The Atlantis Resort in the Bahamas provided a fitting setting for last month's annual convention of the American Association of Managing General Agents. As the stocked sharks and barracudas swam about in the resort's aquarium-like lagoons, the association's leaders contemplated how best to ward off the hungry competitors circling their market. Chief among them are the standard insurers, which have been biting off chunks of business since the hard market ended three years ago and undoubtedly will continue to do so as long as the soft market lasts. How long will that be?

“God only knows,” said Euclid Black.
Black, the association's president-elect and president and CEO of Black/White Associates in Henderson, Nev., was one of four AAMGA execs who took part in a press conference held during the convention. The others were Thomas K. Albrecht, AAMGA's new president and president of Barclay/SIU Agency, in Montgomery, Ala.; Scott Anderson, the association's immediate past president and executive vice president of Concorde General Agency, in Fargo, N.D.; and Bernd G. Heinze, Esq., AAMGA executive director.
The last soft market dragged on for about 15 years. Given today's record industry surplus, there's not much reason to expect the current soft market to end anytime soon. Consequently, the challenge for MGAs would appear to be to reposition themselves in the marketplace, which Anderson said starts with “educating” retail producers.
“A lot of agents look at us as a market of last resort,” he said, which certainly was true in the hard market. Anderson said he and his peers have not done enough to tell retailers that MGAs are useful for more than market emergencies or handling the odd piece of E&S business. For example, he said that although his agency has written personal lines for 25 years and small-commerical accounts for 15 years, some of his retailers still tell him they are unaware of that fact.
While acknowledging that retail agents have a financial incentive to place such standard, admitted business with their contracted markets, Anderson said MGAs nonetheless can get more of it if they simply let retailers know they can handle it. “It's a daily job,” he said.
Black maintained that because of the characteristics of their distribution system, MGAs could do quite a bit more business in personal lines. He said the big standard carriers in personal lines work with larger producers more interested in commercial lines. “The guys they ought to be selling to are producers who have annual revenues of $3 million to $5 million. And they can't reach those people. … We can. We do.”
In today's market, service–in the form of a flesh-and-blood underwriter–also can be a differentiating factor for MGAs, Black said. Many insurers, he said, are using technology to underwrite risks smaller than middle-market accounts. “You go online, you enter the numbers, and that's the number you get–and there's no appeal,” he said. Nor, he added, are producers always given explanations of endorsements, which might not even be ISO forms in some cases.
Albrecht agreed that in the age of the Internet, the personal touch remains vital. “We have been going out with underwriters and senior people to visit agencies that have not seen a person or talked to somebody in a long, long time,” he said. Albrecht and his staff bound a $115,000 account about a week before the convention by “just sitting there talking to somebody and interacting,” he said. “It's a relationship business, and we can't lose sight of that.”
Besides doing a better job of promoting their current products and services, MGAs need to plan for the future, said Anderson. Under his watch, AAMGA launched Project 2017, the goal of which is to figure out where MGAs might be in 10 years (possibly still in a soft market, if the last one is any guide). Besides contemplating the implications of new technology and the consequences for MGAs if legislation is enacted that authorizes insurers to do business under an optional federal charter, the project's working group is looking into additional business opportunities for MGAs, Anderson said. One, he said, would be to work with the alternative markets. Indeed, one of the convention's “University Day” classes dealt with the history and uses of captives. Attendees were told that reinsurers are eager to help MGAs get into various forms of captives, now that insurers are ceding less business. “Of course, most of them (reinsurers) want 'skin in the game,'” Anderson noted, an assumption of risk with which not all MGAs are comfortable.
Greater involvement in program business also could be an option. “In some respects, all of us have a little bit of program manager in us,” Black said. “What differentiates us (from pure program administrators) is that we don't necessarily always get involved with the claims and the reinsurance side of things.” Programs, however, can leave MGAs at the mercy of the markets, he added. “I can remember when Legion (Insurance Co.) went down,” he said. “There were scads of program managers that had nowhere to go.”
Of course, MGAs always have the option to sell and either exit the business or become part of a larger enterprise. Anderson said the pace of mergers and acquisitions has been “very robust for the last five years,” although that has not adversely affected the association, which he said has added members during that time period. Black said that mergers and acquisitions have been good for the MGA system because they've brought in more capital-needed to meet increased expenses for technology and skilled employees.
For MGAs who resist the temptation to sell, as most undoubtedly will, diversification will be one key to success. Black observed that MGAs can function as wholesalers, E&S underwriters and program managers, among other roles. “We're not a one-trick pony,” he said.
That pony may have to run through its entire repertoire, however, before the soft market ends.