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MGA : the all-risk agency
Rapidly expanding in France, Managing General Agents bring added value to the market in general and to insurers in particular, notably in risk management, underwriting and the development of customized solutions. Their expertise enables them to address niche markets that escape the reach of traditional insurers.
(Translation of the article from La Tribune de l’Assurance magazine)
In line with specialties
MGAs, hybrid intermediaries akin to underwriting agencies, are gaining ground in France, bringing expertise and agility to niche and specialty markets.
After winning over the Anglo-Saxon markets, the Managing General Agents (MGA) model is gradually gaining visibility in France. These specialized intermediaries, with broker status under French regulations, occupy a hybrid position between insurers and brokers. Their rise to prominence is arousing a great deal of enthusiasm, as well as a few questions.
AGILE MODEL
The MGA, or underwriting agency, is an intermediary entity acting on behalf of one or more insurers or reinsurers. It performs a variety of functions, from risk underwriting and administrative management to claims handling and even the development of specific insurance products. This model is particularly attractive to insurers seeking to outsource the management of complex or niche risks that they do not master in-house. “An MGA is a genuine partner for insurers and brokers alike, capable of providing solutions in niche markets where technical expertise and agility make all the difference,” explains Laurent Haumont, Managing Director of SAAM and VGM, now part of the Verspieren Group.
MGAs are distinguished from traditional brokers by their technical delegations, which are often more extensive, enabling them to intervene directly in claims management. “The key distinction lies in their role vis-à-vis insurers: they act as an extension of the latter, with an important duty to control the claims-to-premium (S/P) ratio,” he adds.
NICHES AND INNOVATION
MGAs’ great strength lies in their specialization. Complex sectors such as aviation, cyber insurance, political risks and affinity are their preferred fields. “Aviation, which accounts for just 1-2% of the global insurance market, is a niche par excellence. Here, MGA offers unique expertise and invaluable responsiveness,” notes Laurent Haumont.
This flexibility also enables us to innovate. As at Stoïk, for example, where cyberinsurance is at the heart of the business: “We combine traditional insurance with preventive services to reduce the frequency and severity of claims,” explains Benjamin Mangel, head of underwriting. Tools such as vulnerability scans and phishing prevention campaigns integrated into their offers help to raise the level of protection afforded to policyholders, while optimizing the S/P ratio.
IN SEARCH OF RECOGNITION
Unlike countries such as Italy and Spain, where the status of MGAs is clearly defined, France does not yet have a specific framework. This situation contributes to a certain amount of confusion, particularly with wholesale brokers, another type of insurance intermediary whose operations are relatively similar to those of an MGA. “Official recognition of the MGA model would perhaps make the market clearer and more structured, but we are not currently hindered in the exercise of our profession,” says Benjamin Mangel of Stoïk. However, not everyone in the sector is unanimous on the benefits of such structures. The boss of one of the leading large-scale brokers: “We don’t work with MGAs. It adds an intermediary, which complicates claims handling and makes the process less transparent. We prefer solid and recognized insurers”.
However, this line of argument has already been heard in the voice of the major brokerage with regard to wholesale brokers, whose specialty offerings for VSE-SMEs often succeed in convincing the major brokerage, which even under torture would refuse to admit it. The presence of MGA in the value chain can, however, be perceived by players as an additional layer of complexity. The addition of an intermediary can create tensions in the event of a claim, particularly when it comes to managing the relationship between the final insurer, the MGA and the insured. “You have to deal with them first before accessing the insurers, which is not optimal, especially for complex claims,” stresses the direct broker. This is particularly true of models involving several risk carriers. Some market players even point to the risk of conflicts of interest in the MGA model.
However, Benjamin Mangel moderates: “Unlike some underwriting agencies that arbitrate between several risk carriers, we don’t arbitrate at all. Our model is based on stability and sustainability”. A position shared by Laurent Haumont, who insists on the importance of the MGA’s mission: “MGAs act as an extension of insurers, with an important duty to control the S/P ratio. At VGM, this expertise is placed at the service of over 1,600 broker partners, guaranteeing rigorous, high-performance management.”
MGAs seem destined to grow in the French market, buoyed by their expertise and agility. However, their development is not without challenges. And their rise to market power also raises the question of their place in the value chain. For some, they embody a new breath of innovation; for others, their intervention complicates the process more than anything else. What is certain is that their role as intermediaries will continue to redefine the boundaries between brokers and insurers.
What are the strengths of the MGA model?
Loïc Peyre, co-founder of MGA Novacover, and Christophe Hautbourg, managing director of Planète CSCA, share their views on the challenges and opportunities of the MGA business model, its role in the French market, and the need (or otherwise) for a more defined regulatory framework.
Could you tell us about Novacover and its MGA model?
Loïc Peyre: Novacover is an underwriting agency (or MGA) specializing in commercial property damage. We’ve been operating in France since July 2020, and more recently in Spain. We meet the needs of industrialists, SMEs and SMIs who are not attracted to their risks by general insurers. We work in niche areas such as non-occupant owner risk, or risks associated with the recycling industry. Novacover currently employs a dozen people and has premium income in excess of €20 million.
In particular, we work with Axeria, an insurer that has decided to specialize in working with MGAs. The MGA model is geared towards ultra-niche products, requiring tailor-made solutions. Unlike traditional insurers, we offer specialty products and work closely with brokers and reinsurers to limit the volatility of results.
What is your analysis of the role of MGAs?
Christophe Hautbourg: MGAs are responding to a crucial problem: certain segments are becoming uninsurable for traditional insurers, whether due to high claims or a lack of appetite. MGAs provide solutions in these niche markets, with solid, transparent risk carriers who are often first-rate, a far cry from the dubious practices we’ve seen in other sectors such as construction.
Loïc Peyre: The strength of an MGA lies above all in its approach to the market, the relevance of the solutions it proposes, and the quality and transparency of the risk carrier. It’s essential to know to what extent the risk carrier is actually assuming the risk. We have already observed cases where solutions were more akin to what is commonly known as “fronting”. However, delegated underwriting implies that the risk carrier has genuine control over the underwriting and is actually assuming the risk. It is this real commitment that determines the quality of an MGA and its ability to respond effectively to market needs, beyond simply issuing certificates.
What does Novacover offer in terms of risk control and management?
Loïc Peyre: We have developed a unique approach, with, for example, 1,200 virtual risk visits in 2024, giving us a clear view of 85% of our portfolio. This gives NovaCover a level of granularity and risk control not available to a general insurer. As far as claims management is concerned, we remain in our role and do not handle them directly. This is the insurer’s job. However, we do play a key role in facilitating exchanges and speeding up claims processing.
Do you think it would be appropriate to clarify the legal status of MGAs, as is the case in Spain?
Christophe Hautbourg: It’s always instructive to observe what’s happening in other European countries. As a member of Bipar, we keep a close eye on the various developments, and I regularly exchange views on the subject with my counterparts in Europe. Take the Netherlands, for example, where over 50% of distribution and underwriting is handled by MGAs. Generally speaking, MGAs have clearly defined their roles: placement and distribution are the responsibility of brokers, while underwriting is handled by MGAs, although approaches can vary from country to country. Personally, I’m not in favor of excessive regulation that would unnecessarily freeze the existing framework. What’s important is to preserve a degree of legal flexibility, enabling entrepreneurs and the market to operate effectively within the regulatory framework. We need to avoid introducing additional rules that could undermine the fluidity and agility that MGAs now bring to the French market, particularly in the face of the ever-present challenges of uninsurable risks. That said, the question of a specific framework is worth considering, and could be the subject of discussions in the months to come.
Loïc Peyre: It would be useful to make a clear distinction between roles, to improve the fluidity and understanding of the model, particularly for broker providers. However, we mustn’t lose sight of the flexibility and fluidity that are the hallmarks of MGA in France.
Is the MGA model the final step before becoming an insurer?
Loïc Peyre: Not necessarily, each MGA has its own strategy. Some transform themselves into companies, others are bought out, and some, like Novacover, prefer to concentrate on their core business while diversifying their portfolio. The MGA model offers us unrivalled flexibility and agility, while relying on our partners to challenge us on results, compliance…
Christophe Hautbourg: The MGA status offers great flexibility within a regulated framework. It’s an ideal solution in a bull market such as we’ve seen in recent years, where traditional insurers may find it difficult to meet certain needs.
MGAs are growing fast, is the trend sustainable?
Christophe Hautbourg: This model is clearly sustainable. Like wholesale brokers, MGAs have established themselves in the market by meeting specific needs. Their role is better known and increasingly recognized, particularly in the face of uninsurability problems. Today, we see more and more MGAs in France, proof that this model meets a real demand.
Loïc Peyre: Absolutely. The market is becoming more complex, and general insurers are finding it hard to cover certain segments. MGAs fill these gaps by offering highly specialized, flexible solutions. It’s a model for the future.
Does Planète CSCA have a commission dedicated to MGAs?
Christophe Hautbourg: Not yet, but it’s an idea we’re considering. As MGAs grow in power, it would be a good idea to set up a dedicated commission to discuss their specific issues, whether in terms of regulations or the ecosystem. This would enable us to better structure their interactions with public authorities and the market.
A status that remains to be clarified
The rapid expansion of underwriting agencies and their increasing role within the insurance value chain do not shield MGAs from an ambiguous regulatory landscape. Positioned between the brokerage model and a quasi-insurer function, MGAs operate without dedicated approvals or a prudential framework tailored to their specificities.
The Managing General Agent (MGA) model relies on the delegation of underwriting and management by insurers. However, in the absence of a specific legal framework in France, MGAs have to contend with regulations designed for other players, notably brokers. This in-between situation raises questions about their status and role. Although there are some twenty MGAs in France today, their legal status remains unclear. Unlike the United States and the United Kingdom, where they number in the hundreds and benefit from a clear regulatory framework, in France these structures are generally registered as brokers.
REGULATORY CONSTRAINTS
This regulatory ambiguity can lead to confusion as to their responsibilities and obligations. According to Jérôme Goy, partner at Enthémis, this lack of recognition is a problem:
“There is no formal recognition of MGAs in France. They are structured as brokers, yet their operational model differs significantly. Unlike a traditional broker who advocates on behalf of the insured, an MGA acts as a delegated underwriter, distributing pre-defined products on behalf of insurers. This dual function raises concerns, particularly regarding conflicts of interest”.
For Quentin Charluteau, a lawyer at Simmons & Simmons, the European regulatory framework, via the European passport, enables MGAs to set up in different countries of the European Economic Area (EEA) and benefit from a unified regulatory environment, even if their motivations remain above all economic: “The choice of country in which to set up an underwriting agency is generally a function of tax, accounting or commercial considerations, depending on the aspirations of its creator.” But for MGAs, recognition in France remains limited, making their development and market positioning more complex.
DUAL MANDATE
One of the challenges facing MGAs is to clarify their status. While, as brokers, they are supposed to act on behalf of policyholders, as delegated underwriters, they act on behalf of insurers! This duality creates the risk of conflicts of interest. “On the one hand, they are bound to the insurer, who entrusts them with underwriting and management responsibilities. On the other, they are expected to fulfill their obligations to their customers. It’s this double role that raises questions, particularly in terms of conflicts of interest”, emphasizes Henri Debruyne, Chairman of the MEDI (Monitoring European Distribution of Insurance) observatory.
This paradoxical situation is all the more problematic in that jurisprudence considers brokers, even in the form of an MGA, as agents for their clients, which is likely to alter the interpretation of insurance contracts underwritten by their intermediaries.
According to Jérôme Goy, this situation is a veritable legal time bomb: “Representing parties with opposing interests – insurer and policyholder – carries the risk of a conflict of interest. Judges sometimes ignore these practices and deduce from the broker’s status as agent of the insured that the insurance contract is interpreted in favor of the insurer”.
Faced with this delicate dilemma, some have opted for radical solutions, as Jérôme Goy reminds us: “The only radical way to avoid this risk would be to ban commissions, as it is done in certain Scandinavian countries. As long as there are commissions, there is a potential conflict of interest. This is not specific to MGAs, but in their case, it’s even more pronounced.”
ADDED VALUE
Despite these regulatory challenges, MGAs bring real added value to the market in general and to insurers in particular, particularly in terms of risk management and the development of tailor-made solutions. Their expertise enables them to address niche markets that escape the reach of traditional insurers.
“They have a strong presence in large risks, particularly in construction insurance, as this enables insurers to delegate management while keeping costs under control. But they are also present in niche risks, such as jewelry insurance or cyber risks”, explains Quentin Charluteau.
The rise of MGAs is particularly visible in new insurance markets, where their agility enables them to offer innovative solutions faster (the famous Time to Market) than traditional insurers.
NECESSARY EVOLUTION
Henri Debruyne qualifies this enthusiasm, however, by pointing out that this specialization is not exclusive to MGAs:
“There are many specialized brokers who work on specific risks with mandates from insurers. A well-structured wholesale broker can offer the same level of specialization”.
Be that as it may, their rise to prominence on the French market in recent years is proof of their importance in the sector’s value chain, even if the question of their legal framework remains. European regulations, notably the Insurance Distribution Directive (IDD), could help to clarify their status and responsibilities. Henri Debruyne anticipates a tightening of regulatory requirements: “The ACPR is beginning to look at concepts such as best advice, which could have a direct impact on this model.”
In the meantime, MGAs continue to develop between brokers and insurers, playing an increasingly strategic role for the latter and for niche markets. But as Henri Debruyne concludes, this strong trend is more akin to a marketing repositioning than a genuine revolution in insurance distribution: “A wholesale broker who does his job well is an MGA who doesn’t say his name.”