There is high-growth potential for insurtech startups in the program business market. As a result these emerging companies are increasingly seeking to partner with or develop their own managing general agents (MGAs). While challenges exist, the morphing of insurtech startups into MGAs can be successful if done properly.
In his article “Getting with the program: Insurtech startups seek MGA success,” Milliman’s Tom Ryan outlines several recommendations that provide key considerations for insurtech businesses looking to develop program business through an MGA.
Here is an excerpt:
How can insurtech startups improve their chances for MGA success?
For insurtech startups looking to become MGAs, there are a number of ways to improve a company’s chance for success. Recommendations, based on past MGA successes, include the following:
• Find a friend. The surest way for an insurtech startup to enjoy the benefits of program business is to partner with an existing MGA and add their competitive advantage to an existing program. One problem with this approach is that it may be difficult to convince an already successful MGA that changes should be made and that it should experiment with an alternative process. The existing MGA may also have a different vision on how to best expand the business and scale up when compared to the insurtech startup and its investors.
• Do the homework. To overcome a lack of historical experience, extra care and consideration should be incorporated into creating a detailed business plan for the new MGA. The business plan should include a description of the market intended to enter, a list of competitors (along with a competitive premium analysis), and a description of the proposed technological competitive advantage and its impact on projected results. A key element of the plan should be a financial model which includes reasonable, industry-based assumptions to show potential carriers what the business results might look like under various scenarios. If the expected results are reasonably justifiable, the proposed plan will gain credibility with potential carriers despite a lack of hard data.
• Add an IPI. A valuable key addition to any new MGA, particularly one primarily staffed by those with a technology focus, would be an insurance professional interface (IPI). Similar to an application programming interface (API), an IPI, such as an experienced underwriter, program manager, or actuary, would allow new tech-based MGAs to better communicate their vision to insurance industry veterans on the carrier side. The right IPI can bring instant credibility to the proposed MGA and its business plan. This will shift the focus from technology (which the insurtech team will tend to focus on) to the expected insurance business results (which is what carrier audience will focus on). An experienced IPI can help with the business plan and financial model creation. The IPI will also be an asset when navigating through changes in the market cycle which have not been experienced in recent years, such as the advent of a hard market.