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The Potential of MGAs to Transform the Insurance Landscape in India
Insurance InsurTech

The Potential of MGAs to Transform the Insurance Landscape in India

By Abhishek Nigam November 30, 2023 - 216 views

MGAs (Managing General Agents) have immense potential to completely transform the insurance industry in India. These new-age entities may enable higher insurance penetration in India with the insurance regulator already considering the future viability of allowing them to operate in the country. A managed general entity or MGA is just like an NBFC (non-banking finance company). It can manage products, onboard customers, underwrite customers, and also share risks with bigger insurance companies. 

These entities are not officially existent in the country as of yet, although there could be a bright future of MGAs in India, considering how they are already popular in markets like Singapore and the U.S. The IRDAI (Insurance Regulatory and Development Authority of India) is now considering MGAs and their future scope. Once the regulatory environment for MGAs is created, present intermediaries who only focus on distribution will then have a bigger role in the scheme of things, revolving around product manufacturing and even customer lifecycle management.

MGAs in India- How the Story May Unfold

In a similar vein as the RBI (Reserve Bank of India) unveiled its FLDG (first loss default guarantee) regulations, the insurance industry is considering the possibilities that MGAs (Managing General Agents) may unfold for the sector. They will embark on sharing risks with insurers in a similar manner as fintech players already do with NBFCs and banks among balance-sheet lenders. The IRDAI has already been tasked by the Central Government to increase insurance penetration in India. This will not be possible without the help of technology while new license forms will enable the creation of newer companies which will ultimately popularize coverage throughout the country.

A perpetual license has been proposed for intermediaries in the insurance industry by the RBI. It has also come out with fresh license in the life and general categories for new-generation entities. With the advent of MGAs, there will be more opportunities for new-generation technology entities. They can tie up with large-balance sheet insurance companies and enter into partnerships for risk-sharing while also underwriting customers with higher use of technology and more customized insurance solutions.

The Future of MGAs in India- Major Benefits

MGAs (Managing General Agents) can offer several advantages for the insurance industry. These include enabling more customized products for any particular coverage, which larger insurers may not always be familiar with. MGAs may also help in the creation of more regional products for insurers, particularly in segments where they may not have a physical presence.

MGAs may also solve issues linked to distribution while focusing more on clients (insurers can focus more on taking risks). They can also build newer products which are tailored for un-served segments throughout the country.

How MGAs can Generate More Value

Here are some of the ways in which MGAs can ensure more value across the industry.

  • MGAs can play a vital role in the distribution value chain of the sector, slotting between other intermediaries such as insurers and wholesale/retail brokers, thereby enabling a bigger value proposition for everyone involved.
  • MGAs usually leverage relationships with carriers that focus more on risks and specialized forms of business. Retail brokers can easily expand the number of carriers through which final clients can get coverage. MGAs with expertise in specialist sectors can also help brokers tailor risk suitably for those who are insured.
  • MGAs can also boost the efficiency of the entire value chain, considering how they function without any legacy placement platform which is otherwise observed throughout the industry.
  • MGAs usually have leaner operations since they are not hindered by operational issues usually observed across insurance companies. They may also provide superior technologies for quotations, policy management, or claims management, enabling easier policy management procedures.
  • MGAs may offer underwriting expertise for specific business segments as far as insurance carriers are concerned.
  • MGAs may also make it easier for insurance carriers to enter new markets without building infrastructure, hiring underwriting teams, creating new pricing models, sourcing external data for particular risks, and incurring developmental costs linked to in-house building.
  • A few MGAs may also take care of strategies for mitigating losses for those who are insured and also help process claims accordingly. Many insurance companies may also depend on MGAs for a large part of their underwriting and distribution.

There are several types of MGAs globally including affiliated MGAs, nonaffiliated MGAs, and even crop MGAs. The concept is already popular globally, with 300+ MGAs in the United Kingdom alone placing more than 10% of the country’s general insurance premiums, which are estimated at £47 billion. Lloyd’s, for instance, is the biggest global market for MGAs and in 2020, it had a whopping 76 syndicates that were under the management of 50 general agencies. MGAs usually maintain more attractive financial profiles, generating revenue through commissions paid by insurers, additional services, and performance-based commissions or profitability contingents.

One of the biggest advantages of MGAs is that they can offer specialized underwriting abilities and expertise for emerging and newer risks. Digital MGAs are also increasing worldwide, targeting particular customers and offering specific lines of insurance. With all these benefits at the forefront, MGAs are steadily becoming attractive propositions for the insurance industry worldwide. It should also be a matter of time before they enter the Indian market.

FAQs

What are MGAs (Managing General Agents)?
MGAs are managing general agents who function like NBFCs, managing insurance products, onboarding customers, underwriting customers, and also sharing risks with larger insurance companies.

What are the key benefits of MGAs for insurance companies?
MGAs offers several major benefits for insurance companies, including swifter entry into newer markets without setting up infrastructure, handling specific lines of insurance, offering underwriting and distribution solutions and expertise, and offering regional expertise and outreach in a better manner.

What are the challenges faced by MGAs in the Indian insurance market?
MGAs currently face a major challenge in the form of final regulatory approval. The IRDAI is considering the possibility and feasibility of allowing MGAs in the Indian insurance industry. Hence, the present lack of a regulatory environment for MGAs is the only hurdle.

What are the future prospects for MGAs in the Indian insurance industry?
MGAs have bright prospects in the Indian insurance industry. The IRDAI is already considering the feasibility of allowing them and once they enter the industry, several distribution and tech players will have a bigger role to play eventually. MGAs will also help expand the scope of coverage and tailor it for newer risks as far as insurance carriers. They can significantly enhance insurance penetration in India in the future.

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