Transformational Imperatives for Insurance Industry Wholesalers and MGAs: Exploring Opportunities to Unlock the Next Stage of Growth | Celent Blog – Everest Group
Managing general agents (MGA) and wholesalers is becoming increasingly important in the insurance ecosystem due to their unique advantages over broker/agency. Five key transformational levers described in this blog will help MGA overcome challenges and unleash an unprecedented wave of sustainable growth. technology and Business Process Service (BPS) Providers can help MGS reduce costs and increase the intensity of digitization and automation. Read on for more information.
As insurance broker MGA represents insurance companies and provides insurance products to retailers and insureds. These are often placed among other intermediaries such as retail or wholesale brokers and insurance companies. MGA is also qualified to perform insurance underwriting and binding and customer support services such as policy issuance and claims management. Overall, there are over 1,000 MGAs in the US and over 250 operating in the UK, covering almost 5-10% of the total insurance market.
The role of MGA in the insurance ecosystem
MGA’s business model stands out in that it is highly manageable and profitable, unlike full-stack insurers and agents/brokers. Product-wise, MGA has the flexibility to work with insurers to build products, but may have a low appetite for innovation and slow time-to-market, depending on the insurer’s capabilities and commitments. . In terms of customer relations, these professional agents have full control over all customer activities.
According to a McKinsey report, 43% of the top 100 property and casualty (P&C) insurers have at least one MGA relationship to raise new premiums. Here are his MGAs of different types operating in the ecosystem.
MGA strengthens its financial profile like other intermediaries in the ecosystem by achieving 20-30% EBITDA. MGA has moderate capital efficiency with low setup costs, no legacy platform burden, quick monetization opportunities, and a lean team setup.
However, the profit pool must be shared with the insurer. MGA’s primary sources of revenue are commissions paid by insurers, commissions based on risk performance, and the provision of additional services such as claims management and inspections.
The various value chain elements performed by MGA include marketing, sales, distribution, underwriting, policy issuance, claims processing, policy review, customer service, risk management, policyholder communication and renewal management. will be
Challenges facing the MGA
Despite the importance of its role, the MGA faces challenges in operating effectively, including:
- Regulatory compliance: Insurance regulations are ever-changing and state-based, so the MGA must keep up with the latest rules and compliance standards.Breaking the rules can result in penalties, fines and legal consequences
- Attracting and Retaining Talent: MGA faces the hurdle of attracting and retaining skilled and experienced employees who can provide quality service to its clients.
- Risk management: MGA is responsible for risk management on behalf of insurance companies. This requires agents to fully understand the insurance products offered, the potential risks, and the potential impact of these risks on the organization.
- Balancing client demand and profitability: Client demand for new products, services and coverage may not align with MGA’s revenue goals.
- Staying competitive in a rapidly changing industry: To remain competitive, MGA must keep abreast of advances in insurance sector technology, products and services.
- Competing with increasing industry consolidation: As big companies get bigger, it becomes more difficult for other players to compete effectively
Five Pillars of Transformation
To remain competitive, MGAs must find new ways to leverage new technologies and business models to transform their business, as shown below.
Let’s take a closer look at each element of the innovation framework.
- Embracing Digital Transformation: MGA streamlines operations and customer experienceto reduce costs by leveraging digital technologyincluding automation, artificial intelligence, and cloud computing. To improve decision-making and grow their business, MGA can benefit from the unique insights into consumer behavior and market trends provided by digital transformation.
- Partnerships with other ecosystem providers: In partnership with InsurTechs and Technology, BPS provider MGA embraces digital transformation and a wide range of automation levers including robotic processing automation (RPA), artificial intelligence/machine learning (AI/ML), natural language processing (NLP) and optical character recognition (OCR) is an effective way to Leveraging the expertise and technology of these providers gives MGA access to new tools and capabilities to stay competitive and grow their business.
- Adopt a customer-centric approach: Younger customers prefer a digital native approach and require sophisticated web and mobile interfaces. A direct-to-consumer (D2C) distribution platform to buy. Communicate using two-way SMS messaging, chatbots, interactive documents, forms, and videos. By providing these services, MGA Insurance Company: Improve customer satisfaction Not only that, building deeper relationships with your customers can lead to increased loyalty and long-term engagement.
- Enable data-driven decision making: Data and analytics are playing an increasingly important role in the insurance industry. MGA must leverage these tools to stay competitive. By collecting and analyzing data from multiple sources, including customer interactions, market trends, and investment performance, MGA gains new business insights to make more informed decisions and drive growth. can promote
- Foster a culture of innovation: Innovation is key to staying competitive in the insurance industry and MGA must foster a culture of innovation to stay ahead of the curve. This requires a commitment to investing in new ideas and technologies, and encouraging employees to think creatively and embrace change.
These five transformative levers will help ensure a culture of innovation, strengthen customer centricity, leverage data analytics, outsource non-core functions, and embrace digitalization to ensure compliance, talent management, and more. , low profitability, risk management and intense competition. .
Impact on sourcing
MGA operates in areas that require specialized knowledge and experience of specific insurance markets and products. Companies typically prefer to keep core functions in-house and outsource non-core, traditional technology-driven activities.
Multiple technology and BPS service providers are collaborating across the ecosystem, working with insurers, agents, brokers, insurtechs and MGAs to build superior capabilities to serve across multiple business lines and geographies. increase.
Service providers also need the latest tools and technology, superior customer experience capabilities, operational efficiency, service level agreement (SLA) management, flexibility to increase or decrease operations, superior talent, low cost benefits, and best-in-class waste reduction. Provides no operation. , such as improved risk management. Depending on the outsourcing appetite, process maturity and management buy-in, MGAs can outsource parts of the value chain or engage in end-to-end transformational deals.
Some of the areas within the MGA and wholesaler process value chain that can be outsourced are:
After careful consideration of expertise, experience, cost arbitrage, flexibility, security, business continuity, delivery footprint, talent maturity, technology, infrastructure, governance approach, and client-centricity, MGA was selected as a service provider. ability should be evaluated.
Analyst firms like the Everest Group assess these capabilities through their own PEAK Matrix® ratings, fairly ranking service providers as leaders, prime candidates, and aspirants, helping companies to become more informed. You can provide expert commentary to help you make informed decisions.
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