New MGAs eyeing cyber opportunity

A number of new MGAs and MGUs are looking to enter the cyber market, according to Aon’s David Grigg, who notes the potential start-ups are focusing on “targeted segmentation” and building sustainable books.

Grigg – who joined Aon’s Reinsurance Solutions as executive managing director for the US cyber team last year after almost 12 years at Axa XL – said that an interesting dynamic in the cyber market at the moment is activity around start-ups.

“We've observed an uptick in MGA and delegated activity and interest in setting up MGA/MGU businesses focused on cyber, and in some cases focused on both cyber and tech E&O,” Grigg said.

“We haven't seen this level of activity in a few years, and I think it's interesting to speculate as to why we are seeing an upsurge of interest in setting up cyber underwriting vehicles,” he added.

New players will have been attracted to the market by large rate increases that have been pushed through in recent years.

Established players pushed rate hard in 2020 and 2021, as well as increasing attachment points, amid uncertainty around how portfolios would perform given the rising ransomware activity.

However, more recently pricing momentum has turned downwards.

“I think there's no question that some of these entities that are looking to get up and running were probably initiated on business plans put in place during that somewhat harder market,” said Grigg. “So now as they come into the market in a softer situation, it's going to be interesting to see what dynamic that puts in place.

“In the short term, insurers and reinsurers – which are essential participants in that MGA/MGU business – are again asking themselves questions as to the performance of this product long term.”

New players focused on targeted segmentation

Despite this, Grigg is confident that “a good number” of the new players will get traction.

Grigg highlighted that there is what he defined as “almost micro-segmentation” emerging with some of the new MGAs in their business plans.

“They’re not looking to boil the ocean, and not necessarily looking to build $100mn portfolios,” he said. “They are really focusing on targeted segmentation and building sustainable, profitable books of business. So that’s an interesting juxtaposition between bottom-line profit and top-line growth.”

Grigg said Aon has had conversations with a handful of the potential start-ups and reported that underwriting relationships and distribution relationships are a big focus for them, which could be seen as a contrast to previous waves of cyber start-ups.

“The ones we're working with currently are pretty much the more traditional delegated underwriting authority MGAs. Yes, they’ve all got some kind of environmental scanning vendor that they work with, and some of them are integrating machine reading into submissions, and so on; but they’re not the big tech players like the first-wave insurtechs,” he said.

Grigg said the business being targeted is more SME and micro as opposed to middle market and large companies.

He added that a factor is a hybrid MGA approach, where 15 to 20 percent of the risk may be retained.

“One of the dynamics that we're seeing in these business plans is a willingness to actually put skin in the game,” he said. “That's indicative that capital is often backing them.”

Another noteworthy aspect is the MGAs are bringing on board experienced and well-known underwriting individuals or teams.

“That's a good sign that – while these are new businesses, there's good underwriting experience being brought into the mix, supported in pretty much all cases by technology,” Grigg said.

He added: “I think it's going to be very interesting to see over the course of the next year or so how this next generation of underwriting platforms really comes to influence and impact the market as a whole.”

A prudent and judicious mindset

The new cyber MGAs are looking to launch into a US cyber market in which premium growth has stalled as pricing has softened.

Grigg noted that, while premium stayed relatively flat last year, the exposed limit increased “quite significantly”.

MGAs and MGUs were a factor in this shift in pricing momentum.

“I do think that cyber underwriters probably took their foot off the gas a little bit too soon,” Grigg said.

“And I remember from my own experiences of running a cyber portfolio, certainly one of the factors that impacted the relatively rapid softening of the cyber market was concern about competition from MGA/MGUs, which, to some extent, didn't have the same legacy claims issues and also had generally a more efficient underwriting platform.”

Grigg said that the newer players entering the market will not necessarily serve to dampen pricing further, however.

“The MGAs we are connected with are definitely prudent and judicious around market dynamics and the pricing that is necessary to maintain a profitable book of business,” he said. “These are smart, forward-looking businesses, and we are helping them to navigate volatility, build resilience, and generally make better decisions as they seek to grow.”