BLOG: Evolution in the Insurance Distribution Model

Last week AM Best revealed it would be maintaining a positive outlook for the DUA market. A session led by Myles Gould, Director of Analytics at their recent market conference highlighted the value of MGAs in the distribution chain and examined what we can expect from the market in the next year.

A decade ago an insurer’s primary mechanism for distribution was either direct or through a broker or agent. In other words, what were considered the “more traditional” insurance models. However, buyer behaviour, influenced by factors such as the COVID-19 pandemic, has changed the way insurance is purchased and led even more consumers to embrace a digital-first mindset. In conjunction with this, there have been a number of developments in distribution trends;

  • Emphasis on multichannel – becoming much more bespoke on a product by product/market by market/policyholder by policyholder basis.
  • Growth in non-traditional channels – not just MGAs, but embedded, bancassurance, aggregator and more.
  • Technology – development of tech at consumer facing level as well as in underwriting, claims and other areas.
  • Delegated Authority – the rise of MGAs and importance of their place in the insurance ecosystem. Investment management firm, Conning, estimated that the US MGA market grew by 24% and exceeded $85 billion in direct premiums written in 2022 to give an idea of the scale.

The Value Proposition

There has been significant growth in the market due to rate hardening and higher premiums. AM Best has seen “non-Lloyd’s MGAs really blossom” in recent years. The US seems to be leading the way in terms of direct premium written and year-on-year growth but the UK MGA market isn’t far behind. Myles Gould, Director of Analytics at AM Best said although there is not as much concrete data for the UK as for the US market, the same level of growth is likely to be occurring.

For insurers there is a compelling value proposition by engaging with the MGA model. This can be considered in 4 main ways;

  • Indirect access to experienced and specialist underwriters – many MGAs have attracted seasoned underwriters to their talent pool. This is perhaps due to an increase in M&A activity of big insurance companies, which has then made the move into a more flexible and entrepreneurial business like an MGA a natural choice for professionals.
  • Incubators for digital processes and new technology distribution – MGAs often have a technology-led strategy from the outset. Pair this with the fact they are generally unencumbered with legacy systems and you have the perfect recipe for flexibility and growth.
  • Supports targeted growth and diversification – whether it’s a new territory or different product type, MGAs provide access for carriers that would be much more expensive for them to engage with alone.
  • Effective alignment of interest supports balanced risk taking by the MGA – sharing of the risk and building in appropriate profit commission structures means gain for both.

Expansion of Fronters and Platform Businesses

There has been a significant expansion in fronter and platform business in just the last two years. In Conning’s 2023 Proprietary MGA and Program Market Survey, it was revealed that 45% of MGAs access capacity through a fronting carrier, something that AM Best believe would have been much less 5 years ago. This fronting and platform business model is key for MGAs to access capital and there are varied offerings across fronters including retention, support services and integration.


Ownerships tells a story of who is trying to get a handle on the distribution model. When AM Best look at the universe of MGAs, for the early-stage businesses they are typically independently owned for the first 3-5 years.

However, they have seen more instances of carriers purchasing MGAs to gain greater control of the distribution channel. Furthermore, the consolidation of brokers in recent years means the MGA model has become much more appealing.

Underpinning the overall activity in this space is private equity. The timeframe to maturity is quite short, which clearly fits in with the PE timescale of ROI. A recent article from McKinsey, exploring the insurance investor landscape, quotes “managing general agents (MGAs), remain popular PE investments because of their minimal capital intensity, high free-cash-flow conversion, recurring revenue models, and historical resilience across economic cycles….the appetite for M&A in the MGA space is on the rise, and the gap in valuation multiples between small and large players in this sector remains substantial.” In fact, mid-to-high multiples of EBITDA have been reported for high-quality and sought after MGAs.

MGA Outlook

At the end of last year, AM Best revealed that the global DUAE market segment outlook was positive and this has been repeated 2023. As mentioned, there is still a keenness for investment and there is an increased interest from carriers looking to diversify and protect their balance sheets. Clearly talent and the execution of technology are boosting the attractiveness of MGAs.

Despite this, MGAs are not immune to pressures faced by capacity providers. Capital allocation has certainly been more selective. It’s not uncommon for MGAs to have a leveraged balance sheet with debt allocation. The rising costs of staffing and premises and other such costs will cause further P&L pressure.

From a OneAdvent perspective, successful MGAs that we’ve worked with are the ones that build gradually, demonstrating growth but not losing focus on underwriting growth. We believe the future is bright for would-be MGAs who come to the market with a bold idea, a robust plan and the support of experts, who can provide the wrap-around services they need to embed themselves quickly in the market. Not everything will go to plan, so it’s important to build long-term relationships with partners who understand that they may need to flex and adapt their support depending on where the MGA is in its lifecycle.

About OneAdvent
Focused on getting innovative insurance businesses to market – and fast – OneAdvent provides a springboard for growth across the industry. Operating as an MGA platform, Lloyd’s broker and niche product distribution business, OneAdvent brings its sector expertise and technical know-how to bear for established industry players and entrepreneurial start-ups around the world.


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