Managing General Agents (MGAs) and wholesalers are becoming increasingly relevant in the insurance ecosystem due to the unique advantages they have over brokers/agents. With five key transformation levers described in this blog, MGAs can overcome challenges and unlock a wave of unprecedented sustainable growth. Technology and business process services (BPS) providers can help MGSs reduce costs and increase their digitization and automation intensity. Read on to learn more.
As insurance intermediaries that represent carriers, MGAs provide insurance products to retail agencies and insureds. They are frequently positioned between other intermediaries, such as retail or wholesale brokers and insurance firms. MGAs also are qualified to underwrite and bind coverage as well as perform customer support services, including policy issuance and claims management. Overall, more than 1,000 MGAs are in the US, and 250-plus operate in the UK, covering nearly 5-10% of the overall insurance market.
Role of MGAs in the insurance ecosystem
The business model of MGAs stands apart from full-stack insurers and agents/brokers by the greater span of control and the profitability they generate. On the product side, MGAs have the flexibility to build products in collaboration with the insurer but may have a lower appetite for innovation and slower speed to market, depending on the insurer’s capability and commitment. On the customer relationship side, these specialized agents have full control over all customer activities.
According to a McKinsey report, 43% of top 100 Property and Casualty (P&C) insurers have at least one MGA relationship to source new premiums. Various types of MGAs operating in the ecosystem are illustrated below.
MGA profile
MGAs keep their financial profile stronger like other intermediaries in the ecosystem by achieving 20-30% EBITDA. MGAs are moderately capital efficient due to low setup cost, no legacy platform burden, quick monetization opportunity, and lean team setup.
However, they need to share the profit pool with insurers. The major revenue streams for MGAs are commission paid by insurers, risk performance-based commission, and offering additional services like claim administration and inspection.
Various value chain elements performed by MGAs include marketing, sales, distribution, underwriting, policy issuance, claims handling, policy review, customer services, risk management, policyholder communication, and renewal management.
Challenges MGAs face
Despite the significance of their role, MGAs face the following challenges in running operations effectively:
Five transformation pillars
To remain competitive, MGAs must find new ways to transform their businesses by leveraging new technologies and business models, as shown below.
Let’s explore each of the elements in the innovation framework in more detail:
These five transformation levers can help mitigate challenges like compliance adherence, talent management, low profitability, risk management, and strong competitive intensity by ensuring a culture of innovation, enforcing client-centricity, utilizing data analytics, outsourcing non-core functions, and embracing digitization.
Sourcing implications
MGAs operate in an area requiring specialized knowledge and experience in specific insurance markets and products. Companies typically prefer to keep core functions in-house and outsource non-core traditional and technology-led activities.
Multiple tech and BPS service providers work across the ecosystem with insurers, agents, brokers, insurtechs, and MGAs that have built superior capabilities to provide services across multiple business lines and geographies.
Service providers also offer the latest tools and technology, superior customer experience capabilities, operational efficiency, Service Level Agreement (SLA) management, flexibility to ramp operations up and down, superior talent, a low-cost advantage, best-in-class lean operations, improved risk management, and much more. MGAs can outsource either a part of the value chain or engage in end-to-end transformative deals, depending on their appetite for outsourcing, process maturity, and management buy-in.
Some of the areas within MGA’s and wholesaler’s process value chain that can be outsourced are as follows:
MGAs need to evaluate the service provider’s capabilities after carefully considering their expertise, experience, cost arbitrage, flexibility, security, business continuity, delivery footprint, talent maturity, technology, infrastructure, governance approach, and client-centricity.
Analyst firms like Everest Group can help evaluate these capabilities through its proprietary PEAK Matrix® assessment and impartially rank the service providers as leaders, major contenders, and aspirants, as well as provide expert commentary to help enterprises make better-informed decisions.
To discuss MGAs in insurance and outsourcing trends, please reach out to [email protected] and [email protected], and stay updated by accessing our latest research on insurance business processes.
A looming global recession may finally take its toll on payers who have escaped prior economic challenges. Let’s take a look at the healthcare trends influencing decision-making by payers, the markets most likely to be affected, and the actions payers can take with the uncertain outlook.
Wall Street predicts that the probability of a global recession in 2023 is 61%, well above the stable benchmarks. Although inflation has eased up marginally since the last quarter, tighter financial conditions and weaker global growth still indicate a potential downturn.
The healthcare industry historically has weathered economic collapses better than core industries that are generally more severely impacted. A Forbes assessment shows that while the US economy (as measured by GDP growth) plunged into recession eight times over a 60-year period from 1960-2020, healthcare expenditure growth never shrunk, often outgrowing gross domestic product (GDP) as illustrated in Exhibit 1.
This stability is primarily because impacted employees either opt for subsidized government programs or forego medical care, as applicable, pushing the healthcare cost to the future. As a result, health plans tend to be relatively less affected due to recessionary headwinds. In fact, reports suggest that earnings for healthcare payers declined only by 27% compared to a 77% decrease for the overall S&P 500.
Although many healthcare payers posted strong growth rates at the end of fiscal year 2022 as shown below (Exhibit 2), the results may not be as positive in 2023, particularly for employer-sponsored or provider-owned health plans.
The overall impact on the payers in the fiscal year 2023, however, will be determined by several upcoming trends. Let’s look at some of these influencing factors in detail below.
So, how specifically will payers be impacted? It’s hard to say, given the global inflation outlook improvement. But lessons from the past indicate that a sustained period of economic uncertainty will impact both the government and the private markets in the following key markets:
Lastly, the uninsured population may experience an uptick due to information asymmetry and administrative complexities. According to an assessment done from 2007-09, only some of the insurance loss from a lack of employer coverage was offset by added public coverage, leading to a 5.6 million rise in uninsured adults. While the Affordable Care Act (ACA) has lowered the uninsured population, an economic downturn potentially can add to the current uninsured coverage.
With the market unpredictability, healthcare payers will have to take calculated measures to prevent business impact. Here are four actions they can take:
These measures will require service providers to proactively engage with healthcare payers and focus on three levers – the right clients, the right capabilities, and the right value addition. This will enable service providers to aim for the right opportunities such as member engagement and preventive care and ensure sustainable growth in an uncertain economic environment. Finally, in a highly competitive market like payer services, service providers will have to offer targeted digital and traditional Business Process Outsourcing (BPO) services to serve the right client need and differentiate themselves with unique value propositions refined as per the prevailing market demand.
To learn more about healthcare payer and provider trends, contact Lloyd Fernandes or Vivek Kumar.
To learn about the changes in the pharmacy benefits management (PBM) industry, such as increased regulatory scrutiny surrounding pricing transparency and rebate-sharing rules, watch our video, Pharmacy Benefits Management: The Next Big Healthcare Opportunity.
You can also learn more about How to Deliver Hyper-personalized Customer Experiences in Life Sciences in this LinkedIn Live session.
The property and casualty insurance industry has become a significant adopter of Software as a Solution (SaaS) technology and continues to see a massive influx of SaaS applications embedded across organizations’ business operations.
“If you stack all of these SaaS solutions together, the spend becomes quite sizable. And what we’re starting to see is it’s not just the spend that is becoming sizable. We are also seeing duplication of solutions because these solutions, over a period of time, have evolved to do more.” says Ronak Doshi, Partner at Everest Group.
Cloud computing presents a huge opportunity for insurers to drive growth, improve efficiency, and deliver innovation, among other benefits. Read on to learn about the coming phase of industry cloud and the key role system integrators (SIs) can play in advancing cloud adoption in insurance.
As insurance enterprises navigate the volatile and risky macroeconomic environment combined with recessionary market sentiment, increasing operational resiliency and agility and delivering superior speed becomes essential.
Insurers have to work effectively, efficiently, and, most importantly, smartly. The urgent demand to innovate and move beyond risk remediation to risk mitigation is making insurers realize the importance of leveraging cloud as a key enabler of growth and efficiency mandates. Let’s explore this opportunity further.
Most insurers currently rely on cloud for non-core operations while they explore stepping up to full production. While cloud’s massive potential is well known, insurance enterprises hold back from completely leveraging it for various reasons, including security concerns, integration issues, and the existing legacy stack. The inability to realize full value from cloud investments also becomes a massive roadblock.
Fortunately, the mindset regarding cloud adoption in insurance is taking a huge turn. A cloud-first approach is becoming important to insurance enterprise business leaders who find its benefits too irresistible to pass up.
In addition to helping meet cost and efficiency mandates, deriving full potential and optimizing cloud investments, and driving business-focused growth and experience are arousing interest in cloud adoption in insurance.
A recent Everest Group study on cloud initiatives with more than 75 insurance enterprises found that 70% of insurance leaders believe that cloud insurance initiatives make up more than 20% of their IT spend, as illustrated in the exhibit below.
Driving business agility and lowering the total cost of ownership has become the most important aspect of cloud transformation for insurers. Achieving data-centricity by seamlessly integrating external data with internal datasets, facilitating real-time analysis of large data volumes, and enabling data-driven decision-making across the value chain are other desires gaining prominence among insurers.
Slowly and gradually, innovation is taking a front seat in managing the IT estate for the insurance industry. As insurers embark on their next growth phase, they increasingly need to run industry-specific workloads on cloud, such as premium payment processing, policy administration, loss notification, multi-channel sales and distribution management, and claims management and fraud detection.
With insurers moving away from a one-size-fits-all approach, industry cloud is expected to drive the cloud spend going forward to future-proof the technology estate, monetize data to generate alternate revenue streams, and re-think value delivery to end customers. Insurance leaders have started realizing that industry cloud can be a catalyst for transforming and automating industry-specific business processes.
Industry cloud allows industry leaders to get all the assets organized in one place which are specific to the use cases of the industries they operate in. This platform is becoming the next big thing in cloud computing and insurance as it easily allows enterprises to customize processes based on usage, differentiate faster, and innovate in a better way.
As the need to develop the industry cloud story gains prominence, the concept of co-creating also is booming. Generally, hyperscalers provide the building blocks for cloud, and SI partners assist insurers in creating and customizing specific applications and business processes on top of that foundation.
Insurers increasingly expect cloud providers to create customized and insurance-specific core solutions that address their unique needs and enable modular business processes. However, industry cloud is the missing piece in full-stack capability for hyperscalers.
As a result, they need support from SIs to realize their vision of catering to the entire enterprise IT stack. SIs need to support hyperscalers in identifying high-potential insurance industry cloud use cases aligned with specific business segments, as shown below.
Cloud computing has moved beyond being ‘just a digital infrastructure’ to replace on-premise servers. The latest cloud services are more aligned towards integrating advanced technologies such as Artificial Intelligence/Machine Learning (AI/ML), the Internet of Things (IoT), and data analytics to transform the insurance value chain.
For example, cloud computing can take claims management to the next level by managing and automating claims handling and offering a superior claims experience. By combining cloud capabilities with data and AI, insurers can fundamentally change how they manage claims. Infusing AI/ML in claims processes can help insurers tap the plethora of data they possess and unlock immense value to come out on top.
Cloud enables insurers to reduce manual handling, lower error rates, and perform more straight-through processing, eventually leading to faster claims processing and a superior claims experience.
Everest Group research shows about 35% of P&C insurers’ priorities across claims management focused on enhancing customer experience (based on an analysis of 60-plus case studies involving claims modernization/transformation).
Cloud computing also allows insurers to drive superior efficiency by enabling data and analytics-driven claims processing and focusing on effective service delivery to reduce claims expenses and improve claims handling accuracy – all while ensuring greater customer satisfaction.
Cloud computing is no longer a choice but a mandate for insurance leaders. The insurance industry is finally catching up to the momentum of integrating SaaS into IT systems. As insurers replace outdated mainframe and on-premise infrastructure that has become harder to update and inefficient to scale and maintain, they must leverage the skills and experience SIs offer. Close partnerships between insurers and SIs also can help drive innovation and is where the future is leading.
Everest Group is launching an inaugural Cloud Services in Insurance PEAK Matrix® Assessment 2023. Please reach out to [email protected] and [email protected] for more information on cloud adoption in the insurance industry and to participate in the Cloud Services in Insurance PEAK Matrix® Assessment 2023.
You can also watch our webinar to learn about software and cloud pricing and contract negotiations and to keep spend in check.
Insurance carriers need to transform their risk function, become more agile, and proactively create new offerings that protect against the threats of 3Cs: climate risk, cyber risk, and crypto risk. Read on to learn how this environment can create opportunities for insurers.
In today’s evolving risk landscape, insurers need to seek new technologies to improve efficiency, streamline workflow, and fill coverage gaps. Insurers must carefully navigate the detrimental effects of these volatile threats and evolve from being risk insurers to risk guardians. But are insurers putting enough emphasis on exploring the lurking threat areas that can pose imminent risks? Let’s take a look at how this will reshape the insurance industry moving forward.
Hardly anyone could predict a global crisis such as COVID-19 leading to insured losses amounting to nearly US$44 billion, making it the third most costly catastrophe to the industry. After any such black swan event, insurers need better preparedness and foresight to manage their response. The impact of unforeseen risks is becoming increasingly evident. Insurers need to foresee, pre-empt, and prepare for future risks to reduce uncertainty, and underwrite risks in a better way.
Due to spiking losses caused by emerging risks in insurance, traditional rating models are losing relevance to advanced solutions developed by InsurTechs and niche solution providers that enable data-driven decision-making powered by next-generation technologies such as Artificial Intelligence (AI)/Machine Learning (ML) and internet of things (IoT).
With insurance products being largely commoditized, carriers need to differentiate their offerings by rapidly creating newer products for emerging risk segments. We have explored three key emerging risk segments that are complex to evaluate and increasingly gaining prominence, as illustrated below:
In response to the challenges illustrated in Exhibit 2 below, insurers need to assess the risks and create personalized products and zero-touch claims processes.
With rising losses, insurers can no longer shut their eyes to the devastating impact of these emerging risks on pricing, underwriting, and investment decisions. Insurers need to strategically rethink their risk function.
Carriers must prioritize investment bets across the insurance value chain and evaluate InsurTechs and specialists that bring in niche talent, industry expertise, speed, and experience to help them meet their key business priorities.
According to Everest Group research, specialist providers (illustrated in exhibit 3) can act as catalysts for value realization by quantifying the financial impact of climate change, providing comprehensive cyber risk visibility, and offering innovative digital asset protection solutions.
Contextualized solutions from InsurTechs are gaining prominence to fill capability gaps, enhance value propositions, and streamline workflows across the insurance value chain.
Let’s explore some of the solutions providers offer for addressing the 3Cs of emerging risks in insurance.
Insurers have a critical role in leading society to navigate these looming threats. Carriers need to change their approach, become more agile, and proactively build products while safeguarding these risks.
It has never been more important to assess and address the 3Cs of insurance risks. To learn more about them in detail, check out our Insurance Solutions Specialist Trailblazers – 2023.
To discuss emerging risks in insurance, please reach out to [email protected], [email protected], [email protected], and [email protected].
Blockchain technology promises to transform banking, financial services, and FinTechs by enhancing the digital customer experience while lowering costs and reducing data risks in a secure environment. Service providers investing in blockchain capabilities will win in the long run. Read on to discover the future of blockchain in this blog.
Since its introduction in 2008, blockchain has established itself as a key to optimization. The banking industry is redefining itself through emerging technology that is improving products, customer services, and operational efficiencies.
In recent years, blockchain adoption has increased in banking and financial services and the emerging FinTech industry. Legacy banks and nations are now following the wave. Blockchain also is being used through Decentralized Finance (DeFi) and Decentralized Apps (DApps).
Let’s explore what blockchain is, why it’s important for this industry, and how the technology can further improve banking.
Blockchain is a distributed ledger that records transactions in an immutable, cryptographically secure way. It has been used to move money between parties without the need for third-party verification or intermediaries.
The technology works by creating a network of computers (or nodes) connected through the internet. Each node on this network stores copies of transaction data that cannot be changed or deleted. It also cannot be falsified, therefore serving as an invaluable tool for verifying authenticity and ensuring security when conducting financial transactions online.
The banking sector has been one of the first industries to realize the potential of distributed ledger technology (DLT), a protocol that enables the secure functioning of a decentralized digital database.
McKinsey estimates blockchain is expected to save around US$4 billion in cross-border payments and US$1 billion in retail bank operating costs and reduce regulatory fines by US$2-$3 billion and annual losses from fraud by US$7-$9 billion.
Blockchain technology has the potential to improve the banking industry in many important aspects as illustrated below:
| Key levers | Benefits |
| Cost reduction | Using blockchain reduces costs by allowing banks to process transactions faster while also eliminating the need for intermediaries that charge fees for their services. This can save money on transaction processing, leading to lower operating costs. |
| Energy conservation and ESG tracking | Due to the connected and transparent nature of the stored data, blockchain, in conjunction with the internet of things (IoT) technology, can accurately track carbon emissions and help firms track Environmental, Social, and Governance (ESG) mandates for clients and themselves. |
| Transparency and permissioned blockchain | Blockchain improves transparency by providing real-time records of all transactions occurring within an organization. It does this through a series of blocks chained together, with each block containing information about previous blocks and linking them together.
A permissioned blockchain is a distributed ledger whose contents are accessible only to authorized users. The user can only perform the functions they have permission for (granted by the ledger administrator) and are required to identify themselves to ratify such changes. |
| User experience | User experience is critical for any banking application. The interface needs to be intuitive and easy to use so customers can conduct transactions quickly and without hassle. Since some applications are based around peer-to-peer interaction, blockchain-based-apps such as DApps will deliver a smoother user experience. |
| Fraud prevention | The distributed ledger uses cryptography to ensure data’s authenticity and integrity. The ledger is transparent and immutable, meaning that it cannot be altered or deleted once it has been recorded on the network.
This prevents any single point of failure from being able to alter records or falsify them. When using traditional banking systems without blockchain technology behind them, these intermediaries often commit acts that can lead to the risk of material misstatements because they’ve been given authority over sensitive financial information and may lack proper knowledge about them. |
| Security benefits | In addition to fraud prevention, blockchain technology makes it easier for banks to keep track of who owns what assets when they move among different financial institutions (such as moving from one investment bank account to another). This enables them to better control access to those assets during transfer and helps prevent fraud by verifying that any changes made are legitimate before allowing them into the new account holder’s possession. |
Here are some examples of how blockchain is being used today:
Recording and verifying transactions are the most obvious use cases for blockchain in banking. Blockchain allows banks to automate their back-office operations and reduce manual errors, which can result in significant savings for businesses.
Blockchain can help streamline the various paperwork involved in international trade and reduce the risk of fraud. Banks are using blockchain to help manage the documents needed for completing a trade transaction, including contracts, letters of credit, bills of lading, import/export licenses, insurance certificates, and more. By digitizing this paperwork and making it available on a shared ledger, all parties can see what’s happening in real-time and know that the data is secure from tampering or fraud.
Blockchain technology has the potential to significantly simplify syndicated loans by creating standard contracts and automating all processes from loan origination to monitoring and repayment. This could be done with smart contracts – self-executing digital code that would automatically execute certain actions when conditions at met.
With blockchain technology, banks can store, access, and update data on a secure digital ledger. This makes it easier for multiple parties to view and share information, eliminating the need for manually matching data across multiple databases.
Blockchain-enabled payments across countries can be completed in minutes rather than days and at a fraction of the cost typically associated with international payments. Additionally, blockchain’s cryptography ensures an additional layer of security compared to traditional payment platforms.
Blockchain can also help automate certain processes within banks by allowing them to create smart contracts. Smart contracts are self-executing agreements between parties that use blockchains as their source code. This can eliminate the need for middlemen or third parties in business relationships, which can save money for both sides involved in the contract negotiation process.
Smart contracts can be used for multiple purposes, such as automated rebates, payments for services rendered or goods delivered, and licensing of intellectual property (IP) rights/non-fungible token (NFT) minting.
In addition to recording transactions, blockchain also can be used to track assets such as gold or real estate through an automated system that verifies ownership rights on a decentralized network of computers rather than through traditional means like paper documents or banks.
Blockchain can be used to provide authentication services on documents such as contracts, loans, etc., by checking their authenticity before considering them valid.
| Goldman Sachs | Goldman Sachs is backing the initiative of payment firm Circle to become a blockchain-enabled issuer of USDC (a form of stable digital currency) |
| JP Morgan | JP Morgan’s Liink enables institutions to exchange payment-related information quickly and securely |
| Al Rajhi Bank | Al Rajhi Bank facilitates its cross-border payments services on the foundation of Ripple’s blockchain capabilities |
| Swedish Central Bank (SCB) | SCB is experimenting with the possibility of launching e-krona in collaboration with R3 |
| HSBC | HSBC also utilizes R3’s blockchain capabilities to operate Digital Vault services |
| UBS | UBS launched the first digital bond to be publicly traded and settled on blockchain-based and traditional exchanges |
With support for blockchain adoption and investment from banks, more than 20 countries, including India, Australia, Brazil, etc., have taken further steps to pilot central bank digital currency (CBDC), which often utilizes blockchain. These investments have given rise to many groups and consortiums, as shown below:
Notable consortiums
| Hyperledger | Enterprise Ethereum Alliance (EEA) | BankChain | B3i | Marco Polo |
| ChinaLedger | Financial Blockchain Shenzhen Consortium (FISCO) | TradeLens | Contour | we.trade |
Lack of understanding and mistrust in blockchain technology and uncertainty about regulations, cost savings, and security are among the main barriers to adoption that will require time for banks to overcome before they can begin implementation.
Another obstacle is the impact blockchain may have on existing systems and processes. Integrating blockchain technology may not be seamless due to a lack of expertise and compatibility issues.
Scalability also is a concern. While the technology has the potential to handle many transactions, banks need to be certain it can scale up to meet their needs. A blockchain platform will not be useful if it cannot handle the traffic.
The need for standardization is another key challenge. Because blockchain technology is still in its early stages, no one-size-fits-all solution exists. Each bank will need to develop its own system, which can be time-consuming and expensive.
To stay competitive, banks need to implement process automation and deliver a superior digital experience to their customers. Blockchain offers potential as a transformative technology for banks to implement to improve services and customer experience.
Additionally, blockchain can help banks save money on transaction costs and reduce risk by keeping records updated across multiple systems. The technology also provides a secure environment that reduces the possibility of fraud or data loss due to cyberattacks.
We believe the future of blockchain offers promising opportunities for banks and service providers alike. Service providers will partner with banks and other financial institutions to bridge the gap by providing trust and knowledge, technology infrastructure support, and the right services to innovate and move forward together.
Making the right investment at the right time to take advantage of the growing adoption of blockchain will be the key to riding this growing tide.
To discuss the future of blockchain or banking and financial services trends, please reach out to [email protected], [email protected], and [email protected], and stay updated by accessing our latest research on banking business processes.
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