Its time to sell that small MGA

The end is nigh, at least for smaller managing general agencies, as consolidation within the insurance distribution industry appears set to ramp up. Owners might be well advised to sell now while they can, according to the president of one advisory firm.

“Smaller MGAs and Associate General Agency (AGAs) are becoming endangered species,” says John Hamilton, president, Financial Horizons Group in Kitchener. “You have really got to take a look at where the future is going.”

Speaking about the future of independent channel at 2010 Distributors’ Summit at Niagara-on-the-Lake, Hamilton predicted it is going to be very difficult for smaller MGAs to survive in the market.

“If you’re a smaller MGA or an AGA it’s going to put you in some situations you may not want to be in. The time to do something about it is now,” he said. “We always tell brokers to sell their business when it is rising and has some value, not when it’s sliding down.

“There’s a number of MGAs that would be interested in your book. You can join them as partner. I encourage you to look at it and not wait until you don’t have any choice. Now you have some choices.”

Hamilton’s presentation underlined some of the things successful distributors were doing right. “Successful MGAs are becoming regional and national offices,” he said adding that many other MGAs were using very advanced technology. “They are using management systems brokers can log into sitting at a beach in Hawaii or wherever they are.”

Besides ease of access, larger MGAs have been able to leverage their economies of scale to provide other value-added services, such as advanced business training and assistance with larger cases.

Small MGAs, he says, have not these investments and now it’s too late to do anything about it.

More successful firms will continue to evolve to meet and exceed expectations, maintaining their major-player status in the eyes of both carriers and advisors, he said.

The formula for success includes getting involved in succession planning for senior brokers seeking their own retirement strategy.

“A lot of the larger MGAs have started to develop new recruiting programs,” Hamilton explains, bringing new brokers on-stream.

He said three or four years ago he wouldn’t have dreamt of getting involved in bringing new people into the business but now it had become his pet project.

Speaking about the future of regulation he said the industry could actually benefit from increased scrutiny.

“The regulators are going to validate our business,” he said, pointing out that regulation would lend credibility to the distribution industry. “If the goal of an MGA is to go public, you got to have some recognition that you actually exist.”

Hamilton was particularly critical of the lack of implementation of the available technology in the application process.

“It is just ridiculous that we in the life insurance business are still doing paper applications,” he said, pointing out there has been little change since he started in the industry in 1978. “It’s time to change. Life companies need to get behind it.”

The argument that the application provides some kind of competitive advantage is weak, as is the notion that an E-app would leak proprietary information.

“We are talking about the drop down box. You tick off Sun Life and you get the Sun Life app. That is protected,” he said.

(04/29/10)