Vitale: MGAs have cemented premier role in risk transfer process
MGAs and program managers have evolved from a soft market tool for carrier growth to a permanent fixture, becoming the “premier part” in the risk transfer process by delivering profitable underwriting results and meeting the specialty needs of clients through innovation, according to Resilience president Mario Vitale.
Speaking to Program Manager, the veteran executive looked back on a career path that began in 1977 with the Home Insurance Company, through increasingly senior carrier and broker roles, culminating in stints as CEO of Willis North America, Zurich global corporate and Aspen Insurance.
With a leadership perspective from the worlds of large corporate and specialty underwriting and distribution, he then moved into the program manager and MGA segment with cyber specialist Resilience in 2019.
Vitale highlighted the cyclical shift from the days of cash flow underwriting in the previous era of high interest rates in the 1990s, to the mass retrenchment by carriers from programs as results deteriorated and investment returns dropped off with lower interest rates.
“The use of program managers and MGAs was usually towards the end of a soft market, when carriers couldn’t grow fast enough and gave their pen to others. Program managers and MGAs wrote that business even faster, with more streamlined underwriting, [which] accelerated cash flow, and accelerated losses.
“When that exploded, when losses turned out to be higher in the risk-reward evaluation than investment income, the whole thing had to be reversed so all that authority was pulled and the program managers and MGAs disappeared until the next cycle,” he observed.
MGAs have “permanent position” in distribution
That cycle has now been disrupted for good, however, with the MGA space growing at a record rate in the recent hard market.
“What we see today is so dramatically different, and I believe it is [now] an absolute permanent position of program managers and MGAs in the entire insurance distribution and risk transfer process.
“That is not only inevitable, but good for the client,” Vitale argued.
The Resilience president identified a number of changes in the insurance sector – relating to carriers and the nature of risk – that have created the environment where MGAs have risen to a prominent role.
One is the increasingly complex nature of risk and emergence of new industries, including the explosion of tech, which has created an ever-increasing number of specialty niches that require expert underwriting.
At the same time, commercial carriers have largely consolidated over time, with fewer larger and financially stronger players in the market.
“But what has also happened is those insurance companies have lost some of that niche experience needed in every area to service the customer. That customer-centricity has got lost in the process.
“So what has emerged is an invaluable intermediary between the client – often with a small retail agent – and the large, strong balance sheet that’s great on governance. And that is the specialist in the middle – the MGAs and program managers that provide for the client that industry centricity,” said Vitale.
MGAs and program managers have taken on the role of specialists around class of business and line of business, bringing expertise and the right risk transfer while differentiating the insured from others in their industry to get the right rate, form and contract certainty, he argued.
“So for me, MGAs have become the premier part of the institution of risk transfer, satisfying the balance sheet insurance companies’ need for profitable underwriting results and the need of clients for somebody that understands the specialty needs of their industry, or class or line of business, and how to deliver that to them.
“To me, it’s a natural evolution, and I think MGAs are here to stay. I think that the numbers will continue to grow. While over time some will fail, what will emerge will be larger program managers and MGAs that will continue to have this expertise and be the intermediary between the client and the balance sheet,” Vitale continued.
Strategic carrier relationships and risk engineering
Another recent trend has seen strategic relationships between carriers and MGAs in specialty segments.
Resilience writes on AM Best A+ paper from Homeland Insurance Company of New York or Homeland Insurance Company of Delaware, each subsidiaries of Intact Insurance Group USA LLC, with the insurer’s venture arm also making a strategic investment in the fast-growing cyber specialist.
Vitale said that as an insurtech that has been successful in several fundraising rounds – including its $100mn Series D round in August this year – Resilience has been in a position to invest heavily in the technology and risk management framework necessary to evaluate the cyber peril and underwrite it profitably.
“We can afford the technology, the risk management, the high-cost level of client engagement and response to the changing risks, which is so expensive for some insurers.
“Insurance companies have to find MGAs to do the things they can’t afford to do. It’s impossible to be a specialist at this level and cost in something like cyber, as well as in five or six or seven other lines.
“The reason some insurers are so supportive of successful MGAs that care about profitability is that they absolutely need us. They need us to grow and be the specialist in certain areas to complete their portfolio,” he continued.
Vitale – who oversaw the insurance of large corporate risks at Zurich in North America – said that increasingly specialty MGAs have the level of expertise and capabilities to take on engineered risk management-style accounts, especially in areas like cyber.
“The nature of cyber is such a dynamic risk that it requires dynamic risk management,” he said.
The executive has previously said that he sees Resilience as taking on a similar role to FM Global in its approach to risk engineering and management in cyber.
The executive argued that the nature of the cyber peril calls for 24/7 resiliency that requires sophisticated insureds with the right mindset and the right amount of money, working with sophisticated cyber security and underwriting firms like his.
He pointed to the MGA’s Threat Intelligence Team as part of a dynamic, proactive risk management approach.
“It’s about how do you not only keep a risk protected from what the threat was yesterday and today but what it’s going to be tomorrow … we’re trying to educate not just the client, but also risk capacity partners. And I think we’ve proven that with our superior loss ratio for the last three years,” Vitale continued.
He said Resilience has delivered a loss ratio that is between a third and half of the rest of the industry in the middle market segment, adding that its recent increase in limits to $10mn means it can now look at larger accounts.
Vitale said he believes the approach Resilience is taking in cyber is applicable to other perils where there is growing, complex or emerging risk – including that in relation to climate change.