Build Something Exceptional - How MGAs Design Great Programs

Nov 05, 2018

When it comes to the playing field of insurance programs, winning starts with having a great product.

But what does a “great product” really mean? And more importantly, how do you create it?

From an MGA perspective, a great product is derived when the coverage procured is broad and the pricing provided is competitive. When you combine a unique set of protections that meet the needs of a person or a company with a price that delivers great value, you’ve got a winner.

It takes more than intuition, however, to understand the needs of a given market. As Ian shared, “We look to start programs in an organic fashion.  First we look at our collective expertise in any given market and then we look to see if we have an affinity partner in that space. Both of those tasks fuel our building of the product.  If we are knowledgeable enough to see areas that need improvement, it gives us the ability to put a package of coverage together that is tailored to that niche and leverage its size to seek pricing that will be attractive to each insured.”

The partnership between MGA and the insured must extend to the carrier providing the insurance coverage as well. This relationship between MGA and carrier is critical because together they truly represent the team behind any successful insurance program.

"...everything we do is a living animal and what we define as a good product in year one, might need to change in year two..."

If strategy is the first priority to building a great program, teamwork between the MGA and carrier is undoubtedly the second most important part of the recipe. “You have to make sure you’re working with a carrier that’s a partner who’s able to move as quickly as you are. Especially because everything we do is a living animal and what we define as a good product in year one, might need to change in year two and again in year three because the market changes. And a good carrier partner responds accordingly with you,” said Ian.

Rob further explained, “it’s part of our due diligence to work with a carrier whose product needs and focus match ours. That’s why when we’re picking a carrier to work with, we’re picking one that has expertise in the appropriate field too. This way not only can they rely on us to get some suggestions and guidance, but in turn we can get great feedback from them as well.”

As much as the immediate experience of both the MGA and carrier are essential to forming a team that can stand up a program, the ongoing data around program performance is crucial to program scalability. This is where policy and underwriting technology come squarely into play. The better program is one where all of the data on the insured, their rating and their loss history are tracked. This allows automated or customized reports to provide real intelligence by analyzing how subsets of a program’s aggregate risk are performing.

" of the things that differentiates us from our competition is our willingness to embrace technology..."

For instance, systems can derive how certain customer exposures might ultimately lead to claims if the data from past applications can be paired to a future loss. When this data is collected in mass, over time, the impact is quite powerful.

This capability is not coincidentally a key factor in why carriers choose to work with one MGA over another. Ian highlighted how SterlingRisk’s investment in technology has proven to be an advantage. “From the carriers that we’ve met with in the last year-and-a-half, we’ve been told that one of the things that differentiates us from our competition is our willingness to embrace technology. Especially the way we use it to provide data and analytics on our book. This allows us to get to the next stage with a carrier whereas another MGA might not.”

Another essential part of using data to maintain a successful program is in predicting top-line program growth and underlying losses. From a carrier perspective, there is a massive amount of new data and analytics coming at them. At times, this data demonstrates that the rates around a given product like GL or Umbrella need to go up. When these rate changes are done across broad strokes of business the price adjustments can unnecessarily increase the cost of providing coverage for new or renewed clients within a program.

"...if the price fluctuation is drastic the insured might just walk away."

As Rob highlighted, “having the data on our book allows us to maintain confidence on how our program is truly performing. We can use this information to have a transparent conversation with the carrier around price in order to ensure that we’re delivering the best and most reasonable value to the insured. This is especially critical at times of market & price volatility.”

That volatility can lead to uncertainty across the entire insurance value chain. For instance, customers coming up for renewal who have relied on one program for a period of time are understandably shocked to find out when rates go up. As Ian stressed, “that’s bad for everyone involved because if the price fluctuation is drastic the insured might just walk away. In that instance, they have to make a business decision as to whether they can afford this coverage and, if not, do they just decide to go bare (without coverage), which is really scary.”

"...if we can’t start delivering for our brokers then it’s a big problem."

These sudden shifts also throw the broker and client relationship into chaos. “The other concern is that it causes insureds to question their broker’s methodology because if that broker can’t solve a problem for them, then why are they with that broker in the first place. That will trickle back to the program and if we can’t start delivering for our brokers then it’s a big problem,” said Ian.

It comes down to knowing your business and having the data to prove it. When so much of program success should depend on providing the best blend of coverage for a particular insured, the race to providing the best price is ever-present. Simply put, those that have the data can use it to determine the most intelligent price, while those MGAs that lack deeper insight will have the price dictated for them. And that’s a vulnerable position to be in.

"If you're acting as the carrier and you're competitive in what you're offering insureds then you have hundreds of brokers contacting you to write business."

It is evident that finding the right strategy, the right partner and the right technology is crucial to program success.  As program business continues to accelerate, it is becoming an inherent part of any major broker’s growth goals. As Rob shared, “program business is becoming more of a necessity. The retail side is not seeing the same growth as the program side and it makes sense. If you’re acting as the carrier and you're competitive in what you’re offering insureds, then you'll have hundreds of brokers contacting you to write business. So instead of a one-off sale, you’ve created a foundation for huge volume.”

Ian echoed the excitement. “If you have the right partners you can do almost anything. And the exciting piece is finding those partners and building those relationships. We’re excited because we think we have products that are very good and will offer distinct value to the markets they particularly serve.”

In the world of insurance programs, knowing your market and working with a carrier to establish a product that is unique to that audience is absolutely step one. But data and the technology necessary to extract and analyze it is becoming a core driver in how programs compete. Those programs that can draw deeper intelligence from their book are able to withstand market volatility and maneuver their product to capitalize in the long run.

Written by Michael Fiedel, partner and VP of Business Development, PolicyFly.