Building a Differentiated MGA: Expert Advice on Crafting a Unique Value Proposition for Carriers & Capacity Providers

Why is Differentiation Important for MGAs? 

 When MGAs are starting out, they might be more focused on building the right team or obtaining their licenses and filling out paperwork, but according to John Willemsen and Chris Lowell, MGAs should first focus on building a unique differentiation for their insurance products. 

This edition of MGA101 brings together two MGA experts: 

• John Willemsen, CEO, Willemsen Advisors, who has worked at Munich Re, Arch Re and Accelerant, brings a wealth of experience working alongside MGAs, having reviewed 3000+ MGA business plans over the years.
• Chris Lowell, Managing Director, InnSure, a non-profit at the intersection of climate change and insurance, has been working alongside MGAs for the past five years. 

What does MGA Differentiation Look Like in Practice?  

When carriers or capacity providers are evaluating MGAs, they are looking for a way to find better risk outcomes. This could be through  

• Unique risk insights into a specific class of business  
• Access to a distribution network that a carrier could not possibly build themselves.  

This differentiation does not boil down to years of experience but rather a mindset of identifying what your MGA can do that is different from anything else in the marketplace. In the past, being responsive to agents or providing great servicing would have been a USP, but in the current insurance market, this is just the bare minimum, according to Willemsen. 

How to Find your MGA's Unique Differentiation  

To position your MGA as a unique and differentiated on, John Willemsen provides important questions that MGA founders must ask themselves to build their value proposition. The most important being  

"Who am I solving a problem for and why?" 

Willemsen states that MGA-founders should narrow down on a specific problem in a class of business. By displaying expertise in a niche risk, MGAs are able to achieve ground-level depth that carriers operating at an enterprise level cannot. MGA-founders must discover what is a sticking point in the day-to-day of a particular class of business. This could be a risk that has remained uncovered by the traditional insurance market or a lack of access to these customers. MGAs must present to carriers how they can approach this class of business, be it contractors, dry cleaners, or roofers; in a way that adds value to the insured.  

According to Willemsen, there are three factors that MGAs must take into consideration to ensure that their insurance product is unique 

#1 — Can your MGA survive if another MGA launches the same product or program? 

Through structural or economic ways, your MGA's idea must be non-replicable.  

#2 – Can your MGA survive beyond the founding members? 

If there is a perception that your MGA might fall apart once the core team or founding members leave, that can become a challenge, especially when trying to get acquired by Private Equity firms. In fact, many VCs include a three-year earn-out to avoid this. Although this contrasts with the founders' desire for job security, leaning into this can ensure that your MGA's product is genuinely nonreplicable and differentiated.  

#3 – Is this the right timing for my MGA? 

Are you entering a marketplace that is already softening? In the property market, for example, where premiums are declining, it is unlikely that a carrier or capacity provider will support a new MGA trying to enter that space right now. 

MGAs need to be able to survive the usual market cycles, but if you are just starting out, scaling becomes significantly harder when timing is not in your favor.  

Novel vs Traditional Insurance Products 

MGA-founders need to tailor their approach towards carriers and capacity providers based on whether they are launching a brand-new product or a standard product that already exists in the market.  Willemsen notes that if an MGA's founding team presents depth and specialization in a new risk, carriers may be more inclined to back a novel insurance product even without precedent for underwriting or distribution. A strong team with concrete evidence of market potential can be more persuasive than a startup MGA launching a conventional product with little to no data. 

On the other hand, when it comes to building a better mouse trap for standard insurance products, Willemsen states that the focus should remain on highlighting how your MGA's product is different from those already in the market. 

How Can MGAs Illustrate their Value to Carriers  

From the carriers' perspective, they can perform most functions that an MGA can underwriting and distribution included. What they cannot easily replicate is deep, specialized knowledge of a specific risk. Carriers want to partner with MGAs who know more than they do about a given class of business. That expertise saves carriers from time-consuming processes like building a distribution network from scratch and helps them get to market faster. 

How do Carriers Evaluate an MGA's Business Plan?  

When carriers begin evaluating an MGA's pro forma, they first assess how realistic it is. According to Willemsen, there is a history of MGAs in their early stages presenting targets that are not achievable within the stated timeframe. Most MGAs are startups that may need additional guidance, but carriers are willing to take that chance if the pro forma answers all the questions they have. 

Takeaway for MGA Founders  

The key to developing a differentiated MGA is to be critical and hard on yourself, to find a unique competitive edge that you and your team can bring to the insurance marketplace, whether through a new or existing product. Willemsen says MGA founders must consistently pressure-test their ideas and invite industry experts to poke holes in them, to surface gaps that can be fixed and build something genuinely differentiated.