Why MGAs Are Facing a Capacity Crisis – and What Comes Next

Managing general agents (MGAs) play a pivotal role in the insurance industry by acting as specialty intermediaries between larger insurers and policyholders. It’s often said that they specialise in “the weird and the wonderful,” offering niche products and services that traditional insurers might avoid due to complexity, emerging risks, or limited market demand.

Partnering with MGAs helps insurers expand their total reach and drive growth while reducing operational overhead. Plus, MGAs generally provide more policies to the insurer’s customer, making them more profitable and less likely to churn – all at a relatively low cost to the insurer.

Changing market conditions fueled significant MGA growth in recent years, especially for MGAs that specialise in hard-to-place risks or other niche expertise such as customer service or claims management.

According to research from Marshberry, as of 2024, in the UK, over 350 MGAs place more than 10% of the country’s £47 billion in general insurance premiums. As the market surged, many new MGAs emerged, eager to seize the opportunities created by shifting industry dynamics.

However, hardening markets now leave MGAs facing growing capacity challenges. Rising inflation, geopolitical instability, climate-related risks, and other factors have led some insurers to reassess their risk exposure and scale back the capacity they once provided to their delegated authorities. This emerging “capacity crunch” threatens to limit MGAs’ ability to generate new business, underwrite policies, and maintain their recent product offerings.

In a hard market, marked by increased premiums, rising claims costs, and tighter underwriting standards, insurers may become more selective about the MGAs they partner with and take a much closer look at performance and profitability.

What’s Driving Today’s MGA Capacity Challenges?

Several factors are contributing to the current capacity crunch in the MGA market:

• Geopolitical uncertainty: Conflicts, economic sanctions, and trade restrictions create market volatility, disrupt reinsurance availability, and force insurers to reassess their risk appetite – potentially leading to reduced underwriting capacity.

• Inflation pressures: Rising claims costs and increased rates make insurers more cautious, reducing their willingness to allocate capacity to MGAs.

• Performance scrutiny: Insurers closely monitor MGA performance, and poor underwriting results, high loss ratios, or inefficient claims management can lead to reduced capacity – or even the termination of MGA partnerships.

• Regulatory complexity: As compliance requirements grow more stringent, MGAs must keep pace or run the risk of straining relationships with insurers. This is especially true if non-compliance threatens financial stability or insurers’ reputations.

• Evolving risk landscapes: Climate change-related events like wildfires, hurricanes, and floods are reshaping risk models, making it more difficult for MGAs to secure capacity for unpredictable risk exposure.

• Increasing competition: A surge in new MGAs has intensified pricing and underwriting pressures, making it harder than ever to differentiate and maintain strong insurer relationships.

• Data and analytics gaps: Effective capacity management requires sophisticated risk modeling, yet many MGAs lack the necessary technology or systems to assess and price risk accurately.

Despite such challenging times, there are strategies and best practices MGAs can follow to maintain strong insurer relationships and secure underwriting capacity.

Navigating Capacity Challenges: How MGAs Can Adapt and Thrive

According to some insiders, capacity is there and is available to MGAs but securing it has become more difficult. During times of possible capacity constraints, MGAs must focus on profitability and operational efficiency.

Chances are good that insurers will be more selective about where they allocate capital, and this means MGAs must demonstrate disciplined underwriting processes and results, low loss ratios, and more effective claims management. As always, this requires a sharp focus on risk selection, pricing accuracy, and portfolio performance to prove long-term sustainability and profitability. MGAs may also consider reassessing their product mix and possibly, concentrating on lines of business where they have proven expertise and proven profitability.

They may also be wise to turn to technology, especially when it comes to data-driven decision-making. Insurers prefer to partner with MGAs that can provide transparent, high-quality data on underwriting performance, emerging trends, and emerging risks.

Investing in advanced technological platforms – such as AI-driven analytics, machine learning models, and real-time data monitoring – helps MGAs develop better pricing strategies, identify possible early warning signs of deteriorating performance, and improve risk prediction. All of this gives them the ability to give insurers more detailed insights into overall portfolio health, which in turns makes them more attractive capacity partners.

Technology can also play an important role in streamlining operations and improving efficiency. Many MGAs still rely on outdated legacy technology or siloed systems that limit their ability to process and analyse data effectively.

By adopting automated pricing, rating, and underwriting platforms – along with other systems related to claims management or policy administration – MGAs can improve accuracy, reduce costs, and provide a true win-win experience for insurers and policyholders. They can also accelerate their speed to market timeframes, giving them a significant advantage over those MGAs who may attempt to spend significant time and resources building systems from the ground up.

The Path Forward for MGAs

As the MGA market evolves, those that focus on – and prioritise – more disciplined underwriting, and data-driven decision-making will be best positioned to successfully navigate ongoing capacity challenges. Turning to advanced technology and using it to strengthen relationships with insurers can help MGAs continue to thrive and identify new markets, even in a tightening market.

Interested in learning more? Stay tuned for a follow-up blog where we take a closer look at how the right digital solutions can deliver with a use case showing how the right technology can improve the underwriting process for MGAs.