Insurtech firms become MGAs out of frustration
Some insurtech startups are ditching their original business plans and becoming managing general agents (MGAs) because of their frustration at how long it takes the insurance industry to embrace new ideas.
This was one phenomenon discussed by panellists at a session covering innovation at the PCI conference yesterday (October 16), chaired by Tony Trivella, executive vice president in the treaty division of Hartford Steam Boiler.
Tim Attia, the chief executive of Slice Labs, a technology startup specialising in on-demand insurance, said that startups can innovate but cannot scale up—to do that they need to partner with incumbent players.
“We do innovation and R&D and we raise capital but we have to work with incumbent players to scale things up,” Attia said.
“We can innovate on our own but we make mistakes and break a lot of windows when doing that. Scaling up is a very different mentality from innovating and we need the right partnerships to achieve that.”
Jacqueline Lesage Krause, managing director of Munich Re/HSB Ventures, which invests and partners with technology companies targeting the insurance space, noted that she has seen startups get impatient trying to break into the insurance space and be noticed. Their reaction can be to form an MGA to illustrate their capabilities.
“Getting traction in the insurance space can be hard; their venture capitals will be getting impatient so they form an MGA to illustrate their value. They feel they cannot wait for the incumbents, and that is how they choose to go to market,” Krause said.
Keith Moore, chief executive of CoverHound, an insurance technology company, which has adopted this MGA model, said that when he entered the market in 2010 this was exactly why the business chose this route to market. But he added that the large incumbent players are now more open to partnering with insurtech ventures than they were then.
Moore added: “The key to good innovation is to compress time, move quickly and fail often. That is how you learn. My favourite saying is ‘a race of one has no winner’.
“That means that if you have no competition, no rivals, there is nothing to measure yourself against. You are in a much better place when there is competition as that helps the whole market grow.”
Ed Largent, chief executive of Westfield Insurance, said he believes the right partnership between an incumbent and an insurtech firm can benefit both parties.
“It can be a win-win for both but it is really important that they immerse themselves in the ecosystem of the industry,” he said.
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