After a superlative 2021, insurance M&A activity—including among agencies, insurers, and InsurTechs—began to decline early last year, before decreasing dramatically during the second half of 2022. That trend looks to continue this year, with signs of an economic downturn, rising interest rates, and inflation leading to belt-tightening at many companies.
But there’s one clear exception to that overall trend: M&A activity in the MGA/MGU sector is still strong. In fact, according to Deloitte’s recently released 2023 Insurance M&A Outlook, MGAs have been largely unscathed by the M&A downturn “given their unique, profitable brokerage niches.”
It’s not only the carriers and PE investors who are actively acquiring high-performing MGAs; established retail brokerages are snapping up MGAs, with a view to expand the volume of business they can source through the relationships and expertise of MGAs. So why are MGAs such a standout in the M&A landscape right now?
The value of niche insurance
The economic uncertainty of the past 12+ months may actually be one reason that managing general agencies and underwriters continue to be highly attractive acquisition targets.
With leaner operations and lower overhead, MGAs tend to see higher margins compared to retail agencies. In addition, their focus on niche insurance products often means more power over premiums and policy terms. These factors can add up to strong, consistent profits—and the potential of a solid income center for an acquiring entity.
MGAs bring specialized underwriting skills & marketplace knowledge
According to Deloitte, in recent years insurers, brokers, and reinsurers have all been trying to reposition themselves within the insurance chain to defend, create, or capture greater value. In comparison, MGAs already offer a unique value proposition with sophisticated, specialized underwriting skills and the market expertise they bring to new and emerging risks.
MGAs’ specialized expertise may also help brokers structure risk for insureds. Plus, MGAs bring carrier relationships that focus on these more specialized businesses and risks, allowing retail brokers to increase the number of carriers through which their client can obtain insurance.
A tech-forward talent pool attracts insurance agencies and carriers
In an industry starved for new talent, MGAs are also attractive acquisition targets because of the people they bring with them. MGAs have a reputation for being typically more tech-forward than traditional brokerages. Thus, brokerages acquiring MGAs may benefit from absorbing talent they otherwise may not be attracting.
Furthermore, some brokerages believe that like follows like. In other words, by seeding their organizations with acquired tech-savvy people, they will be more able to attract similar talent in the future. As such, an acquired MGA can be a path to modernizing a brokerage’s talent pool.
The bottom line
M&A activity can be a great bellwether of the health and market trends of an industry at large. With their potential for high growth, their reputation as the industry’s innovation engine, and their embrace of technology, the position of MGAs in the insurance distribution is arguably stronger than ever as our industry continues to modernize.
