The $100 Billion Shift: Reinsurance’s Booming Relationship with MGAs

Darren Graves: Hello! Welcome to the Sapiens Insurance 360 podcast. I’m your host, Darren Graves, Sales Manager for Reinsurance at Sapiens. I’m so glad that you’re out there listening. This is where we discuss the latest news, trends, and issues from across the insurance solutions and technology spectrum. Let’s get started!

Managing General Agents, or MGAs, have become a powerhouse in the insurance market, with direct written premiums exceeding $102 billion in 2023, growing 13% year over year, and outpacing the overall property & casualty market’s 10% growth. What was once a niche distribution channel has evolved into a powerful force reshaping how risk is underwritten, distributed, and managed. MGAs are no longer just intermediaries. They’re becoming strategic partners for reinsurers seeking agility, specialized expertise, and access to profitable niche markets. In today’s episode, “The $100 Billion Shift: Reinsurance’s Booming Relationship with MGAs,” we’ll explore why this partnership is accelerating, what’s driving reinsurers to deepen their MGA relationships, and how technology is enabling this transformation. And joining me today to discuss this fascinating topic is Mark Geoghegan, founder and host of the Voice of Insurance podcast, which is sponsored by Sapiens company AdvantageGo. Since 2019, Mark has hosted “The Voice of Insurance” podcast and brings over 25 years’ experience in insurance, reinsurance, and insurance journalism. “The Voice of Insurance” podcast attracts a broad range of industry leaders who discuss the market’s hottest topics and where it’s headed.

Mark, welcome to the program! It’s a real honor to have you on the show today!

Mark Geoghegan: Oh, it’s an honor for me, Darren. And I’m really happy to be here. I’m looking forward to our discussion!

Darren Graves: So, Mark, let’s jump in! To give us some background color, can you describe for us the MGA market and what’s driving its rapid growth?

Mark Geoghegan: Yeah, absolutely. Darren. MGA, let’s just remind ourselves, that’s a managing general agent that’s effectively a professional underwriter who’s underwriting on behalf as an agent, on behalf of somebody else. MGAs have always been with us, particularly because it’s such a great way of syndicating and trying out new risk. Without taking too much risk, for any one insurer. For example, say, maybe 100 years ago when the first, the Wright brothers were flying, there was, somebody probably started and, an aviation insurance MGA. It’s a really great way, instead of having one insurer and asking them to put all their eggs in this aviation basket and, invest all that expertise and the claims and really technical stuff, somebody said, no, I’ll do that and all. I’ll find 20 insurers to do 5% each. And that was really helpful. And obviously as the aviation class grew, they could, they might start their own aviation department when they see this thing’s really taken off, excuse the pun. And, but we’ve got a real perfect storm at the moment, particularly. We’ve had this over the last five years. We’ve had the market itself has changed, has turned. Obviously, MGA is going to operate better in excess and surplus lines in specialty markets. And we’ve had a situation where the Admitted Lines market has shared a lot of business into the excess and surplus markets in the U.S. So the growth of the excess and surplus lines market and the growth of MGA has been parallel. So that we’ve had that push that’s been pushing out, then the risk itself. We were talking about aviation 100 years ago. Well, 15 years ago, cyber, no one had ever done it. And of course, it’s a natural thing using that risk-sharing syndication mechanism. And that expertise mechanism. Cyber was, of course, it was absolutely pioneered and it still is and dominated by MGAs. But, and of course, and in the recent times we’ve had the emergence of those perils we used to call secondary perils. But, you know, no one calls them that anymore. Wildfires, flood. You’ve got really interesting specialist risks like M&A and surety. Also and even things like carbon credits. I had someone on the podcast the other day, it was fascinating. Carbon credits, who knew? But you know, that’s going to be a massive business over the next 30, 40, 50 years of become a new asset class, like a new oil. It’s amazing. So these are naturally places where MGAs and so that’s where it’s come from. So that’s the push. And then the pull is reinsurers themselves. The global major insurers have all consolidated hugely. And they consolidated the way they buy reinsurance. And it means the reinsurers don’t get some of the old vanilla business that they used to, that this is, you know, like homeowners in Idaho. They don’t get that anymore. They get asked to take on massive tail risk, like a massive earthquake. You know, for, the writing the program of AXA, Allianz, AIG, and they don’t like, they’re getting more volatility than they used to. So this, if you can find lots of niche businesses and back them, and aggregate them, you get a lot more steady, less-volatile business. So there’s the pull factor as well. So which explains why it’s been so, such a big deal.

Darren Graves: Yeah. And I think that what you say, that expertise, that underwriting knowledge is key when it comes to underwriting these risks, risks for the carriers ultimately.

Mark Geoghegan: Yeah, ultimately. And the one other thing is actually technology itself. As before 30 years ago, you might have a specialist underwriter and they had to be specialists because of, they were doing such a niche class, but you knew they were going to have a higher expense ratio just because every time you add another hand in the value chain, you add another 10% and you add another load of errors and data entries, and things that are difficult to reconcile on the premiums front and on the claims front. You just added a whole load of new hassle. These days with technology, you shouldn’t have to do that. You shouldn’t add a little frictional cost. So it’s theoretically possible for a good underwriter to just say, well, I’m just going to be an underwriter. I don’t have to have a balance sheet. I don’t have to have these other things. You know, I can just, because I’m living in a virtual digital world, I mean, we become a virtual insurance company and I just specialize in extracting the value from profitable underwriting, which is what I’m good at. And I can live or die on that. And obviously, it’s not for everyone. But if you’re entrepreneurial and you want to own the equity in that, then you can.

Darren Graves: Right? And we’ll talk a little bit more about technology later. But thanks, Mark. So to educate us a little further, what are the various models that insurance used to partner with MGAs?

Mark Geoghegan: It’s just like a huge kaleidoscope. It’s almost like, if you can imagine it, you can do it. If I wanted, if I was a top underwriter and I wanted to start an MGA, I could just do it on my own. I could go and get a license, I could go and get some backers. I could go and get 10 different insurance companies to back me. And I can show them my track record. But these days, you don’t have to do that. You’ve got people who have set up businesses that are already licensed. They can, they could buy some equity in you. You could go and just plug in and they could do all of your compliance and all that boring stuff and all the regulatory side. They can have all the technology all ready to go for you. They can have all this, and they can even provide all those relationships with the reinsurers up front. And of course, some of them even have their own balance sheet to align that risk. And we’d call those hybrid fronting carriers. So literally, you name it, you can do it, if you can imagine it. And you have different splits of equity, different splits of who does what. But it’s a fabulous ecosystem. So again, it’s just making it easier and easier and easier for that…entrepreneurial underwriters always thought, maybe I should have my own business. Maybe I should own this, you make it so easy for them to make that jump from the balance sheet carrier where they’ve been working all their life so far.

Darren Graves: Yeah, great, Mark. But now to pivot slightly, what are the seated reinsurance challenges associated with MGAs?

Mark Geoghegan: Well it’s a classic. It’s just, how do I know what I’m doing, how do I know what these people are doing down this chain? You know, back in the old days in Lloyd’s in the 60s, you have a hurricane go through the states, through the Gulf of Mexico, and you could take up to 18 months to find out, what has everybody been doing, on this delegated authority on this? Some of these MGAs I’ve been backing, because the technology was so poor. You had bordereau, just with one line. Now, there’s no excuse for any of that. The challenge is to get that data to you. And then probably the real challenge these days is to understand what that data is telling you, and to be able to get the valuable insights that it’s going to be telling you, because, of course, you can have all the data in the world. But if you don’t know what to do with it, so this is a much better look through. You can really, if you’ve got the time, of course, the other thing is to have the resource invest that resource and time in really examining the data that you’ve been given before. Even 10 years ago, you wouldn’t have had this much granular data, but now you can get a ton of it. But of course, if you don’t spend time looking at it, that’s the real challenge. I would say, now.

Darren Graves: Yeah. And excellent. So as a follow-up to that question, how are leading insurers dealing with MGA data quality issues?

Mark Geoghegan: Well, the good thing, that ecosystem there, has known this has been a really big sticking point and a big problem. So whenever I speak to them, they always tell me, of course, and they are, by definition, most of these MGAs are new, so they’ve got no legacy. And so they’ll tell me that, I’ve got better technology than the insurer or reinsurer that’s backing me. You know, because they’ve got the old green screen lurking in the basement, and I’ve got this brand new, on the cloud system. And so they’re almost backing me because I’m, another benefit I’m giving them is I’m actually digitizing them, on their behalf, because, you know, they actually get better quality data from me than what they do from their own underwriters. But I wonder if you’ve got a different view on that?

Darren Graves: Yeah. I think it’s interesting because we, you know, specifically with our reinsurance solution, we work a lot with, hybrid carriers and the biggest challenge, if you would have asked me five years ago, if we were to, market our software to a carrier that deals with 30 MGAs, there’s a huge challenge with that data. Normalizing that data was very difficult. But like you said, with the advancement in technology, that is becoming something that either A) carrier is doing on their own or B) there’s third-party tools out there that they can use to normalize that data and make it consistent for now.

Mark Geoghegan: Yeah, so much money has gone into helping ingest unstructured data, hasn’t it? And you know, bordereau the classic. That’s the classic. And, you know, there’s so much going on in that space. And I’m sure you guys have been really involved in that as well. So again, there’s a ton going on. And yes, I think it’s classic. The MGAs would say that they’ve got better technology, but I’m sure if we had the insurer to defend themselves, they’d say, no, no, well hey, our technology is just as good. And so in other words, let’s be fair. Then that’s great, that’s great for both of you, isn’t it?

Darren Graves: Absolutely, yeah! Great Mark! So we’re already running short on time. But here’s our last question for today: How did today’s market challenges impact insurer profitability and risk?

Mark Geoghegan: Well, I mean, the real key is fuel that reinsurer, that ultimate capital provider, buck is stopping with you. You pay the most amount of commission in that food chain, you have the lowest net premium. And so, ultimately those losses have got to come in under that, that low net premium that you’ve got. And the market itself, we’ve been through a lot of hardening [the] last five years. The market is now coming off that peak. So it’s just, we know that, people are still very happy where we are in the absolute rate adequacy of where we are. We know that most of the business we’re putting on, that people have the confidence that at these prices, most of business being put on the books, is profitable and will be profitable, but they know that the next direction of travel for that premium is downwards, and therefore that just changes your mindset. It’s not all going to be great that, you know, once you’ve decided that tomorrow’s going to be slightly worse than today, maybe not terrible, but slightly worse, you can see the clouds coming towards you. It changes your mindset. So there’s going to be more focus on, ultimate performance of a lot of these MGAs. Of course, some of them are just maturing. When you get into year four, year five, you can really look at those lost triangles and say, all right, okay, is this actually, has this really been worth it? Have they really, all that extra commission I’ve had to pay to get this business? Has it really been worth it? Has it actually provided that net profit for me, because I’m the one who needs this to work. And if I stop, stop it, and if I don’t want to do that, I don’t have to make money, sorry, I don’t have to lose money for a living. That’s not my job. My job is to make money like everybody else. And so ultimately, if I lose money for too long, I’ll, there will be winners and losers, there absolutely always are. You know, not everyone can be top quartile. So some of the bottom quartile will come under more scrutiny, and also the ones that don’t have the quality of data, that don’t have the tech that have got themselves in a bit of a mess because they’ve written a ton of business in a really short amount of time, and they were too busy to have structured it correctly, might have digestion problems, shall we say. And so again, they can be losers operationally as well. So it’s a really interesting time. There will be a little bit more scrutiny, but is still in a good place. But I think everyone knows that we’re getting a time closer to rather than the rising tide lifting all the boats, at the same time. It’s a little bit, when the tide starts going out, you get that classic, you know, that, Warren Buffett-ism saying, you know, who’s been, we find out later who’s been swimming a little more naked than others.

Darren Graves: Right. And I would say, with the advancements in technology, that knowledge is coming faster.

Mark Geoghegan: You’ll know people will have a much clearer idea, much quicker. And then they’ll, right, actually I’m jumping, I’m going to double down on these good guys, because it’s very obvious who the different, the difference between the good guys and the bad guys is much clearer, it’s easier to find out.

Darren Graves: Right, absolutely. Excellent, thanks so much, Mark! You’ve given our listeners tremendous insight into how the MGA reinsurer partnership is transforming the insurance landscape. The $100 billion shift we’re witnessing isn’t just about capital. It’s about innovation, agility, and reimagining how risk is managed in an increasingly complex world. We really appreciate you coming on the show today, and I’m so glad that our podcasts were finally able to collaborate on this special episode. To our listeners, thank you for joining us. We have so much more exciting content planned, and as always, we’d love to hear from you. Connect with us on social media, share your feedback, and don’t forget to subscribe to the podcast so you never miss an exciting and insightful episode. Until next time, this is Sapiens Insurance 360. Thanks for listening!