,” Maleary explains.
“It is about finding the right mixture of what is right for them. We know different investment providers with different risk appetites. It is a question of matching investors with the right business partner.”
