MGAs see opportunities in new business environment

While a period of change has its challenges, it also offers a great deal of opportunity for MGAs who are well positioned in the market, says Jim Virtue, president and CEO of PPI Solutions.
There is no question that the industry is going through a lot of change, he says. “But what I think is going to happen is that who you are is going to determine whether it is a positive change or a negative change. From our point of view, I think most of the changes that are happening, if not all of the changes, are actually going to be quite positive for us. We see an awful lot of opportunities.”

The organizations that can prosper in this environment will be those that have scale and are able to comply with the new regulations that are coming down the pipe, he adds. The MGAs that will succeed must also be large enough to meet the volumes of business that will be required to keep their contracts with insurers. “I think a lot of these changes will allow the better organizations to flourish actually,” says Mr. Virtue.

Large MGAs that have sufficient business volume to maintain all their contracts will be in the advantageous position of picking up the business lost by their smaller competitors, he adds. “That’s a good example of how size and scale and the volume of business makes a difference.”

He also sees an advantage for advisors in the changes in the MGA market. “In order to survive and thrive in these changes, it’s going to be more incumbent on MGAs to deliver better services to the advisors.” These better services include technology, marketing, education, compliance, etc. He mentions his own firm’s PPI Solutions Toolkit – a marketing and compliance resource – as an example of an enhanced service that could only be offered by an MGA with scale and resources.

In terms of the recent wave of product changes, Mr. Virtue also sees opportunity there. In part as a response to these changes, his firm has launched its own suite of products. “We’re working with several insurance companies to develop new insurance products. We’ve launched a couple of those (LifePhases and Signature Life). We have actuarial staff that work with the insurance companies that assist them in developing insurance products.”

He expects that PPI Solutions will introduce additional products, some before the end of the year. Such a product development program is only possible with a great deal of scale, he adds.

Mr. Virtue notes that his firm has just finished its best first quarter ever. “We are very, very bullish on our ability to continue to grow through these changes. With problems come opportunities and really for us it is nothing but an opportunity.”

Kevin Cott, CEO of Qualifed Financial Services, says he doesn’t see any challenges in the current situaton. “I think the industry is in great shape. I think maybe in some ways it has never been better.”

Why is this? Because the industry has become more accountable and responsible to itself, to clients, to advisors and to compliance, he says.

An example of this is that the number of MGAs has been pared down due to consolidation. This has created more organizations that have “breadth and depth” with better technology, compliance, resources, support services and improved access to carriers, etc. “The vast majority of advisors in Canada are now dealing with credible MGA distributors who have resources…That means that the advisor on the street today is better trained, better supported, more compliant and that can only be good for the customer and the carrier,” says Mr. Cott.

Advisor screening

He adds that another positive development is the effort by MGAs to screen their advisors more carefully. QFS cut 150 advisors from its roster in 2009 and other MGAs have also carried out screening.

“More than anything, we have seen bad individuals weeded out of the industry like never before,” says Mr. Cott. “MGAs as a whole are no longer accepting people who are under the radar.”

Terri DiFlorio, president of Hub Financial says regulatory attention on the MGA channel will force all MGAs to invest in compliance. This will help “level the playing field” for those MGAs that have been reinvesting in their business and providing compliance and other value added services to advisors.

She says that Hub has always tried to compete on the value that it can bring to advisors and reinvests in its business and processes to help advisors build their businesses, while given them an optimal process from submission to commission. “However, there are still MGAs today that compete by just saying, ‘Well, I can pay you more,’” she explains.

This approach to the business will get more and more difficult with the increasing compliance expectations from regulators and insurers, she explains.