A recent group of panellists gathered at the AM Best Canadian briefing in Toronto, describe the relationship between property and casualty (P&C) managing general agencies (MGAs) and insurers as one that is evolving as part of structural changes occurring in the general insurance market.

Significant growth in the channel has prompted the industry’s association to start measuring premiums. Those gathered also called for regulatory change to bring about some consistency to the channel’s widely varied provincial requirements.

“We’re not saying that there needs to be a single regulator. We’re saying that within each of the provinces, as it currently exists today, there should be some consistency,” says Brett Boadway, executive director of the Canada Association of Managing General Agents (CAMGA). “I think it’s our civic duty to do that and to encourage this because we’re talking right now about efficiency. We’re talking about making the Canadian market more competitive. Some consistency on the regulatory front would be very helpful.”

Boadway also says that it is time for a national standard for designated individuals, fidelity requirements (errors and omissions insurance or bond) and that there should be a consistent audit module regulators use that allows P&C MGAs to produce evidence once, which can then be used across all of the provinces in which they do business.

Wide variability in provincial requirements

She also describes the wide variability in provincial requirements, noting that P&C MGAs are inconsistently regulated across different provinces and territories with the need for business licenses, licensing requirements for individuals performing different roles, whether the company requires a trust account, fidelity bond or equivalent, all being matters of regulation requiring different responses, depending on which province or territory the company is operating in.

The market’s size was also a matter of discussion, with Boadway noting that Canada is a laggard in accurately tracking the size and growth patterns of delegated underwriting activity in the country. (To that end, the association has adopted models from other countries and plans to begin such tracking within the next year.)

Although hard data about the segment is not plentiful, she adds that they are currently able to draw some estimates: There are currently 120 P&C MGAs across Canada (firms, not brands, she notes, as many firms have multiple brands); these are estimated to represent $4 billion in gross written premium. It’s also estimated that between 10 per cent and 15 per cent of all commercial lines business is completed through a P&C MGA.

“The MGA market is growing, not slowing,” she adds.

Structural shifts

With P&C MGAs, where underwriting authority is generally delegated to the MGA itself, insurers would traditionally partner on very specific risks. Today, panellists observe that how insurers operate in relation to MGAs is changing notably – a restructuring, not a flash in the pan, says Paul Jackson, CEO of Zurich Canada.

“We would partner with MGAs on very specific, not even lines of business but sub-classes of business. Now what we’re doing is actually thinking about MGAs much more holistically as part of our distribution mix,” Jackson says.

The reason for this, he adds, is that MGAs have a structural advantage: They’re often entrepreneurial, generally more agile, less encumbered by regulation and generally face lower barriers to entry than those carriers face (balance sheet considerations among them). “Margins are narrowing,” he notes. “But the costs are still there. If you have the structural cost to operate your business but you don’t have the revenue commensurate with that, you really have to start thinking differently about how you operate. I think the insurgence of MGA is really forcing the primary carriers to start to rethink about the way in which you meet the market.”

Delegated authority

In some cases, the use of delegated authority to MGAs allows larger carriers, some from outside of Canada, to set up regional or specialty business where they might otherwise not be able to operate. “The real benefit, I think, of MGAs is (that) you can take these small bets,” says Matt Wolfe, president and CEO of Aon Reinsurance Solutions, Canada. “Focus on being where the business is and meeting that locally.”

He adds: “I think that’s a real advantage. That is meeting people where they are and meeting where the business is. That’s, I think, the real success of MGAs.”