willis towers watson’s pc insurance evening · §peer group competition §big payoff potential...
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Willis Towers Watson’s PC Insurance EveningThe Managing General Agent (MGA) revolution
20 March 2018
Tim Rourke
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MGA definition
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The role of an MGA is to coordinate and provide underwriting & pricing services whilst ensuring that it achieves adequate returns to its capacity provider and / or investors.
MGA’s in the current environment typically have some unique attribute that allows them to trade effectively in certain segments, provide access to certain customers or markets.
These characteristics are desirable to the capacity provider who may not have this expertise in house or resources to develop this capability itself.
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Benefits of an MGA
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Access to new markets and
customers that an insurer would typically not trade
in or have the expertise
Access to new markets and
customers that an insurer would typically not trade
in or have the expertise
Lower operating costs
Lower operating costs
Increased diversification
of product lines
Increased diversification
of product lines
Outsourced R&D
Outsourced R&D
Alternative use of capital
Alternative use of capital
Opportunity for growth if
insurers own markets are
saturated
Opportunity for growth if
insurers own markets are
saturated
Potential reputation benefits of
partnering with an exciting
MGA (Insure-tech)
Potential reputation benefits of
partnering with an exciting
MGA (Insure-tech)
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Some market observations
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The number of registered MGA in the last three years has increased significantly.
Obtaining capacity is not necessarily easy Do you build the model / rates first and then hit the market or the other way round?
What is the typical set-up of an MGA?
Which is more likely to be successful?
More and more MGA’s are looking for capacity and support.
Insure-techMainstream / segment spotters
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Why are we seeing the revolution?
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Technology & Environment
§ IT & systems development are enabling more start-ups
§ Insure-tech & innovation can disrupt mainstream markets
§ Large organisation looking to support a renaissance in insurance such as Munich Re Digital Partners
§ A recognition that insurance needs to provide other value added services. Traditional models are less desirable
§ Are MGAs paving the way to understand the future of how insurance needs to sold and serviced?
Technology & Environment
§ IT & systems development are enabling more start-ups
§ Insure-tech & innovation can disrupt mainstream markets
§ Large organisation looking to support a renaissance in insurance such as Munich Re Digital Partners
§ A recognition that insurance needs to provide other value added services. Traditional models are less desirable
§ Are MGAs paving the way to understand the future of how insurance needs to sold and serviced?
People
§ Self fulfilling – insurance cycle or MGA cycle
§ MGA is the fun stuff with less governance
§ Peer group competition
§ Big payoff potential
§ Frustration with large corporate culture / sluggish / protocol
People
§ Self fulfilling – insurance cycle or MGA cycle
§ MGA is the fun stuff with less governance
§ Peer group competition
§ Big payoff potential
§ Frustration with large corporate culture / sluggish / protocol
Brokers
§ Small personal lines brokers frustrated with the net rates provided by intermediated insurers – sign of the times
§ Fill the gaps on the brokers panel that insurers are not competitive on
§ Utilise fully the broker’s in-house knowledge of the segments
§ Survival as the intermediated insurers struggle in certain markets – especially personal lines
§ Be less beholden to the panel
§ Diversify business model
§ Broker believe they have the unique experience to underwrite their niches effectively
Brokers
§ Small personal lines brokers frustrated with the net rates provided by intermediated insurers – sign of the times
§ Fill the gaps on the brokers panel that insurers are not competitive on
§ Utilise fully the broker’s in-house knowledge of the segments
§ Survival as the intermediated insurers struggle in certain markets – especially personal lines
§ Be less beholden to the panel
§ Diversify business model
§ Broker believe they have the unique experience to underwrite their niches effectively
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The typical MGA model
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Basic structure
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MGA
Tech
Pricing
Underwriting
Distribution
Systems
Culture
Claims
Virtual insurer
Re
Performance Management
Capital / Regulatory / Actuarial
Capacity
Reinsurance
QS XOL
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How do the various entities get paid
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MGA Capacity
Reinsurance
Commission Reinsurance premium
Commission / GWP /
Expense contribution
Profit commission
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Why is it so hard?
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MGA actual Expense
MGA funding requirement
MGA Commission
Target Loss Ratio for MGA
Commission paid by capacity provider
COR for capacityprovider Reinsurance
20% 0% 5% 60% 25% 95% 10%
20% 5% 0% 70% 15% 95% 10%
20% 0% 10% 50% 30% 90% 10%
MGA needs to achieve a very low attritional loss ratio to make the model work.
Target loss ratios are
challenging. (UK Motor?)
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CSF for Capacity providers and Investors
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Consideration for capacity provider / investor
§ MGA’s can not just rely on being “agile” and quick to react as the main reason for success
§ MGA’s cannot just rely on a unique idea / unique technology alone to ensure profitability
§ Still need to focus on the fundamentals or running an insurance entity (pricing,dist, underwriting, MI, claims, fraud, monitoring & control)
§ Great people are critical but is not a panacea to ensure profitability – especially in highly competitive areas such as UK motor or home
§ Segment spotters – is this really a viable MGA model – especially in mainstream markets
§ Be wary of unrealistic premium targets
§ Be wary of unrealistic loss ratio projections and how this interacts with the premium targets (see diagrams)
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Beware of too optimistic premium forecasts
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UW
qua
lity
/ Los
s R
atio
Market share / Premium
UW Quality
Expected Loss Ratio for a given level of UW quality
The better the UW quality, the higher market share achievable for a given loss ratio
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Beware of too optimistic premium forecasts
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Loss
Rat
io /
UW
qua
lity
Market share or £GWP
UW Quality(Bad)
Expected Loss Ratio (Bad )
TLR
UW Quality(Good)
Expected Loss Ratio (Good)
Higher market share whilst still maintaining TLR.
Make sure that the quality of the MGA’s USP is commensurate with the premium target
Achievable GWP
Target GWP
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CSF MGA
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What are the MGA hygiene factors
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Distribution
Technology
Significant investment
Data
Robust underlying underwriting
The MGA needs to be able to get its product to market. Advantage for the broker creating their own MGA
to help disrupt the market and create their underwriting ‘edges’
from backer to do it right
unique underwriting insight to create more ‘edges
UW/Claims/pricing/fraud
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Advice to the MGA
§ Absolute focus and rigor on the underlying underwriting – can be challenging with more restricted resource typically seen in MGA start-ups.
§ Early indication of profit risk. Some warning signal to suggest pre-emptive remediation before the actual experience run-offs.
§ Ensure that innovation remains in MGA pipeline – especially if the MGA§ Wants to grow,§ Original USP is not as effective as expected § The original USP is easily reproducible§ The original footprint is saturated
§ Other avenues of income:§ Retail pricing as buffer or additional income stream (broker models) – especially early on as experience
is being gathered, § If a technology driven MGA, can the technology be sold to others. Careful not to give away the uniqueness.
§ Be careful of segments. Machine learning has probably made it easier for the larger insurers to spot mechanically the segments that MGA’s would have chosen as the premise for their business.
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How can MGA increase the chance of success
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Important areas to consider?
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Where can the MGA operate effectively - segment discovery
Build rate book – using market data or assets available to the client
Underwriting criteria and acceptance logic
Claims
Retail pricing – buffering for defects in the
risk price
MI / visualisation / fast-fail / graphical
Anti-fraud
Software
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How to improve the likelihood for success
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Loss
Rat
io /
UW
qua
lity
Market share or £GWP
Doing these things well can improve the likelihood of success for the MGA.
UW Quality levels
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How to improve the likelihood for success
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Loss
Rat
io /
UW
qua
lity
Market share or £GWP
Loss ratio improvement
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Where can the MGA operate effectively - segment discovery
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UK motor market
Insurer 2 Insurer 1
Can the MGA operate effectively in these areas if it does not have unique data?
Insurer 3 MGA
UK motor market
Insurer 2 Insurer 1
Vanilla highly competitive area
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Segment discovery
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UK motor market
UK motor market
MGADay 1
Day 2
Vanilla high competition area
Machine learning, market data and leveraging off the entities unique data, expertise or technology
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Build rate book– using market data or assets available to the client & Underwriting criteria and acceptance logic.
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Radar BaseMarket premium data in combination with
WTW insight and benchmarks
More refined and calibrated rate bookFail fast / visualisation /
faster response & market calibration
Novel proposition data
Trade & real market feedback
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MI / visualisation / fast-fail / graphical.
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§ All the relevant material on one screen§ All the data capture to the what and why of the decision
Process level support:§ New Business Triage§ Augmented renewal lists§ What if metrics
Real time access to:§ Portfolio Data – risks like these§ Claims Data – claims from these§ Distribution analytics and insight§ Negotiation support§ Data about the individual risk§ Geospatial Data
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Claims
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Imperative that the claims function is tight to support the challenging loss ratio required to make the MGA model work.
The MGA must remain on top of this – too often claims is secondary and underinvested, whereas it should be given equal importance as pricing, underwriting and reserving.
Being high performing in claims is an opportunity for MGA’s to differentiate, not only on service, but also in key claim cost control areas such as: § FNOL / third party invention§ Credit hire cost management§ Fraud detection§ General leakage and claims management.
Also important that the claims function uses its data and analytics in a smart way, supporting underwriting and pricing colleagues in developing a deep understanding of the segments and niches that the MGA has chosen to trade in.
Is this harder when claims are TPA.
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Conclusion
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MGAs are becoming more common utilising data and technology to disrupt the insurance market.
However, to make them a success is not easy with onerous performance targets to achieve in a busy market place.
The technology or insight to create the required underwriting edges need to be market leading.
Low loss ratio targets can impact capacity. Is it really possible to create a successful MGA that is writing £100m in five years with a loss ratio that low?
Don’t be complacent with the traditional underwriting and pricing –especially if you are trading via aggregator.