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AM Best: The Role and Importance of MGAs and Other, Similar Underwriting Enterprises Have Grown in Recent Years

Insurers are increasingly using distribution partners called delegated underwriting authority enterprises.
  • Kate Smith
  • May 2021
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Managing general agents and similar underwriting enterprises have seen their roles grow in recent years, along with their importance to the insurance value chain. AM Best's David Blades, associate director of industry research, recently discussed the new AM Best Market Segment Report Delegated Underwriting Authority Enterprises Prove Their Worth Across the Insurance Distribution Model.

Following is an edited transcript of the interview.

AM Best recently put out a call for comment on a new methodology for a performance assessment for delegated underwriting authority enterprises, DUAEs. When we talk about DUAEs, are we talking about MGAs?

Delegation of underwriting authority essentially refers to an insurer permitting a distribution partner to act on its behalf regarding functions usually handled by the insurer.

These insurance distribution partners can be MGAs—managing general agents; MGUs—managing general underwriters; program administrators. In the Lloyd's market, they can be Lloyd's coverholders. In the Australian market, they can be underwriting agencies.

AM Best's new performance assessment was spurred by the growth of premium generated by these types of distributors, along with the associated growth in terms of their influence in the overall commercial market, particularly in the specialty commercial space.

Can you give a couple of examples of data that show growth of this segment?

Based on our research, we believe that the premium attributable to DUAEs has doubled over the last 10 years. In the U.S., AM Best estimates DUAEs generated more than $44 billion in direct premiums written in 2019. That figure is based on data gleaned from annual financial statements filed by AM Best-rated property/casualty insurance companies, so it does not encompass 100% of the business produced by these enterprises. The total DPW, therefore, is likely higher.

Additionally, the number of MGAs rose to 688 in 2019, compared with 577 in 2017. Those figures are strictly based on NAIC disclosures, so the actual number of MGAs may be even larger.

Why have they grown so dramatically? What's behind that?

One of the key reasons is that insurance carriers have struggled for a good while now in the competitive market to grow organically, and so partnerships with DUAEs have provided a new avenue for growth.

Strategically, DUAEs have provided carriers with access to new risk classes, new lines of coverage, or other geographic areas. This diversification has been critical to the enhancement of many of our property/casualty insurance entities, in terms of their business profile.

The enterprises also take things off a carrier's plate, with regards to specific business that they are producing, such as underwriting, binding, premium collection, reinsurance ceding and even claims handling.

Aligning with a DUAE can provide an insurer with quicker, less-expensive access to business in a new territory, compared to the cost that an insurer might incur in setting up its own operation in a new state, for example, including the scores of personnel that would be needed to support such an operation.

What role has insurtech played in elevating the role of DUAEs or the performance of DUAEs?

I'd say the technological capabilities of many DUAEs have made them more efficient and more effective, which enhances their value from an insurer's standpoint.

For example, these entities have been leveraging the power of telematics, smart devices, artificial intelligence, the Internet of Things and blockchain to optimize their risk assessment, which. along with more expert pricing, also adds to their overall value proposition.

Technology allows them to be more agile. For instance, MGAs with specialized expertise and technology can expand quickly to service specific niches or sub-niches. Overall, our research has found that these entities tend to be ahead of the curve from a technology standpoint.

How is the playing field changing, and what will DUAEs need to do in order to be successful moving forward?

The competition with other distributors to partner with the best of the best in terms of property/casualty insurers will require DUAEs of the future to be even leaner and even more tech-enabled.

The combination of agility, resources, access to greater specialty expertise and cost-effective distribution will set these entities apart from other players in the distribution chain. Additionally, product innovation, actuarial capabilities and enhanced skills relative to claims handling that instill greater confidence in their overall abilities will be paramount for them in terms of, again, enhancing their overall value proposition to the insurance carriers they look to partner with.


Kate Smith is the associate director, Public Relations, AM Best Rating Services. She can be reached at kate.smith@ambest.com.


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