The UK's GBP4.7 billion MGA market looks set to become an ever more popular feature of the London market, despite increasing competitive and regulatory pressures according to a survey of more than 100 insurers and MGAs concluded by global law firm Clyde & Co.
According to the firm’s report “Which way now? Is the UK MGA market at a crossroads?”, which also involved interviews with leading MGAs and insurance carriers, 80 percent of carriers expect to increase MGA capacity in 2019, but the market is divided on whether this will come from new or existing MGAs (53 percent of insurers and 51 percent of MGAs saying there will be more MGAs), largely dismissing fears that an MGA bubble has formed and might burst. However, overall, most MGAs and carriers believe the market has become ever more competitive (69 percent of MGAs and 67 percent of insurers) while more still (67 percent of MGAs and 78 percent of insurers) agree that setting up an MGA is much harder now than at any time previously. Jennette Newman, partner at Clyde & Co, says “The entrepreneurial spirit of MGAs adds tremendous value to the market but the drive for efficiencies in the company market, combined with regulatory hurdles and a lack of capacity at Lloyd’s, has seen MGAs come under increasing scrutiny to ensure that they are delivering on their promises to efficiently reach new customers in new markets in a way that delivers profitability for all parties involved.”
Lloyds losing out
The research demonstrates that Lloyd’s is no longer viewed as the best location to develop MGA business. Fewer than one-third of respondents selected Lloyd’s as their top choice, citing the rising regulatory and compliance burden as a primary factor behind the decision to look elsewhere. Ivor Edwards, partner at Clyde & Co and European head of its corporate insurance group, says:“The contraction in capacity at Lloyd’s is a necessary evolution for it to return to profitable underwriting. There will be a concern that the business it loses should not be the profitable business. But while carriers are keen to focus on new opportunities outside the UK, Brexit has thrown a spanner in the works by creating issues around licensing. It has focused attention on where companies are licensed to do business and impacts how they conduct it.” According to the research, 63 percent of MGAs believe that the London company market offers the greatest prospects for growth, but interestingly, carriers show greater interest than MGAs in the US market and other geographies. Download the report here.